As filed with the Securities and Exchange Commission on July 14, 2022
Registration No. 333-262198
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1/A-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Kronos Advanced Technologies, Inc.
(Exact name of registrant as specified in its charter)
| Nevada | 3564 | 87-0440410 | ||
State or Incorporation or Organization) | (Primary Standard Industrial Classification Number) | (IRS Employer Identification |
2501 Garfield Avenue
Parkersburg, WV 61018
(800) 723-3247
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Incorp Services, Inc.
3773 Howard Hughes Parkway, Suite 500S,
Las Vegas, NV 89169
Phone: (800) 246-2677
(Address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Tad Mailander, Esq.
Mailander Law Office, Inc.
4811 49th Street
San Diego, CA 92115
Tel (619) 239-9034
Approximate date of proposed sale to the public: As soon as practicable and from time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box, and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check One):
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
| (Do not check if a | |||
| Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☒
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE
DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER
BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
SUBJECT TO COMPLETION, DATED _____, 2002
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESENECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES MAY NOT BE SOLDACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT FILED WITHSHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFERACTING PURSUANT TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALES IS NOT PERMITTED.
PROSPECTUS
TSET,SAID SECTION 8(A), MAY DETERMINE.
The information in this preliminary Prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the U.S. Securities and Exchange Commission (“SEC”) is effective. This preliminary Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
| PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION, DATED JULY 14, 2022 |
KRONOS ADVANCED TECHNOLOGIES, INC.
6,400,000 SHARES OF COMMON STOCK
Selling
80,526,056 Shares of Common Stock
This Prospectus relates to the offer and resale, from time to time, by the selling stockholders are offering for saleidentified herein of up to 6,400,000a total of 80,526,056 shares our Common Stock par value $0.001 per share (the “Shares”) to be issued to Dutchess Capital Growth Fund, LP (“Dutchess”), a selling stockholder pursuant to a “Drawdown Notice” under an executed and binding Common Stock Purchase Agreement (the “Common Stock Purchase Agreement”), dated September 21, 2021. Pursuant to a binding agreement, for a period of our common stock. Five36 months after this registration is deemed effective, we may issue Drawdown Notices to Dutchess for an aggregate of ten million (5,000,000)dollars ($10,000,000) in shares of our common stock are being
offered hereby by Fusion Capital Fund II, LLC. One million four hundred thousand
(1,400,000)until the date on which Dutchess shall have sold all the Shares covered thereby, and no available amount remains under the Common Stock Purchase Agreement, or until $10,000,000 of such shares have been subject to Drawdown Notices.
Disregarding the Beneficial Ownership Limitation, Dutchess may offer, consistent with the terms of the Common Stock Purchase Agreement from time to time, a grand total of approximately 840,336,134 shares of common stock, calculated for example at an assumed purchase price based upon 92% of the closing price of $0.013 for our common stock on July 8, 2022. The value of the shares of common stock registered in this registration statement is $958,260. The 80,526,056 shares registered in this registration statement, include only part of the total number of common shares we will need to register in a post-effective amendment, in order to sell the entire commitment amount to Dutchess under the terms of the Common Stock Purchase Agreement.
The number of shares subject to any Drawdown Notice shall not exceed the lesser of; (i) $250,000 or (ii) 200% of the Average Daily Traded Value of the Stock during the five (5) days immediately preceding the Drawdown Notice date or (iii) the Beneficial Ownership Limitation of 4.99% of the number of shares of the Common Stock outstanding immediately prior to the issuance of shares of Common Stock issuable pursuant to a Drawdown Notice. Our issuance of a drawdown notice shall not include an amount of shares that would result in Dutchess exceeding the Beneficial Ownership Limitation at any time. The sale price of the Shares sold to Dutchess pursuant to any Drawdown Notice is ninety-two percent (92%) of the lowest traded price of the Common Stock the five (5) Business Day prior to the Closing Date of each Drawdown Notice. If we issue a Drawdown Notice to Dutchess, Dutchess’ purchase and subsequent sales could result in dilution and a corresponding lessening of the value of our common stock are being offered by The Eagle Rock
Group, LLC.
The prices at which such stockholders may sell the shares will be
determined by the prevailing market price for the shares or in negotiated
transactions. We will not receive proceeds from the sale of our shares by any of
the selling stockholders.
Our common stock is quoted on the Nasdaq Over-The-Counter Bulletin
Board under the symbol "KNOS." On June 7, 2002, the average of the bid and asked
sale prices for the common stock as reported was $0.23 per share.
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INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF THESE RISKS.
Fusion Capital, a selling stockholder,(See Risk Factors & Dilution).
Dutchess is an "underwriter"underwriter within the meaning of the Securities Act of 1933, as amended.
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and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933 in connection with such sales. In such event, any commissions received by such broker-dealers or agents, and any profit on the resale of the shares purchased by them, may be deemed to be underwriting commissions or discounts under the Securities Act of 1933.
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The OTC Markets Group Pink tier quotes our common stock under the symbol “KNOS.” On July 8, 2022, the closing price of our common stock was $0.013 per share.
We will not receive any proceeds from the sale of shares of our common stock made by Dutchess. However, we will receive proceeds from the initial sale of shares of our common stock pursuant to our exercise of the Drawdown Notice right offered by Dutchess. We will pay for expenses of this offering, except that Dutchess will pay any broker discounts or commissions or equivalent expenses and expenses of its legal counsel applicable to the sale of its shares.
INVESTING IN OUR SECURITIES INVOLVES RISKS. YOU SHOULD REVIEW CAREFULLY THE RISKS AND UNCERTAINTIES DESCRIBED UNDER THE HEADING “RISK FACTORS” CONTAINED ON PAGE 16 HEREIN. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY BEFORE YOU MAKE YOUR INVESTMENT DECISION.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IFPASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS __________, 2002
This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
The date of this Prospectus is July 14, 2022
TABLE OF CONTENTS
PAGE
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Please read this Prospectus carefully. It describes our business, our financial condition, and the results of operations. We have prepared this Prospectus to have the information necessary to make an informed investment decision.
ABOUT THIS PROSPECTUS SUMMARY.............................................................3
FORWARD-LOOKING STATEMENTS.....................................................4
RISK FACTORS...................................................................5
MARKET FOR OUR COMMON STOCK....................................................8
SELECTED CONSOLIDATED FINANCIAL INFORMATION....................................9
USE OF PROCEEDS...............................................................10
DIVIDEND POLICY...............................................................10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....................................................11
BUSINESS......................................................................16
MANAGEMENT....................................................................22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................30
THE FUSION CAPITAL TRANSACTION................................................32
PRINCIPAL SHAREHOLDERS........................................................35
SELLING STOCKHOLDERS..........................................................36
PLAN OF DISTRIBUTION..........................................................37
SHARES ELIGIBLE FOR RESALE....................................................39
DESCRIPTION OF CAPITAL STOCK..................................................40
EXPERTS.......................................................................43
LEGAL MATTERS.................................................................43
AVAILABLE INFORMATION.........................................................44
FINANCIAL STATEMENTS.........................................................F-1
PROSPECTUS SUMMARY
BUSINESS
You should rely only on the information we have provided in this Prospectus or any applicable Prospectus supplement. We have not authorized anyone to provide you with information different from that contained in this Prospectus, any applicable Prospectus supplement. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this Prospectus, or any applicable Prospectus supplement. You must not rely on any unauthorized information or representation. This Prospectus is an offer to sell only the Shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. You should assume that the information in this Prospectus, and any applicable Prospectus supplement, is accurate only as of the date on the front of the document, regardless of the time of delivery of this Prospectus or any sale of a security.
Dutchess is offering the Shares only in jurisdictions where such issuances are permitted. The distribution of this Prospectus and the issuance of the Shares in certain jurisdictions may be restricted by law. Persons outside the United States who come into possession of this Prospectus must inform themselves about, and observe any restrictions relating to, the issuance of the Shares and the distribution of this Prospectus outside the United States. This Prospectus does not constitute, and may not be used in connection with, an offer to sell, or a Nevada corporation. Our principal executive offices are
located at 464 Common Street, Suite 301, Belmont, Massachusetts 02478. The
addresssolicitation of our websitean offer to buy, the Shares offered by this Prospectus by any person in any jurisdiction in which it is WWW.KRONOSATI.COM. Information on our websiteunlawful for such person to make such an offer or solicitation.
This Prospectus is not part of this prospectus.
Through our wholly-owned subsidiary, Kronos Air Technologies,a registration statement on Form S-1 that we are
focused onfiled with the development and commercialization of an air movement and
purification technology known as Kronos(TM). The technology combines
state-of-the-art high voltage electronics and electrodes into an efficient but
simple electrical device. As a result of this combined technology, a Kronos(TM)
based device can move and clean air without any moving parts. The device is
versatile, energy and cost efficient, and exhibits multiple design attributes,
which may create a broad range of commercial applications.
THE OFFERING
On June 19, 2001 we entered into a common stock purchase agreement with
Fusion Capital Fund II, LLC, pursuant to which Fusion Capital has agreed to
purchase, on each trading day, $12,500 of our common stock up to an aggregate,
under certain conditions, of $10 million. Fusion Capital, a selling stockholder
under this prospectus, is offering for sale up to 5,000,000 shares of common
stock. On November 19, 2001, theU.S. Securities and Exchange Commission declared our
Registration Statement on Form S-1 effective pursuant(the “Commission”), under which Dutchess may offer, consistent with the terms of the Common Stock Purchase Agreement from time to which we registered
6,852,500 sharestime, a grand total of our common stock. Five million six hundred forty thousand
(5,640,000) shares of our common stock were registered on behalf of Fusion
Capital pursuant to the common stock purchase agreement and 1,212,500 shares of
our common stock were registered on behalf of other selling shareholders. As of
June 7, 2002, we had 43,937,907 shares of our common stock outstanding, which
includes 4,060,000approximately 840,336,134 shares of common stock issued to Fusion Capital registered in our previous Registration Statement, but excludingone or more offerings, calculated for example at an assumed purchase price based upon 92% of the 5,000,000 shares offered
by Fusion Capital pursuant to this prospectus. In addition to the sharesclosing price of $0.013 for our common stock that we are registering on behalf of Fusion Capital pursuant toJuly 8, 2022. The 80,526,056 shares registered in this prospectus, we are registering 1,400,000 shares of our common stock
underlying warrants held by The Eagle Rock Group, LLC. The number of shares
offered by this prospectus represents 14.6%registration statement, include only part of the total common stock
outstanding as of June 7, 2002. The number of common shares ultimately offeredwe will need to register in a post-effective amendment, in order to sell the entire commitment amount to Dutchess under the terms of the Common Stock Purchase Agreement. If required, each time Dutchess offers Shares, we will provide you with, in addition to this Prospectus, a Prospectus Supplement that will contain specific information about the terms of that offering. We may also use a Prospectus Supplement to add, update or change any of the information contained in this Prospectus. This Prospectus, together with any applicable Prospectus supplements, includes all material information relating to this offering. To the extent that any statement that we make in a Prospectus Supplement is inconsistent with statements made in this Prospectus, the statements made in this Prospectus will be deemed modified or superseded by those made in a Prospectus Supplement. Please carefully read both this Prospectus and any Prospectus Supplement together with the additional information described below.
This Prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for salecomplete information. All of the summaries are qualified in their entirety by Fusion Capitalthe actual documents. Copies of the documents referred to herein have been filed as exhibits to the registration statement of which this Prospectus is dependent upona part, and you may obtain copies of those documents as described below under the number of shares purchased by Fusion
Capital.
3
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements withinsection entitled “Where You Can Find More Information.”
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the meaning
of Section 27A ofCommission a registration statement on Form S-1 under the Securities Act of 1933, as amended (the “Securities Act”), with respect to the Shares being offered by Dutchess under this Prospectus. For further information with respect to us and Section 21Ethe Shares offered by Dutchess, we refer you to the registration statement and its exhibits. Statements contained in this Prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.
We are not currently subject to the disclosure requirements of the Securities Exchange Act of 1934, as amended. Such forward-lookingamended (the “Exchange Act”). However, after this registration becomes effective, and, in accordance with the Exchange Act, we will file Form 8a-12g registering our common stock and thereafter file annual, quarterly, and special reports, proxy statements and other information with the Commission. The Commission maintains an internet website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Commission. The periodic reports, proxy statements and other information we expect to file with the Commission will be available for inspection on the Commission’s website free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the Commission. We maintain a website at https://kronosati.co where you will also be able to access these materials free of charge after our annual, quarterly, and special reports, proxy statements or other information is filed with the Commission. Our website address will include statements regarding, among other things, (a)an inactive textual reference only and the information contained in, and that can be accessed through, our projected saleswebsite is not incorporated into and profitability, (b) our growth strategies, (c) anticipated trends in our
industry, (d) our future financing plans, (e) our anticipated needs for working
capital, and (f)is not part of this Prospectus.
Unless otherwise noted or the benefits relatedcontext indicates otherwise “we,” “us,” “our,” “Company” or “KNOS” refers to our ownership of Kronos AirAdvanced Technologies, Inc. Forward-looking statements, which involve assumptions and
describe our future plans, strategies, and expectations, are generally
identifiable by use
References to “Management” in this Prospectus mean the senior officers of the Company. See “Directors and Executive Officers.” Any statements in this Prospectus made by or on behalf of Management are made in such persons’ capacities as officers of the Company and not in their personal capacities.
Prospective purchasers should rely only on the information contained in this Prospectus. We have not authorized any other person to provide prospective purchasers with additional or different information. If anyone provides prospective purchasers with additional or different or inconsistent information, including information or statements in media articles about us, prospective purchasers should not rely on it. Prospective purchasers should assume that the information appearing in this Prospectus is accurate only as at its date, regardless of its time of delivery or of any distribution of the Offered Shares. Our business, financial conditions, results of operations and prospects may have changed since that date.
We present our Financial Statements (as defined below) in United States dollars. Unless otherwise indicated, all references to dollar amounts in this Prospectus are to United States dollars. Reference to “United States” or “U.S.” are references to the United States of America.
CAUTIONARY NOTE AND FORWARD-LOOKING STATEMENTS TO INVESTORS
In March 2020, the World Health Organization declared a novel coronavirus (COVID-19) outbreak as a pandemic worldwide. Many countries, including China and the United States, have implemented significant governmental measures to control the spread of the virus, including temporary closure of businesses, severe restrictions on travel and the movement of people, and other material limitations on business. These measures have resulted in worldwide work stoppages, absenteeism in the labor workforce, and other disruptions. China started as the center of the COVID-19 epidemic, which is where some of our product parts and supplies are sourced. The pandemic resulted in an increase in the lead time for the manufacturing and delivery of product parts and supplies. The extent to which the coronavirus and its variants impacts our continuing operations will depend on future developments. These developments are highly uncertain. We cannot predict them with confidence, including the duration and severity of the outbreak, the spread and effects of coronavirus variants, and the actions required to contain the coronavirus, its variants, or treat its impact. In particular, the continued spread of the coronavirus and its variants globally could adversely impact our operations, including our marketing and sales activities and ability to raise additional capital, which could harm our business, financial condition, and operation results.
This Prospectus may contain certain “forward-looking” statements as such term is defined by the Securities Exchange Commission in its rules, regulations, and releases, which represent our expectations or beliefs, including but not limited to, statements concerning our operations, economic performance, financial condition, growth and acquisition strategies, investments, and future operational plans. For this purpose, any statements contained herein that are not historical fact statements may be deemed forward-looking statements. Without limiting the generality of the foregoing, words "may," "will," "should," "expect,"
"anticipate," "estimate," "believe," "intend,"such as “may,” “will,” “expect,” “believe,” “anticipate,” “intent,” “could,” “estimate,” “might,” “plan,” “predict” or "project"“continue” or the negative of
these words or other variations on these wordsthereof or comparable terminology. This
informationterminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond our control, and actual results may involve knowndiffer materially depending on a variety of important factors, including uncertainty related to acquisitions, governmental regulation, managing and unknownmaintaining growth, the operations of the Company, volatility of stock price, federal enforcement, and state enforcement, and any other factors discussed in this Prospectus.
The risks and uncertainties and other factors that may causeinclude but are not limited to those set forth under “Risk Factors” of this Prospectus. Given these risks and uncertainties, readers are cautioned not to place undue reliance on our actual results, performance,forward-looking statements. All subsequent written and oral forward-looking statements attributable to persons acting on our behalf or achievements to be
materially different from the future results, performance,us are expressly qualified in their entirety by these cautionary statements. Except as otherwise required by applicable law, we undertake no obligation to publicly update or achievements
expressed or implied byrevise any forward-looking statements. These statements may be
found under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well asor the risk factors described in this prospectus generally.
Prospectus or in the documents we incorporate by reference, whether as a result of new information, future events, changed circumstances or any other reason after the date of this Prospectus.
Actual events or results may differ materially from those discussed in forward-looking statements as a result ofdue to various factors, including, without limitation, the risks outlined under "Risk Factors"“Risk Factors” and matters described in this prospectusProspectus generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filingProspectus will in fact occur. We caution you not to place undue reliance on these forward-looking statements. In addition to the information expressly required to be included in this filing,Prospectus, we will provide such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made not misleading.
4
RISK FACTORS
Except as required by federal securities laws, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
See section entitled “Risk Factors.”
| 5 |
The following summary highlights material information contained in this Prospectus. This summary does not include all of the information you should consider before investing in securities. Before making an investment decision, you should read the entire Prospectus carefully, including the risk factors section, the financial statements, and the notes to the financial statements. You should carefully consideralso review the risks described below before
purchasing our common stock. Our most significant risksother available information referred to in the section entitled “Where You Can Find More Information” in this Prospectus and uncertainties are
described below; however, they are notany amendment or supplement hereto.
The Prospectus Offering
This Prospectus relates to the only risks we face. If anyresale of the
following risks actually occur, our business, financial condition, or results or
operations could be materially adversely affected, the trading of our common
stock could decline, and you may lose all or part of your investment therein.
You should acquireup to 80,526,056 shares of our common stock only if you can affordCommon Stock issuable to lose
your entire investment.
WE HAVE A LIMITED OPERATING HISTORY WITH SIGNIFICANT LOSSES AND EXPECT LOSSES TO
CONTINUE FOR THE FORESEEABLE FUTURE
We have only recently begun implementing our planDutchess pursuant to prioritizea “Drawdown Notice Right” under an executed and concentrate our management and financial resourcesbinding Common Stock Purchase Agreement.
Pursuant to fully capitalize on our
investment in Kronos Air Technologies and have yet to establish any history of
profitable operations. For the nine months ended March 31, 2002, we incurred an
operating loss of $2,870,508. We have incurred annual operating losses of
$9,866,083, $1,965,183 and $51,674 respectively, duringbinding Common Stock Purchase Agreement, after the past three fiscal
years of operation. As a result, at March 31, 2002, we had an accumulated
deficit of $14,912,271. We have incurred net losses from continuing operations
of $3,572,558 and $1,385,595 for the fiscal years ending June 30, 2001 and 2000.
Our revenues and cash flows from operations have not been sufficient to sustain
our operations. We expect that our revenues and cash flows from operations will
not be sufficient to sustain our operations for the foreseeable future. Our
profitability will require the successful commercialization of our Kronos(TM)
technologies. No assurances can be given when this will occur or that we will
ever be profitable.
Our independent auditors have added an explanatory paragraph to their
audit opinion issued in connection with the financial statements for the years
ended June 30, 2001 and June 30, 2000 relative to our ability to continue as a
going concern. Our ability to obtain additional funding will determine our
ability to continue as a going concern. Our financial statements do not include
any adjustments that might result from the outcomeeffectiveness of this uncertainty.
WE WILL REQUIRE ADDITIONAL FINANCING TO SUSTAIN OUR OPERATIONS AND WITHOUT IT WE
WILL NOT BE ABLE TO CONTINUE OPERATIONS
At March 31, 2002, we had a working capital deficit of $2,308,809. The
independent auditor's report for the years ended June 30, 2001 and June 30,
2000, includes an explanatory paragraph to their audit opinion stating that our
recurring losses from operations and working capital deficiency raise
substantial doubt about our ability to continue as a going concern. We had an
operating cash flow deficit of $10,524 in 1999, an operating cash flow deficit
of $288,262 in 2000 and an operating cash flow deficit of $1,613,573 in 2001.
For the nine months ended March 31, 2002, we had an operating cash flow deficit
of $1,189,286. We do not currently have sufficient financial resources to fund
our operations or pay certain existing obligations or those of our subsidiaries.
Therefore, we need additional funds to continue these operations and pay certain
existing obligations.
Subject to certain conditions, we only have the right to receive
$12,500 per trading day under the common stock purchase agreement unless our
stock price equals or exceeds $3.00, in which case the daily amount may be
increased at our option. Since we initially registered, in a Form S-1 declared
effective by the Securities and Exchange Commission on November 19, 2001,
5,000,000 shares for sale by Fusion Capital pursuant to the common stock
purchase agreement and we are registering, in the accompanying Registration Statement, an additional 5,000,000 shares for sale by Fusion Capital pursuant to
the common stock purchase agreement, the selling price of our common stock to
Fusion Capital will have to average at least $1.85 per share for us to receive
the maximum remaining proceeds of $9.25 million without registering additional
shares of common stock or filing a post-effective amendment with respect to the
number of shares registered. As of June 7, 2002, we have received $0.75 million
in gross proceeds from Fusion Capital and we have issued 4,060,000 shares of our
common stock to Fusion Capital pursuant to the common stock purchase agreement.
Assuming a purchase price of $0.23 per share (the closing sale price of the
common stock on June 7, 2002) and the purchase by Fusion Capital of the full
5,000,000 shares offered under this prospectus, and the remaining 940,000 shares
of common stock previously registered, proceeds to us would only be $1,366,200
unless we choose to register more than the aggregate 10,000,000 shares which
have and are being registered, which we have the right,option, but not the obligation, to do.issue Dutchess a Drawdown Notice to purchase our registered shares. The extent to which we rely on Fusion Capital as a source of funding will
depend on a number of factors including,shares subject to any Drawdown Notice shall not exceed the prevailing marketlesser of; (i) $250,000 or (ii) 200% of the Average Daily Traded Value of the Stock during the five (5) days immediately preceding the Drawdown Notice date or (iii) the Beneficial Ownership Limitation of 4.99% of the number of shares of the Common Stock outstanding immediately prior to the issuance of shares of Common Stock issuable pursuant to a Drawdown Notice. Our issuance of a drawdown notice shall not include an amount of shares that would result in Dutchess exceeding the Beneficial Ownership Limitation at any time. The sale price of the Shares sold to Dutchess pursuant to any Drawdown Notice is ninety-two percent (92%) of the lowest traded price of the Common Stock the five (5) Business Day prior to the Closing Date of each Drawdown Notice. If we issue a Drawdown Notice to Dutchess, Dutchess’ purchase and subsequent sales could result in dilution and a corresponding lessening of the value of our common stock (See Risk Factors & Dilution).
| Common Stock Offered by the Selling Security Holders | Eighty million, five hundred twenty-six thousand, fifty-six (80,526,056) shares of common stock subject to our election to issue a Drawdown Notice to Dutchess.(1) | |
| Common Stock Outstanding Before the Offering | 659,323,911 shares of common stock as of July 8, 2022. | |
| Common Stock Outstanding After the Offering | 1,499,660,045 shares of common stock. (1) | |
| Terms of the Offering | Dutchess will determine when and how to sell the common stock offered in this Prospectus. | |
| Termination of the Offering | Thirty-six (36) months immediately following the initial date of effectiveness of the S-1 Registration Statement Agreement. | |
| Use of Proceeds | We will not receive any proceeds from Dutchess’ secondary sales of registered common stock in this offering. However, we will receive proceeds from our decision to issue Dutchess a Drawdown Notice to purchase our registered common stock in this registration statement, and Dutchess’ purchase thereof. We will use these proceeds for general corporate and working capital purposes and acquisitions or assets, software development, businesses, or operations, or for other purposes that our board of directors, in its good faith, deems to be in the Company’s best interest. See “Use of Proceeds.” | |
| Risk Factors | The common stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors” beginning on page 16. | |
| OTC Markets Symbol | KNOS |
(1) Disregarding the extent to which we are able to secure working capital from
other sources, such as through the saleBeneficial Ownership Limitation, Dutchess may own, for example, based upon 92% of our Kronos(TM) air movement and
purification systems. If obtaining sufficient financing from Fusion Capital were
to prove prohibitively expensive and if we are unable to commercialize and sell
the products or technologies of our subsidiaries, we will need to secure another
5
source of funding in order to satisfy our working capital needs. Even if we are
able to access the funds available under the common stock purchase agreement, we
may still need additional capital to fully implement our business, operating and
development plans. Should the financing we require to sustain our working
capital needs be unavailable or prohibitively expensive when we require it, the
consequences would be a material adverse effect on our business, operating
results, financial condition and prospects.
WE HAVE VERY LIMITED MANUFACTURING, SALES AND MARKETING CAPABILITIES FOR OUR
Kronos(TM) PRODUCTS AND OUR FAILURE TO DEVELOP ANY OF THESE CAPABILITIES WOULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS
We have only recently begun to manufacture and market prototype
versions of our Kronos Air Technologies products and we have no experience
manufacturing, marketing or distributing commercial quantities of our Kronos Air
Technologies products. Kronos Air Technologies currently does not have any
commercial-scale manufacturing facilities and only limited sales and marketing
personnel. Kronos Air Technologies does not have any relationships with third
parties to contract manufacture, market or distribute the Kronos(TM) products.
If Kronos Air Technologies is unable to acquire adequate manufacturing
capabilities and hire sales and marketing personnel or if it cannot enter into
satisfactory arrangements with third parties to manufacture, market and
distribute the Kronos(TM) products on commercially reasonable terms, the
consequences would be a material adverse effect on our business, operating
results, financial condition and prospects. There can be no assurance that we
will be able to acquire adequate manufacturing capabilities and hire sales and
marketing personnel or be able to enter into satisfactory arrangements with
third parties to manufacture, market and distribute the Kronos(TM) products.
COMPETITION IN THE MARKET FOR AIR MOVEMENT AND PURIFICATION DEVICES MAY RESULT
IN THE FAILURE OF THE KRONOS(TM) PRODUCTS TO ACHIEVE MARKET ACCEPTANCE
Kronos Air Technologies presently faces competition from other
companies that are developing or that currently sell air movement and
purification devices. Many of these competitors have substantially greater
financial, research and development, manufacturing, and sales and marketing
resources than we do. Many of the products sold by Kronos Air Technologies'
competitors already have brand recognition and established positions in the
markets that we have targeted for penetration. There can be no assurance that
the Kronos(TM) products will compete favorably with the products sold by our
competitors.
OUR COMMON STOCK IS DEEMED TO BE "PENNY STOCK," SUBJECT TO SPECIAL REQUIREMENTS
AND CONDITIONS, AND MAY NOT BE A SUITABLE INVESTMENT
Our common stock is deemed to be "penny stock" as that term is defined
in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. Penny
stocks are stocks:
o With a price of less than $5.00 per share;
o That are not traded on a "recognized" national exchange;
o Whose prices are not quoted on the Nasdaq automated quotation system
(Nasdaq listed stock must still have a price of not less than $5.00
per share); or
o In issuers with net tangible assets less than $2.0 million (if the
issuer has been in continuous operation for at least three years) or
$5.0 million (if in continuous operation for less than three years),
or with average revenues of less than $6.0 million for the last
three years.
Broker/dealers dealing in penny stocks are required to provide
potential investors with a document disclosing the risks of penny stocks.
Moreover, broker/dealers are required to determine whether an investment in a
penny stock is a suitable investment for a prospective investor. These
requirements may reduce the potential market for our common stock by reducing
the number of potential investors. This may make it more difficult for investors
in our common stock to resell shares to third parties or to otherwise dispose of
them. This could cause our stock price to decline.
WE RELY ON MANAGEMENT AND KRONOS AIR TECHNOLOGIES RESEARCH PERSONNEL, THE LOSS
OF WHOSE SERVICES COULD HAVE A MATERIAL ADVERSE EFFECT UPON OUR BUSINESS
We rely principally upon the services of our Board of Directors, senior
executive management, and certain key employees, including the Kronos Air
Technologies research team, the loss of whose services could have a material
adverse effect upon our business and prospects. Competition for appropriately
qualified personnel is intense. Our ability to attract and retain highly
qualified senior management and technical research and development personnel are
believed to be an important element of our future success. Our failure to
6
attract and retain such personnel may, among other things, limit the rate at
which we can expand operations and achieve profitability. There can be no
assurance that we will be able to attract and retain senior management and key
employees having competency in those substantive areas deemed important to the
successful implementation of our plans to fully capitalize on our investment in
Kronos Air Technologies and the Kronos(TM) technology, and the inability to do
so or any difficulties encountered by management in establishing effective
working relationships among them may adversely affect our business and
prospects. Currently, we do not carry key person life insurance for any of our
directors, executive management, or key employees.
THE SALE OF OUR COMMON STOCK TO FUSION CAPITAL MAY CAUSE DILUTION AND THE SALE
OF THE SHARES OF COMMON STOCK ACQUIRED BY FUSION CAPITAL COULD CAUSE THE PRICE
OF OUR COMMON STOCK TO DECLINE
The purchase price for the common stock to be issued to Fusion Capital
pursuant to the common stock purchase agreement will fluctuate based on the
price of our common stock. All shares issued to Fusion Capital will be freely
tradable. As of June 7, 2002, we have issued 4,060,000 shares of our common
stock to Fusion Capital pursuant to the common stock purchase agreement. Fusion
Capital may sell none, some or all of the shares of common stock purchased from
us at any time. We expect that the shares sold to Fusion Capital will be sold
over a period of up to 40 months from the date of the common stock purchase
agreement. Depending upon market liquidity at the time, a sale of shares by
Fusion Capital at any given time could cause the trading price of our common
stock to decline. The sale of a substantial number of shares of our common stock
by Fusion Capital, or anticipation of such sales, could make it more difficult
for us to sell equity or equity-related securities in the future at a time and
at a price that we might otherwise wish to effect sales.
OUR FAILURE TO TIMELY FILE FEDERAL AND STATE INCOME TAX RETURNS FOR CALENDAR
YEARS 1997 THROUGH 2001 MAY RESULT IN THE IMPOSITION OF INTEREST AND PENALTIES
We failed to timely file federal and state income tax returns for
calendar years 1997 through 2001, respectively; however, we are now current in
all of our income tax filings. We had operating losses for each year during the
period 1997 through 2001, and there were no income taxes due and owing for those
years. These returns could be subject to review and potential examination by the
respective taxing authorities. Should any of these returns come under
examination by federal or state authorities, our positions on certain income tax
issues could be challenged. The impact, if any, of the potential future
examination cannot be determined at this time. If our positions are successfully
challenged, the results may have a material impact on our financial position and
results of operations.
7
MARKET FOR OUR COMMON STOCK
Our common stock trades on the Over-the-Counter Bulletin Board under
the trading symbol "KNOS." Our high and low bid prices by quarter during fiscal
2002, 2001, 2000, and 1999 are presented as follows:
FISCAL YEAR 2002
HIGH LOW
First Quarter (July 2001 to September 2001) $0.700 $0.300
Second Quarter (October 2001 to December 2001) $0.530 $0.210
Third Quarter (January 2002 to March 2002) $0.280 $0.185
Fourth Quarter (April 2002 to June 7, 2002) $0.330 $0.140
FISCAL YEAR 2001
HIGH LOW
First Quarter (July 2000 to September 2000) $3.310 $1.150
Second Quarter (October 2000 to December 2000) $2.040 $1.150
Third Quarter (January 2001 to March 2001) $1.650 $1.060
Fourth Quarter (April 2001 to June 2001) $1.210 $0.580
FISCAL YEAR 2000
HIGH LOW
First Quarter (July 1999 to September 1999) $0.875 $0.437
Second Quarter (October 1999 to December 1999) $2.625 $0.750
Third Quarter (January 2000 to March 2000) $6.750 $1.187
Fourth Quarter (April 2000 to June 2000) $3.370 $2.063
FISCAL YEAR 1999
HIGH LOW
First Quarter (July 1998 to September 1998) N/A N/A
Second Quarter (October 1998 to December 1998) $1.562 $0.625
Third Quarter (January 1999 to March 1999) $1.000 $0.250
Fourth Quarter (April 1999 to June 1999) $1.000 $0.437
On June 7, 2002, the closing price of our common stock as reported on the Over-the-Counter Bulletin Board was $0.23 per share. On June 7, 2002, we hadJuly 8, 2022 ($0.0119), a total of approximately 1,000 beneficial stockholders of our common stock and 43,937,907
shares of our common stock were issued and outstanding.
8
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following summary statement of operations and summary balance sheet
data is derived from our consolidated financial statements and should be read in
conjunction with the unaudited consolidated financial statements as of March 31,
2002 and the Notes thereto, and the audited consolidated financial statements as
of June 30, 2001, 2000, and 1999 and 1998 and the Notes thereto. We were
basically inactive in 1997 and prior, therefore, the selected consolidated
financial information is not included for the years prior to June 30, 1998.
FOR THE NINE
MONTHS ENDED FOR THE YEAR ENDED JUNE 30,
MARCH 31, ------------------------------------------------------
STATEMENT OF OPERATIONS DATA: 2002 2001 2000 1999 1998
------------ ------------------------------------------------------
Sales $ 65,070 $ 95,000 $ -- $ -- $ --
Cost of sales 50,070 62,500 -- -- --
Gross profit 15,000 32,500 -- -- --
Total operating expenses 2,885,508 3,391,139 1,388,492 51,946 17,978
Other income (expense) 1,547 (207,793) 2,897 272 --
Interest expense (69,513) (6,126) -- -- --
Net loss from continuing operations (2,938,484) (3,572,558) (1,385,595) (51,674) (17,832)
Loss from discontinued operations -- (3,846,963) (579,588) -- --
Loss from sale of discontinued operations -- (2,446,562) -- -- --
Net loss (2,938,484) (9,866,083) (1,965,183) (51,674) (17,832)
Net loss per share-basic and diluted:
From continuing operations (0.08) (0.11) (0.05) -- (0.00)
From discontinued operations -- (0.20) (0.02) -- --
JUNE 30,
MARCH 31, ----------------------------------------------------------
BALANCE SHEET DATA: 2002 2001 2000 1999 1998
----------------------------------------------------------
Cash $ 9,721 $ 32,619 $ 102,949 $ 536 $ 3,763
Accounts Receivable, net -- -- 4,648 -- --
Prepaids and other current assets 178,829 37,679 23,253 -- --
Total Current Assets 188,550 70,298 130,850 536 3,763
Net Property & Equipment 33,209 44,707 23,019 -- --
Intangibles and other 2,280,047 2,431,524 2,970,731 2,500 3,500
Net Liabilities of Discontinued Operations -- -- 4,502,888 -- --
Deferred Financing Fees 556,152 520,800 -- -- --
Total Assets 3,057,958 3,067,329 7,627,488 3,036 7,263
Total Current Liabilities 2,497,359 1,921,213 388,796 79,841 42,396
Total Liabilities 3,494,909 2,588,763 388,796 79,841 42,396
Minority interest -- -- -- -- --
Stockholders' Equity (Deficit) (1,122,951) 478,566 7,238,692 (76,805) (35,133)
9
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be
offered and sold from time to time by selling stockholders. We will receive no
proceeds from the sale of840,336,134 shares of common stockstock. The 80,526,056 shares registered in this offering. However,registration statement, include only part of the total number of common shares we may receive upwill need to an available $9.25 millionregister in proceeds froma post-effective amendment, in order to sell the saleentire commitment amount to Dutchess under the terms of ourthe Common Stock Purchase Agreement. Total common stock to Fusion Capital undercalculated after the $10 million common stock purchase
agreement. Asoffering includes the current number of June 7, 2002, we have received $0.75 million from the sale of
our common stock to Fusion Capital under the common stock purchase agreement.
Any proceeds from Fusion Capital we receive under the common stock purchase
agreement will be used for working capitalissued and general corporate purposes.
For illustrative purposes, we have set forth below our intended use of
proceeds for the range of net proceeds indicated below to be received from the
sale of our common stock to Fusion Capital under the common stock purchase
agreement. The table assumes estimated offering expenses of $91,000 have been
deducted from the gross proceeds.
GROSS PROCEEDS $1,800,000 $10,000,000
NET PROCEEDS $1,709,000 $9,909,000
USE OF PROCEEDS
New application and product development and production $ 830,000 $3,750,000
Research and development 250,000 1,500,000
Sales and marketing 200,000 1,500,000
Purchase of inventory 100,000 500,000
Purchase of equipment 75,000 300,000
General working capital 254,000 2,359,000
TOTAL $1,709,000 $9,909,000
DIVIDEND POLICY
We have not declared or paid dividends on our common stock during
fiscal years 1999, 2000, 2001 or 2002. Our dividend practices are determined by
our Board of Directors and may be changed from time to time. We will base any
issuance of dividends upon our earnings (if any)outstanding shares (659,323,911), financial condition, capital
requirements, acquisition strategies, and other factors considered important by
our Board of Directors. Nevada law and our articles of incorporation do not
require our Board of Directors to declare dividends on our common stock. We
expect to retain any earnings generated by our operations for the development
and expansion of our business and do not anticipate paying any dividends to our
stockholders for the foreseeable future.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with our
consolidated financial statements and the notes thereto appearing elsewheretotal number of shares issuable based on the terms of the Common Stock Purchase Agreement in this prospectus.
Certain statements within this section and throughout this prospectus
andregistration statement estimated after the documents incorporated herein are "forward-looking statements" as
described inOffering closes.
About the "safe harbor" provision of the Private Securities Litigation
Reform Act of 1995. These statements involve a number of risks and uncertainties
and actual results could differ materially from those projected.
GENERAL
Historically, we had been seeking select business opportunities
globally among a wide range of prospects. Over the past three years, we made
several investments, including Kronos Air Technologies and EdgeAudio. After
further evaluation of these investments, we believe our investment in and the
full development of Kronos Air Technologies and the Kronos(TM) technology
represents the single best opportunity for us. As a result, we have prioritized
our management and financial resources to fully capitalize on this investment
opportunity. Effective October 10, 2001, Jeffrey D. Wilson resigned as Chairman
of the Board and Chief Executive Officer of TSET, as well as Chairman of the
Board of Kronos Air Technologies and EdgeAudio, respectively. Mr. Wilson remains
as a director of TSET. Effective November 15, 2001, Daniel R. Dwight was
appointed President and Chief Executive Officer of TSET. Effective January 1,
2002, Richard F. Tusing was appointed Chief Operating Officer of TSET. A more
detailed explanation of Kronos Air Technologies and the current status of
EdgeAudio and the other investments made by us are discussed below.
We have reorganized our company to prioritize and focus management and
financial resources on Kronos Air Technologies and the Kronos(TM) technology.
This reorganization has resulted in the decision to sell or to no longer pursue
other investment opportunities previously identified. We sold our investment in
Atomic Soccer in April 2001; decided not to pursue investments in Cancer
Detection International, Electric Management Units, and Cancer Treatment Centers
in July 2001; established a formal plan to dispose of EdgeAudio in September
2001 and subsequently sold our investment in the company in June 2002; and
terminated by mutual consent of both parties a contract to distribute
Computerized Thermal Imaging equipment in August 2000.
Based on our decision to focus our resources on Kronos Air
Technologies, several actions were taken, most of which impacted the results of
operations. On April 11, 2001, we sold Atomic Soccer. The sale resulted in a
loss of $2,297,000. During our fourth quarter of 2001, we determined that the
assets of Aperion Audio (formerly known as EdgeAudio) were impaired and we
recognized an impairment loss of $2,294,000. On June 7, 2002, we sold our shares
of Aperion Audio to Aperion Audio's management group, which consists of 2
individuals. Pursuant to the sale, these 2 individuals will receive 500,000
share of our common stock in exchange for any rights these individuals may have
to earn-out provisions pursuant to their original agreement with TSET. In
addition, TSET will provide $214,000 in working capital to Aperion Audio in
monthly installments of $15,000 pursuant to the original agreement in TSET. We
will recognize a gain of approximately $600,000 on the sale. Based upon our
decision to discontinue the development of Cancer Detection International, we
have recognized an impairment loss of the remaining goodwill of $273,000
associated with that investment.
On January 18, 2002, we began trading shares of our common stock under
a new ticker symbol (KNOS). At the same time, we announced that our Company will
be doing business under the name of Kronos Advanced Technologies. We anticipate
asking our shareholders to vote for the approval of an amendment to our Articles
of Incorporation for a name change of our Company to
Kronos Advanced Technologies, Inc. at our annual meeting in 2002.
Kronos Air Technologies is focused on(“Kronos” or the development and
commercialization of an air movement and purification technology known as
Kronos(TM) that is more fully described below. The Kronos(TM) technology
operates through the application of high-voltage management across paired
electrical grids that creates an ion exchange which moves air and gases at high
velocities while removing odors, smoke, and particulates, as well as killing
pathogens, including bacteria. We believe the technology is cost-effective and
is more energy-efficient than current alternative fan and filter technologies.
Kronos(TM) has U.S. and international patents pending.
The Kronos(TM) device is comprised of state-of-the-art high-voltage
electronics and electrodes attached to one or more sets of corona and target
electrodes housed in a self-contained casing. The device can be flexible in
size, shape and capacity and can be used in embedded electronic devices,
standalone room devices, and integrated HVAC and industrial applications. The
Kronos(TM) device has no moving parts or degrading elements and is composed of
cost-effective, commercially available components.
11
The Kronos(TM) technology combines the benefits of silent air movement,
air cleaning, and odor removal. Because the Kronos(TM) air movement system is a
silent, non-turbulent, and energy-efficient air movement and cleaning system, we
believe that it is ideal for air circulation, cleaning and odor removal in all
types of buildings as well as compact, sealed environments such as airplanes,
submarines and cleanrooms. Additionally, because it has no moving parts or fans,
a Kronos(TM) device can instantly block or reverse the flow of air between
adjacent areas for safety in hazardous or extreme circumstances.
The U.S. Department of Defense and Department of Energy have provided
Kronos Air Technologies with various grants and contracts to develop, test and
evaluate the Kronos(TM) technology. Since May 2001, the total potential value of
Small Business Innovation Research (SBIR) contracts awarded to Kronos Air
Technologies has been $1.7 million. In December 2001, Kronos Air Technologies
was awarded an SBIR contract sponsored by the U.S. Army. This contract is
potentially worth up to $850,000 in product development and testing support for
Kronos Air Technologies. Phase One of the contract is worth up to $120,000 in
funding to investigate and analyze the feasibility of the Kronos(TM) technology
to reduce humidity in heating, ventilation and air conditioning (HVAC) systems.
Dehumidification is essential to making HVAC systems more energy efficient.
Phase Two of the contract is worth up to $730,000 in additional funding for
product development and testing. In May 2002, the U.S. Army requested the
company to submit a detailed Phase Two proposal by June 10, 2002 for review in
the current year. The proposal was submitted on June 7, 2002.
In May 2001, Kronos Air Technologies was awarded its first SBIR
contract sponsored by the U.S. Navy. That contract is potentially worth $837,000
in product development and testing support. The first phase of the contract is
worth up to $87,000 in funding for manufacturing and testing prototype devices
for air movement and ventilation onboard naval vessels. The second phase of the
contract is worth up to $750,000 in additional funding. In January 2002, Kronos
Air Technologies received a Phase II invitation letter for this grant with a
potential $750,000 commitment. The Kronos(TM) devices manufactured under this
contract will be embedded in an existing HVAC systems to move air more
efficiently than the traditional, fan based technology.
In April 2002, the U.S. Navy and Kronos mutually agreed to exercise the
option on the first phase of the U.S. Navy SBIR contract. The option is to
provide incremental funding to Kronos to further test and evaluate the
Kronos(TM) devices built during the initial SBIR funding. Testing will include
demonstrating the ability of these U.S. Navy Kronos(TM) devices to capture and
destroy biological hazards and to effectively manage electrical magnetic
interference.
RESULTS OF OPERATIONS
The comparability of our financial statements between years is not
easily susceptible to narrative comparison by virtue of the fact that (a) we
were basically inactive from the time that we discontinued operations in 1996
until the time that we reactivated operations in mid-1999, (b) from inception we
have not had significant operating revenues, and (c) we acquired Kronos Air
Technologies, Atomic Soccer, EdgeAudio, and Cancer Detection International
towards the end of the year ending June 30, 2000.
RESTATEMENT OF FINANCIAL STATEMENTS
The financial statement information presented in this discussion and
analysis of financial condition and results of operations is derived from our
financial statements for the nine months ended March 31, 2002 and for the years
ending June 30, 2001, 2000 and 1999. Our financial statements for 2000 and 1999
have been restated, as disclosed in Note 3 - Restatement of the "Notes to
Consolidated Financial Statements," and the amounts included below for 2000 and
1999 are based on those restated financial statements.
REORGANIZATION
Based on our decision to focus our resources on Kronos Air
Technologies, several actions were taken which impacted the results of
operations. On April 10, 2001, we sold Atomic Soccer. The new ownership group
consisted of Timothy G. Belinger, Todd P. Ragsdale and James Eric Anderson. At
the time of the sale, Messrs. Belinger, Ragsdale and Anderson were members of
Atomic Soccer's Board of Directors. None of these individuals were then, or
currently are, officers, directors, employees or affiliates of TSET. At the time
of the sale, Erik W. Black, an officer and director of TSET, was Atomic Soccer's
Chairman of the Board of Directors. Mr. Black resigned from Atomic Soccer's
Board of Directors immediately following the execution of the sale document and
was not a member of Atomic Soccer's new ownership group. The sale resulted in a
loss of $2,297,000. During our fourth quarter of 2001, we determined that the
assets of EdgeAudio were impaired and we recognized an impairment loss of
$2,294,000. On September 14, 2001, the board authorized management to pursue a
formal plan for disposal of EdgeAudio. The anticipated loss from operations
during the phase-out period is $150,000. We do not anticipate a loss on the sale
12
of EdgeAudio. We also decided to discontinue the development of Cancer Detection
International and we have recognized an impairment loss of the remaining
goodwill of $273,000 associated with that investment.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 2002
Our net loss from continuing operations for the current year third
quarter and nine months was $0.6 million and $2.9 million, respectively,
compared with a net loss of $0.7 million and $2.1 million for the corresponding
periods of the prior year. The increase in the net loss for the nine months
ended March 31, 2002, as compared to the corresponding period in 2001, was the
result of increased professional fees and consulting services offset by a
decrease in salaries and other general and administrative expenses.
REVENUE. Revenues are generated through sales of Kronos(TM) devices at
Kronos Air Technologies, Inc. Revenue for the current year third quarter was $0
and for the current year nine months was $65,000. Revenue of $5,000 was recorded
during the corresponding periods of the prior year. These revenues were
primarily from our U.S. Navy Small Business Innovative Research contract.
COST OF SALES. Cost of sales for the current year third quarter was $0
and $50,070 for the current year nine months. Cost of sales is primarily
research and development costs associated with our U.S. Navy Small Business
Innovative Research contract.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, General and
Administrative expenses in the current year third quarter decreased $57,000 and
in the current year nine months increased $729,000, to $0.6 million and $2.9
million, respectively. The decrease in the current year third quarter was
primarily due to a reduction in payroll and related costs of $89,000. The
increase in the current year nine months was primarily due to non-cash stock
warrants issued to the Eagle Rock Group of $686,000, non-cash stock
options/grants of $57,000 and cash-based fees paid/accrued to management
consultants, legal and accounting professionals engaged by the company of
$500,000. This was partially offset by a reduction in payroll and related costs
of $500,000 and a reduction in travel related costs of $63,000.
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2002
Our total assets at March 31, 2002 were $3.1 million compared with $3.1
million at June 30, 2001. Total assets at March 31, 2002 were comprised
primarily of $2.3 million of patents/intellectual property and $556,000 of
deferred financing fees. Total assets at June 30, 2001 were comprised primarily
of $2.4 million of patents/intellectual property and $521,800 of deferred
financing fees. Total current assets at March 31, 2002 and June 30, 2001 were
$189,000 and $70,000, respectively, while total current liabilities for those
same periods were $2.5 million and $1.9 million, respectively, creating a
working capital deficit of $2.3 million and $1.9 million at each respective
period end. This working capital deficit is primarily due to accrued expenses
for compensation, management consulting and other professional services.
Shareholders' equity as of March 31, 2002 and June 30, 2001 was $(1.1 million)
and $479,000, respectively, representing a decrease of $1.6 million. The
decrease in shareholders' equity is primarily the result of incurring a $2.9
million loss from continuing operations for the nine months ended March 31,
2002, partially offset through the sale and issuance of $1.3 million of common
stock.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED JUNE 30, 2001
REVENUE AND COST OF SALES. Revenues are generated through sales of
Kronos(TM) devices at Kronos Air Technologies, Inc. Sales for the twelve months
ended June 30, 2001 were $95,000. Cost of sales for the twelve months ended June
30, 2001 associated with the sale of Kronos(TM) devices was $62,500. There were
no sales or cost of sales of Kronos(TM) devices in periods prior to the twelve
months ended June 30, 2001.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the twelve months ended June 30, 2001 amounted to
$3,391,139 of which compensation and benefits were 35%, professional services
were 22%, research and development was 9%, depreciation, intangibles
amortization and impairment was 17% and other general and administrative
expenses accounted for 17%. Operating expenses for the twelve months ended June
30, 2000 amounted to $1,388,492 of which compensation and benefits were 30%,
research and development was 46%, professional services were 11%, depreciation,
intangibles amortization was 7% and other general and administrative expenses
accounted for 6%.
Research and development costs in 2000 included $633,229 of expense for
in-process research and development purchased with the acquisition of Kronos Air
13
Technologies. Included in the intangible amortization and impairment in 2001 is
$272,945 for an impairment loss on Cancer Detection International. The increase
in professional services expense was the result of our efforts to better
position us to obtain additional outside financing and equity. As a result, we
engaged outside consultants to assist us.
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2001
Our total assets at June 30, 2001 were $3,067,329 compared with
$7,627,488 at June 30, 2000, a decline of $4,560,159, principally due to the
loss on disposal of discontinued operations of Atomic Soccer of $2,296,562 and
the impairment of assets for EdgeAudio of $2,294,316, which were recorded in the
fiscal year ended June 30, 2001. Total assets at June 30, 2001 were comprised
mainly of $520,800 for deferred financing fees and $2,431,524 of
patents/intellectual property. Total assets at June 30, 2000 were comprised
principally of $2,970,731 of patents/intellectual property and $4,502,888 of net
assets of discontinued operations. Total current assets at June 30, 2001 and
June 30, 2000 amounted to $70,298 and $130,850, respectively, while total
current liabilities for those same periods amounted to $1,921,213 and $388,796,
respectively, creating a working capital deficit of $1,850,915 and $257,946 at
each respective period end. This working capital deficit is principally
attributable to the increase in accrued expenses in both years for compensation
and professional services. Total liabilities as at June 30, 2001 and June 30,
2000 were $2,588,763 and $388,796, respectively, representing an increase of
$2,199,967. Shareholders equity as at June 30, 2001 and June 30, 2000 was
$478,566 and $7,238,692, respectively, representing a decrease of $6,760,126.
The decrease in shareholders equity is principally the result of incurring a
$3,572,558 loss from operations, a $3,846,963 loss from discontinued operations,
and a $2,446,562 loss on disposal of discontinued operations for the twelve
months ended June 30, 2001. In addition, equity increased during the twelve
month period ended June 30, 2001 through the sale and issuance of $3,105,956 of
common stock.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2000
REVENUE AND COST OF SALES. There were no sales or cost of sales for the
years ended June 30, 2000 and 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the twelve months ended June 30, 2000 amounted to
$1,388,492. Primarily as a result of the above, the net loss from continuing
operations for the year ended June 30, 2000 was $1,385,595, and the loss from
discontinued operations was $579,588 for a net loss of $1,965,183, thereby
increasing our accumulated deficit to $2,107,703 at June 30, 2000. Operating
expenses for the year ended June 30, 1999 were $51,946 of which compensation and
benefits accounted for $43,150 or 83%.
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2000
Our total assets at June 30, 2000 were $7,627,488. Total current assets
amounted to $130,850 while total current liabilities amounted to $388,796
thereby creating a working capital deficit of $257,946. Total liabilities as at
June 30, 2000 amounted to $388,796 and shareholders equity was $7,238,692. Total
assets at June 30, 1999 were $3,036 and total liabilities were $79,841. The
increase in assets and liabilities during 2000 occurred principally from the
acquisition of Kronos Air Technologies, EdgeAudio, Atomic Soccer and Cancer
Detection, and our emergence from our prior inactive status.
LIQUIDITY AND CAPITAL RESOURCES
Historically we have relied principally on the sale of common stock to
finance our operations. We have recently completed a successful private
placement of our common stock through which we were able to obtain commitments
for 2,738,824 shares of our common stock, valued at $0.17 per share, in
consideration of $465,600 in cash and 841,459 shares of our common stock, valued
at $0.17 per share, in consideration of commitments to convert $143,048 of debt
into equity with respect to certain members of the management team. Going
forward, in addition to continued sales of common stock, we plan to rely on the
proceeds from Small Business Innovation Research (SBIR) contracts with the U.S.
Navy and Army as well as other government contracts and grants, and cash flow
generated from the sale of Kronos(TM) devices. We have also entered into a
common stock purchase agreement with Fusion Capital under which we have the
right, subject to certain conditions, to draw down approximately $12,500 per day
from the sale of common stock to Fusion Capital. The SBIR contracts are
potentially worth up to $1.7 million in product development and testing support
for Kronos Air Technologies. The first phase of the contracts is worth up to
$207,000 in funding. If awarded to Kronos Air Technologies, the second phase of
the contracts would be worth up to $1.5 million in additional funding. In
January 2002 and May 2002 Kronos Air Technologies received Phase II invitation
letters for U.S. Navy and U.S. Army contracts, respectively, with potentially
$1.5 million in commitments.
14
Net cash flow used in operating activities was $1.2 million for the
current year nine months ended March 31, 2002. We were able to satisfy some of
our cash requirements for this period through the issuance and sale of our
common stock.
On June 19, 2001, we entered into a common stock purchase agreement
with Fusion Capital. Pursuant to the common stock purchase agreement, Fusion
Capital has agreed to purchase on each trading day during the term of the
agreement, $12,500 of our common stock or an aggregate of $10.0 million. The
$10.0 million of our common stock is to be purchased over a 40-month period,
subject to a six-month extension or earlier termination at our sole discretion
and subject to certain events. The purchase price of the shares of common stock
will be equal to a price based upon the future market price of our common stock
without any fixed discount to the then-current market price. On November 13,
2001, the common stock purchase agreement was amended to establish a floor
price. Fusion Capital is obligated to purchase shares under the agreement as
long as the share price exceeds a floor of $0.25. However, even during recent
periods in which our share price was below that $0.25 threshold, we have been
able to work with Fusion Capital to provide for most of the financing needs of
the Company. However, there can be no assurance of how much cash we will
receive, if any, under the common stock purchase agreement with Fusion Capital.
In May 2002, we completed a private placement of our common stock
pursuant to which we sold 2,559,412 shares of our common stock at $0.17 per
share to eight accredited investors for consideration of $435,100 cash and
841,459 shares of our common stock at $0.17 per share to five members of our
management team for consideration of commitments to convert $143,048 of debt.
We estimate that achievement of our business plan will require
approximately $3,000,000 of funding. We anticipate that such funding will be
obtained pursuant to the Fusion Capital transaction, cash flow generated from
government grants and contracts (including the Small Business Innovation
Research contracts sponsored by the United States Navy and Army, recently
awarded to Kronos Air Technologies), and cash flow generated from customer
revenue.
GOING CONCERN OPINION
Our independent auditors have added an explanatory paragraph to their
audit opinion issued in connection with the 2001 and 2000 financial statements
that states that we do not have significant cash or other material assets to
cover our operating costs. Our ability to obtain additional funding will largely
determine our ability to continue in business. Accordingly, there is substantial
doubt about our ability to continue as a going concern. Our financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
We can make no assurance that we will be able to successfully
transition from research and development to manufacturing and selling commercial
products on a broad basis. While attempting to make this transition, we will be
subject to all the risks inherent in a growing venture, including, but not
limited to, the need to develop and manufacture reliable and effective products,
develop marketing expertise and expand our sales force.
15
BUSINESS
OUR COMPANY
We are a Nevada corporation. Our principal executive offices are
located at 464 Common Street, Suite 301, Belmont, Massachusetts 02478. Our
telephone number is (617) 993-9965. The address of our website is
www.kronosati.com. Information on our website is not part of this prospectus.
REORGANIZATION
We had been seeking select business opportunities globally among a wide
range of prospects. Over the past two years, we made several investments,
including Kronos Air Technologies, Inc. and EdgeAudio, Inc. After further
evaluation of these investments, we believe our investment in and the full
development of Kronos Air Technologies and the Kronos(TM) technology represents
the single best opportunity for us. As a result, we are focusing substantially
all of our management and financial resources to develop and market the
Kronos(TM) technology. Effective October 10, 2001, Jeffrey D. Wilson resigned as
Chairman of the Board and Chief Executive Officer of TSET, as well as Chairman
of the Board of Kronos Air Technologies and EdgeAudio, respectively. Mr. Wilson
remains as a director of TSET. Effective October 16, 2001, Daniel R. Dwight
became our President and Chief Executive Officer. Mr. Dwight is a Director of
TSET and had been a consultant to our Company prior to accepting his new
position. Effective January 1, 2002, Richard F. Tusing became our Chief
Operating Officer. Mr. Tusing is a Director of TSET and had been a consultant to
our Company prior to accepting his new position.
We have reorganized our company to prioritize and focus management and
financial resources on Kronos Air Technologies and the Kronos(TM) technology.
This reorganization has resulted in the decision to no longer pursue other
investment opportunities previously identified. We sold our investment in Atomic
Soccer USA, Ltd. in April 2001; decided not to pursue investments in Cancer
Detection International LLC, Electric Management Units, and Cancer Treatment
Centers, Inc. in July 2001; established a formal plan to dispose of EdgeAudio in
September 2001; and terminated by mutual consent of both parties a contract to
distribute Computerized Thermal Imaging, Inc. equipment in August 2000.
CORPORATE HISTORY
TSET (formerly known as Technology Selection, Inc.“Company”) was originally incorporated under the laws of the State of Utah on September 17, 1980, as Penguin Petroleum, Inc. Penguin Petroleum Inc.'s’s stockholders approved a name change on October 6, 1982, to Petroleum Corporation of America, Inc. On December 29, 1996, stockholders approved a reorganization whereby they exchanged their stock on a one-for-one basis with Technology Selection, Inc., a Nevada corporation. Technology Selection, Inc.'s’s shares began trading on the Over-the-Counter Bulletin Board on August 28, 1996, under the symbol "TSET."“TSET”. On November 19, 1998, Technology Selection, Inc. changed its name to TSET, Inc. Effective January 12, 2001, we began doing business as Kronos Advanced Technologies, Inc.; and, as of January 18, 2002, we changed our ticker symbol to "KNOS." “KNOS”.
Emerging Growth Company
We are an emerging growth company under the JOBS Act. We shall continue to be deemed an emerging growth company until the earliest of:
(a) the last day of the fiscal year of the issuer during which it had total annual gross revenues of $1.07 billion (as such amount is indexed for inflation every five years by the Commission to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, setting the threshold to the nearest 1,000,000) or more;
(b) the last day of the fiscal year of the issuer following the fifth anniversary of the date of the first sale of common equity securities of the issuer pursuant to an effective IPO registration statement;
(c) the date on which such issuer has, during the previous three-year period, issued more than $1.0 billion in nonconvertible debt; or
(d) the date on which such issuer is deemed to be a ‘large accelerated filer’, as defined in section 240.12b-2 of title 17, Code of Federal Regulations, or any successor thereto.’
The Section 107 of the JOBS Act provides that we may elect to utilize the extended transition period for complying with new or revised accounting standards and such election is irrevocable if made. As such, we have confined mostmade the election to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of our activitiesthe JOBS Act. Please refer to classifying market and
commercial targets, investigating potential investment and acquisition
opportunities, and capitalizinga discussion under “Risk Factors” of the effect on our investmentfinancial statements of such election.
As an emerging growth company, we are exempt from Section 404(b) of Sarbanes Oxley. Section 404(a) requires Issuers to publish information in Kronos Air Technologies,their annual reports concerning the scope and have not, to date, generated significant operating revenues. We have never
been party to any bankruptcy, receivership, or similar proceedingsadequacy of the internal control structure and other
than noted above, have not been party to any material reclassification, merger,
consolidation, or purchase or saleprocedures for financial reporting. This statement shall also assess the effectiveness of significant assets notsuch internal controls and procedures. Section 404(b) requires that the registered accounting firm shall, in the ordinary
course of our business.
KRONOS AIR TECHNOLOGIES, INC.
On March 13, 2000, we signed agreements for the acquisition of all of
the issuedsame report, attest to and outstanding shares of Kronos Air Technologies, Inc. We acquired
all of the issued and outstanding shares of Kronos Air Technologies' capital
stock in exchange for shares of our common stock. Kronos Air Technologies is
focusedreport on the development and commercialization of an air movement and
purification technology known as Kronos(TM) which is more fully described below.
TECHNOLOGY DESCRIPTION AND BENEFITS
The Kronos(TM) technology operates through the application of high
voltage management across paired electrical grids that creates an ion exchange
16
which moves air and gases at high velocities while removing odors, smoke, and
particulates, as well as killing pathogens, including bacteria. We believe the
technology is cost effective and is more energy efficient than current
alternative fan and filter technologies. Kronos(TM) technology has multiple U.S.
and International patents pending.
The Kronos(TM) device is comprised of state-of-the-art high voltage
electronics and electrodesassessment on a single printed circuit board attached to one or
more sets of corona and target electrodes housed in a self contained casing. The
device can be flexible in size, shape and capacity and can be used in embedded
electronic devices, standalone room devices, and integrated HVAC and industrial
applications. The Kronos(TM) device has no moving parts or degrading elements
and is composed of cost effective, commercially available components.
The Kronos(TM) technology combines the benefits of silent air movement,
air cleaning, odor removal, limited ozone generation, and static control (as a
Kronos(TM) device can produce either positive or negative ions or both, if
necessary). Because the Kronos(TM) air movement system is a silent,
non-turbulent, and energy efficient air movement and cleaning system, we believe
that it is ideal for air circulation, cleaning and odor removal in all types of
buildings as well as compact, sealed environments such as airplanes, submarines
and cleanrooms. Additionally, because it has no moving parts or fans, a
Kronos(TM) device can instantly block or reverse the flow of air between
adjacent areas for safety in hazardous or extreme circumstances. We believe that
the benefits of the Kronos(TM) technology include the following:
QUIET OPERATION: Embodied in a non-turbulent,
non-vibrating device - virtually
silent.
DURABILITY: No moving or degradable parts.
ADAPTABILITY: Scalable in shape, size and
capacity and adaptable to existing
infrastructure, hardware and HVAC
systems or can be used as a
standalone device. Operates under
both extreme high and low
temperatures; inertialess with
instantaneous air movement and is
capable of deployment in a wide
range of applications.
EFFICIENCY: Energy efficient, up to 10 times
the cubic feet per minute per watt
of a conventional fan at the same
velocity and size.
PURIFICATION: Lethal towards a wide range of
bacteria and spores and can remove
particulate matter from the air
(e.g., smoke, pollen).
ANTI-STATIC: Ions from the corona discharge
neutralize electrostaticly charged
particles in the ambient air
(e.g., use in cleanrooms).
VALUE: Built with readily available,
existing electronics and hardware
making the Kronos(TM) device cost
effective to manufacture.
RECENT ACHIEVEMENTS
LETTER OF INTENT FOR RETAIL CONSUMER PRODUCTS
In April 2001, Kronos Air Technologies completed development of a
prototype room-based air purification device and is now moving rapidly toward
commercialization of the Kronos(TM) technology outside of military applications.
In May 2002, Kronos Air Technologies executed a term sheet with a consumer
retail products company. The agreement provides for exclusive North American
retail distribution rights for a full consumer air movement and purification
product line based on the Kronos technology for a term of at least three years.
Kronos will be compensated through royalty payments with minimum annual levels.
The consumer products company has also agreed to provide Kronos with advanced
funding to pay for any development work necessary to bring a Kronos-based
consumer product line to market. Kronos will retain full rights to all of its
intellectual property, as well as manufacturing of its proprietary power supply.
The final agreement is subject to negotiations between the parties over the next
60 days. The product line launch is scheduled for first quarter 2003. Kronos is
required to keep the identity of the consumer products company confidential
until the formal announcement of the product launch.
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UNDERWRITERS LABORATORIES' APPROVAL
In June 2001, Kronos Air Technologies obtained Underwriters
Laboratories, Inc.'s approval for the Kronos(TM) device's core electronics. The
electronic module is the key component of Kronos Air Technologies' proprietary
technology and is used in all Kronos(TM) based products. We believe the
Underwriters Laboratories' approval of the electronics should shorten the
Underwriters Laboratories' approval process for all future Kronos Air
Technologies air movement and purification products. Final Underwriters
Laboratories' approval for each Kronos(TM) based device (based on using the
current core electronics) will depend on meeting mechanical and material
standards for each device. This final Underwriters Laboratories' effort will
focus primarily on safety standards applied to the casing for the device and
materials used in final design.
LOCKHEED MARTIN AND GENERAL DYNAMICS CONTRACTS
In the fourth quarter 2001, Kronos Air Technologies began to generate
revenue for the first time in the military marketplace with the sale of
Kronos(TM) devices to Lockheed Martin and the delivery of its first
commercialized Kronos(TM) devices to Bath Iron Works, a division of General
Dynamics. The Bath Iron Works' air movement and purification devices are being
used in the chief quarters of the USS WINSTON CHURCHILL (DDG-81). Bath Iron
Works and Kronos Air Technologies have also teamed with Electric Boat, another
subsidiary of General Dynamics, and General Dynamics Advance Technology Systems
Group to examine advanced demonstration opportunities onboard other United
States naval vessels. These demonstrations are being made through the Office of
Naval Research.
SMALL BUSINESS INNOVATION RESEARCH CONTRACTS AWARDED
UNITED STATES NAVY. In May 2001, Kronos Air Technologies was awarded a
Small Business Innovation Research contract. This contract is sponsored by the
United States Navy and is potentially worth up to $837,000 in product
development and testing support for Kronos Air Technologies. The first phase of
the contract is worth up to $87,000 in funding for manufacturing and testing a
prototype device for air movement and ventilation onboard naval vessels. If
awarded to Kronos Air Technologies, the second phase of the contract would be
worth up to $750,000 in additional funding. The Kronos(TM) devices manufactured
under this contract will be embedded in an existing HVAC systems to move air
more efficiently than the current fan based technology. This contract is an
extension of the commercialization effort by Kronos Air Technologies in the
specialized military marketplace. In April 2002, the United States Navy and
Kronos mutually agreed to exercise the option on the first phase of the United
States Navy SBIR contract. The option is to provide incremental funding to
Kronos to further test and evaluate the Kronos(TM) devices built during the
initial funding. Testing will include demonstrating the ability of the United
States Navy Kronos(TM) devices to capture and destroy biological hazards to
effectively manage electrical magnetic interference.
UNITED STATES ARMY. In December 2001, Kronos Air Technologies was
awarded a Small Business Innovation Research contract. This contract is
sponsored by the United States Army and potentially worth up to $870,000 in
product development and testing support for Kronos Air Technologies. The first
phase of the contract is worth up to $120,000 in funding to investigate and
analyze the feasibility of the Kronos(TM) technology to reduce humidity in
heating, ventilation and air conditioning (HVAC) systems. If awarded to Kronos
Air Technologies, the second phase of the contract would be worth up to $650,000
in additional funding. The Kronos(TM) devices manufactured under this contract
will be to further demonstrate the versatility of the Kronos(TM) technology to
meet airflow, system pressure and reduced humidity requirements for HVAC
systems. This contract is an extension of the commercialization effort by Kronos
Air Technologies in the specialized military marketplace. In May 2002, the U.S.
Army requested our company to submit a detailed phase two proposal by June 10,
2002 for review in the current year. The proposal was submitted on June 7, 2002.
BUSINESS STRATEGY
Kronos Air Technologies' business development strategy is to sell and
license the Kronos(TM) technology to six distinct market segments: (1) air
movement and purification (health care, hospitality, residential and commercial
facilities); (2) air purification for unique spaces (cleanrooms, automotive,
cruise ships and airplanes); (3) specialized military (naval vessels, closed
vehicles and environmental devices); (4) embedded cooling and cleaning
(electronic devices and medical equipment); (5) industrial scrubbing (produce
storage and diesel and other emissions), and (6) hazardous gas destruction
(incineration and chemical facilities).
AIR MOVEMENT AND PURIFICATION. Indoor air pollution, including "sick
building syndrome" and "building related illness," is caused by inadequate
ventilation, chemical contaminants from indoor and outdoor sources and
18
biological contaminants. The addressable air movement and purification segment
is made up of four principal applications: (1) health care, (2) hospitality (3)
residential and (4) commercial. Kronos Air Technologies is attempting to develop
a Kronos(TM) device intended to address the specific air quality issues,
including odors, found in most nursing home and assisted living facilities.
AIR PURIFICATION FOR UNIQUE SPACES. Electronics, high-tech,
semiconductor, pharmaceutical, aerospace, medical and many other producers
depend on cleanroom technology. As products such as electronic devices become
smaller, the chance of contamination in manufacturing becomes higher. For
pharmaceutical companies, clean, safe and contaminant-free products are
imperative to manufacturing and distributing a viable product. Other potential
applications for the Kronos(TM) technology include contained spaces such as
aircraft, cruise ships and other transportation modes that require people to
breathe contaminated, re-circulated air for extended periods. Kronos Air
Technologies is also evaluating the effectiveness of the Kronos(TM) technology
on reducing diesel emissions.
SPECIALIZED MILITARY. Kronos Air Technologies has been working
extensively with General Dynamics on commercializing specific military
applicationsinternal control structure and procedures for financial reporting. As an emerging growth company, we are also exempt from Section 14A (a) and (b) of the Kronos(TM) technology. To date, Kronos Air Technologies has
developedSecurities Exchange Act of 1934 which require the shareholder approval of executive compensation and shipped miniature Kronos(TM) based devicesgolden parachutes.
We have elected to use the extended transition period for retrofittingcomplying with new or revised accounting standards under Section 102(b)(2) of the sailors' bunk fans on United States Naval shipsJOBS Act, that allows us 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 larger embedded device for
retrofitting fansresult of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
Business Overview
Indoor air contains pollutants can affect the quality of life. Some of these pollutants come from outdoors, and others come from indoor sources and activities, such as cooking, cleaning, secondhand smoke, building materials, consumer products, and home furnishings. These indoor air pollutants can be particles or gases, including volatile organic compounds. Common contaminants that can be found indoors include both fine and coarse particulate matter, formaldehyde, mold, and pollen. Indoor air quality will vary from home to home and over the course of a day within a home. Since most people spend about 90% of their time indoors, mostly in their homes, much of their exposures to airborne pollutants will happen in the ductworkhome.
Our business focus is on the consumer air cleaning market. We do not design, market, or sell our air cleaning products as medical devices. We do not claim our products mitigate, treat, cure, or prevent disease. Our business develops and sells consumer products and new technologies that significantly change the way air is moved, filtered, and cleansed. Our product technology, uses state-of-the-art, high voltage processes, thereby eliminating the need for traditional porous HEPA filters. We believe our products move air silently, have superior filtering capabilities, and in general, cleans ambient air while offering dramatically reduced energy consumption. Our products have unique, variable, and superior filtering capabilities in both shape and size. They are available in a smaller footprint to provide air cleaning in cars. Larger units are available for consumer home use, for business use, or even in extreme industrial applications requiring the destruction of United States Naval ships.certain hazardous gases. The Company also sells bio-aerosol sensors and wearable sensors which are designed to identify aerosol contaminants in the air.
Our Products
Our technology is currently offered in the form of multiple stand-alone portable products designed to move, filter, and clean the air for businesses, homes, and vehicles. On a broader basis, additional markets that could immediately be impacted using standalone, embedded Kronos® devices include schools, universities, manufacturing clean-rooms, personal automobiles, buses, taxis, and commercial aircraft cabins. Our products are marketed under the Airdog® and KRONOS® brand names.
Our primary products include:
| ● | Kronos Air Purifier 5G Model 3; an ionic air purifier with washable filter. This stand-alone device measures 10.2” in length x 10.2” wide x 20.5” high and is portable weighing 11 pounds and is manufactured with flame resistant plastic, with the ability to clean the air from an area of up to 215 square feet. | |
| ● | Kronos Air Purifier 5G Model 5; an ionic air purifier with washable filter. This stand-alone device measures 12.4” in length x 12”wide x 25.6” high and weighing 23.6 pounds and is manufactured with flame resistant plastic, with the ability to clean the air from an area of up to 450 square feet. | |
| ● | Kronos Air Purifier 5G Model 8; an ionic air purifier with washable filter. This stand-alone device measures 15” in length x 15” wide x 30” high and weighing 43.4 pounds and is manufactured with flame resistant plastic, with the ability to clean the air from an area of up to 1000 square feet. | |
| ● | Kronos Fit Air; This portable device weighs 7.8 ounces and measures 7.2” in length x 3.5” wide x 3.1” high with the ability to be attached to a wristband, tote or desk or car, clean the air from an area of up to 25 square feet. | |
| ● | Kronos Fit Air Bundle; combines the Kronos Fit Air with a connected face mask providing personal filtered air with the benefits of a mask. | |
| ● | Kronos Car Air Purifier; at 2.4” high, 8.11” long and 6.89” wide, this portable device powered by a DC 12volt car charger is designed to clean the air in a vehicle. | |
| ● | Kronosati Mini; the device is designed to be able to be held in hand on worn on a lanyard to filter the immediate airspace around an individual; the device measures 2” x 3” x ⅔” and weighs. It contains a re-chargeable battery that connects via USB for recharging. |
We also sell 5-layer graphene face masks that are not meant for medical use, and we also sell replacement parts for our principal products.
We also have a number of other products in various stages of research and development, including space heaters, vaporizers, disinfectors, deodorizers and/or fans. These products have all been conceptualized during our research and development efforts over the past years. Each product varies in its respective level of completion, with none having been finalized and brought to market for sale. All products are waiting on capital and should be finalized as capital becomes available.
The following table discloses our revenues from July, 2020 to June 30, 2021 based on sales of our primary products:
| Product | Quantity Sold | Revenue | ||
| Kronos Air Purifier 5G Model 3 | 43 | $15,601.65 | ||
| Kronos Air Purifier 5G Model 5 | 667 | $341,348.10 | ||
| Kronos Air Purifier 5G Model 8 | 113 | $101,005.11 | ||
| Kronos Fit Air | 33 | $3,063.45 | ||
| Kronos Fit Air Bundle | 100 | $11,669.70 | ||
| Kronos Car Air Purifier | 41 | $6,278.75 | ||
| Kronosati Mini | 39 | $3,003.56 | ||
| Replacement Parts | 32 | $1,423.57 | ||
| TOTAL | $483,393.89 |
We market and sell our products directly through our web site: https://1800safeair.com/, and also through independent sales representatives and select retail outlets.
Kronos also owns and operates special vanity phone number 1-800-SAFE-AIR that spells out words that correspond to what our business does, we believe that this is a very effective marketing tool. It positions our company as one of the experts in the field, and most certainly a toll-free number with two words that are self-explanatory looks be very memorable in any form of advertising, TV, radio, print and online.
A combination of the domain name (www.1800SafeAir.com) and telephone number 1-800-SAFE-AIR also helps prospective customers and shareholders remember our business and what it does. A customer or shareholder is more likely to call a number that they can recall easily, and it will always be easier to memorize a word than a string of random numbers. In addition, Kronos Air Technologies was awarded1-800-SAFE-AIR phone number makes our business immediately memorable to new customers and returning customers needing help with our products.
On August 27, 2021, we announced our e-commerce initiative through Channelize.io, which is a Small Business Innovation Research
contract sponsored by the United States Navy and is potentially worth up to
$837,000 in funding forPlatform-as-a-Service (PaaS) product development and testing. The Kronos(TM) devices
manufactured under this contract will be embedded in existing HVAC systems to
move air more efficiently than the current fan based technology. In addition,
Kronos Air Technologies was awarded a Small Business Innovation Research
contract sponsored by the United States Army and is potentially worth up to
$850,000 in funding for product development and testing. The Kronos(TM) devices
manufactured under this contract will be used to demonstratethat allows any of our satisfied customers the ability to commercialize the Kronos(TM) technology for mass production.
OTHER MARKET SEGMENTS. The technology demonstrated in the Small
Business Innovation Research contract has direct applicationssell our products online and earn commissions from sales. Known as “Live Stream Shopping and Real-time Engagement,” we expect this to other
commercial market segments that Kronos Air Technologies is pursuing, including
industrial ventilation for building HVAC systems, embedded cooling for
electronic equipment and hazardous gas scrubber systems.
MILESTONES
Our primary business objectives over the next twelve months are the
further development and commercialization of the Kronos(TM) technology with a
view toward generating cash flow from customers. The primary milestones
necessary to achieve these objectives are as follows:
o completion of commercialization of standalone Kronos(TM)
devices to generate revenues, including completion of design
of finished products, obtaining final Underwriters
Laboratories' approval for the finished products, and
completion of customer beta testing programs;
o development of corporate capability to manage the outsourcing
of production and post-sale servicing of Kronos(TM) products,
including final selection of contract manufacturers and design
of product tooling;
o further development and augmentation of Kronos Air
Technologies' operational capabilities to support revenue
stream, and identification of new applications for Kronos(TM)
technology;
o expansion of technical resources and product engineering to
better position Kronos Air Technologies' ability to address
specific customer issues and needs, including expanding Kronos
Air Technologies' chemical and materials technical expertise;
o hiring additional marketing andboost our sales personnel to expand
customer base to allow Kronos Air Technologies to grow both
near term and long term revenue; and
o continuation of implementation of Kronos Air Technologies'
intellectual property strategies, including continuation of
its U.S. and international patent filing process to enable a
full development and effectively management of intellectual
property rights and assets.
We estimate that achievement of these milestones will require
approximately $3,000,000 of funding. We anticipate that such funding will be
obtained pursuant to the Fusion Capital transaction, cash flow generated from
government grants and contracts (including the Small Business Innovation
Research contracts sponsored by the United States Navy and Army, recently
awarded to Kronos Air Technologies), and cash flow generated from customer
revenue.
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CORPORATE RESTRUCTURING AND RELATED ACTIVITIES
We have reorganized in order to prioritize and focus management and
financial resources on Kronos Air Technologies and the Kronos(TM) technology.
This reorganization has resulted in the decision to no longer pursue other
investment opportunities previously identified.
ACQUISITION AND SALE OF ATOMIC SOCCER USA, LTD. Pursuant to a Letter
Agreement dated as of April 11, 2001, we transferred ownership of 100% of the
issued and outstanding shares of common stock of Atomic Soccer to a new
ownership group comprised primarily of Atomic Soccer's current and former
management. We determined that continued financial and other support of Atomic
Soccer was not consistent with our long-term strategic plan of concentrating and
consolidating financial and management resources on Kronos Air Technologies.
OTHER INVESTMENTS. Our reorganization has resulted in our decision to
no longer pursue other investment opportunities previously identified. We
decided not to pursue further investments in Cancer Detection International LLC,
Electric Management Units, and Cancer Treatment Centers, Inc. in July 2001;
established a formal plan to dispose of EdgeAudio in September 2001; and
terminated by mutual consent a contract to distribute Computerized Thermal
Imaging, Inc. equipment in August 2000.
RETENTION OF THE EAGLE ROCK GROUP, LLC
On July 9, 2001, we signed an agreement to utilize the strategic
planning and business plan execution services of The Eagle Rock Group, LLC. The
Eagle Rock Group will work with the Kronos Air Technologies team to fully
develop and capitalize on the Kronos(TM) technology. We believe that The Eagle
Rock Group can assist us in unlocking the potential value of the Kronos(TM)
technology.
We believe that The Eagle Rock Group's multi-disciplined approach,
which uses seasoned business executives and leverages relationships and
networks, can accelerate the Kronos(TM) opportunity versus the timing and
development if we were to continue on a go-it-alone strategy or if we were to
work and coordinate with the myriad of groups necessary to duplicate The Eagle
Rock Group team. Specifically, we initially envision The Eagle Rock Group
working to augment and enhance our effortsbrand perception by connecting with our buyers who may showcase and market our products in ways that lead to informed, trusted, and accelerated purchases by new buyers. As of the date of this filing, we have not paid any commissions on customers who have sold any of our products using the PaaS product.
Mountain Marketing Group conducts surveys and research to rate the success of various types of advertising and marketing. In their latest study, they found:
90% of Americans have used toll-free numbers to contact a company after watching an advertisement.
Of these 90%, a productive ad using an 800-vanity number generated a response rate of 30% or more.
As much as 84 percent of these prospects were able to recall the phone number because of visual aids and the use of letters rather than numbers.
Our “Transition to America” Manufacturing Plan
Kronos is committed to the “Transition to America Initiative” of the Company, effectively moving our manufacturing from China to the United States. This commitment is evident by our acquisition of a 10-acre campus containing manufacturing and warehouse space of 85,000 square feet. This acquisition also included the intellectual property and manufacturing equipment necessary to manufacture electro-mechanical assemblies. As such, this acquisition provided us with the following:
● 85,000 square feet of manufacturing facilities located at our West Virginia located at 2501 Garfield Avenue, Parkersburg, West Virginia.
● High-speed electronic manufacturing equipment capable of placing 50,000 plus electronic components (resistors, capacitors, Integrated Circuits, etc.) per hour.
● Facility infrastructure and Intellectual Property including but not limited to proper lighting and power, material handling mezzanines, racks, workstations, conveyors and carts, custom manufacturing software, Standard Operating Procedures, Quality System, personnel records of trained employees, and Enterprise Resource Planning integrated software (ERP) including specialized Material Resource Planning supply chain management software (MRP).
This acquisition is a true turn-key manufacturing company ready to go.
The following constituent, and possibly the most important, is the experience and vision of our Chief Operating Officer, Joseph Florence, the architect of this vision (see “Our Directors and Executive Officers.”)
Additionally, a critical constituent is our Design For eXcellence Strategy (DFX). This strategy understands that Kronos cannot simply manufacture our products within the USA with the intent to build the same design as our globally sourced products. This will not work. Our strategy is to design, utilizing DFX, our next generation of products to be manufactured in the following areas (i) capital
raisingUSA. This means we will specifically develop the products for our factory and allocation, (ii) strategic partnerreduce part counts, incorporating design-for-automation philosophies, all the while improving both the functionality and the aesthetics of our new USA designs. We will ensure our current proprietary and patented technologies are implemented, and we will also intend to develop and patent other technologies, as well as patent the uniqueness of our latest designs during this process. This will naturally occur as part of our process. This process will include fully embracing the new manufacturing initiative called Industry 4.0. We will push our existing highly automated electronic assembly methodologies throughout the factory, genuinely becoming a near “Touchless Manufacturing” facility.
These three items, turnkey facility, management experience and guidance, and best-in-class design process reduce much if not all of the risk of transitioning to a USA manufacturing company. The other key component to point out is that Kronos currently has a viable and best-in-class global product line. Therefore, we will continue to sell this product line and introduce our USA-designed products concurrently as we continue to market and sell our globally manufactured products. We believe this strategy will again emphasize additional risk reduction to our USA-designed products. We will let the design progression and market demand drive our introduction of these new products with little or no business operational pressures.
Our current globally sourced products are comparatively a simple supply chain. Kronos only needs to forecast and evaluation,
(iii) distribution channelorder turn-key assemblies. Kronos will continually access the current manufacturing lead time (the time Kronos issued a Purchase order until the time to receive those purchased products into the Kronos warehouses) for these products, our current inventory levels, and our estimated market demand. This ongoing analysis will drive the requirement to place the new purchase orders in a timely manner to ensure we have product inventory to meet market demand.
Kronos has had discussions with our current global manufacturers analyzing the critical sub-assemblies that Kronos could manufacture in our new USA facility to the benefit of both parties. The focus of these discussions is the cost justification when considering the potential savings related to both the tariff costs and shipping costs of sub-assemblies versus those of a completed assembly, as well as a plan to select the most economical components to manufacture in the USA. Additionally, Kronos has reached out to other global research and development (iv)companies having conceptual and early-stage manufacturing products in our Air Purification market. In doing so, we have strategically approached these companies and began conversations to jointly select the components or in some cases, the entire product, to be built in the USA.
All of these efforts have been well received. Each party is motivated to bring on new USA manufacturing capacity. They view this as an opportunity to have geographic-local manufacturing, improved supply chain management, decentralized manufacturing, and rapid response capabilities to better serve their USA customers. It is important to emphasize that these strategies do no harm to our current supply chain of products. In fact, they enhance our market viability by providing a broader offering of products of which all will represent our Brand with excellence.
Industry Trends
The global portable air cleaner market is experiencing rapid traction. This growth is primarily led by the rising adoption of portable air cleaners for residential and commercial purposes. In pre-COVID 19 periods, people had a general notion that clean air, based on proper ventilation alone, would provide a more healthful environment free of airborne particulate that may include allergens including excessive dust, plant pollen, animal dander, hair, and the like.
The onset of the novel coronavirus pandemic and its variants increased interest in the proper methods to achieve clean air. As a result, the use of air cleaners in both residential and commercial settings have increased drastically over the past year. Although undoubtedly recognized as a global disaster, the coronavirus pandemic and the spread of coronavirus variants impacted the portable air cleaner industry in a positive manner. After the onset of the pandemic, the public interest was focused on air purity, general hygiene, and the overall efforts needed to improve each individual’s health generally, and especially to invisible, airborne contaminants. Life-threatening epidemics like H1N1 Swine flu, H5N1 Avian influenza, and now the COVID 19 pandemic and variants have served to focus the general public’s attention, resulting in the increased use of air cleaners in residential and brand
development, (v) human resource placement,commercial locations. However, we do not market or sell our air purification products as medical devices. We do not claim our products mitigate, treat, cure, or prevent disease.
Market Opportunity
We expect that the growth of the portable air cleaner market is projected to occur in both commercial and (vi) capitalresidential markets in the future. Helping to drive this expected domestic growth is a well-educated consumer base with rising awareness of airborne contaminants; becoming accustomed to adapting to preventative measures; and, having both an expendable income and the willingness to invest in products perceived to promote a healthy environment. Other “external” factors contributing to the growth of the domestic air purifier market include global warming, including increases in national disasters, such as seasonal large forest fires and hurricanes, as well as prolonged sweltering heat zones. Such events and conditions are projected to remain and perhaps even increase for the foreseeable future.
The commercial segment can best be identified as business applications embodying offices, academic centers, stores, hotels, conference rooms, service automobiles/busing, and small indoor public gathering sites. In contrast, the residential segment consists of single-family homes, condos, and apartments. Of particular note is a recent internal study we conducted indicating that our “satisfied customers” having single-family homes often resort to secondary purchases resulting in multiple air purifiers located in separate rooms throughout their homes. This we believe should be particularly true in families having children or aging parents living at home.
We expect trends will continue to accelerate the growth of the global portable air purifier market. In fact, with improved tools and techniques, scientists and health organizations are just beginning to fully understand and accurately quantify the impact of airborne pollutants and contaminants in today’s world.
We plan to expand to a larger, more diverse product platform in the near future, offering Clean Air, Clean Water, and Clean Food solutions for the consumer. Similar to the projected exponential market growth for the portable air purifier market, independent Market Research also indicates dramatic forecasted growth for the water purifier market. As of the date of this Prospectus, we do not offer or have any timetable for the introduction to market of any Clean Air, Clean Water, and awareness.
Clean Food solutions for the consumer.
Government Regulation of Air Purifiers
Federal Regulation
Under the Federal Food, Drug, and Cosmetic Act (FDCA), the U.S. Food and Drug Administration (FDA) regulates devices that include an “instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory” that is intended to cure, mitigate, treat, or prevent disease or is intended to affect the structure of any function of the body. The FDA regulates air purifiers intended for medical purposes that are used to destroy bacteria in the air by exposure to UV radiation or remove particles from the air through filtration or electrostatic precipitation. Our products use a high voltage electrostatic method of destroying airborne contaminants, and do not use UV radiation methods. We do not market or sell our air purification products as an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory that is intended to cure, mitigate, treat, or prevent disease. We do not claim our products mitigate, treat, cure, or prevent disease or eliminate viruses from the air. Our products are not medical devices and not subject to FDA regulation.
The U.S. Environmental Protection Agency does not regulate, certify, or register air cleaning devices or manufacturers. The Agency does provide consumer information on air purification devices on its web site: https://www.epa.gov/indoor-air-quality-iaq/does-epa-certifyregister-or-provide-lists-acceptable-air-cleaners-or-1, and references to industry sources including the Association of Home Appliance Manufacturers, so that consumers may learn about air purification devices.
Pursuant to the agreementEnergy Policy and Conservation Act (“EPCA”), The U.S. Department of Energy is authorized to regulate the energy efficiency of a number of consumer products and certain industrial equipment. The EPCA established the “Energy Conservation Program for Consumer Products Other Than Automobiles,” which sets forth a variety of provisions designed to improve energy efficiency for certain consumer products, referred to generally as “covered products.” In addition to specifying a list of consumer products that we entered intoare covered products, EPCA contains provisions enable the Secretary of Energy to classify additional types of consumer products as covered products The U.S. Department of Energy has tentatively determined that air cleaners qualify as a covered product under Part A of Title III of the EPCA, as amended. The Department of Energy has tentatively determined that coverage of air cleaners is necessary and appropriate to carry out the purposes of EPCA, and that the average U.S. household energy use for air cleaners is likely to exceed 100 kilowatt-hours per year. The Department of Energy is currently engaged in soliciting public comments for proposed rules governing air cleaners. The public comment period concluded November 15, 2021.
As of the date of this filing, the Department of Energy has not published an abstract of the proposed regulations or conducted a rulemaking for air cleaners. If, after public comment, the Department of Energy issues a final determination of coverage for air cleaners, it may prescribe both test procedures and energy conservation standards for these products. DOE will publish a final decision on coverage as a separate notice, an action that will be completed prior to the initiation of any test procedure or energy conservation standards rulemaking. If the Department of Energy determines that coverage is warranted, it will proceed with its typical rulemaking process for both test procedures and standards. As of the date of this filing, the Department of Energy is not proposing test procedures or energy conservation standards as part of this proposed determination. If the Department of Energy proceeds with a rulemaking to establish energy conservation standards, it would determine if air cleaners satisfy the provisions of 42 U.S.C. 6295(l)(1) (which prescribe energy conservation standards) during the course of that rulemaking.
State Regulation
On June 3, 2019, the California Air Resources Board (CARB) adopted the indoor air cleaner regulation pursuant to California Assembly Bill 2276 in response to emerging concerns about indoor ozone emissions. While several states and the U.S. Environmental Protection Agency only warn against using ozone generators in occupied indoor spaces, and the Food and Drug Administration limits ozone emissions from medical air cleaner devices, California’s program is unique in that it is the first state to promulgate regulations of air cleaners, and in its breadth and coverage.
The Eagle Rock
Group, we issued toregulation generally imposes certification, ozone testing, electrical safety testing, labeling, notification, and recordkeeping requirements on covered devices intended for use in occupied spaces in California. The Eagle Rock Groupozone emissions concentration limit is 0.050 parts per million (ppm). Personal air cleaners, air cleaners used in motor vehicles, stand-alone air cleaners, and products with a ten-year warrant granting them the
right to purchase 1,400,000 sharesprimary purpose other than air cleaning but that include an air cleaner are all examples of our common stock at an exercise price of
$0.68 per share. The shares underlying the warrant have piggy-back and demand
registration rights, as well as subscription rightscovered devices.
Certain exemptions are provided in the event that we issue
any rights to all of our stockholders to subscribecurrent regulation for shares of our common
stock.industrial-use devices. In addition, due to the warrant contains redemption rightslack of available test methods and sales data at the time of adoption, the regulation exempts “in-duct” air cleaners that are physically integrated into HVAC systems.
In the years since the regulation was finalized, CARB has observed a significant increase in the eventuse of air cleaners in the state, including in-duct air cleaners, in response to recent large fires, floods, and indoor marijuana use (https://ww2.arb.ca.gov/sites/default/files/2019-05/California%20Air%20Cleaning%20Units%20Market%202023.pdf). CARB believes that we
enter intothis market data along with other new sources of information, including revisions to test methods and the availability of a transactiontest method for in-duct devices, warrant regulatory changes.
On October 1, 2020, the regulation was amended with several significant changes. These changes include the immediate elimination of the ozone test requirement for portable air cleaners that resultsuse UVGI lamp(s), with or without mechanical filtration, as long as they meet other requirements that are outlined in section 94804(b) of the regulation. The exemption from the regulation of electronic in-duct air cleaning devices has also been eliminated, meaning this type of air cleaner must be CARB certified prior to sale to California residents or businesses. There is a change24-month phase-in period for meeting this new requirement, which will end on October 1, 2022. CARB is not certifying mechanical in-duct air cleaning devices that use only HEPA filtration. The text required on labels of control of our company.
Effective March 11, 2002, we entered into an agreement withcertified air cleaners has also been changed and should now read: “Meets California ozone emissions limits. CARB certified.” The Eagle
Rock Group extending our relationship with The Eagle Rock Group until March 1,
2003. Pursuantlabel must still meet the same size requirements. There are also changes to the agreement, we agreedindustrial use exemptions, including the added requirement that ozone-producing air cleaning devices can only be used when no people are present. There are also changes made to convert the then-currently owed
amountsadvisory that is required to The Eagle Rock Group of $120,000 into a promissory note duebe placed on an uncertified ozone-producing air cleaner and payable on March 1, 2003additional information to be included in owners, operations, and agreed to grant to The Eagle Rock Group a ten-year
warrantinstallation manuals for the rightdevice. The notification requirement has been eliminated for manufacturers of certified air cleaners, although manufacturers of uncertified ozone-producing air cleaning devices are still required to purchase 2,000,000 shares of our common stock. Five
hundred thousand (500,000) warrant shares are immediately earned and will fully
vest on March 1, 2003. The remaindercarry-out the notification requirement as described in section 94807 of the shares may be earned, contingent
uponregulation.
As of the occurrencedate of various events, including a successful capital raise,
securing contractsthis filing, our products comply with all CARB regulations related to air cleaners for sale in California, and the Company’s manufacturer is registered with the U.S. military, securing contracts with
consumer-oriented distribution organizations,State of California CARB.
Competitive Strengths
| ◌ | Our Products are efficacious air cleaners with patented technologies, that provide superior filtering capabilities and the ability to remove airborne contaminants up to 20 times smaller than HEPA filters, while operating at levels much quieter than HEPA based air purifiers. According to the U.S. Environmental Protection Agency, HEPA filters are able to filter airborne particulates sized at 0.3 microns (https://www.epa.gov/indoor-air-quality-iaq/what-hepa-filter-1). Our products contain automatic laser sensors and electrostatic precipitators which, based on our internal testing, as well as independent third party lab, effectively removed airborne particulate sized as small as 0.0146 microns. Thus, based on our analysis of test data and third-party studies, including that of a 2020 study on electrostatic indoor air cleaners published by the Department of the Built Environment, Aalborg University, which also discusses the efficacy of technologies used by the Company; a 2008 efficacy study of the Company’s air purifiers conducted and published by the Disinfection Research Institute in Moscow, Russia(1) and by Environmental Health and Engineering based in Needham, Massachusetts; and a study published in 2018 by the Association of Home Appliance Manufacturers. Based on the Company testing results, analysis of the test data and an independent third-party testing-our filtering technology is able to capture particulate 20 times smaller than HEPA filters. | |
| ◌ | Our products operate continually to sense the amount of airborne contaminants in the air, and automatically adjust the performance of our products to filter and cleanse the air. Our Auto-Mode also adjusts noise levels ranging from 22dB (sleep mode) to 57dB (turbo mode) and averages at 34dB. This volume is half the noise level of traditional air cleaner systems while being far more effective. In fact, this noise level is as quiet as a soft hum, which, when in Auto Mode, only increases slightly when detecting and purifying the ambient air of more significant pollutants. The laser sensors in our products also alert users when to remove and clean our collector plates. |
| 12 |
| ◌ | HEPA filters are designed to trap pollutants such as pollen and dust. Unfortunately, based on this very design, over time, the “collection process” creates a clogged filter, and as such, HEPA air purifiers will stop working if the filter isn’t changed regularly. This clogging action can also result in pollutants that were once trapped and collected migrating through the filter elements and escaping back into the air. Furthermore, when the air temperature is warm and contains high humidity, mold and bacteria can grow on the HEPA filter, causing foul odors and potentially hazardous waste to be emitted back into the room. Kronos’s ultra-efficient air purification module, with its removable washable collector plates, solves this problem by offering to the consumer an easy-clean system that is both safe and effective by handwashing or placing the purification module in a dishwasher. The removable collector plates eliminate the need to replace otherwise expensive HEPA filters and is a significant competitive advantage to the Company’s products. | ||
| ◌ | Since mold and bacteria like to grow on HEPA filters, they must be replaced every six months; and most likely, more frequently if filtering heavy contaminates. Spending money on HEPA filters can easily cost $500 per year, and the better quality HEPA filters cost even more. Kronos’s Air Purifier technology eliminates having to purchase replacement filters and saves the user a significant amount of unneeded yearly expenses, making Kronos an economical option. | ||
| ◌ | Air cleaners using HEPA filters are made of dangerous fiberglass materials that are not bio-degradable, making the disposed of HEPA filters a long-lasting, damaging component to our environment. Kronos’s Filterless technology creates no recurring waste stream of contaminated HEPA filters. | ||
| (1) | The laboratory testing was conducted in Russia in 2002. Since then, the Company has had no direct or indirect relationship or communication with the institute, and has no present intention to re-engage with the institute or to do so in the future. There has been no direct or indirect material impact on the Company’s current business resulting from the Company’s 2002 laboratory testing in Russia, or due to the Russian invasion of Ukraine. | ||
Competitive Strategies
| ◌ | Recently published Market Reports are forecasting significant growth in both the Global and the North American portable air purifier market over the next seven-year period.1 This growth is projected across the entire spectrum of Room Sized Units, Portable Automotive Units, and also Wearable Devices. The filtering or air purification process itself generally falls into four categories: HEPA Filters; Activated Carbon Filters; Ion Generator based Filters; and Electrostatic Precipitator based Filters. Currently, products using HEPA filters are the consumers’ primary choice, controlling approximately 40% of the residential air purifier market. The other three processes all share similar market share sizes of 18% - 22%. During the forecasted period of 2019 – 2027, each filtering technique is projected to realize substantial growth. | |
| ◌ | We intend to leverage our Filterless technology to emphasize the benefits of collecting common contaminants that are not trapped “within” a filter, but instead are neutralized, the remaining airborne contaminates are ionized and then gathered onto the “collector plates” surface. The airflow rate itself remains unaffected during this neutralization and collection process. Thus, the unit itself experiences no degradation in performance and generates no unnecessary noises. | |
| ◌ | Our products incorporate many intelligent, self-monitoring and reporting technologies, including: | |
| ◌ | CHILD LOCK: Prevents children from changing the settings; in addition, the unit Powers-Off Immediately if the rear panel is opened. |
1 a. Globe News Wire, Portable Air Purifier Market to grow at 11.5% CAGR by 2027 - Market Research Future (MRFR), May 20, 2021;
b. ENERGEN RESEARCH, Air Purifier Market By Technology (HEPA, Activated Carbon, Ionic Filters, and Others), By Applications (Commercial, Residential, Industrial, and Others), and By Regions Forecasts to 2027, September 2020;
c. Allied Market Research, Portable Air Purifier Market by Type (Dust Collectors, Fume & Smoke Detectors, and Others), Technique (High-efficiency Particulate Air, Activated Carbon Filtration and Others): Global Opportunity Analysis and Industry Forecast 2020-2027, June 2020. Report #3;
d. Globe News Wire, Water Purifier Market Analysis – Market Research Future (MRFR), May 20, 2021;
e. Bloomberg Green Energy & Science Section, Covid -19 and Wildfires Spell Big Business for the Air Purifier Industry, August 5, 2021;
f. DATA INTELO, Air Purifier Market by Technology (high-efficiency particulate air (HEPA, ionizers, ozone generators, and electrostatic precipitators), by Type (stand-alone and duct), and Geography (North America, Europe, Asia Pacific, Latin America, and the adoptionMiddle East & Africa) – Global Industry Analysis, Share, Size, Trends, and Forecast 2021-2028; and,
g. Mordor Intelligence, Residential Air Purifiers Market – Growth, Trends, COVID-19 Impact, and Forecasts (2021-2026).
| ◌ | ONE BUTTON OPERATION: The unit operates with the push of a single button. This allows the user to cycle through different airflow settings quickly and easily or simply pick the Auto Mode setting. | |
| ◌ | AUTO MODE - SMART CONTROL: By selecting Auto Mode, the unit automatically adjusts the fan speed according to the contaminate levels that the internal AQI (Air Quality Index) module is reading in real-time. This feature not only provides a hands-free automated process of monitoring the room’s air quality, but it also serves to help the homeowner better manage their power bills. | |
| ◌ | SMART APP WITH REAL-TIME AQI: Based on World Health Organization established Air Quality Standards, Kronos’ air purifiers display an Air Quality Index reading (AQI) on a scale ranging from 0-500. With a quick glance, the homeowner can easily verify that their immediate environment offers the highest air quality. In addition, each user can install on their mobile phone a Smart App that will display the measure AQI reading. Even from a remote location, the homeowner can not only monitor a specific room’s air quality, but they can also reset the fan speed or even turn the unit off if desired. Therefore, this Smart App serves as a remote control. | |
| ◌ | NIGHT MODE: This feature allows the user, if desired, to run the air purifier without the operating lights. | |
| ◌ | DETACHABLE AIR QUALITY LASER DETECTOR: The homeowner can use the detachable detector to measure the air quality in “other rooms” throughout the house. Such readings can then be compared to the AQI levels in the room being “cleansed” by the Kronos air purifier. This information can be vital in helping the homeowner decide whether or not to add additional air purifiers to the strategic locations within their living space. | |
| ◌ | GREEN FRIENDLY: The need to replace HEPA filters on a periodic basis, as used in our competitor’s room-sized products, creates a secondary problem: “Non-Degradable Waste.” This seems to be an even greater issue than other non-degradable waste since HEPA filters are “collecting and storing” contaminates by their very nature. In fact, depending on the severity of the environment, used HEPA filters may be considered toxic waste. All Kronos room-sized air purifiers using the Kronos Filterless technology offer a “Green Friendly” alternative. |
Financial Summary
The following information represents selected audited financial information for our Company for the years ended June 30, 2021, and 2020.
The Company has prepared consolidated financial statements on a going concern basis, which contemplates the realization of a
branding/marketing campaign principally developed byassets and the settlement of liabilities and commitments in the ordinary business course. The Eagle Rock Group. The
exercise price of these warrant shares will be equal to our common stock's
closing priceCompany earned $503,742 in revenues for the year ended June 30, 2021 and $41,215 for the year ended June 30, 2020. At June 30, 2021, and June 30, 2020, the accumulated deficit was $40,672,502 and $38,207,393, respectively. On June 30, 2021, and June 30, 2020, the working capital deficits were $267,309 and $2,103,302. Our cash balance is $19,320 as of June 30, 2021. We do not believe that our cash balance is sufficient to fund our operations. During the day an initial letteryear ended June 30, 2021, and 2020, the Company incurred a net loss of intent or term sheet related$1,465,109 and $493,443.
The summarized financial information presented below is derived from and should be read in conjunction with our audited financial statements, as applicable, including the notes to such transaction is executed.
FUSION CAPITAL TRANSACTION
On June 19, 2001, we entered unto a common stock purchase agreementthose financial statements which are included elsewhere in this Prospectus along with Fusion Capital. Pursuant to the common stock purchase agreementsection entitled Management’s Discussion and subject
to certain conditions, Fusion CapitalAnalysis of Financial Condition and Results of Operations beginning on page 43 of this Prospectus.
| Statements of Operations Data | Year Ended June 30, 2021 | Year Ended June 30, 2020 | ||||||
| Revenues | $ | 503,472 | $ | 41,215 | ||||
| Cost of Sales | $ | 276,083 | $ | 6,756 | ||||
| Gross Profit | $ | 227,658 | $ | 34,459 | ||||
| Total operating expenses | $ | 2,145,883 | $ | 171,344 | ||||
| Total other expenses | $ | (544,578 | ) | $ | 356,568 | |||
| Net Income (Loss) | $ | (1,373,647 | ) | $ | (493,443 | ) | ||
| Net income (loss) per common share, basic and diluted | $ | (0.01 | ) | $ | (0.00 | ) | ||
| Balance Sheets Data | June 30, 2021 | June 30, 2020 | ||||||
| Cash and Cash Equivalents | $ | 19,320 | $ | 19,381 | ||||
| Total Current Assets | $ | 289,482 | $ | 154,264 | ||||
| Total Current Liabilities | $ | 556,791 | $ | 2,257,566 | ||||
| Working Capital (deficit) | $ | (267,309 | ) | $ | (2,103,302 | ) | ||
| Total Stockholders’ Equity (deficit) | $ | 3,159,453 | $ | ($859,052 | ) | |||
| Accumulated Deficit | $ | ($40,672,502 | ) | $ | (38,207,393 | ) | ||
Since December 31, 2018, the Company has agreed to purchase on each trading day
during the term of the agreement, $12,500 of our common stock orissued an aggregate of $10.0 million. The $10.0 million$1,487,500 of our common stock isconvertible promissory notes. Of this amount $1,250,000 was issued for acquisitions and $237,500 was issued for cash. Of the issued notes, four were paid back prior to be purchased over a
40-month period, subjectmaturity. There are two convertible notes outstanding: one to a six-month extension or earlier termination at our
sole discretion and subject to certain events. The purchase price of the shares
of common stock will be equal to a price based upon the future market price of
our common stock without any fixed discount to the then-current market price.
However, there can be no assurance of how much cash we will receive, if any,
under the common stock purchase agreement with Fusion Capital. On November 13,
20
2001, the common stock purchase agreement was amended to establish a floor
price. Fusion Capital is obligated to purchase shares of common stock under the
agreement as long as the per-share price of our common stock exceeds the floor
price of $0.25.
LEGAL PROCEEDINGS
On June 6, 2002, Dutchess Advisors Ltd. initiated legal proceedings in
Middlesex County, Massachusetts, against TSET. The complaint alleges, among
other things, breach of contract, QUANTUM MERUIT, unjust enrichment and
conversion with respect to a letter agreement, dated June 19, 2001, between TSET
and Dutchess Advisors Ltd., and seeks, among other things, a judgmentIntellicalm in the amount of $75,000, exclusive of pre-judgment interest, costs$100,000; and attorneys'
costs. The Company believes it has meritorious defenses and intendsone to vigorously defend.
On February 2, 2001, we initiated, together with Kronos Air
Technologies, legal proceedings in Clackamas County, Oregon against W. Alan
Thompson, Ingrid T. Fuhriman, and Robert L. Fuhriman II, each of whom were
formerly executive officers and members of the Board of Directors of Kronos Air
Technologies. This suit alleges, among other things, breach of fiduciary duties
and breach of contract by these individuals, and seeks, among other things, an
order from the court referring the dispute to arbitration in accordance with the
terms of these individuals. We have agreed to a change of venue of this matter
to King County, Washington, and arbitrators have been selected. The parties areFirst Bitcoin Capital in the processamount of exchanging and complying with requests for discovery.
On January 13, 2000, we initiated legal proceedings in Clackamas
County, Oregon against Foster & Price Ltd., an Isle of Man corporation, seeking,
among other things, a judicial declaration that a certain term sheet signed by
us and Foster & Price was lawfully terminated by us due to Foster & Price's
failure to perform certain terms thereunder and was therefore null and void, and
that we and Foster & Price had no further contractual obligations between
ourselves. Foster & Price claimed entitlement to the issuance of 10,000,000
shares of our$250,000. Neither note has been satisfied or converted into common stock notwithstanding its alleged nonperformance of
certain important obligations under the term sheet. On July 7, 2001, we entered
into a mutual release and settlement agreement with Foster & Price and Alex D.
Saenz, pursuant to which our company, Foster & Price and Mr. Saenz mutually and
fully released each other from all related claims and counterclaims and agreed
to the dismissal of the litigation initiated by us against Foster & Price on
January 13, 2000. The settlement agreement does not contain any admission of
liability or fault by any party. The parties also agreed, among other things, to
not institute any future litigation relating to the term sheet of the previous
relationship. As settlement consideration, we delivered to Foster & Price and
Mr. Saenz, collectively, a total of 375,000 registered shares of our common
stock. Foster & Price and Mr. Saenz have agreed that in no case shall they sell
on any given trading day more than 5,000 shares, or more than 12,500 shares in
any consecutive five-day trading period, or more than 50,000 shares in any
30-day consecutive trading period. Foster & Price and Mr. Saenz have agreed to
certain confidential provisions and to indemnify us against claims arising out
of any dispute between Foster & Price and Mr. Saenz relating to any allocation
of shares between them as well as claims brought by persons who are not parties
to the settlement agreement.
On January 11, 2002, Aperion Audio, Inc. (f/k/a EdgeAudio.com), a
company in which Kronos Advanced Technologies owns common shares, initiated
arbitration in a dispute over the Agreement and Plan of Reorganization between
the parties. Aperion Audio, Inc. requested damages of $213,900 plus
consequential damages. On June 7, 2002, TSET settled all outstanding litigation
with Aperion Audio, Inc., including the dismissal of arbitration proceedings,
pursuant to a Settlement Agreement and Mutual Release, which included the sale
of TSET-owned shares of Aperion Audio, Inc. common stock.
DESCRIPTION OF OUR PROPERTIES
Our principal executive office is located at 464 Common Street, Suite
301, Belmont, Massachusetts.
The offices of Kronos Air Technologies are located at 8549 / 8551 154th
Avenue NE, Redmond, Washington 98052. Kronos Air Technologies is committed
through June 30, 2003 to annual lease payments on operating leases for 4,000
square feet of office/research lab premises of $42,670 per year.
We consider our existing facilities to be adequate for our foreseeable
needs.
21
MANAGEMENT
Our directors and executive officers and their ages as of the date of this prospectus are asfiling. A description of each note follows:
NAME AGE POSITION
---------------------- ------- -------------------------------------------------
Daniel R. Dwight 42 Director; President and Chief Executive Officer
Richard A. Papworth 43 Director; Chief Financial Officer, Secretary, and
Treasurer
Richard F. Tusing 44 Director; Chief Operating Officer
James P. McDermott 40 Director
Charles D. Strang 79 Director
Erik W. Black 31 Director
Jeffrey D. Wilson 47 Director
DANIEL R. DWIGHT, 42, has served
On December 31, 2018, the Company issued a convertible promissory note in the amount of $1,000,000. The note is due on December 31, 2023 and bears interest at 5% per annum. The loan and any accrued interest may be converted into shares of the Company’s common stock at a rate of 80% multiplied by the average of the three lowest trading prices during the previous ten (10) day trading period ending on the latest completed trading day prior to the conversion date. Pursuant to current accounting guidelines, the Company recorded a note discount of $1,000,000 to account for the note’s derivative liability. In addition, the Company recorded an amount of discount in excess of the note principal of $250,000 that was expensed as a Directorfinancing cost. On June 30, 2021, The Company converted the entirety of TSET since November
2000, and asthe note into shares eliminating the liability of this note completely.
On April 29, 2020, we issued a Director and Chief Executive Officer of Kronos Air Technologies
since January 2001. Effective October 16, 2001, Mr. Dwight was appointed
President and Chief Executive Officer of TSET. He has extensive experience in
private equity and operations in a wide variety of high growth and core
industrial businesses. Mr. Dwight is currently an independent management
consultant who provides business development, strategic consulting, financial
planning, merchant banking, and operational execution servicesconvertible promissory note to a wide range
of clients. Prior to starting his consulting practice, Mr. Dwight spent 17 years
with General Electric including 10 years of operations, manufacturing, and
business development experience with GE's industrial businesses, and seven years
of international investment and private equity experience with GE Capital. He
has had responsibility for over a $1 billion in merger and acquisition and
private equity transactions at GE. Most recently, Mr. Dwight initiated GE
Capital's entryJulius Toth in the Asia private equity market. Between 1995 and 1999, the
Asian equity portfolio grew to include consolidations, leveraged buyouts, growth
capital and minority investments in diverse industries, including information
technology, telecommunications services, consumer products, services and
distribution, and contract manufacturing.amount of $37,500. Mr. Dwight led deal teams with
responsibility for the execution of transactions, monitoring of portfolio
companies and realization of investments. Since 1982, Mr. Dwight has held other
leadership positions domestically and internationally with GE Capital, as well
as senior positions with GE Corporate Business Development (1989-1992) and GE
Corporate Audit Staff (1984-1987). His responsibilities included identifying,
analyzing and implementing reorganizations, restructurings, consolidating
acquisitions, and divestitures of GE businesses. He also had responsibility for
the development of new business ventures and commercialization of new
technologies strategic to GE's industrial businesses. Mr. Dwight holdsToth is not an MBA in
Finance and Marketing with Honors from the University of Chicago in 1989 and a
B.S. in Accounting with Honors from the University of Vermont in 1982.
RICHARD A. PAPWORTH, 43, became a Director of TSET in June 2001, was
appointed Chief Financial Officer of TSET in May 2000, and has served as a
Director, Chief Financial Officer, and Treasurer of Kronos Air Technologies
since January 2001, and as Assistant Secretary of Kronos Air Technologies since
December 2000. Mr. Papworth has had diverse finance, tax, and accounting
experience in a range of industries, including real estate
development/construction, software development, publishing, distribution,
financial institutions, and investment companies. From 1997-2000, he was
Vice-President and Controlleraffiliate or control person of the U.S. and European operations of Wilshire
Financial Services Group, a Portland, Oregon-based publicly held specialty loan
servicing and investment company with more than $2 billion under management. In
this capacity, Mr. Papworth was responsible for accounting and control system,
financial reporting and analysis, and business decision support for the
worldwide organization. From 1996-97, he was Chief Financial Officer of First
Bank of Beverly Hills, a $550 million banking subsidiary of WFSG. From 1995-96,
Mr. Papworth was Treasurer for Maintenance Warehouse America Corporation in
which capacity he successfully negotiated more than $50 million of real estate
and working capital financing, and was responsible for management of Maintenance
Warehouse America Corporation's insurance program and tax compliance. From
1994-95, he maintained a private management and finance consulting practice for
select clients. From 1989-94, Mr. Papworth worked for Morrison Homes, the U.S.
home building division of U.K.-based George Wimpey Plc., during which period he
held various positions including Chief Financial Officer, Treasurer, and
Assistant Treasurer. From 1985-89, he engaged in tax consulting with Deloitte
and Touche, a Big Five accounting firm. He received a B.S. in accounting (with
minors in business, economics, and Spanish) and a Macc (Masters of Accountancy)
with emphasis in tax law, from Brigham Young University in 1984. Mr. Papworth
22
became licensed as a certified public accountant in the State of California in
1987. Mr. Papworth speaks Spanish fluently.
RICHARD F. TUSING, 44, has served as a Director of TSET since October
2000 and as a Director of Kronos Air Technologies since January 2001 and was
appointed Chief Operating Officer on January 1, 2002. Mr. Tusing has had
extensive experience in developing new enterprises, negotiating the licensing of
intellectual property rights, and managing technical and financial
organizations, and has more than 20 years of business development, operations,
and consulting experience in the technology and telecommunications industries.
He has spent four years in executive management with several emerging technology
companies, 14 years in various managerial and executive positions with MCI
Communications Corporation, and three additional years in managerial consulting.
While acting as an independent management consultant from 1996 to the present,
Mr. Tusing's experience with emerging technology companies includes serving as
Chief Executive Officer and Chief Technology Officer for Avalon Media Group (a
turnkey advertising services company); primary responsibility for technology
planning, licensing, and strategic technology architecture relationships for
ICU, Inc. (a mobile video conferencing company); and Executive Vice-President,
Chief Technology Officer, and Director of Entertainment Made Convenient (Emc3)
International, Inc. (a video and data downloading services company). Through his
private consultancy, Mr. Tusing provides, among other things, managerial,
financial planning, technical, and strategic planning services. From 1982-1996,
Mr. Tusing held multiple managerial and executive positions with MCI
Communications Corporation. From 1994-1996, he served as MCI's Director of
Strategy and Technology, managing MCI's emerging technologies division (having
primary responsibility for evaluating, licensing, investing in, and acquiring
third-party technologies deemed of strategic importance to MCI), and also
oversaw the development of several early-stage and venture-backed software and
hardware companies; in this capacity, Mr. Tusing managed more than 100
scientists and engineers developing state-of-the-art technologies. From
1992-1994, Mr. Tusing founded MCI Metro, MCI's entree into the local telephone
services business and, as MCI Metro's Managing Director, managed
telecommunications operations, developed financial and ordering systems, and led
efforts in designing its marketing campaigns. From 1990-1992, he served as
Director of Finance and Business Development for MCI's western region,
overseeing $1,000,000,000 in annual revenue and a $90,000,000 operating budget.
From 1982-1990, Mr. Tusing held other management and leadership positions within
MCI, including service as MCI's Pacific Division's Regional Financial
Controller, Manager of MCI's Western Region's Information Technology Division,
and led MCI's National Corporate Financial Systems Development Organization. Mr.
Tusing received B.S. degrees in business management and psychology from the
University of Maryland in 1979.
JAMES P. MCDERMOTT, 40 became a Director of TSET in July 2001. Mr.
McDermott has over 18 years of financial and operational problem-solving
experience. Mr. McDermott is a co-founderCompany and is currentlynot a Managing Director
of Eagle Rock Advisors, LLC, the Manager for The Eagle Rock Group, LLC. From
1992 through 2000, Mr. McDermott held various managerial and executive positions
with PennCorp Financial Group, Inc. and its affiliates. From 1998 through 2000,
Mr. McDermott was Executive Vice-President and Chief Financial Officer of
PennCorp Financial Group. While servingrelated party having a direct or indirect interest in this position, Mr. McDermott was
one-third of the executive management team that was responsible for developing
and implementing operational stabilization, debt reduction and recapitalization
plans for the company. From 1995 through 1998, Mr. McDermott served as Senior
Vice-President of PennCorp Financial Group. Mr. McDermott worked closelyany current or proposed transaction with the Audit CommitteeCompany. The note included interest of the Board of Directors on evaluating the PennCorp's
accounting5% per annum. The maturity date was April 29, 2021. The note included rights to convert outstanding principal and actuarial practices. In addition, Mr. McDermott was responsible
for developing a corporate-wide technology management program resulting in
technology convergence and cost savings to the company's technology budget. From
1994 through 1998, Mr. McDermott was a principal in Knightsbridge Capital Fund
I, LP, a $92 million investment fund specializing in leverage-equity
acquisitions of insurance and insurance-related businesses. Mr. McDermott was
also the founding Chairman of the e-business Internet service provider,
Kivex.com, and a senior manager of one of the world's leading public accounting
firms, KPMG. Mr. McDermott received a B.S. Degree in Business Administration
from the University of Wisconsin, Madison.
CHARLES D. STRANG, 79, has served as a Director of TSET since September
2000 and as a Director of Kronos Air Technologies since January 2001. Mr. Strang
was named National Commissioner of NASCAR (National Association for Stock Car
Racing) in 1998 and continues to serve in that capacity. In 1989 Mr. Strang
received President Bush's American Vocation Success Award; in 1992 was elected
to the Hall of Fame of the National Marine Manufacturers Association; in 1990
was awarded the Medal of Honor of the Union for International Motorboating; and
is a life member of the Society of Automotive Engineers. He also currently
serves as a Director of the American Power Boat Association (the U.S. governing
body for powerboat racing) and Senior Vice-President of the Union for
International Motorboating (the world governing body for powerboat racing, with
approximately 60 member nations). He joined Outboard Marine Corporation as
Director of Marine Engineering in 1966, and retired as Chief Executive Officer
in 1990 and as Chairman in 1993 after a more than 40-year career in the marine
industry. Mr. Strang retired as a Director of Outboard Marine Corporation in
1996 and has been retired since that time. Mr. Strang's accomplishments during
this period include the invention of the modern-day stern-drive
(inboard/outboard) power system, the evolution of high horsepower outboard
motors, dozens of patents in the field of engine design, marine propulsion
devices, and powerboats, and the movement of the marine industry to vertically
integrate engine manufacturers with boat builders; these efforts have
accelerated the consolidation of the marine industry and the trend to "packaged"
boat and motor marketing. Under his leadership, Outboard Marine Corporation was
transformedinterest into a vertically-integrated producer of complete, factory-rigged
and -powered boats; his engineering and management leadership has had a lasting,
23
substantial influence on the marine industry. Mr. Strang graduated with a degree
in mechanical engineering from Polytechnic University in 1943 and worked for
several years in the aerospace industry (including research and testing projects
on aircraft engines) and served on the mechanical engineering staff of
Massachusetts Institute of Technology. He spent 13 years with Kiekhaefer
Corporation (manufacturer of Mercury outboard motors), rising from Director of
Research to Executive Vice-President, and was also proprietor of U.S.
Executives, Inc., a management consulting firm, and Hydro-Mechanical
Development, an engineering firm.
ERIK W. BLACK, 31, became a Director of TSET in June 2001, was
appointed Executive Vice-President - Business Development of TSET in May 2000,
and also served as Chairman of the Board of Directors of Atomic Soccer from
November 2000 until the sale of Atomic Soccer in April 2001. Mr. Black resigned
as Executive Vice-President - Business Development of TSET - effective December
31, 2001. Before joining TSET, Mr. Black served from 1997-2000 as a business and
corporate strategy consultant to the office of the Chairman on Funding
Selection, Inc., an investment banking and mergers and acquisitions company. He
also developed, launched, and managed GI Bill Express.com LLP from February 1999
until its acquisition by Military.com in April 2000. Mr. Black has also worked
as an e-business associate consultant for IBM Global Services in Phoenix,
Arizona, from March 1999 until April 2000. In addition, Mr. Black was the sole
proprietor of E.B. Web Designs, an Internet development services and consulting
company founded in 1998. Mr. Black worked as the communications coordinator for
the Synthetic Organic Chemical Manufacturers Association in Washington, D.C.
from 1996-97 and as an associate consultant for Robert Charles Lesser & Co., a
real estate consulting firm, from 1995-96. He received an M.B.A. and a Masters
of Information Management degrees from Arizona State University in 2000 (where
he received the ASU MBA Kiplinger Foundation Prize for outstanding scholarship,
service, and contribution, and served as Vice-President - communications of the
ASU MBA Student Body Association in 1999-2000), a Global Leadership Certificate
from Thunderbird - The American Graduate School of International Management in
2000, and a B.A. from Pomona College in 1995, where he graduated magna cum laude
and was elected to Phi Beta Kappa. Mr. Black speaks Russian fluently.
JEFFREY D. WILSON, 47, was appointed Chairman of the Board of Directors
and Chief Executive Officer of TSET in April 1999. On October 10, 2001, Mr.
Wilson resigned as Chairman of the Board of Directors and Chief Executive
Officer of TSET, as well as Chairman of the Board of Directors of Kronos Air
Technologies and EdgeAudio, respectively. Mr. Wilson remains a director of TSET.
Mr. Wilson has had extensive international transactions experience in Asia,
Europe, Latin America, Africa, and the U.S., having represented clients in a
wide range of joint venture, corporate finance, public and private securities,
regulatory, asset acquisition, licensing, investment, technology, mergers and
acquisitions, leveraged buy-out, and other transactions, and has assisted
clients in gaining access to foreign markets and in government lobbying
activities. Mr. Wilson served as Chairman of the Board of Directors of Kronos
Air Technologies and Atomic Soccer since March 2000; Mr. Wilson resigned as
Chairman of Atomic Soccer in November 2000. From 1992-1999, Mr. Wilson
maintained a private international consulting practice for select clients and
engaged in entrepreneurial ventures. From 1990-1992, he served as international
legal advisor for GGS Co., Ltd., a Tokyo-based Japanese investment company (and
including its Hong Kong, Australian, Canadian, and U.S. affiliates), having
primary responsibility for its international projects. From 1982-1990, he
engaged in the private practice of law. Mr. Wilson received a B.A. from Brigham
Young University in 1979 and a J.D. from the University of Kansas in 1982, where
he was also associate editor of the KANSAS LAW REVIEW and President of the
International Law Society. Mr. Wilson speaks Japanese fluently.
DIRECTORS
Our Board of Directors consists of eight seats. Directors serve for a
term of one year and stand for election at our annual meeting of stockholders.
Four of our current directors were reelected at our annual meeting of
stockholders held on December 15, 2000, and two additional directors were
appointed in June 2001. One vacancy currently exists on the Board of Directors
as of the date of this prospectus. Pursuant to our Bylaws, a majority of
directors may appoint a successor to fill any vacancy on the Board of Directors.
Daniel R. Dwight, our President and Chief Executive Officer, Richard A.
Papworth, our Chief Financial Officer, Secretary, and Treasurer, and Richard F.
Tusing, our Chief Operating Officer, are also executive officers of TSET. James
P. McDermott, a principal of The Eagle Rock Group, LLC, was nominated to our
Board of Directors in July 2001.
ADVISORY BOARD
We established an Advisory Board in July 2001 to assist management in
the development of long-range business plans for our Company. Currently, William
24
Poster is the sole Advisory Board Member. Mr. Poster is a seasoned entrepreneur
with a successful track record as a founder of several businesses spanning five
continents. Mr. Poster has experience in developing business opportunities in
the United States, Europe, Asia and the Middle East. Mr. Poster recently stepped
down as President of Computer Systems & Communications Corporation, a
wholly-owned subsidiary of General Dynamics. Computer Systems & Communications
Corporation is a cutting-edge communications and technology company that Mr.
Poster founded and later sold to General Dynamics.
We will continue to evaluate additional potential candidates for our
Advisory Board.
COMMITTEES
On September 11, 2001, the Board of Directors established a
Compensation Committee consisting of two independent members of the Board of
Directors. The Compensation Committee and Chairman will be designated annually
by the Board of Directors. The Compensation Committee is charged with reviewing
and making recommendations concerning TSET's general compensation strategy,
reviewing salaries for officers, reviewing employee benefit plans, and
administering TSET's stock incentive plan, once adopted and implemented.
COMPENSATION OF DIRECTORS
CASH COMPENSATION. Our Bylaws provide that, by resolution of the Board
of Directors, each director may be reimbursed his expenses of attendance at
meetings of the Board of Directors; likewise, each director may be paid a fixed
sum or receive a stated salary as a director. As of the date of this prospectus,
no director receives any salary or other form of cash compensation for such
service. No director is precluded from serving our Company in any other capacity
and receiving compensation from us in connection therewith.
SHARE-BASED COMPENSATION. Each director is entitled to receive annually
50,000 restricted shares of our common stock either granted as shares orcalculated at a discount of 20% to the lowest three trading prices over a ten-day period prior to the date a conversion notice is delivered. We repaid principal and interest on this note prior to the maturity date.
On April 29, 2020, we issued a convertible promissory note to Nina Levy in the formamount of fully-vested options, as compensation for their services as members$40,000. Ms. Levy is not an affiliate or control person of our Boardthe Company and is not a related party having a direct or indirect interest in any current or proposed transaction with the Company. The note included interest of Directors.5% per annum. The Chairman of our Board of Directors is entitledmaturity date was April 29, 2021. The note included rights to receive annually an additional 50,000convert outstanding principal and interest into shares of our common stock either granted
as shares orcalculated at a discount of 20% to the lowest three trading prices over a ten-day period prior to the date a conversion notice is delivered. We repaid principal and interest on this note prior to the maturity date.
On June 5, 2020, we issued a convertible promissory note to Mark Grossman in the formamount of fully-vested options, as compensation for his
services as Chairman of our Board of Directors. As$20,000. Mr. Grossman is not an affiliate or control person of the Company and is not a related party having a direct or indirect interest in any current or proposed transaction with the Company. The note included interest of 5% per annum. The maturity date of this
prospectus, Messrs. Wilsonwas June 5, 2020. The note included rights to convert outstanding principal and Strang have been granted 200,000 and 50,000
options, respectively as compensation for Mr. Wilson's services as Chairman of
our Board of Directors and Mr. Strang's services as a member of our Board of
Directors. Messrs. Tusing and Dwight have each been granted 50,000interest into shares of our common stock as compensation for their services as memberscalculated at a discount of 20% to the lowest three trading prices over a ten-day period prior to the date a conversion notice is delivered. We repaid principal and interest on this note prior to the maturity date.
On June 8, 2020, we issued a convertible promissory note to Intellicalm, Inc. in the amount of $40,000. Neither Intellicalm, Inc. nor any Intellicalm control person is an affiliate or control person of the Company and are not related parties having a direct or indirect interest in any current or proposed transaction with the Company. The note included interest of 5% per annum. The maturity date was April 29, 2021. The note included rights to convert outstanding principal and interest into shares of our Boardcommon stock calculated at a discount of Directors.
25
EXECUTIVE COMPENSATION20% to the lowest three trading prices over a ten-day period prior to the date a conversion notice is delivered. We repaid principal and interest on this note prior to the maturity date.
On July 21, 2020, we issued a convertible promissory note to Intellicalm, Inc. in the amount of 100,000. Neither Intellicalm, Inc. nor any Intellicalm control person is an affiliate or control person of the Company and are not related parties having a direct or indirect interest in any current or proposed transaction with the Company. The note included interest of 5% per annum. The maturity date was July 21, 2021. The note included rights to convert outstanding principal and interest into shares of our common stock calculated at a discount of 20% to the lowest three trading prices over a ten-day period prior to the date a conversion notice is delivered. This note remains outstanding.
On October 1, 2019, the Company issued a convertible promissory note in the amount of $250,000 to First Bitcoin Capital, LLC (“First Bitcoin”). Neither First Bitcoin nor any First Bitcoin affiliate are a control person or affiliate of the Company. The note is outstanding and due on October 1, 2024 and bears interest at 5% per annum. The loan and any accrued interest may be converted into shares of the Company’s common stock at a rate of 80% multiplied by the average of the three lowest trading prices during the previous ten (10) day trading period ending on the latest complete trading day prior to the conversion date. Pursuant to current accounting guidelines, the Company recorded a note discount of $250,000 to account for the note’s derivative liability. In addition, the Company recorded an amount of discount in excess of the note principal of $62,500 that was expensed as a financing cost. This note was assigned by First Bitcoin to ANI Holdings, Pty. Ltd. The note remains outstanding.
On June 17th, 2021, West Virginia Economic Development and Authority (WVEDA) approved in a meeting of its board of directors to grant Kronos two loan offers with the aggregate principal amount not to exceed $2,610,000. The loans are for the Company’s acquisition of the manufacturing facility in West Virginia and for fixed equipment. The loans contain repayment terms of 15 years and 10 years respectively. Interest rates for the two notes are as follows:
Loan (1) $1,845,000: This loan shall bear interest fixed as of the third business day prior to closing equal to the rate of the 20 Year US Treasury Note rate plus 0.75%. This loan has a floor (minimum) interest rate of 2. 75% and shall be adjustable every five years. The loan will be secured by a first lien deed of trust on the project land, improvements, and appurtenances in the amount of $1,845,000, and will be cross collateralized with Loan (2), discussed below.
Loan (2) $765,000: This loan shall bear interest fixed as of the third business day prior to closing equal to the rate of the Wall Street Journal Prime rate multiplied by 0.75%. This loan has a floor (minimum) interest rate of 2.75%. The loan will be secured by a UCC-1 security filing on all assets of the Company and will be cross collateralized with Loan (1).
On April 7, 2022, we completed all conditions precedent and the loans closed by our purchase of fixed equipment, providing proofs of hazard and flood insurance, title insurance and liability insurance. We also installed all equipment and completed all renovations at the facility, which resulted in the transfer of title of the real estate to the Company from a “contract of sale” to recorded ownership.
We are an “emerging growth company” within the meaning of the federal securities laws. For as long as we are an emerging growth company, we will not be required to comply with the requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, the reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and the exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We intend to take advantage of these reporting exemptions until we are no longer an emerging growth company.
The Risk Factors are an explanation of the qualifications and other requirements applicable to such emerging growth companies. It describes certain elections that we have made due to our status as an emerging growth company.
This investment has a high degree of risk. Before you invest, you should carefully consider the risks and uncertainties described below and the other information in this Prospectus. If any of the following table sets forth compensationrisks occur, it will harm our operating results and financial condition, and the value of our stock could go down. This means you could lose all or a part of your investment.
The novel coronavirus (COVID-19) pandemic may have an expected effect on our business, financial condition, and results of operations.
In March 2020, the World Health Organization declared a novel coronavirus (COVID-19) outbreak as a pandemic worldwide. Many countries, including China and the United States, from time to time, implemented significant governmental measures to control the spread of the virus, including temporary closure of businesses, severe restrictions on travel and the movement of people, and other material limitations on business generally. These measures have resulted in worldwide work stoppages, absenteeism in the labor workforce, and other disruptions. China started as the center of the COVID-19 epidemic, which is where our product supplies are sourced, and our products are assembled and shipped. The pandemic resulted in an increase in the lead time for the manufacturing and delivery of our products. The extent to which the coronavirus and its variants impacts our continuing operations will depend on future developments. These developments are highly uncertain. We cannot predict them with confidence, including the duration and severity of the outbreak, the spread and effects of coronavirus variants, and the actions required to contain the coronavirus, its variants, or treat its impact. In particular, the continued spread of the coronavirus and its variants globally could adversely impact our operations and workforce, including our marketing and sales activities and ability to raise additional capital, which could harm our business, financial condition, and operation results.
RISKS RELATED TO THE COMPANY
We may not be able to continue our business as a going concern – Our Auditor has issued a “Going Concern” Opinion.
Our independent registered public accounting firm included in its opinion for the year ended June 30, 2021 and 2020 an explanatory paragraph referring to our recurring losses from operations and expressing substantial doubt in our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to develop profitable operations and to obtain additional funding sources. Our financial statements as of June 30, 2021 and 2020 did not include any adjustments that might result from the outcome of this uncertainty. The reaction of investors to the inclusion of a going concern statement by our auditors, and our potential inability to continue as a going concern, in future years could materially adversely affect our share price and our ability to raise new capital or implement our business plans.
| 16 |
We may need to obtain additional financing, which may not be available.
We need the proceeds from this offering to implement our business plan and expand our operations as described in the “Plan of Operation” section of this Prospectus. As of the year ended June 30, 2021, we had $19,320 cash on hand and total current liabilities of $556,791. The Company earned $503,742 in revenues for the fiscal year ended June 30, 20012021. Our net loss for the year ended June 30, 2021 is $1,465,109. The proceeds of this offering may not be sufficient for us to achieve future profitable operations. We need additional funds to achieve a sustainable sales level to fund ongoing operations out of revenues. There is no assurance that any additional financing will be available or, if available, on terms that will be acceptable to us.
Our operating history may not serve as a complete or adequate basis to judge our future prospects and results of operations.
Although we have operated in the air cleaning business since 2002, our historical operating results may not provide a meaningful basis for evaluating our business, financial performance, and prospects. Even though we have generated revenues, we are also involved in organizational activities, research, and development, and developing our new technologies. Accordingly, you should not rely on our results of operations for any prior periods as an indication of our future performance. At June 30, 2021, and June 30, 2020, our accumulated deficit was $40,672,502 and $38,207,393, respectively. There is a substantial risk that we will not be successful in our development and sales activities, or if initially successful, in thereafter generating significant operating revenues or in achieving profitable operations. Our operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the limitations of a significant operating history. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.
We cannot accurately predict future revenues or profitability in the emerging market for air cleaners.
The market for air cleaners is rapidly evolving. As is typical for a rapidly evolving industry, demand, and market acceptance for recently introduced products are subject to a high level of uncertainty. Moreover, since the market for our executive officers:
We currently depend on Chinese suppliers for the sourcing of April 20, 1999some parts and continued for an
"evergreen" termthe manufacturing and shipping of five years unless Mr. Wilson provided at least 60 days'
prior written notice of his resignation. Such agreement provided for base cash
compensation during the first 12-month period in the amount of $12,500 per
month, plus a cash bonus in the amount of $30,000our products.
We are, and will continue to be paid in one lump sumfor the foreseeable future, substantially dependent on or before May 1, 2000. During the second 12-month period, Mr. Wilson's base cash
compensation wasour Chinese suppliers to increasedeliver parts and manufacturing for our products. Although we plan on moving our supply chain and manufacturing to $15,000 per month, and during the third 12-month
period such base cash compensation was to increase to $20,000 per month. Mr.
Wilson deferred all cash and bonus compensation from April 1999 through August
2000; however, commencing in September 2000, Mr. Wilson began receiving cash
compensation in the amount of $17,500 per month, approved by the Board of
Directors, in consideration of his previous deferral of such compensation. We
were obligated to pay interest at the rate of 12% annually on all compensation
deferred by Mr. Wilson until all such amounts have been paid in full. Mr.
Wilson's nominee, The Pangaea Group, LLC, received a signing bonus of 100,000
fully vested and non-forfeitable restricted shares of our common stock; The
Pangaea Group, LLC received an additional 900,000 restricted shares of our
common stock, which vested at the rate of 100,000 shares per month over the
9-month period following Mr. Wilson's acceptance of the terms of his employment
agreement. Mr. Wilson was entitled to fully participate in any and all 401(k),
stock option, stock bonus, savings, profit-sharing, insurance, and other similar
plans and benefits of employment; however,West Virginia facility, this is not complete as of the date of this prospectus,filing, and we continue to rely upon our Chinese parts suppliers and manufacturing services. The time and cost associated with relocating our supply chain and manufacturing facilities are uncertain. Although we have established contracts with our Chinese supply chain and manufacturers, we can make no assurance that we will be able to maintain these third-party relationships or establish additional relationships as necessary to support growth and profitability of our business on economically viable terms until we can complete the relocation of our parts and manufacturing business to the United States. As independent companies, our Chinese suppliers make their own business decisions. The suppliers may choose not adoptedto do business with us for a variety of reasons, including competition, brand identity, product standards and concerns regarding our economic viability. In addition, their financial condition could also be adversely affected by conditions beyond our control and our business could concurrently suffer. In addition, we will face risks associated with any supplier’s failure to adhere to quality control and service guidelines or failure to ensure an adequate and timely supply of product to our potential and future customers. Any of these factors could negatively affect our business and financial performance. As noted, the coronavirus has affected our lead times for the manufacturing and delivery of our products from China. If we are unable to obtain and maintain a source of supply for our products, our business will be materially and adversely affected.
Price competition could negatively affect our gross margins.
Price competition could negatively affect our operating results. To respond to competitive pricing pressures, we will have to offer our products at lower prices in order to retain or gain market share and customers. If our competitors offer discounts on products in the future, we may need to lower prices to match the competition, which could adversely affect our gross margins and operating results.
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If we are unable to build and maintain our brand image and corporate reputation, our business may suffer.
Regardless of our development history, we are nonetheless a relatively new company, having conducted new research and development in the last few years in the air cleaner space. Therefore, our success depends on our ability to build and maintain the brand image for our air cleaner products and effectively build the brand image for any new products. We cannot assure you that any additional expenditure on advertising and marketing will have the desired impact on our products’ brand image and on consumer preferences. Actual or perceived product quality issues or allegations of product flaws, even if false or unfounded, could tarnish the image of our brand and may cause consumers to choose other products. Allegations of product defects, even if untrue, may require us from time to time to recall a product from all of the markets in which the affected product was distributed. Product recalls would negatively affect our profitability and brand image.
If we are unable to complete and implement our plan to manufacture, market and sell our Air Cleaner products in our West Virginia facility, our growth, sales, and profitability operations may suffer.
We have not yet fully implemented anyour business plans to manufacture, market and sell our air cleaners and we have initial revenues from the sale of our air cleaners. The success of our business will depend on the completion of our plan to relocate our supply chain and manufacturing to the United States in our West Virginia facility, our access to the loans approved by the West Virginia Economic Development and Authority, and the acceptance of our air cleaner products by the general public. Achieving such plans. Mr. Wilson had "piggyback"
registration rightsmilestones will require significant investments of time and money. Our sales of air cleaner products may not be accepted by consumers at sufficient levels to support our operations and build our business. If our Air cleaner products are not accepted at sufficient levels, our growth, sales, and profitability may suffer.
The loans offered by the West Virginia Economic Development Authority closed on April 7, 2022, and Kronos is liable for repayment of the loans and interest to West Virgina Economic Development Authority. Without adequate funding the Company may not be able to pay back principal and interest under the loan agreements.
On June 17th, 2021, West Virginia Economic Development Authority (WVEDA) approved in a meeting of its board of directors to grant Kronos two loan offers with respectthe aggregate principal amount not to exceed $2,610,000. The loans are for the Company’s acquisition of the manufacturing facility in West Virginia and for fixed equipment. The loans contain repayment terms of 15 years and 10 years respectively. Interest rates for the two notes are as follows:
Loan (1) $1,845,000: This loan shall bear interest fixed as of the third business day prior to closing equal to the rate of the 20 Year US Treasury Note rate plus 0.75%. This loan has a floor (minimum) interest rate of 2. 75% and shall be adjustable every five years. The loan will be secured by a first lien deed of trust on the project land, improvements, and appurtenances in the amount of $1,845,000, and will be cross collateralized with Loan (2), discussed below.
Loan (2) $765,000: This loan shall bear interest fixed as of the third business day prior to closing equal to the rate of the Wall Street Journal Prime rate multiplied by 0.75%. This loan has a floor (minimum) interest rate of 2.75%. The loan will be secured by a UCC-1 security filing on all restricted shares owned by him,assets of the Company and will be cross collateralized with Loan (1).
The Company satisfied the conditions precedent to the closing of the loans, which closed on April 7, 2022, including renovations to the physical buildings and the purchase of the real property, purchase of fixed equipment, hazard and flood insurance, title insurance and liability insurance. However, without adequate funding to implement and develop our business plans, the Company may not be unable to pay back the principal and interest on these secured loans when due.
Changes in economic conditions that impact consumer spending could harm our business.
Our financial performance is sensitive to changes in overall economic conditions that impact consumer spending. Future economic conditions affecting consumer income such as well
as "demand" registration rights with respect thereto exercisable two times
during each 5-year termemployment levels, business conditions, interest rates, and tax rates could reduce consumer spending or cause consumers to shift their spending to other products. A general reduction in the level of his employment. consumer spending or shifts in consumer spending to other products could have a material adverse effect on our growth, sales, and profitability.
New federal and expanded state regulations may result in increased costs which could affect our business.
The costDepartment of exercising such piggybackEnergy has tentatively determined that coverage of air cleaners is necessary and demand registration rights wasappropriate to be borne by us.carry out the purposes of EPCA, and that the average U.S. household energy use for air cleaners is likely to exceed 100 kilowatt-hours per year. The Department of Energy is currently engaged in developing proposed rules governing air cleaners. The public comment period concluded November 15, 2021. As of the date of this prospectus, Mr. Wilson hadfiling, the Department of Energy has not exercised such registration rights. Mr. Wilsonpublished an abstract of the proposed regulations or conducted a rulemaking for air cleaners. If, after public comment, the Department of Energy issues a final determination of coverage for air cleaners, it may prescribe both test procedures and energy conservation standards for these products.
On June 3, 2019, the California Air Resources Board (CARB) adopted the indoor air cleaner regulation pursuant to California Assembly Bill 2276 in response to emerging concerns about indoor ozone emissions. While several states and the U.S. Environmental Protection Agency only warn against using ozone generators in occupied indoor spaces, and the Food and Drug Administration limits ozone emissions from medical air cleaner devices, California’s program is entitledunique in that it is the first state to promulgate regulations of air cleaners, and in its breadth and coverage.
Potential federal rulemaking and possible expanding state regulations concerning air cleaners may result in increased costs complying with new and existing law, and this could impact our growth, sales, and profitability.
During 2018, we acquired digital assets as consideration for conducting operations, and as consideration for the purchase of our products. In June, 2021, we stopped accepting digital currency as consideration for the purchase of our products. We also transferred digital assets in a spin off transaction of our wholly owned subsidiary, DogeSPAC, LLC. We subsequently liquidated any remaining crypto currency on our balance sheet, and do not intend to transact any business in crypto-currency or accept crypto-currency as consideration for the purchase of our products. Regardless, regulatory opinions and rules concerning whether or not digital currencies were securities under federal law at the time, were and are currently in a state of flux, which, may expose the company to regulatory scrutiny or liability as a result of our digital currency transactions.
During 2018, we sold our products in exchange for digital currencies including Ethereum, Bitcoin and Dogecoin. Also, during 2018, we acquired 600 million BIT digital tokens (COIN:BIT) from First Bitcoin Capital, LLC, as a transactional currency with a view towards using it as an alternative currency to purchase products for resale. The 600 million BIT digital tokens were hosted on a unique blockchain that were later exchanged for 600 million Dogecoin Cash (Crypto:DOG) both then on the Ethereum Blockchain. In 2021, we determined to stop accepting digital currencies for the sale of our products. We sold our on hand digital currencies in 2021 sales generating $19,635.14. We later transferred in a spin off transaction the 600 million digital tokens acquired in 2018 to DogeSPAC, LLC in exchange for DogeSPAC, LLC issuing to all our shareholders one restricted unit in DogeSPAC, LLC for each share of our common stock beneficially owned by our stockholders . The spin off and unit dividend were completed on June 15, 2021 based on the record date and subsequently paid to all shareholders. The Company is not an affiliate of DogeSPAC, LLC and does not maintain any ownership or control over it. We subsequently liquidated our remaining crypto currency and do not intend to either accept crypto currency as consideration for the purchase of our products or otherwise acquire or invest in crypto currency (See Current Account Statement, included as an exhibit).
The SEC has stated that certain digital assets may be considered “securities” under the federal securities laws and subject to those laws. During the period when we decided to both transact and acquire digital assets in 2018, the test for determining whether a particular digital asset was a “security” was complex and the outcome difficult to predict. Public statements by senior officials at the SEC, including a June 2018 speech by the director of the SEC’s division of Corporation Finance, indicated that the SEC did not intend to take the position that Bitcoin or Ether are currently securities. Subsequently in a March 2019 statement, the chairman of the SEC expressed agreement with certain statements from the June 2018 speech by the director of the SEC’s division of Corporation Finance, including the analysis of federal securities laws that the director applied to Bitcoin and Ethereum. Such statements were not official policy statements by the SEC and reflected only the speaker’s views, which were not binding on the SEC or any other agency or court and cannot be generalized to any other digital asset. Similarly, in April 2019, the SEC’s Strategic Hub for Innovation and Financial Technology published a framework for the analysis of digital assets. However, this framework was not a rule, regulation or statement of the Commission and is not binding on the Commission. If our 2018 acquisitions of digital currencies and subsequent sales and transfer in the spin off transaction with DogeSPAC, LLC are determined to be indemnified, defended,a “security” and held harmlessa possible violation of federal or state securities laws by the SEC or any other agency, or in a proceeding in a court of law or otherwise, it may have material adverse consequences for our company, our 2018 acquisitions, our spin off transaction with DogeSPAC, LLC, and/or our liquidation of the balance of our crypto currency.
We have incurred losses in prior periods and may incur losses in the future.
We incurred net losses of $1,465,109 and $493,443 for our fiscal year ended June 30, 2021 and 2020 respectively. As of June 30, 2021, we had an accumulated deficit of $40,672,502. We have not achieved profitability in any period, and we expect to continue to incur net losses for the foreseeable future. Should we continue to incur net losses in future periods, we may not be able to increase the number of employees or our investment in capital equipment, sales and marketing programs and research and development in accordance with present plans. Continuation of net losses may also require us to secure additional financing sooner than expected. Such financing may not be available in sufficient amounts, or on terms acceptable to us and may dilute existing shareholders.
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We will require additional capital in the future in order to maintain and expand our operations. Failure to obtain required capital would adversely affect our business.
Until such time as we become profitable, we will be required to obtain additional financing or capital investments in order to maintain and expand our operations and take advantage of future business opportunities. Obtaining additional financing will be subject to, among other factors, market conditions, industry trends, investor sentiment and investor acceptance of our business plan and management. These factors may make the timing, amount, terms, and conditions of additional financing unattractive or unavailable to us. There are no assurances that we will be able to raise cash from equity or debt financing efforts or that, even if raised, such cash would be sufficient to satisfy our anticipated capital requirements. Further, there is no assurance concerning the terms on which such capital might be available. Failure to obtain financing sufficient to meet our anticipated capital requirements could have a material adverse effect on our business, operating results, and financial condition.
The markets in which we operate are very competitive, and many of our competitors and potential competitors are larger, more established, and better capitalized than we are.
Although air cleaner technology is a rapidly emerging technology, the market for these products is highly competitive and we expect that competition will continue to intensify. Our products compete broadly with other current companies offering air cleaner technology, including companies that offer air purification technology, such as 3M Corporation, Honeywell, Whirlpool, Sharp and Phillips. These products compete directly with the products offered by us.
Many competitors have longer operating histories, larger customer bases, and greater financial, research and development, technical, marketing and sales, and personnel resources than we have. Given their capital resources, the larger companies with whom we compete or may compete in the future, are in a better position to substantially increase their manufacturing capacity, research, and development efforts or to withstand any significant reduction in orders by customers in our markets. Such larger companies typically have broader and more diverse product lines and market focus and thus are not as susceptible to downturns in a particular market. In addition, some of our competitors have been in operation much longer than we have been and therefore may have more longstanding and established relationships with current and potential customers.
Because we are small and do not have much capital, we must limit our activities. Our relative lack of capital and resources will adversely affect our ability to compete with large entities that market air purifier products. We compete against other air purifier manufacturers and retailers, some of which sell their products globally, and some of these providers have considerably greater resources and abilities than we have. These competitors may have greater marketing and sales capacity, established sales and distribution networks, significant goodwill, and global name recognition. Furthermore, it may become necessary for us to reduce our prices in response to competition. A reduction in prices of our products could adversely affect our revenues and profitability.
In addition, other entities not currently offering products similar to us may enter the market. Any delays in the general market acceptance of our products may harm our competitive position. Any such delay would allow our competitors additional time to improve their service or product offerings and provide time for new competitors to develop. Increased competition may result in pricing pressures, reduced operating margins and loss of market share, which could have an adverse effect on our business, operating results, and financial condition.
We operate in an industry that is competitive and subject to technological change.
The air purification industry is characterized by competition and technological change, where we compete on a variety of factors, including price, product features and services. Potential competitors include large air cleaner manufacturers and other companies, some of which have significantly greater financial and marketing resources than we do, and firms that are more specialized than we are with respect to particular markets. Our competitors may be able spend more money on marketing campaigns, respond quicker to new technological changes, or be better adept at attracting customers, employees, and partners. If our competition is better able to develop and market products or services that are cheaper, safer, more effective, or otherwise more appealing to consumers, we may be unable to effectively compete.
Our business model may not be sufficient to ensure our success in our intended market.
Our survival is currently dependent upon our planned development efforts to gain market acceptance of our products in the global market, including but limited to North America, Europe, and Asia. Should our existing and developing target markets not be as responsive to our products as we anticipate, we may not have in place alternate products that we can offer to ensure our survival.
We may receive a significant number of warranty claims or our air purification products that may require significant amounts of service after sale.
Sales of our air purification products may include a warranty to cover issues other than for normal wear and tear. As the possible number and complexity of the features and functionalities of our products increase, we may experience a higher level of warranty claims. If product returns or warranty claims are significant or exceed our expectations, we could incur unanticipated expenditures for parts and services, which could have a material adverse effect on our operating results.
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Product and software defects could harm our business.
Manufacturing or design defects, unanticipated use of our products, or inadequate disclosure of risks relating to the use of our products, can lead to injury or other adverse events, including recalls or safety alerts relating to our products. These recalls could lead to significant costs or the removal of our air purification products from the market. Further, even though we rely on third-party manufacturers, their liability is limited contractually; therefore, we could bear the burden of the costs for manufacturing defects. In addition, any defects could subject us to product liability claims, reputational damage, and negative publicity, all of which would negatively impact our business.
We could be subject to litigation.
Product liability claims are common. Even though we have not been subject to such claims in the past, we could be a named defendant in a lawsuit alleging product liability claims including, but not limited to, defects in the design, manufacture or labeling of our air purification products. Any litigation, regardless of its merit or eventual outcome, could result in significant legal costs and high damage awards or settlements. Although we currently maintain product liability insurance, the coverage is subject to deductibles and limitations, and may not be adequate to cover future claims. Additionally, we may be unable to maintain our existing product liability insurance in the future at satisfactory rates or at adequate amounts.
If product liability lawsuits are brought against us, our business may be harmed, and we may be required to pay damages.
Our business exposes us to potential product liability claims that are inherent in the testing, manufacture, and sale of air purification devices and equipment. We could become the subject of product liability lawsuits alleging that component failures, malfunctions, manufacturing flaws, design defects or inadequate disclosure of product-related risks or product-related information resulted in an unsafe condition or injury to patients.
Regardless of the merit or eventual outcome, product liability claims may result in:
| ● | decreased demand for our air purification products; | |
| ● | injury to our reputation; | |
| ● | significant litigation costs; | |
| ● | substantial monetary awards to or costly settlements with patients; | |
| ● | product recalls; | |
| ● | material defense costs; | |
| ● | loss of revenues; | |
| ● | the inability to commercialize new products or product candidates; and diversion of management attention from pursuing our business strategy |
Our business may suffer if we are unable to attract or retain talented personnel.
Our success will depend in large measure on the abilities, expertise, judgment, discretion, integrity, and good faith of management, as well as other personnel. We have a small management team, and the loss of a key individual or our inability to attract suitably qualified replacements or additional staff could adversely affect our business. Our success also depends on the ability of management to form and maintain key commercial relationships within the marketplace. No assurance can be given that key personnel will continue their association or employment with us or that replacement personnel with comparable skills will be found. If we are unable to attract and retain key personnel and additional employees, our business may be adversely affected. We do not maintain key-man life insurance on any of our executive employees, and do not have directors’ and officers’ insurance coverage as of the date this Prospectus is filed.
The lack of available and cost-effective directors and officer’s insurance coverage in our industry may cause us to be unable to attract and retain qualified executives, and this may result in our inability to further develop our business.
Our business depends on attracting independent directors, executives, and senior management to advance our business plans. We currently do not have directors and officer’s insurance to protect directors and the Company against the possible third-party claims. This is due to the significant lack of availability of funds and the offer of such policies at reasonably competitive prices. As a result, the Company and our executive directors and officers are susceptible to liability claims arising by third parties, and as a result, we may be unable to attract and retain qualified independent directors and executive management causing the development of our business plans to be impeded as a result.
The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel in the future, could harm our business.
Our future performance is dependent on the ability to retain key personnel. The Company’s performance is substantially dependent on the performance of senior management. The loss of the services of any of its executive officers or other key employees could have a material adverse effect on the Company’s business, results of operations, and financial condition. If we do not succeed in retaining and motivating our existing personnel, we may be unable to grow effectively.
Management of growth will be necessary for us to be competitive
Successful expansion of our business will depend on our ability to effectively attract and manage staff, strategic business relationships, and shareholders. Specifically, we will need to hire skilled management and technical personnel and manage partnerships to navigate shifts in the general economic environment. The expansion can place significant strains on financial, management, and operational resources, yet failure to expand will inhibit our profitability goals.
Because we are small and do not have much capital, our marketing campaign may not attract enough customers to operate profitably. If we do not make a profit, our financial conditions will be adversely affected.
Since we are small and do not have much capital, we must limit our marketing activities and may not be able to make our products known to potential customers. Because we will be initially limiting our marketing activities to online sales, independent sales representatives and select retail outlets, we may not be able to attract enough immediate customers to operate profitably. If we cannot operate profitably, our financial conditions will be negatively affected and limit our ability to raise additional funding to increase our sales and marketing efforts.
We are pursuing a variety of possible strategies to grow our business, including:
| ● | collaborations, licensing arrangements, joint ventures, strategic alliances, or partnerships; | |
| ● | pursuing sales in international markets; and | |
| ● | acquisitions of complementary products or technologies. |
In addition to stretching our financial and management resources, each of these strategies has its own inherent risks. For instance, arranging collaborations, licensing arrangements, joint ventures, strategic alliances, partnerships, and acquisitions can be a lengthy and complex process and we may not enter into such arrangements in a timely manner, on a cost-effective basis, on acceptable terms or at all. Even if we do enter into such arrangements, they may not result in achieving and developing new products and revenue streams. Expansion of international development could result in additional costs and risks, including those related to development of new distribution channels, increased shipping and distribution costs, compliance with foreign laws and regulations, as well as U.S. law controlling international business practices of U.S. companies, currency fluctuations as well as subjecting us to geopolitical and trade risks. Failure to implement growth strategies could severely impair our business.
If our products do not achieve greater market acceptance, or if alternative brands are developed and gain market traction, our business would be adversely affected.
Our success is dependent upon the successful development and marketing of our products. Our future success depends on increased market acceptance of our technology and air purifier product lines. The air purification community may not embrace our product line. Acceptance of our products will depend on several factors, including cost, product effectiveness, convenience, strategic partnerships, and reliability. We also cannot be sure that our business model will gain wide acceptance among retailers or the air cleanser community. If the market fails to continue to develop, or develops more slowly than we expect, our business, results of operations and financial condition will be adversely affected. Moreover, if new air purifier brands are developed, our prospective products and current technologies could become less competitive or obsolete. Any of these factors could have a material and adverse impact on our growth and profitability.
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Inability of our officers and directors to manage the growth of the business may limit our success.
We expect to grow as we execute our business strategy. Rapid growth would place a significant strain on our management and operational resources. In addition, we expect the demands on our infrastructure and technical support resources to grow along with our customer base, and if we are successful in implementing our marketing strategy, it could experience difficulties responding to demand for our products and technical support in a timely manner and in accordance with market expectations. These demands may require the addition of new management personnel or the development of additional expertise by existing management personnel. There can be no assurance that our networks, procedures, or controls will be adequate to support our operations or that management will be able to keep pace with such growth. Failure to manage growth effectively could have a material adverse effect on our business, operating results, and financial condition.
As we expand, management will be faced with new challenges due to increases in operating expenses and risks related to expansion.
As our business grows and expands, we will spend substantial financial and other resources on developing and introducing new products and expanding our sales and marketing organization, strategic relationships, and operating infrastructure. If our business and revenues grow, we expect that our cost of revenues, sales and marketing expenses, general and administrative expenses, operations, and customer support expenses will increase.
If we fail to capitalize and integrate potential acquisitions with our operations, our business could suffer.
In the future we may acquire more air purification technologies, businesses, or assets. The integration of acquired businesses, technologies or assets requires significant effort and entails risks. We may find it difficult to integrate operations of acquired businesses as personnel may leave and licensees, distributors or suppliers may terminate their arrangements or demand amended terms to these arrangements. Additionally, our management may have their attention diverted while trying to integrate businesses or assets that may be acquired. If we are not able to successfully integrate any businesses or assets that we acquire, we may not realize the anticipated benefits of these acquisitions.
Our success depends on our ability to capitalize on our strategic relationships and partnerships with suppliers, distributors, purchasers, and users of our products.
We will rely on strategic relationships with third parties to expand our manufacturing and distribution channels and to undertake product development and marketing efforts. Our ability to increase sales depends on marketing our products through new and existing strategic relationships. We intend to partner with established existing suppliers and distributors in order to reach target markets such as the medical, healthcare, hospitality, food service and lodging markets. The termination of one or more of our strategic relationships may have a material adverse effect on our business, operating results, and financial condition.
Our newly filed non-provisional patent application may not result in an issued patent, and this could materially affect our current and future business plans, operations, and future profitability.
On July 9, 2021, we applied for a non-provisional utility patent entitled: “Antibacterial and Cellphone Radiation-proof Face Mask” under patent number 17/372,170. This application is pending for review and there is no guarantee that the U.S. Patent and Trademark Office will issue us a patent, which may affect our profitability.
Our profitability may depend in part on our ability to effectively protect our proprietary rights, including obtaining patent protection for our proprietary designs, utilities, and methods of manufacturing our air purification products, maintaining the secrecy of our internal workings, and preserving our trade secrets, as well as our ability to operate without inadvertently infringing on the proprietary rights of others. There can be no assurance that we will be able to obtain future patents or defend our current and future patents. Further, policing and protecting our intellectual property against unauthorized use by third parties is time-consuming and expensive, and certain countries may not even recognize our intellectual property rights. There can also be no assurance that a third party will not assert patent infringement claims with respect to our products or technologies. Any litigation relating to either protecting our intellectually property or defending our use of certain technologies could have material adverse effect on our business, operating results, and financial condition, regardless of the outcome of such litigation.
The Company’s products are new, and its industry is evolving.
You should consider the Company’s prospects considering the risks, uncertainties, and difficulties frequently encountered by companies in their early stage of development, especially companies in the rapidly evolving air purification industry. To be successful in this industry, the Company must, among other things:
| ● | develop and introduce functional and attractive air purification products; | |
| ● | attract and maintain a large base of consumers; | |
| ● | increase awareness of the Company brand and develop consumer loyalty; | |
| ● | establish and maintain strategic relationships with distribution partners and service providers; | |
| ● | respond to competitive and technological developments; | |
| ● | build an operations structure to support the Company business; and | |
| ● | attract, retain, and motivate qualified personnel. |
The Company cannot guarantee that it will succeed in achieving these goals. Its failure to do so would have a material adverse effect on its business, prospects, financial condition, and operating results.
Some of the Company’s products are new and are only in the early stages of commercialization. The Company is not certain that these products will function as anticipated or be desirable to its intended market. Also, some of the Company’s products and services may have limited functionalities, limiting their appeal to consumers and putting the Company at a competitive disadvantage. The Company could lose customers or be subject to claims if our current or future products and services fail to function correctly or if the Company does not achieve or sustain market acceptance. The failure of our product could have a material adverse effect on the Company’s business, financial condition, and operating results.
As is typical in a new and rapidly evolving industry, demand, and market acceptance for recently introduced products are subject to a high level of uncertainty and risk. Because the company’s market is new and evolving, it is difficult to predict with any certainty the size of this market and its growth rate, if any. The Company cannot guarantee that a market for the Company will develop or that demand for Company services will emerge or be sustainable. If the market fails to materialize, develops more slowly than expected, or becomes saturated with competitors, the Company’s business, financial condition, and operating results would be materially adversely affected.
As a growing company, we have to develop reliable accounting resources and internal controls. Failure to achieve and maintain effective controls could prevent us from producing reliable financial reports.
Effective internal controls and against
anyaccounting resources are necessary for us to provide reliable financial reports. We have not implemented a system of internal controls. Failure to implement and allmaintain an effective internal accounting and control environment could cause us to face regulatory action, and also cause investors to lose confidence in our reported financial information, either of which could have an adverse effect on our business and financial results. We plan on developing internal controls focused on processes and classes of transactions for financial statements accounts and disclosures that are most likely to have a material impact on the financial statements and assessments of risk, and those controls that address the risk that the financial statements could be materially misstated. We intend to assign responsibility for the development, implementation, and testing of our internal controls to our independent board member Mary Taylor, a CPA, who will develop and review controls in light of identified risks and monitor the operation and assessment of those controls for the financial reporting process. Our emphasis as a smaller reporting company will focus on (i) segregation of duties; (ii) systems access and security; (iii) safeguarding assets; and, (iv) approval and review process. we intend to have these controls established and implemented by the date of our first annual report required to be filed under the Act after our registration becomes effective and we are subject to periodic reporting. We do not have a reliable estimate on the costs losses,of our plans at this time.
Our Certificate of Incorporation and bylaws provide for indemnification of officers and directors at our expense and limit their liability, resulting in a high cost to us and hurting our shareholders’ interests. The Company may spend corporate resources for the benefit of officers and directors.
Our Certificate of Incorporation and Bylaws include provisions that eliminate the personal liability of our directors for monetary damages penalties, fines, or expenses (including,
without limitation, reasonable attorneys' fees, court costs, and associated
expenses) suffered, imposed upon, or incurred by him in any manner in connection
with his service as our Chairman and Chief Executive Officer.
On April 10, 2001, we entered into a Letter Agreement with Mr. Wilson
amending Mr. Wilson's Employment Agreement. Pursuant to the Letter Agreement,
Mr. Wilson waivedfullest extent possible under the anti-dilution provisionlaws of the State of Nevada or other applicable law. These provisions eliminate the liability of our directors and our shareholders for monetary damages arising out of any violation of a director of his Employment Agreementfiduciary duty of due care. Under Nevada law, however, such provisions do not eliminate the personal liability of a director for (i) breach of the director’s duty of loyalty, (ii) acts or omissions not in considerationgood faith or involving intentional misconduct or knowing violation of law, (iii) payment of dividends or repurchases of stock other than from lawfully available funds, or (iv) any transaction from which the director derived an improper benefit. These provisions do not affect a director’s liabilities under the federal securities laws or the recovery of damages by third parties.
If we fail to establish and maintain an effective internal control system, we may be unable to report our financial results accurately or prevent fraud. Any ability to report and file our financial results accurately and timely could harm our reputation and adversely impact the future trading price of our common stock.
Effective internal control is necessary for optionsus to purchase 350,000provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively. As a result, it may harm our business and reputation. Our small size and any current internal control deficiencies may adversely affect our financial condition, operation results, and access to capital.
Because of the Company’s limited resources, there are limited controls over information processing. There is inadequate segregation of duties consistent with control objectives. Our Company’s Management is composed of a small number of individuals, resulting in limitations on segregation of duties. To remedy this situation, we would need to hire additional staff. Currently, the Company cannot hire other staff to facilitate greater segregation of duties but will reassess its capabilities after completing the Offering.
We may need and may be unable to obtain additional funding on satisfactory terms, which could dilute our stockholders or impose burdensome financial restrictions on our business.
We have relied upon cash from financing activities, and in the future, we intend to rely on revenues generated from operations to fund all the cash requirements of our activities. There is no assurance that we will generate any significant cash from our operating activities in the future. Any debt financing or financing of involving our common stock will likely include financial and other covenants that will restrict our flexibility. At a minimum, these covenants may include restrictions that may impact the number of authorized shares we are required to maintain in order obtain such financing, or our ability to conduct other forms of financing at different terms. Any failure to comply with these covenants would have a material adverse effect on our business, prospects, financial condition, and results of operations because we could lose our existing sources of funding and impair our ability to secure new sources of financing.
As an “emerging growth company” under the jobs act permits us to rely on exemptions from certain disclosure requirements.
We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to and intend to rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
| ● | have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; | |
| ● | provide an auditor attestation concerning Management’s report on the effectiveness of our internal controls over financial reporting; | |
| ● | comply with any requirement that the Public Company Accounting Oversight Board may adopt regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); | |
| ● | submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and | |
| ● | disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive’s compensation to median employee compensation. |
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 for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Therefore, our financial statements may not be comparable to those of companies that comply with such new or revised accounting standards.
We will 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 total annual gross revenues is $1.07 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that are held by non-affiliates is $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.
Until such time, however, we cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive, there may be a less active trading market for our common stock, and our stock price may be more volatile.
RISKS RELATING TO OUR COMMON STOCK AND THIS OFFERING
There is limited liquidity for our common stock, and we may not be successful in obtaining a quotation on a recognized quotation service. In such an event, it may be difficult to sell your shares.
Our common stock is currently quoted for public trading on the OTC Markets Pink Tier. The trading price of our common stock has been subject to wide fluctuations. Trading prices of our common stock may fluctuate in response to many factors, many of which will be beyond our control. The stock market has generally experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with no current business operation. There can be no assurance that trading prices and price-earnings ratios previously experienced by our common stock will be matched or maintained. These broad market and industry factors may adversely affect the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted. Such litigation, if instituted, could result in substantial costs for us and a diversion of Management’s attention and resources.
Our common stock will be subject to the “penny stock” rules of the Securities and Exchange Commission. The trading market in our securities may be limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.
Under U.S. federal securities legislation, our common stock will constitute “penny stock.” Penny stock is any equity security with a market price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require that a broker or dealer approve a potential investor’s account for transactions in penny stocks. The broker or dealer receives a written agreement to the transaction from the investor, setting forth the identity and quantity of the penny stock to be purchased. To approve an investor’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person. The person has sufficient knowledge and experience in financial matters to evaluate the risks of penny-stock transactions. Before any transaction in a penny stock, the broker or dealer must also deliver a disclosure schedule prepared by the Commission relating to the penny stock market, which, in highlight form, sets forth the basis on which the broker or dealer made the suitability determination. Brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock. The disclosure also must be made about the risks of investing in penny stocks in both public offerings and secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities, and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (known as “FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Before recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common shares, which may limit your ability to buy and sell our stock and harm the market for our shares.
Since our shares of Common Stock have low or thin liquidity, it is more susceptible to extreme rises or declines in price, and you may not be able to sell your shares at or above the price paid.
Since our shares of Common Stock have low or thin liquidity, its trading price is likely to be highly volatile. It could be subject to extreme fluctuations in response to various factors, many of which are beyond our control, including (but not necessarily limited to): the trading volume of our shares, the number of analysts, market-makers, and brokers following our shares of Common Stock, new products or services introduced or announced by our competitors or us, actual or anticipated variations in quarterly operating results, conditions or trends in our business industries, additions or departures of key personnel, sales of our shares of Common Stock and general stock market price and volume fluctuations of publicly traded, and particularly microcap, companies.
Investors may have difficulty reselling shares of our restrictedCommon Stock, either at or above the price they paid for our stock or even at fair market value. The stock markets often experience significant price and volume changes that are not related to the operating performance of individual companies, and because our shares of Common Stock have low or tin liquidity, it is particularly susceptible to such changes. These broad market changes may cause the market price of our shares of Common Stock to decline regardless of how well we perform as a company. In addition, there is a history of securities class action litigation following periods of volatility in the market price of a company’s securities. Although there is no such litigation currently pending or threatened against us, such a suit against us could result in the incursion of substantial legal fees, potential liabilities, and the diversion of Management’s attention and resources from our business. Moreover, as noted below, our shares are currently traded on the OTC Markets Pink Tier and are subject to the penny stock regulations. Price fluctuations in such shares are particularly volatile and subject to potential manipulation by market-makers, short-sellers, and options traders.
We may, in the future, issue additional common shares, which would reduce investors’ percent of ownership and may dilute our share value.
Our Articles of Incorporation authorize the issuance of 2,000,000,000 shares of common stock. The option to purchase 125,000As of July 8, 2022, the Company had 659,323,911 shares of common stock was fully vestedoutstanding. We may issue and sell to Dutchess up to 80,526,056 shares of common stock pursuant to this registration statement. The 80,526,056 shares include only part of the total number of common shares we will need to register in a post-effective amendment, to sell the entire commitment amount to Dutchess under the terms of the Common Stock Purchase Agreement. We estimate Dutchess may be eligible to own, subject to post-effective amendments, and as of April 10, 2001 and the remaining 225,000 share option was to vestan example, based upon the
achievement92% of certain performance objectives. The exercise price of these
options was equal to $0.885 per share, which was the closing price of our common stock as quoted on the Over-the-Counter Bulletin Board on April 9, 2001.
In September 2001, TSET determined that, among other things, our BoardJuly 8, 2022, a grand total of Directors never validly approved Mr. Wilson's Employment Agreement.
Accordingly, TSET determined that Mr. Wilson's Employment Agreement and the
Letter Agreement are null and void from their inception. As a consequence, TSET
has determined that the issuance of 1,000,000approximately 840,336,134 shares of common stock pursuant to
Mr. Wilson's Employment Agreement and the grant of options to purchase 350,000
sharesstock. The future issuance of common stock pursuant tomay result in substantial dilution in the Letter Agreement are void aspercentage of our common stock held by our then existing shareholders. We may value any common stock in the effective dates of the Employment Agreement and Letter Agreement, respectively,
and that these sharesfuture on an arbitrary basis. The issuance of common stock and options are treated as if they were
never issuedfor future services or granted, asacquisitions or other corporate actions may also have the case may be. Effective October 10, 2001, Mr.
Wilson resigned as Chairmaneffect of diluting the value of the Boardshares held by our investors and might harm any trading market for our common stock.
Our issuance of DirectorsDrawdown Notices to Dutchess could result in significant dilution and Chief Executive
Officera material reduction of TSET. Mr. Wilson remainsthe market price of our common stock.
We expect that significant additional capital will be needed in the future to continue our planned operations, including research and development, increased marketing, hiring new personnel, commercializing our products, and continuing activities as an operating public company. Dutchess may immediately sell the common stock it purchases from us pursuant to this registration statement and our issuance of Drawdown Notices and as a director of TSET.
Daniel R. Dwight, our President and Chief Executive Officer, and our
company entered into an Employment agreement effective as of November 15, 2001.
The initial term of Mr. Dwight's Employment Agreement is for 2 years and will
automatically renew for successive 1 year terms unless TSET or Mr. Dwight
provide the other party with written notice within 3 monthsresult, investors may be materially diluted by subsequent Dutchess sales. Such sales may also result in a lessening of the endmarket value of our common stock.
The sale of our stock could encourage the initial term or any subsequent renewal term. Mr. Dwight's Employment Agreement
provides for base cash compensationfuture decline of $180,000 per year. Mr. Dwight is eligible
for annual incentive bonus compensation in an amount equal to Mr. Dwight's
annual salaryour stock price.
In many circumstances, the provision of financing based on the achievementdistribution of certain bonus objectives. In addition,
TSET granted Mr. Dwight 1,000,000 immediately vested and exercisable, ten-yearequity for companies traded on the OTC Markets can cause significant downward pressure on the common stock options at various exercise prices. Mr. Dwightprice. It is especially the case if the shares being placed into the market exceed the market’s ability to take up the increased stock or if we have not performed in such a manner to show that the equity funds raised will be entitledused to fully
participate in any and all 401(k),grow our business. Such an event could place further downward pressure on the price of our common stock. Regardless of our activities, the opportunity exists for others to contribute to the future decline of our stock option,price. If there are significant sales of our common stock, bonus, savings,
profit-sharing, insurance, andthe price decline from this activity will cause the share price to decline more, which may cause other similar plans and benefitsstockholders of employment.
Mr. Dwight is entitledthe stock to be indemnified, defended, and held harmless by us from
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and against any and all costs, losses, damages, penalties, fines, or expenses
(including, without limitation, reasonable attorneys' fees, court costs, and
associated expenses) suffered, imposed upon, or incurred by him in any manner in
connection with his service as our Chief Executive Officer.
Richard A. Papworth, our Chief Financial Officer, has an Employment
Agreement dated assell their shares, thereby contributing to sales of May 19, 2000, which continues for an "evergreen" term of
two years, unless Mr. Papworth provides at least 90 days' prior written notice
of his resignation. Mr. Papworth's Employment Agreement provides for base cash
compensationcommon stock in the amount of $10,000 per month, a signing bonus of $50,000
worth of fully vested and non-forfeitable restrictedmarket. If there are many more shares of our common stock pluson the market for sale than the market will absorb, the price of our common shares will likely decline.
We are not likely to issue dividends for the foreseeable future.
We cannot assure you that our proposed operations will result in adequate revenues to enable profitable operations or to generate positive cash flow. For the foreseeable future, we anticipate that we will use any funds available to finance the growth of the Company and that we will not pay cash dividends to stockholders. Unless we pay cash dividends, our stockholders will not receive a year-end bonus payable in cashreturn on their shares unless they sell them. There is no assurance that stockholders will be able to sell shares when desired.
Dutchess will pay less than the then-prevailing market price for our common stock.
Upon our decision to issue a Drawdown Notice to Dutchess, which is at our sole discretion, Dutchess’ purchase of our common stock will be ninety-two percent (92%) of the lowest traded price of the Common Stock the five (5) Business Day prior to the Closing Date of each Drawdown Notice per the Common Stock Purchase Agreement dated September 21, 2021. Dutchess has a financial incentive to immediately sell our common stock upon receiving the shares to realize the profit equal to the difference between the discounted and market prices. If Dutchess sells the shares, the price of our common stock could decrease. If our stock price decreases, Dutchess may have a further incentive to sell the shares of our common stock that it holds. These sales may have an additional impact on our stock price.
Your ownership interest may be diluted, and the value of our common stock may decline by our exercising the Drawdown Notice right according to the Common Stock Purchase Agreement with Dutchess.
Pursuant to the Common Stock Purchase Agreement with Dutchess, when we deem it necessary, we may raise capital through the private sale of our common stock to Dutchess at a discounted price. Because the Drawdown Notice price is lower than the prevailing market price of our common stock, to the extent we exercise the right to issue Drawdown Notices, the ownership interest of shareholders may get diluted.
We may not have access to the total amount available under the Common Stock Purchase Agreement with Dutchess.
Our ability to draw down funds and sell shares inunder the Common Stock Purchase Agreement with Dutchess requires that the registration statement of which this Prospectus forms a "blended"
amountpart be declared effective and continue to be determined. Mr. Papwortheffective. The registration statement of which this Prospectus includes the resale of 80,526,056 shares issuable under the Common Stock Purchase Agreement with Dutchess, and our ability to sell any remaining shares issuable under the Common Stock Purchase Agreement with Dutchess is subject to our ability to prepare and file one or more additional registration statements registering the resale of these shares. These registration statements may be subject to review and comment by the Securities and Exchange Commission staff. They will be entitled to fully participate in
any and all 401(k), stock option, stock bonus, savings, profit-sharing,
insurance, and other similar plans and benefitsrequire the consent of employment; however, asour independent registered public accounting firm. Therefore, we cannot assure the timing of the dateeffectiveness of this prospectus,the registration statements. The effectiveness of these registration statements is a condition precedent to our exercising discretion to issue Drawdown Notices and sell shares of our common stock to Dutchess under the Common Stock Purchase Agreement. Even if we have not adoptedare successful in causing one or implemented any such plans.
Mr. Papworth is entitledmore registration statements to be indemnified, defended,effective by the Securities and held harmless by us
fromExchange Commission on time, resulting in the registering some or all of the shares issuable under the Common Stock Purchase Agreement with Dutchess, we may not be able to sell the shares unless certain other conditions are met, such as having an adequate number of authorized shares to issue. Any increase in our authorized shares would board and againststockholder approval. Accordingly, because our ability to draw down any andamounts under the Common Stock Purchase Agreement with Dutchess are subject to many conditions outside of the Investor’s control there is no guarantee that we will draw down any portion or all costs, losses, damages, penalties, fines, or
expenses (including, without limitation, reasonable attorneys' fees, court
costs, and associated expenses) suffered, imposed upon, or incurred by him inof the proceeds of $10,000,000 under the investment with Dutchess.
Certain restrictions on the extent of Drawdown Notices may have little, if any, mannereffect on the adverse impact of our issuance of shares in connection with his servicethe Common Stock Purchase Agreement with Dutchess. As such, Dutchess may sell many shares, resulting in substantial dilution to the value of shares held by existing stockholders.
Dutchess has agreed, subject to certain exceptions listed in the Common Stock Purchase Agreement, to refrain from holding shares, resulting in Dutchess or its affiliates owning more than 4.99% of the then-outstanding shares of our common stock at any one time. Our issuance of a drawdown notice shall not include an amount of shares that would result in Dutchess exceeding the Beneficial Ownership Limitation at any time. These restrictions, however, do not prevent Dutchess from selling shares of our common stock received in connection with a Drawdown Notice and then acquiring additional shares of our common stock in connection with a subsequent Drawdown Notice. In this way, Dutchess could sell more than 4.99% of the outstanding common stock in a relatively short time frame while never holding more than 4.99% at one time. If we issue a Drawdown Notice to Dutchess, Dutchess’ purchase and subsequent sales could result in dilution and a corresponding lessening of the value of our common stock (See Risk Factors & Dilution).
We will not receive any proceeds from the secondary sale of shares of our common stock by Dutchess. However, we will receive proceeds from the initial sale of shares of our common stock according to our decision to exercise Drawdown Notices offered by Dutchess. We will use these proceeds for general corporate and working capital purposes and acquisitions or assets, software development, businesses, or operations, or for other purposes that our board of directors, in its good faith, deems to be in the Company’s best interest.
| One-third of investment commitment | Two-third of investment commitment | One Hundred percent (100%) of investment commitment | ||||||||||
| Net proceeds from the offering (1) (2) | $ | 3,333,333.00 | $ | 6,666,666.00 | $ | 10,000,000.00 | ||||||
| Product Development, Sales & Marketing | 1,450,767.00 | 2,005,265.00 | 3,648,000.00 | |||||||||
| Corporate Development | 403,061.00 | 1,816,358.00 | 1,321,675.00 | |||||||||
| Fixed Assets | 400,000.00 | 1,400,000.00 | 2,870,325.00 | |||||||||
| Working Capital | 1,079,505.00 | $ | 1,445,043.00 | $ | 2,160,000.00 | |||||||
| Total | $ | 3,333,333.00 | $ | 6,666,666.00 | $ | 10,000,000.00 | ||||||
(1) Expenditures for the 12 months following the completion of this offering. We have categorized the expenditures by significant area of activity. Please see a detailed description of the use of proceeds in the “Plan of Operations” section of this Prospectus.
(2) Excludes estimated offering expenses of $21,194.08.
The Company may change the use of proceeds if it feels it is in the best interest of the shareholders to use the proceeds to discharge indebtedness relevant to the Company’s business. We will pay for expenses of this offering, except that the selling stockholder will pay any broker discounts or commissions or equivalent costs and costs of its legal counsel applicable to the sale of its shares.
DETERMINATION OF OFFERING PRICE
The prices at which the shares covered by this Prospectus may actually be sold by Dutchess will be determined by the prevailing public market price for shares of our common stock, or as otherwise described in the “Plan of Distribution.”
The sale of our Chief Financial Officer.
common stock to Dutchess following the Common Stock Purchase Agreement dated September 21, 2021, may negatively impact our stockholders. As a result, our net loss per share could increase in future periods, and the market price of our common stock could decline. In addition, the lower our stock price is when we exercise our Drawdown Notice, the more shares of our common stock we will have to issue to Dutchess to drawdown according to the Common Stock Purchase Agreement. If our stock price decreases during the pricing period, then our existing stockholders would experience more significant dilution.
Dilution represents the difference between the offering price and the net tangible book value per share immediately after completion of this offering. Net tangible book value is the amount that results from subtracting total liabilities and intangible assets from total assets. Dilution arises mainly because of our arbitrary determination of the offering price of the shares being offered. Dilution of the value of the shares you purchase is also a result of our existing stockholders’ lower book value.
THE OFFERING
THE PRIVATE PLACEMENT TRANSACTION
On April 10, 2001,September 21, 2021, we entered into a Letterbinding Common Stock Purchase Agreement with Mr. Papworth
amending Mr. Papworth's Employment Agreement.Dutchess, a Delaware limited partnership. Pursuant to the LetterCommon Stock Purchase Agreement Mr. Papworth waivedterms, Dutchess committed to purchasing up to $10,000,000 of our common stock. We also agreed to issue to Dutchess five million shares of restricted common stock as commitment shares. From time to time, after the anti-dilution provisioneffectiveness of his Employmentthe registration statement, we may elect, in our sole discretion, to deliver a Drawdown Notice to Dutchess. The number of shares subject to any Drawdown Notice shall not exceed the lesser of; (i) $250,000 or (ii) 200% of the Average Daily Traded Value of the Stock during the five (5) days immediately preceding the Drawdown Notice date or (iii) the Beneficial Ownership Limitation of 4.99% of the number of shares of the Common Stock outstanding immediately prior to the issuance of shares of Common Stock issuable pursuant to a Drawdown Notice. Our issuance of a drawdown notice shall not include an amount of shares that would result in Dutchess exceeding the Beneficial Ownership Limitation at any time. The sale price of the Shares sold to Dutchess pursuant to any Drawdown Notice is ninety-two percent (92%) of the lowest traded price of the Common Stock the five (5) Business Day prior to the Closing Date of each Drawdown Notice. If we issue a Drawdown Notice to Dutchess, Dutchess’ purchase and subsequent sales could result in dilution and a corresponding lessening of the value of our common stock (See Risk Factors & Dilution).
In the event of a material breach of contract, we may terminate the common stock purchase agreement with Dutchess. Otherwise, the common stock purchase agreement will terminate 36 months after the effective date of this registration; after our sale and Dutchess’ purchase of all of the commitment amount; when the registration is no longer effective; or if we or a third party commences a bankruptcy petition against the Company; or if a custodian is appointed for the Company or if we make a general assignment of all our property for the benefit of our creditors.
In connection with the Common Stock Purchase Agreement in
consideration for an optionwith Dutchess, we also entered into a registration rights agreement with Dutchess, as amended, pursuant to purchase 398,475which we agreed to use our best efforts to file with the Securities and Exchange Commission a registration statement, covering the resale of 80,526,056 shares of our restricted common stock.stock underlying the Common Stock Purchase Agreement with Dutchess. The option was fully vested as80,526,056 shares being offered pursuant to the Common Stock Purchase Agreement with Dutchess represents 12.21% of April 10, 2001the shares issued and outstanding, assuming that the exerciseselling stockholders will sell all of the shares offered for sale in this registration . The 80,526,056 shares being offered pursuant to this Prospectus represent 12.27% of the shares issued and outstanding held by non-affiliates of our company. The Common Stock Purchase Agreement with Dutchess is not transferable, and any benefits attached thereto may not be assigned.
At an assumed purchase price is equalunder the Common Stock Purchase Agreement of $0.0119 (equal to $0.885 per share, which was92% of the closing price of our common stock as
quotedof $0.013 on July 8, 2022, we will be able to receive up to $958,260 in gross proceeds, assuming we elect to sell the Over-the-Counter Bulletin Board on April 9, 2001.
EXECUTIVE SEVERANCE AGREEMENTS
The Employment Agreement of Richard A. Papworth, our Chief Financial
Officer, provides that upon the occurrence of any transaction involving a change
of control of TSETentire 80,526,056 Drawdown Notice Shares being registered hereunder to Dutchess pursuant to which his employment is terminated, anythe Common Stock Purchase Agreement. At an assumed purchase price of $0.0119 under the Common Stock Purchase Agreement, we would be required to register 759,810,084 additional shares of
our common stock to which Mr. Papworth is entitled through any stock option or
other stock ownership plan shall immediately vest and Mr. Papworth will be
entitled to receive all the compensation and benefits of employment that he
would have received for the full term of his employment but for such termination
(i.e., given the 2-year "evergreen" term of his employment, Mr. Papworth would
therefore receive two years' worth of such compensation), the immediate vesting
of shares in any stock option or other stock ownership plan, and the immediate
vesting of all matching contributions made by us in any 401(k), savings,
profit-sharing, or other similar plan or benefit program.
The Employment Agreement of Daniel R. Dwight, our Chief Executive
Officer, provides that, upon the occurrence of any transaction as defined as a
"change of control" of TSET, Mr. Dwight shall receive his salary and benefits
for a period of time that is the greater of (i) one year or (ii) the remainder
of Mr. Dwight's employment term.
As of the date of this prospectus, we have not adopted any separate
executive severance agreements.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We believe that all prior related party transactions have been entered
into upon terms no less favorable to us than those that could be obtained from
unaffiliated third parties. Our reasonable belief of fair value is based upon
proximate similar transactions with third parties or attempts to obtain the consideration from third parties. All ongoing and future transactions with such
persons, including any loans or compensationbalance of $9,041,740 under the Common Stock Purchase Agreement. Due to such persons,the floating offering price, we are unable to determine the exact number of shares that we will be approved
by a majority of disinterested members ofissue under the Board of Directors.
In connection with his Employment Agreement, Jeffrey D. Wilson's
nominee, The Pangaea Group LLC, received a signing bonus of 100,000 restricted
shares of our common stock; such shares were fully vested and non-forfeitable
upon issuance. In addition, The Pangaea Group LLC received an additional 900,000
restricted shares of our common stock, vesting at the rate of 100,000 shares per
month over the 9-month period ended January 2000. In September 2001, TSET
determined that, among other things, our Board of Directors never validly
approved Mr. Wilson's EmploymentCommon Stock Purchase Agreement. Accordingly, TSET has determined
that Mr. Wilson's Employment agreement is null and void from its inception. As a
consequence, TSET has determined that
There are substantial risks to investors due to the issuance of 1,000,000 shares of common
stock pursuant to Mr. Wilson's Employment Agreement is void as of the effective
date of the Employment Agreement, and that these shares of common stock are
treated as if they were never issued.
On August 11, 2000, we entered into a Finders Agreement with Richard F.
Tusing and Daniel R. Dwight, pursuant to which Messrs. Tusing and Dwight will
introduce us to prospective investors and brokers that would thereafter make
similar introductions, and otherwise assist us in corporate finance matters. We
approved the list of prospective investors and brokers provided by Messrs.
Tusing and Dwight contemporaneously with the execution and delivery of the
Finders Agreement. Under the Finders Agreement, we will pay to Messrs. Tusing
and Dwight a finders fee equal to 1% of the total investment value realized from
investors introduced by them that provide equity or debt capital to us. In the
case of provision of equity or debt capital by investors introduced by brokers
introduced by Messrs. Tusing and Dwight, the finders fee will be equal to 0.25%
of the total investment value realized from such investors. We retain the right
to negotiate the specific terms of any financing transaction arising out of any
such introductions and are not obligated to accept any financing offered by any
such investors or through any such brokers. Out-of-pocket expenses incurred by
Messrs. Tusing and Dwight in connection with provision of their services under
the Finders Agreement will be reimbursed by us up to $15,000, unless expenses in
excess of this limit are approved in writing by us. The Finders Agreement was
entered into prior to Messrs. Tusing's and Dwight's appointment as members of
our Board of Directors in October 2000 and was negotiated at arm's length. We
intend that the Finders Agreement will remain in place, notwithstanding the
appointment of Messrs. Tusing and Dwight to our Board of Directors. We believe
that the compensation and other provisions of the Finders Agreement are fair,
reasonable, customary, and favorable to us.
On August 11, 2000, we entered into a Consulting Agreement with Richard
F. Tusing and Daniel R. Dwight, pursuant to which Messrs. Tusing and Dwight will
provide management, financial, strategic, and other consulting services to us in
exchange for consulting fees payable in cash and options of our common stock.
Out-of-pocket expenses incurred by Messrs. Tusing and Dwight in connection with
provision of their services under the Consulting Agreement will also be
reimbursed by us. The Consulting Agreement was entered into prior to Messrs.
Tusing's and Dwight's appointment as members of our Board of Directors in
October 2000 and was negotiated at arm's length. We believe that the
compensation and other provisions of the Consulting Agreement are fair,
reasonable, customary, and favorable to us. The Consulting Agreement was renewed
with Dwight, Tusing & Associates on similar terms and conditions with a rate
adjustment as of January 1, 2001, and was amended on April 12, 2001 to decrease
the strike price of the options granted as partial compensation thereunder.
Effective October 10, 2001, we entered into a Consulting Agreement with
Jeffrey D. Wilson, pursuant to which Mr. Wilson will provide thirty-five hours
per month of management and other consulting services to us in exchange for
consulting fees payable in cash and options of our common stock. Out-of-pocket
expenses incurred by Mr. Wilson in connection with provision of his services
under the Consulting Agreement will also be reimbursed by us. The Consulting
Agreement was negotiated at arm's length. We believe that the compensation and
other provisions of the Consulting Agreement are fair, reasonable, customary,
and favorable to us.
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Pursuant to Daniel R. Dwight's Employment Agreement, effective November
15, 2001, our company and Mr. Dwight agreed that the Consulting Agreement, dated
January 1, 2001, between our company and Mr. Dwight and the Finders Agreement,
dated August 11, 2000, between our company and Mr. Dwight were terminated
effective November 15, 2001. We acknowledged and agreed that pursuant to the
terms of the Consulting Agreement, we owe Mr. Dwight past-due amounts equal to
$250,582. We agreed that this past-due amount will accrue interest at 1% per
month until paid in full. Payments from our company to Mr. Dwight shall be
allocated first to out-of-pocket expenses, second to salary, and third to
repayment of the past-due amount. In addition, we acknowledged and agreed that,
pursuant to the Consulting Agreement and the Finders Agreement, Mr. Dwight has
earned 271,700 options that are fully vested and exercisable under the terms and
conditions of the Consulting Agreement, the Finders Agreement and a Letter
Agreement, dated April 12, 2001 between our company and Mr. Dwight.
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THE FUSION CAPITAL TRANSACTION
GENERAL
On June 19, 2001, we entered into a common stock purchase agreement
with Fusion Capital pursuant to which Fusion Capital agreed to purchase on each
trading day during the term of the agreement, $12,500 of our common stock or an
aggregate, under certain conditions, of $10.0 million. The $10.0 million of
common stock is to be purchased over a 40-month period, subject to a six-month
extension or earlier termination at our discretion. The purchase price of the
shares of common stock will be equal to the then current market price of the
common stock without any fixed discount to the market price. On November 19,
2001, the Securities and Exchange Commission declared our Registration Statement
on Form S-1 effective pursuant to which we registered 6,852,500 shares of our
common stock. Five million six hundred forty thousand (5,640,000) shares of our
common stock were registered on behalf of Fusion Capital pursuant to the common
stock purchase agreement. As of June 7, 2002, we have received $750,000 from
Fusion Capital and we have issued 4,060,000 shares of our common stock to Fusion
Capital pursuant to the common stock purchase agreement.
PURCHASE OF SHARES UNDER THE COMMON STOCK PURCHASE AGREEMENT
Under the common stock purchase agreement, on each trading day Fusion
Capital is obligated to purchase a specified dollar amount of our common stock.
Subject to our right to suspend such purchases at any time and our right to
terminate the agreement with Fusion Capital at any time, each as described
below, Fusion Capital shall purchase on each trading day during the term of the
agreement $12,500 of our common stock. We may decrease this daily purchase
amount at any time. We also have the right to increase the daily purchase amount
at any time, provided however, we may not increase the daily purchase amount
above $12,500 unless our stock price is above $3.00 per share for five
consecutive trading days. The purchase price per share is equal to the lesser
of:
o the lowest sale price of our common stock on the purchase date; or
o the average of the three (3) lowest closing sale prices of our common
stock during the twelve (12) consecutive trading days prior to the date
of a purchase by Fusion Capital.
The purchase price will be adjusted for any reorganization,
recapitalization, non-cash dividend, stock split or other similar transaction
occurring during the trading days in which the closing sale price is used to
compute the purchase price. Fusion Capital may not purchase shares of our common stock under the commonCommon Stock Purchase Agreement with Dutchess. These risks include dilution of stockholders’ percentage ownership, a significant decline in our stock purchase agreement if Fusion Capital, together with
its affiliates, would beneficially own more than 9.9% ofprice, and our inability to draw sufficient funds when needed. We intend to sell Dutchess periodically our common stock outstandingunder the Common Stock Purchase Agreement, and Dutchess will, in turn, sell such shares to investors in the market at the timemarket price. This may cause our stock price to decline, which will require us to issue increasing numbers of common shares to Dutchess to raise the same amount of funds as our stock price declines.
The aggregate investment amount of $10,000,000 was determined based on numerous factors, including the following: The proceeds received from any Drawdown Notices tendered to Dutchess under the Common Stock Purchase Agreement will be used for general corporate, product development, sales and marketing, working capital purposes and acquisitions or assets, businesses or operations or for other purposes that our board of directors, in its good faith deem to be in the best interest of the purchase by Fusion Capital. However, even though
Fusion CapitalCompany. The Company may not receive additionalchange the use of proceeds if it feels it is in the best interest of the shareholders to use the proceeds to carry out its strategic business plans.
We may have to increase our authorized shares to issue the shares to Dutchess if we reach our current authorized shares of common stock. Increasing the number of our authorized shares will require board and stockholder approval. There is no guarantee that we will be able to draw down any portion or all of the proceeds of $10,000,000 under the Common Stock Purchase Agreement with Dutchess because our ability to draw down any amounts under the Common Stock Purchase Agreement with Dutchess is subject to many conditions.
This Prospectus relates to the resale of 80,526,056 shares of our common stock, par value $0.001 per share, which are issuable to Dutchess Capital Growth Fund, LP (“Dutchess”). The 80,526,056 shares registered in this registration statement, include only part of the eventtotal number of common shares we will need to register in a post-effective amendment, in order to sell the entire commitment amount to Dutchess under the terms of the Common Stock Purchase Agreement.
Pursuant to the Common Stock Purchase Agreement, and after the effectiveness of this Registration Statement, we have the option, but not the obligation, to issue Dutchess a Drawdown Notice to purchase our registered shares. The number of shares subject to any Drawdown Notice shall not exceed the lesser of; (i) $250,000 or (ii) 200% of the Average Daily Traded Value of the Stock during the five (5) days immediately preceding the Drawdown Notice date or (iii) the Beneficial Ownership Limitation of 4.99% of the number of shares of the Common Stock outstanding immediately prior to the issuance of shares of Common Stock issuable pursuant to a Drawdown Notice. Our issuance of a drawdown notice shall not include a number of shares that would result in Dutchess exceeding the 9.9% limitationBeneficial Ownership Limitation at any time. The sale price of the Shares sold to Dutchess pursuant to any Drawdown Notice is ever reached, Fusion Capital is still
obligatedninety-two percent (92%) of the lowest traded price of the Common Stock the five (5) Business Day prior to paythe Closing Date of each Drawdown Notice. If we issue a Drawdown Notice to us $12,500 on each trading day, unlessDutchess, Dutchess’ purchase and subsequent sales could result in dilution and a corresponding lessening of the value of our common stock purchase agreement is suspended,(See Risk Factors & Dilution).
The Common Stock Purchase Agreement permits us to issue Drawdown Notices to Dutchess for an eventaggregate of default occursten million dollars ($10,000,000) in shares of our common stock until three years from the effective date of this registration , the date on which Dutchess shall have sold all the Shares covered thereby, and no available amount remains under the Common Stock Purchase Agreement, or until $10,000,000 of such shares have been subject to a Drawdown Notice.
We expect that Dutchess will offer and sell any or all of the agreement is
terminated. Under these circumstances, Fusion Capital would have the right to
acquire additional shares in the future should its ownership subsequently become
less than the 9.9%.
of our common stock upon our issuance of a Drawdown Notice (See Risk Factors & Dilution),
The following table sets forth certain information regarding the beneficial ownership of shares of common stock by the selling stockholder as of July 8, 2022, and the number of shares of our common stock being offered according to this Prospectus. We believe that would be sold to Fusion Capital under the common stock purchase agreement
at varying purchase prices with respect toselling stockholder has sole voting and investment powers over its shares. Because we expect that Dutchess will offer and sell all or only some portion of the remaining $9.25 million available
to us under such agreement:
32
PERCENTAGE OUTSTANDING PROCEEDS FROM THE SALE OF
ASSUMED AVERAGE NUMBER OF SHARES TO BE AFTER GIVING EFFECT TO THE SHARES TO FUSION CAPITAL UNDER THE
PURCHASE PRICE ISSUED IF FULL PURCHASE ISSUANCE TO FUSION CAPITAL(1) COMMON STOCK PURCHASE AGREEMENT
- ------------------ --------------------------- ------------------------------- -------------------------------------
$0.25 5,000,000 10.22% $1,250,000
$0.50 5,000,000 10.22% $2,500,000
$0.75 5,000,000 10.22% $3,750,000
$1.00 5,000,000 10.22% $5,000,000
$1.50 5,000,000 10.22% $7,500,000
$2.00 4,625,000 9.52% $9,250,000
$3.00 3,083,333 6.56% $9,250,000
$4.00 2,312,500 5.00% $9,250,000
- --------------------
(1) Based on 43,937,907 shares outstanding as of June 7, 2002. Includes the issuance of 640,000 shares of common stock
issued to Fusion Capital as a commitment fee and the number of shares issuable at the corresponding assumed purchase
price set forth in the adjacent column.
FLOOR PRICE
Pursuant to the common stock purchase agreement, we had the right to
set a minimum purchase price (referred to as a "floor price" in the common stock
purchase agreement) for shares of our common stock to be purchased by Fusion
Capital. We hadas a result of our issuance of a Drawdown Notice, the ability to increase or decreasenumbers in the floor price at any time
upon one trading day prior notice to Fusion Capital. Fusion Capital is not
permitted nor obligated to purchasetable below representing the amount and percentage of these shares of our common stock ifthat Dutchess will hold upon the purchase
price is less thantermination of the applicable floor price as established by us. On November
13, 2001,offering are only estimates based on the assumption that Dutchess will sell all of its shares of our common stock purchase agreement was amendedbeing offered in the offering.
The selling stockholders have not had any position or office, or other material relationship with us or any of our affiliates over the past three years. To our knowledge, the selling stockholders are not a broker-dealer or an affiliate of a broker-dealer. We may require the selling stockholders to establish a floor
price. Fusion Capitalsuspend the sales of the shares of our common stock being offered pursuant to this Prospectus upon the occurrence of any event that makes any statement in this Prospectus, or the related registration statement untrue in any material respect or that requires the changing of statements in those documents to make statements in those documents not misleading.
Shares Owned by the Selling | Total Shares | Number of Shares to Be Owned by Selling Stockholder After the Offering and Percent of Total Issued and Outstanding Shares (1) | ||||||||||||||
| Name of the Selling Stockholder | Stockholder before the Offering (1) | Offered | # of Shares (2) | % of Class (2), (3) | ||||||||||||
| Dutchess Capital Growth Fund, LP (4) | $ | 0 | 840,336,134 | 840,336,134 | 56.04 | % | ||||||||||
(1) Beneficial ownership is obligateddetermined in accordance with Securities and Exchange Commission rules and generally includes voting or investment power with respect to purchase shares of common stock. Shares of common stock undersubject to options and warrants currently exercisable, or exercisable within 60 days, are counted as outstanding for computing the agreementpercentage of the person holding such options or warrants but are not counted as long asoutstanding for computing the per-sharepercentage of any other person.
(2) Disregarding the Beneficial Ownership Limitation, Dutchess may own, based upon a purchase price calculated for example at 92% of closing price of our common stock exceeds the floor
price of $0.25.
OUR RIGHT TO SUSPEND PURCHASES
We have the unconditional right to suspend purchases at any time for
any reason effective upon one trading day's notice. Any suspension would remain$0.013 on July 8, 2022, a grand total of 840,336,134 shares of common stock. The 80,526,056 shares registered in effect until our revocationthis registration statement, include only part of the suspension. To the extenttotal number of common shares we will need to useregister in a post-effective amendment, in order to sell the cash proceedsentire commitment amount to Dutchess under the terms of the salesCommon Stock Purchase Agreement.
(3) Based on 659,323,911 shares of our common stock underissued and outstanding as of July 8, 2022, and the common stockestimated total number shares subject to this Offering (approximately 840,336,134), based upon a purchase agreement for working capital or other business purposes, we do not intend to
restrict purchases under the common stock purchase agreement.
OUR RIGHT TO INCREASE AND DECREASE THE DAILY PURCHASE AMOUNT
We have the unconditional right to decrease the daily amount to be
purchased by Fusion Capitalprice calculated at any time for any reason effective upon one
trading day's notice. We also have the right to increase the daily purchase
amount at any time for any reason; provided however, we may not increase the
daily purchase amount above $12,500 unless our stock price has been above $3.00
per share for five consecutive trading days. For any trading day that the sale92% of closing price of our common stock is below $3.00,of $0.013 on July 8, 2022, which are counted as outstanding for computing the dailyshares owned by the selling stockholder after the Offering.
(4) Michael Novielli has the voting and dispositive power over the shares owned by Dutchess.
Pursuant to the Common Stock Purchase Agreement with Dutchess, and after the effectiveness of this Registration Statement, we have the option, but not the obligation, to issue Dutchess a Drawdown Notice to purchase amountour registered shares. The number of shares subject to any Drawdown Notice shall not be
greater than $12,500.
OUR TERMINATION RIGHTS
We haveexceed the unconditional rightlesser of; (i) $250,000 or (ii) 200% of the Average Daily Traded Value of the Stock during the five (5) days immediately preceding the Drawdown Notice date or (iii) the Beneficial Ownership Limitation of 4.99% of the number of shares of the Common Stock outstanding immediately prior to the issuance of shares of Common Stock issuable pursuant to a Drawdown Notice. Our issuance of a drawdown notice shall not include an amount of shares that would result in Dutchess exceeding the Beneficial Ownership Limitation at any time for any reasontime. The sale price of the Shares sold to give
notice to Fusion Capital terminating the common stock purchase agreement. Such
notice shall be effective one trading day after Fusion Capital receives such
notice.
EFFECT OF PERFORMANCE OF THE COMMON STOCK PURCHASE AGREEMENT ON OUR STOCKHOLDERS
We are obligated to register the shares to be sold under the common
stock purchase agreement as well as the 640,000 shares issued as a commitment
fee. On November 19, 2001, the Securities and Exchange Commission declared our
Registration Statement on Form S-1 effectiveDutchess pursuant to whichany Drawdown Notice is ninety-two percent (92%) of the lowest traded price of the Common Stock the five (5) Business Day prior to the Closing Date of each Drawdown Notice. If we registered
6,852,500 sharesissue a Drawdown Notice to Dutchess, Dutchess’ purchase and subsequent sales could result in dilution and a corresponding lessening of the value of our common stock. Fivestock (See Risk Factors & Dilution).
The Common Stock Purchase Agreement permits us to issue Drawdown Notices to Dutchess for an aggregate of ten million six hundred forty thousand
(5,640,000)dollars ($10,000,000) in shares of our common stock were registered on behalf of Fusion
Capital pursuant tountil (i) 36 months after the common stock purchase agreement. As of June 7, 2002, we
have issued 4,060,000 shares of our common stock to Fusion Capital pursuant to
the common stock purchase agreement. All shares so registered are freely
tradable. It is anticipated that such shares will be sold over a period of up to
40 months from theeffective date of this prospectus. registration; (ii) the date Dutchess may sell all of the Shares; (iii) the date on which Dutchess shall have sold all the Shares covered thereby, and no available amount remains under the Common Stock Purchase Agreement; or (iv) until $10,000,000 of such shares have been subject to a Drawdown Notice.
The saleCommon Stock Purchase Agreement with Dutchess is not transferable.
At an assumed purchase price under the Common Stock Purchase Agreement of a significant amount$0.0119 (equal to 92% of shares at any given time could cause the tradingclosing price of our common stock of $0.013 on July 8, 2022, we will be able to decline andreceive up to be highly volatile. Fusion Capital may ultimately$958,260 in gross proceeds, assuming we elect to sell the entire 80,526,056 Drawdown Notice Shares being registered hereunder to Dutchess pursuant to the Common Stock Purchase Agreement. At an assumed purchase allprice of the shares of common stock issuable$0.0119 under the common stock purchase agreement,
and itCommon Stock Purchase Agreement, we would be required to register 759,810,084 additional shares to obtain the balance of $9,041,740 under the Common Stock Purchase Agreement. Due to the floating offering price, we are unable to determine the exact number of shares that we will issue under the Common Stock Purchase Agreement.
From time to time, Dutchess may sell some, noneany or all of the shares of common stock it acquires upon
purchase. Therefore, the purchases under the common stock purchase agreement may
result in substantial dilution to the interests of other holders of our common
stock. However, we have the right at any time for any reason to: (1) reduce the
33
daily purchase amount, (2) suspend purchases of the common stock by Fusion
Capital and (3) terminate the common stock purchase agreement.
NO SHORT-SELLING OR HEDGING BY FUSION CAPITAL
Fusion Capital has agreed that neither it nor any of its affiliates
shall engage in any direct or indirect short-selling or hedging of our common stock duringcovered hereby on the OTC Markets or any time prior to the termination of the commonother stock purchase
agreement.
EVENTS OF DEFAULT
Generally, Fusion Capital may terminate the common stock purchase
agreement without any liabilityexchange, market, or payment to the Company upon the occurrence of
any of the following events of default:
o if for any reasontrading facility on which the shares registered pursuantare traded or in private transactions. Dutchess may sell, from time to the termstime, any or all of the common stock purchase agreement cannot be sold for a
period of ten consecutive trading days or for more than an
aggregate of 30 trading days in any 365-day period;
o suspension by our principal market of our common stock from
trading for a period of ten consecutive trading days or for
more than an aggregate of 30 trading days in any 365-day
period;
o our failure to satisfy any listing criteria of our principal
market for a period of ten consecutive trading days or for
more than an aggregate of 30 trading days in any 365-day
period;
o the transfer agent's failure for 5 trading days to issue to
Fusion Capital shares of our common stock covered hereby on the OTC Markets, or any other stock exchange, market or trading facility on which Fusion Capital
is entitled to under the common stock purchase agreement;
o any material breachshares are traded or in private transactions. Dutchess may sell all or a portion of the representations or warranties or
covenants contained in the common stock purchase agreement or
any related agreements which has or which could have a
material adverse affect on us subject to a cure period of 10
trading days;
o a default by us of any payment obligation in excess of $1.0
million; or
o any participation or threatened participation in insolvency or
bankruptcy proceedings by or against us.
COMMITMENT SHARES ISSUED TO FUSION CAPITAL
Under the terms of the common stock purchase agreement Fusion Capital
has received 640,000 shares of our common stock as a commitment fee. Unless an
event of default occurs, Fusion Capital must maintain ownership of at least
640,000 shares for 40 months from the date of the common stock purchase
agreement or until the date the common stock purchase agreement is terminated.
NO VARIABLE PRICED FINANCINGS
Until the termination of the common stock purchase agreement, we have
agreed not to issue, or enter into any agreement with respect to the issuance
of, any variable priced equity or variable priced equity-like securities unless
we have obtained Fusion Capital's prior written consent.
34
PRINCIPAL SHAREHOLDERS
The following table presents certain information regarding the
beneficial ownership of all shares of common stock at June 7, 2002 for each
executive officer and director of our company and for each person known to us
who owns beneficially more than 5% of the outstanding shares of our common
stock. The percentage ownership shown in such table is based upon the 43,937,907
common shares issued and outstanding at June 7, 2002 and ownership by these
persons of options or warrants exercisable within 60 days of such date. Also
included is beneficial ownership on a fully diluted basis showing all
authorized, but unissued, shares of our common stock at June 7, 2002 as issued
and outstanding. Unless otherwise indicated, each person has sole voting and
investment power over such shares.
COMMON STOCK
BENEFICIALLY OWNED
------------------------------------
NAME AND ADDRESS NUMBER PERCENT
- -------------------------------- ----------------- -----------------
Daniel R. Dwight 3,215,818(1) 7.1%
464 Common Street
Suite 301
Belmont, MA 02478
Richard A. Papworth 822,114(2) 1.9%
464 Common Street
Suite 301
Belmont, MA 02478
Richard F. Tusing 1,701,218(3) 3.8%
464 Common Street
Suite 301
Belmont, MA 02478
Jeffrey D. Wilson 310,000(4) *
464 Common Street
Suite 301
Belmont, MA 02478
Erik Black 272,983(5) *
464 Common Street
Suite 301
Belmont, MA 02478
Charles D. Strang 100,000(6) *
464 Common Street
Suite 301
Belmont, MA 02478
James P. McDermott 294,118 *
464 Common Street
Suite 301
Belmont, MA 02478
All Officers and Directors of TSET 6,716,251(7) 14.4%
- ---------------
* Less than 1%.
(1) Includes options to purchase 1,321,700 shares of common stock that can be acquired within sixty days of June 7, 2002
(2) Includes options to purchase 448,475 shares of common stock that can be acquired within sixty days of June 7, 2002.
(3) Includes options to purchase 457,100 shares of common stock that can be acquired within sixty days of June 7, 2002.
(4) Includes options to purchase 310,000 shares of common stock that can be acquired within sixty days of June 7, 2002.
(5) Includes options to purchase 50,000 shares of common stock that can be acquired within sixty days of June 7, 2002.
(6) Includes options to purchase 100,000 shares of common stock that can be acquired within sixty days of June 7, 2002.
(7) Includes options to purchase 2,687,275 shares of common stock that can be acquired within sixty days of June 7, 2002.
We are unaware of any arrangement or understanding that may, at a subsequent date, result in a change of control of
our company.
35
SELLING STOCKHOLDERS
SELLING STOCKHOLDER
The following table presents information regarding the selling
stockholders. Fusion Capital has not held a position or office, or had any other
material relationship, with our Company. Mr. James P. McDermott, a director of
our Company, is currently a Managing Director of Eagle Rock Advisors, LLC, the
Manager for The Eagle Rock Group, LLC.
PERCENTAGE OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
SHARES SHARES SHARES
BENEFICIALLY BENEFICIALLY BENEFICIALLY
SELLING OWNED BEFORE OWNED BEFORE SHARES TO BE SOLD OWNED AFTER
STOCKHOLDER OFFERING OFFERING(1) IN THE OFFERING OFFERING(2)
--------------------------- ---------------- ---------------- ----------------- ----------------
Fusion Capital Fund II, LLC(3) 5,940,000(4) 11.9%(4) 5,000,000 0.0%
The Eagle Rock Group, LLC 1,400,000(5) 3.1% 1,400,000 0.0%
- -----------------------------------------
(1) Percentage of outstanding shares is based on 43,937,907 shares of common stock outstanding as of June 7, 2002, which
includes all shares of common stock beneficially owned by the selling shareholders before this offering.
(2) Percentage of outstanding shares is based on 43,937,907 shares of common stock outstanding as of June 7, 2002,
together with remaining 5,940,000 shares of common stock that may be purchased by Fusion Capital from TSET under the
common stock purchase agreement. The shares to be issued to Fusion Capital under the common stock purchase agreement
are treated as outstanding for the purpose of computing Fusion Capital's percentage ownership.
(3) Steven G. Martin and Joshua B. Scheinfeld, the principals of Fusion Capital, are deemed to be the beneficial owners of
all of the shares owned by Fusion Capital. Messrs. Martin and Scheinfeld have shared voting and dispositive power of
the shares being offered under this Prospectus.
(4) Includes 5,940,000 shares which Fusion Capital may acquire in the future under the common stock purchase agreement.
Fusion Capital may not purchase shares of our common stock under the common stock purchase agreement if Fusion
Capital, together with its affiliates, would beneficially own more than 9.9% of our common stock outstanding at the
time of the purchase by Fusion Capital. However, even though Fusion Capital may not receive additional shares of our
common stock in the event that the 9.9% limitation is ever reached, Fusion Capital is still obligated to pay to us
$12,500 on each trading day, unless the common stock purchase agreement is suspended, an event of default occurs or
the agreement is terminated. Under these circumstances, Fusion Capital would have the right to acquire additional
shares in the future should its ownership subsequently become less than the 9.9%.
(5) Includes 1,400,000 shares which The Eagle Rock Group, LLC may acquire pursuant to an outstanding warrant.
Fusion Capital may acquire additional shares under the common stock purchase agreement.
36
PLAN OF DISTRIBUTION
The common stock offered by this prospectus is being offered by selling
stockholders. The common stock may be sold or distributed from time to time by
the selling stockholders directly to one or more purchasers or through brokers,
dealers, or underwriters who may act solely as agents, at fixed prices, at prevailing market prices
prevailing at the time of sale, at prices related to the prevailing market
prices, at negotiatedvarying prices or at fixed prices, whichnegotiated prices. Dutchess may be changed. The sale
of the common stock offered by this prospectus may be effected inuse any one or more of the following methods:
o o ordinary brokers' transactions;
o transactions involving crossmethods when selling securities:
| ● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; | |
| ● | block trades in which the broker-dealer will attempt to sell the shares as an agent but may position and resell a portion of the block as principal to facilitate the transaction; | |
| ● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; | |
| ● | an exchange distribution following the rules of the applicable exchange; | |
| ● | privately negotiated transactions; | |
| ● | in transactions through broker-dealers that agree with the selling stockholder to sell a specified number of such securities at a stipulated price per security; |
| ● | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; | |
| ● | a combination of any such methods of sale; or | |
| ● | any other method permitted pursuant to applicable law. |
Broker-dealers engaged by Dutchess may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or block trades or otherwise on the
Over-the-Counter Bulletin Board;
o "at the market" into an existing marketdiscounts from Dutchess (or, if any broker-dealer acts as agent for the common stock;
opurchaser of securities, from the purchaser) in other waysamounts to be negotiated, but except as outlined in a supplement to this Prospectus, in the case of an agency transaction not involving market makersover a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or established trading
markets, including direct sales to purchasersmarkdown in compliance with FINRA IM-2440.
Any broker-dealers or sales effected
through agents;
oagents involved in privately negotiated transactions; or
o any combination of the foregoing.
In order to comply with the securities laws of certain states, if
applicable,selling the shares may be solddeemed to be “underwriters” within the meaning of the Securities Act of 1933 in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act of 1933. We are required to pay certain fees and expenses incurred by us incident to the registration of the securities. The selling stockholder will be subject to the Prospectus delivery requirements of the Securities Act of 1933, including Rule 172 thereunder.
Dutchess will sell the resale securities only through registered or licensed brokers or dealers.dealers if required under applicable state securities laws. In addition, in certain states, the sharesresale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Brokers, dealers,with applicable laws.
Dutchess’ Compliance with Regulation M and this Offering
Regulation M aims to strengthen the integrity and fairness of the securities markets by regulating potentially manipulative practices by underwriters, issuers, selling securityholders, and other participants in securities offerings. Regulation M prohibits certain trading activities by those parties that could artificially raise the price of a security or agents participatingcreate a false appearance of active trading in the market by investors.
Key to the prophylactic measures of Reg. M are “distributions” of securities. Reg. M defines a distribution as not ordinary trading, but trading activities that are distinguished by the (i) magnitude and (ii) special selling efforts and selling methods used.
The number of registered shares we may sell to Dutchess is controlled and determined by our decision to issue Dutchess a Drawdown Notice, and the number of shares to be sold. Our common stock purchase agreement with Dutchess is itself not a distribution under Reg. M. Further, we are not a distribution participant in Dutchess’ subsequent sales of the registered shares as agents may receive compensation in the form of
commissions, discounts, or concessionsit purchases from the selling stockholders and/or
purchasers of the common stock for whom the broker-dealers may act as agent. The
compensation paidus pursuant to a particular broker-dealer may be less than orDrawdown Notice. As discussed below, Dutchess has committed to only sell the registered shares purchased from us in excessa Drawdown Notice in compliance with all securities laws, which is inclusive of customary commissions.
Fusion Capital, a selling stockholder, is an "underwriter" within the
meaning of the Securities Act of 1933, as amended.
Neither we nor the selling stockholders can presently estimate the
amount of compensation that any agent will receive. We know of no existing
arrangements between the selling stockholders, any other stockholders, broker,
dealer, underwriter, or agent relating to the sale or distribution of the
shares. At the time a particular offerReg. M. The number of shares we may choose to sell is made, a prospectus
supplement, if required, will be distributed that will set forth the names of
any agents, underwriters, or dealers and any compensation from the selling
stockholders and any other required information.
We will pay all of the expenses incident to the registration, offering,
and sale of the shares to the public other than commissions or discounts of
underwriters, broker-dealers, or agents. We have also agreed to indemnify Fusion
Capital against specified liabilities, including liabilities under the
Securities Act of 1933, as amended.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permittedsubject to our directors, officers,discretion and controlling persons, we have been advised that in the opinion of the Securities
and Exchange Commission this indemnification is against public policy as
expressed in the Securities Act of 1933, as amended, and is therefore,
unenforceable.
Fusion Capital and its affiliates have agreed not to engage in any
direct or indirect short selling or hedging of our common stock during the termlimited by operation of the common stock purchase agreement.
We have advisedagreement to the selling stockholders that while they are engagedlesser of; (i) $250,000 or (ii) 200% of the Average Daily Traded Value of the Stock during the five (5) days immediately preceding the Drawdown Notice date. The number of shares sold in any Drawdown Notice is calculated by ninety-two percent (92%) of the lowest traded price of the Common Stock the five (5) Business Day prior to the Closing Date of each Drawdown Notice.
Reg. M, prohibits any person, including Dutchess, from engaging in a distribution of resale securities and simultaneously engaging in market-making activities concerning the common stock for the applicable restricted period, as defined in Regulation M, before the commencement of the distribution. For our transaction with Dutchess, our common stock purchase agreement sets the pricing period beginning 5 days before the pricing of the Drawdown Notice and ends when Dutchess’ sales of sold the shares included in this prospectus they are required to
comply with Regulation M promulgatedconcludes under the Securities Exchange ActDrawdown Notice. Reg. M prohibits Dutchess from engaging in any market making activities before its purchase of 1934,
as amended. With certain exceptions, Regulationour common stock under an applicable Drawdown Notice is complete.
Such prohibited pre market making activities in a restrictive period violative of Reg. M precludes the selling
37
stockholders, any affiliatedinclude making arrangements where purchasers and any broker-dealer or other person
who participatesare induced to purchase securities in the distribution from bidding forform of agreements or purchasing, or
attempting to induce any person to bid for or purchase any security which is the
subjectsolicitations of the distribution until the entire distribution is complete.
Regulation M also prohibits anyaftermarket bids or purchases madeprior to the completion of Dutchess’ purchase of our common shares related to a Drawdown Notice; solicitation for sales prior to the completion of a purchase of our common shares related to a Drawdown Notice; accepting or soliciting interest from customers for purchases of shares in orderthe aftermarket prior to the completion of Dutchess’ purchase of our common shares resulting from a Drawdown Notice in an amount linked to the initial purchase; and, soliciting aftermarket orders before the completion of Dutchess’ purchase of our common shares resulting from a Drawdown Notice or rewarding customers for aftermarket orders by allocating additional securities to those customers in the initial distribution.
Our common stock purchase agreement with Dutchess addresses these concerns. Section III(1) of the common stock purchase agreement provides:
“The Investor [Dutchess] is entering into this Agreement for its own account and the Investor has no present arrangement (whether or not legally binding) at any time to sell the Securities to or through any Person in violation of the Securities Act or any applicable state securities laws; provided, however, that the Investor reserves the right to dispose of the Securities at any time in accordance with federal and state securities laws applicable to such disposition.”
Section V.2 of the common stock purchase agreement provides:
“The Investor’s [Dutchess’] trading activities with respect to shares of Common Stock will be in compliance with all applicable state and federal securities laws and regulations and the rules and regulations of FINRA and the Principal Market.”
Rule 105 of Reg. M is intended to prevent a manipulative practice in which a party sells a security short just before a public offering and then covers that short position with securities purchased in the offering. This practice is considered manipulative because it can artificially drive down the price of the security, which then reduces the issuer’s offering proceeds. At the same time, it provides a profit to the short seller without a corresponding risk because the short seller knows it will be able to cover its short position with securities purchased at the fixed offering price.
Section V.1 of the common stock purchase agreement with Dutchess provides:
“Neither the Investor [Dutchess], nor any affiliate of the Investor, trading for or on behalf of the Investor as a “related party” as defined by Item 404 of Regulation SK, will execute any Short Sales during the period from the date hereof to the end of the Commitment Period. For the purposes hereof, and in accordance with Regulation SHO, the sale after delivery of the Drawdown Notice of such number of shares of Common Stock reasonably expected to be purchased under the Drawdown Notice shall not be deemed a Short Sale. The Investor shall, until such time as the transactions contemplated by the Transaction Documents are publicly disclosed by the Company in accordance with the terms of the Transaction Documents, maintain the confidentiality of the existence and terms of this transaction and the information included in the Transaction Documents.”
Rule 104 of Reg. M provides that it is “unlawful for any person, directly or indirectly, to stabilize, to effect any syndicate covering transaction, or to impose a penalty bid, in connection with an offering of any security” except in accordance with the provisions of Rule 104. Regulation M defines stabilizing as the placing of any bid or the effecting of any purchase for the purpose of pegging, fixing, or otherwise maintaining the price of a securitysecurity. Stabilization affects the price of the offered securities by inducing their purchase, but, when done in connectioncompliance with Regulation M, is designed to facilitate an orderly distribution of the securities while avoiding the creation of a false or misleading appearance in the trading market of that security.
There are specific rules provided for in Reg. M that must be followed in order to affect stabilization. Rule 104 of Reg. M, requires (i) prior notice to the market where a person intends to make a stabilizing bid, and (ii) delivery of an offering document to purchasers containing the stabilization-related disclosure specified in Item 502(d) of Regulation S-K. Thus, Reg. M prohibits stabilizing activity that does not comply with these rules.
As noted above, Dutchess will not conduct any activity to manipulate, peg, fix or otherwise maintain a price for our securities during a Drawdown period without compliance with the distribution of that security. AllSecurities laws, including Reg. M:
Section V.2 of the foregoing may affectcommon stock purchase agreement provides:
“The Investor’s [Dutchess’] trading activities with respect to shares of Common Stock will be in compliance with all applicable state and federal securities laws and regulations and the marketabilityrules and regulations of FINRA and the Principal Market.”
DESCRIPTION OF SECURITIES TO BE REGISTERED
General
The Company is authorized to issue one class of shares offered hereby this
prospectus.
This offering will terminate onof stock. The total number of shares which the date that allCompany is authorized to issue is two billion (2,000,000,000) shares offered by
this prospectus have been sold by the selling stockholders.
38
SHARES ELIGIBLE FOR RESALE
Sales of substantial amountscommon stock, $.001 par value. As of July 8, 2022, there were 659,323,911 shares of our common stock in the public market
following this offering could negatively affect the market price of our common
stock. Such sales could also impair our future ability to raise capital through
the sale of our equity securities.
Upon the completion of the offering of common stock by this prospectus,
we will have outstanding 43,937,907 shares of our common stock. Of these shares,
approximately:
o 32,181,203 shares will be freely tradable by persons, other
than "affiliates", without restriction under the Securities
Act of 1933, as amended; and
o 11,756,704 shares will be "restricted" securities, within the
meaning of Rule 144 under the Securities Act of 1933, as
amended, and may not be sold in the absence of registration
under the Securities Act of 1933, as amended, unless an
exemption from registration is available, including the
exemption provided by Rule 144. As of June 7, 2002, 978,973
shares are held by affiliates of our Company, and may only be
sold pursuant to Rule 144.
In general, under Rule 144, a person or persons whose shares are
aggregated, including any affiliate of our Company who has beneficially owned
restricted securities for at least one year, would be entitled to sell within
any three-month period, a number of shares that does not exceed 1% of the number
of common stock then outstanding.
Sales under Rule 144 are also subject to manner of sale and notice
requirements and to the availability of current public information about our
Company. Under Rule 144(k), a person who is not considered to have been an
affiliate of our Company at any time during the 90 days preceding a sale, and
who has beneficially owned restricted securities for at least two years,
including the holding period of any prior owner except an affiliate of our
Company, may sell these shares without following the terms of Rule 144.
39
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 500,000,000 shares of common
stock, par value $0.001 per share, and 50,000,000 shares of preferred stock, no
par value. As of June 7, 2002, 43,937,907 shares of common stock were issued and
outstanding; no shares of our preferred stock are issued and outstanding. In
this offering,As of July 8, 2022, we may issue up to an additional 5,000,000 shareshad 400 shareholders of common
stock, all of such common stock to be issued in connection with the common stock
purchase agreement. The rights and preferences of the preferred stock will be
determined upon issuance by our Board of Directors. record.
| 33 |
Common Stock
The following description is a summary of our capital stock and contains the material terms thereof.
Additional information canrights and restrictions associated with our common stock. This description does not purport to be founda complete description of all the rights of our stockholders and is subject to, and qualified in its entirety by, the provisions of our most current Articles of Incorporation and Bylaws, which were filedare included as exhibits to ourthis Registration Statement on Form S-1 with the
Securities and Exchange Commission.
COMMON STOCK
HoldersStatement.
The holders of our common stock are entitledcurrently have (i) equal ratable rights to one vote for each share
held on all matters submitted to a vote of stockholders, including the election
of directors. Accordingly, holders of a majority of our common stock entitled to
vote in any election of directors may elect all of the directors standing for
election should they choose to do so. Neither our Articles of Incorporation nor
our Bylaws provide for cumulative voting for the election of directors. Holders
of our common stock are entitled to receive their pro rata share of any
dividends declared from time to timefunds legally available, therefore, when, as and if declared by the Board of Directors outDirector of funds
legally available therefor. Holders of our common stock have no preemptive,
subscription, conversion, sinking fund, or redemption rights. All outstanding
shares of our common stock are fully paid and non-assessable. In the event of
liquidation, dissolution, or winding up of TSET, the holders of common stockCompany; (ii) are entitled to share ratably in all of the assets remaining after payment of liabilities,
subjectthe Company available for distribution to prior distributionholders of common stock upon liquidation, dissolution or winding up of the affairs of the Company (iii) do not have pre-emptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights applicable thereto; and (iv) are entitled to one non-cumulative vote per share on all matters on which stockholders may vote.
Our Bylaws provide that at all meetings of preferred stock (if any) then
outstanding.
PREFERRED STOCK
Ourthe stockholders for the election of directors, a plurality of the votes cast shall be sufficient to elect. On all other matters, except as otherwise required by Nevada law or the Articles of Incorporation, authorizes 50,000,000 shares of preferred
stock, no par value. No shares of preferred stock are issued and outstanding asa majority of the datevotes cast at a meeting of this prospectus. The Board of Directors is authorized, subjectthe stockholders shall be necessary to authorize any limitations prescribed by the Nevada Revised Statutes, or the rules of any
quotation system or national securities exchange on which our stock may be
quoted or listed, to provide for the issuance of shares of preferred stock in
one or more series; to establish from time to time the number of sharescorporate action to be included in each such series; to fix the rights, powers, preferences, and
privilegestaken by vote of the shares of such series, without further vote or action bystockholders. A “plurality” means the
stockholders. Depending upon the terms of the preferred stock established by the
Board of Directors, any or all series of preferred stock could have preference
over the common stock with respect to dividends and other distributions and upon
liquidation of TSET or could have voting or conversion rights that could
adversely affect the holders of the outstanding common stock. As of the date of
this prospectus, the voting and other rights associated with the preferred stock
have yet to be determined by the Board of Directors. There are no present plans
by the Board of Directors to issue preferred shares or address the rights to be
assigned thereto.
OPTIONS
In April 2001, we entered into agreements with employees, consultants
and directors for the grant of stock options to purchase shares of our common
stock. All stock option grants are exercisable at the fair market value of the
shares on the date of grant, except for those options granted to the
consultants. The exercise price in the consulting agreements is fixed and in excess of the fair market value on the date of grants. On April 10, 2001,
Messrs. Jeffrey D. Wilson and Richard A. Papworth were granted options to
acquire, collectively, 748,475 shares of common stock in considerationvotes cast for their
relinquishment of the anti-dilution clauses in their employment agreements. We
have determined that the options to purchase 350,000 shares of common stock
granted to Mr. Wilson on April 10, 2001one candidate over any other. When there are void as of that date, and these
options are treated as if they were never granted. On April 10, 2001, members of
our management team and Board of Directors were granted stock options totaling
450,000 shares. On May 4, 2001,more than two members of the Board of Directors were
granted stock options for 250,000 shares of common stock. On February 12, 2002,
eight employees of TSET were granted stock options for 4,580,000 shares of
common stock. On November 15, 2001, Daniel R. Dwight was granted stock options
for 1,000,000 shares of common stock as a signing bonus in connection with Mr.
Dwight's Employment Agreement.
As of June 7, 2002, the following options had been granted in the
amounts and to the individuals shown below; as of the date hereof, none of such
options has been exercised:
40
- -------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
NAME OPTIONS STRIKE PRICE DATE OF GRANT EXPIRATION
- -------------------------------------------------------------------------------------------------------------------------------
Jeffrey D. Wilson 50,000 $0.885 04/09/01 04/09/06
200,000(1) $0.710 05/03/01 05/03/11
50,000(2) $0.360 10/10/01 10/10/04
10,000 $0.210 03/31/02 03/31/05
Richard A. Papworth 50,000 $0.885 04/09/01 04/09/06
398,475 $0.885 04/09/01 04/09/11
100,000 $0.680 02/12/02 02/12/12
200,000 $0.250 02/12/02 02/12/12
Richard F. Tusing 50,000 $0.885 04/09/01 04/09/06
252,500(3) $0.960 05/07/01 05/07/04
154,600(3) $0.960 06/07/02 06/07/05
600,000 $0.680 02/12/02 02/12/12
350,000 $0.250 02/12/02 02/12/12
Erik W. Black 50,000 $0.885 04/09/01 04/09/06
Charles H. Wellington, Jr. 50,000 $0.885 04/09/01 04/09/06
J. Alexander Chriss 50,000 $0.885 04/09/01 04/09/06
162,400(4) $1.120 04/30/01 04/30/04
96,400(4) $1.120 12/31/01 12/31/04
350,000 $0.680 02/12/02 02/12/12
300,000 $0.250 02/12/02 02/12/12
Igor Krichtafovitch 50,000 $0.885 04/09/01 04/09/06
600,000 $0.680 02/12/02 02/12/12
400,000 $0.250 02/12/02 02/12/12
Charles D. Strang 50,000 $0.885 04/09/01 04/09/06
50,000(5) $0.710 05/03/01 05/03/11
Daniel R. Dwight 50,000 $0.885 04/09/01 04/09/06
245,800(6) $0.960 05/07/01 05/07/04
25,900(6) $0.960 11/15/01 11/15/04
1,000,000 $0.680 02/12/02 02/12/12
600,000 $0.250 12/12/02 02/12/12
500,000(7) $0.420 11/15/01 11/15/11
250,000(7) $0.560 11/15/01 11/15/11
250,000(7) $0.660 11/15/01 11/15/11
Vladimir Gorobets 40,000 $0.250 02/12/02 02/12/12
41
- -------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
NAME OPTIONS STRIKE PRICE DATE OF GRANT EXPIRATION
- -------------------------------------------------------------------------------------------------------------------------------
Bruce Long 20,000 $0.250 02/12/02 02/12/12
Jacob Oharah 20,000 $0.250 02/12/02 02/12/12
- ---------------------------------------
(1) Mr. Wilson was granted options to purchase 100,000 shares of common stock annually for his service as Chairman of
TSET's Board of Directors. Options shown reflect such options for such service for years 1999 and 2000, respectively.
(2) Pursuant to an agreement dated October 10, 2001 between TSET and Mr. Wilson, Mr. Wilson was granted an option to
purchase 50,000 shares of common stock in consideration of Mr. Wilson's service in year 2001, prior to his
resignation, as Chairman of TSET's Board of Directors.
(3) Pursuant to consulting agreements dated as of August 11, 2000 (individually) and January 1, 2001 (as Dwight Tusing &
Associates), as amended April 12, 2001.
(4) Pursuant to a consulting agreement dated as of March 18, 2001; option grant effective as of April 30, 2001.
(5) Mr. Strang is entitled to receive 50,000 restricted shares of common stock annually for his service as a member of
TSET's Board of Directors.
(6) Pursuant to consulting agreements dated as of August 11, 2000 (individually) and January 1, 2001 (as Dwight Tusing &
Associates), as amended April 12, 2001.
(7) Pursuant to an employment agreement dated April 1, 2002 and a corresponding stock option agreement dated April 1,
2002.
WARRANTS
On August 7, 2001, we entered into a Warrant Agreement with The Eagle
Rock Group, LLC, pursuant to which The Eagle Rock Group was granted a ten-year
warrant to acquire 1,400,000 shares of our common stock at an exercise price of
$0.68 per share (the fair market value on the date of grant). The shares
underlying the warrant have piggyback and demand registration rights, as well as
subscription rights in the event that we issue any rights to all of our
stockholders to subscribe for shares of our common stock. In addition, the
warrant contains redemption rights in the event that we enter into a transaction
that results in a change of control of our company. We are obligated to register
all of the shares underlying The Eagle Rock Group's warrant in a shelf
registration to be effected within a specified period after we file our
quarterly report on Form 10-Q with the Securities and Exchange Commissioncompetitors for the period ending December 31, 2001.
Effective March 11, 2002, we entered into an agreement with The Eagle
Rock Group extending our relationship with The Eagle Rock Group until March 1,
2003. Pursuant tosame office, the agreement, we agreed to convertperson who receives the then-currently owed
amounts to The Eagle Rock Groupgreatest number of $120,000 intovotes has a promissory note due and
payable on March 1, 2003 and agreed to grant to The Eagle Rock Group a ten-year
warrant for the right to purchase 2,000,000 shares of our common stock. Five
hundred thousand (500,000) warrant shares will fully vest on March 1, 2003. The
remainder of the shares may be earned, contingent upon the occurrence of various
events, including a successful capital raise, securing contracts with the U.S.
military, securing contracts with consumer-oriented distribution organizations,
and the adoption of a branding/marketing campaign principally developed by The
Eagle Rock Group. The exercise price of these warrant shares will be equal to
our common stock's closing price as of the day an initial letter of intent or
term sheet related to such transaction is executed.
LIMITATION OF LIABILITY; INDEMNIFICATION
As permitted by the Nevada Revised Statutes, our Bylaws provide for the
indemnification of our directors, officers, and employees or of any corporation
in which any such person serves as a director, officer, or employee at our
request, to the fullest extent allowed by the Nevada Revised Statutes, against
expenses (including, without limitation, attorney's fees, judgments, awards,
fines, penalties, and amounts paid in satisfaction of judgment or in settlement
of any action, suit, or proceeding) incurred by any such director, officer, or
employee. The Nevada Revised Statutes currently provides that such liability may
be so limited, except for: (a) acts or omissions which involve intentional
misconduct, fraud, or a knowing violation of law; or (b) the payment of
distributions in violation of Nevada Revised Statutes 78.300. As a result of
this provision, our company and our stockholders may be unable to obtain
monetary damages from such persons for breach of their duty of care. Although
stockholders may continue to seek injunctive and other equitable relief for an
alleged breach of fiduciary duty by such persons, stockholders may have no
42
effective remedy against the challenged conduct if equitable remedies are
unavailable.
We provide director and officer liability insurance and pays all
premiums and other costs associated with maintaining such insurance coverage. We
have also entered into indemnification agreements with each director and
officer.
REGISTRATION RIGHTS
On July 7, 2001, we entered into a Warrant Agreement with The Eagle
Rock Group, LLC, pursuant to which The Eagle Rock Group was granted a ten-year
warrant to acquire 1,400,000 shares of our common stock. The shares underlying
the warrant have piggyback and demand registration rights, as well as
subscription rights in the event that we issue any rights to all of our
stockholders to subscribe for shares of our common stock. We will pay all costs
associated with the exercise of the registration rights of The Eagle Rock Group.
We are obligated to register all of the shares underlying The Eagle Rock Group's
warrant to be effected within a specified period after we file our quarterly
report on Form 10-Q with the Securities and Exchange Commission for the period
ending December 31, 2001.
TRANSFER AGENTplurality.
The transfer agent and registrar for our common stock is Merit Transfer
Company, 68 South Main Street, Suite 708, Salt Lake City, UT 84101, Telephone
(801) 531-7558.
EXPERTS
The consolidated financial statements of TSET and its subsidiaries as
ofour company included in this Prospectus for the fiscal years ended June 30, 20012021 and 2000June 30, 2020, have been audited by Weinstein International CPA, and are included in the registration statement in reliance upon thesuch report of Grant Thornton LLP, independent certified public
accountants, appearing elsewhere herein, andgiven upon the authority of said firm as experts in accountingauditing and auditing.
The consolidated financial statementsaccounting.
Mailander Law Office, Inc. will render a legal opinion as to the validity of TSET and its subsidiaries asthe shares of June 30, 1999 have been includedthe Common Stock to be registered hereby.
INTERESTS OF NAMED EXPERTS AND COUNSEL
No expert named in the registration statement of which this Prospectus forms a part as having prepared or certified any part thereof (or is named as having prepared or certified a report or valuation for use in reliance
upon the report of Randy Simpson CPA, P.C., independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firmconnection with such registration statement) or counsel named in this Prospectus as experts in accounting and auditing.
LEGAL MATTERS
Kirkpatrick & Lockhart LLP, Miami, Florida, has passedhaving given an opinion upon the validity of the issuance of the shares of common stocksecurities being offered under this
prospectus.
43
AVAILABLE INFORMATION
For further information with respect to us and the securities offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto. Statements herein concerning the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
such contract or other statement filed with the Securities and Exchange
Commission or included as an exhibit, or otherwise, each such statement, being
qualified by and subject to such reference in all respects.
We are a reporting company and have distributed to our stockholders
annual reports containing audited financial statements. Our annual report on
Form 10-K for the fiscal year ended June 30, 2001 has been filed with the
Securities and Exchange Commission.
Reports, registration statements, proxy and information statements, and
other information filed by us with the Securities and Exchange Commission can be
inspected and copied at the public reference room maintained by the Securities
and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. Copies of these materials may be obtained at prescribed
rates from the Public Reference Section of the Securities and Exchange
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The
Securities and Exchange Commission maintains a site on the World Wide Web
(http://www.sec.gov) that contains reports, registration statements, proxy and
information statements and other information. You may obtain information on the
Public Reference Room by calling the Securities and Exchange Commission at
1-800-SEC-0330.
44
INDEX TO FINANCIAL STATEMENTS
Page
--------
TSET, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AT MARCH 31, 2002 (UNAUDITED)
Consolidated Balance Sheets as of March 31, 2002 (Unaudited) and June 30, 2001......................... F-2
Consolidated Statements of Operations for the three months and nine months ended March 31, 2002 and
2001 (Unaudited)................................................................................... F-3
Consolidated Statements of Cash Flows for the nine months ended March 31, 2002 and 2001 (Unaudited).... F-4
Consolidated Statement of Changes of Shareholders' Equity for the nine months ended March 31, 2002
(Unaudited)........................................................................................ F-5
Notes to Consolidated Financial Statements............................................................. F-6
CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2001
Report of Independent Certified Public Accountants..................................................... F-12
Report of Randy Simpson, C.P.A., P.C................................................................... F-13
Consolidated Balance Sheets as of June 30, 2001 and 2000............................................... F-14
Consolidated Statements of Operations for the years ended June 30, 2001, 2000 and 1999................. F-15
Consolidated Statements of Cash Flows for the years ended June 30, 2001, 2000 and 1999................. F-16
Consolidated Statement of Changes of Shareholders' Equity for the years ended June 30, 2001, 2000 and
1999............................................................................................... F-17
Notes to Consolidated Financial Statements............................................................. F-19
F-1
TSET, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, JUNE 30,
2002 2001
(Unaudited)
----------------- ---------------
ASSETS
CURRENT ASSETS
Cash $ 9,721 $ 32,619
Prepaids and other current assets 178,829 37,679
----------------- ---------------
TOTAL CURRENT ASSETS 188,550 70,298
----------------- ---------------
PROPERTY AND EQUIPMENT 62,723 62,723
Less Accumulated Depreciation (29,514) (18,016)
----------------- ---------------
NET PROPERTY AND EQUIPMENT 33,209 44,707
------------------ ---------------
OTHER ASSETS
Intangibles 2,280,047 2,431,524
Deferred financing fees 556,152 520,800
------------------ ---------------
TOTAL OTHER ASSETS 2,836,199 2,952,324
------------------ ---------------
TOTAL ASSETS $ 3,057,958 $ 3,067,329
================== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,275,817 $ 323,045
Accrued expenses 877,642 1,284,268
Notes payable, current portion 343,900 313,900
------------------- ---------------
TOTAL CURRENT LIABILITIES 2,497,359 1,921,213
------------------- ---------------
LONG TERM LIABILITIES
Notes payable 250,000
-------------------
TOTAL LONG TERM LIABILITIES 250,000
-------------------
------------------- ---------------
Net lilabilities of discontinued operations 747,550 667,550
------------------- ---------------
TOTAL LIABILITIES ------------------ ---------------
3,494,909 2,588,763
------------------ ---------------
REDEEMABLE WARRANTS 686,000 -
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock authorized 500,000,000 39,386 34,001
shares of $.001 par value
Capital in excess of par value 13,749,933 12,418,350
Retained earnings (Accumulated deficit) (14,912,271) (11,973,785)
------------------ ---------------
TOTAL SHAREHOLDERS' EQUITY(DEFICIT) (1,122,952) 478,566
------------------ ---------------
TOTAL LIBILITIES AND SHAREHOLDERS' EQUITY $ 3,057,958 $ 3,067,329
================== ===============
The accompanying notes are an integral part of this financial statement.
F-2
TSET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
-------------------------------------- ----------------------------------
2002 2001 2002 2001
-------------- ------------------- ----------------- -------------
Sales $ - $ 5,000 $ 65,070 $ 5,000
Cost of Sales - - 50,070 0
-------------- ------------------- ----------------- -------------
Gross Margin - 5,000 15,000 5,000
-------------- ------------------- ----------------- -------------
Selling General and Administrative expenses
Compensation and benefits 141,261 230,771 401,115 898,717
Research and Development 58,682 16,038 197,516 127,905
Professional services 225,078 187,088 1,750,454 474,170
Depreciation and amortizaton 71,674 80,544 215,021 220,738
Other selling general & administrative expenses 126,256 165,576 321,401 435,456
-------------- ------------------- ----------------- -------------
Total Selling, General and Administrative expenses 622,952 680,017 $ 2,885,508 2,156,986
-------------- ------------------- ----------------- -------------
Net Operating Income (Loss) (622,952) (675,017) (2,870,508) (2,151,986)
Other Income (expense) $0 1,050 1,537 5,591
Interest Expense (34,349) - (69,513) -
Minority Interests - -
-------------- ------------------- ----------------- -------------
Net Income (Loss) Before Taxes (657,251) (673,967) (2,938,484) (2,146,395)
Provision for Taxes - - - -
-------------- ------------------- ----------------- -------------
Net Income (Loss) from continuing operations (657,251) (673,967) (2,938,484) (2,146,395)
Income (Loss) from discontinued operations, net
of income tax of $0 (2,510,000) (2,510,000)
-------------- ------------------- ----------------- -------------
Net Income (Loss) $ (657,251) $ (3,564,576) $ (2,938,484) (5,827,499)
============== =================== ================= =============
Basic Earnings (Loss) Per Share
Income (loss) from continung operations (0.02) (0.02) (0.08) (0.07)
Loss from discontinued operations - (0.09) - (0.12)
-------------- ------------------- ----------------- -------------
Net Income (loss) $ (0.02) $ (0.11) $ (0.08) $ (0.19)
============== =================== ================= =============
Diluted Earnings (Loss) Per Share
Income (loss) from continuing operaitons (0.02) (0.02) (0.08) (0.07)
Loss from discontinued operations - (0.09) - (0.12)
-------------- ------------------- ----------------- -------------
Net Income (Loss) $ (0.02) $ (0.11) $ (0.08) $ (0.19)
============== =================== ================= =============
The accompanying notes are an integral part of this financial statement.
F-3
TSET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE NINE MONTHS ENDED MARCH 31,
-------------------------------------------
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES -------------------------------------------
NET LOSS FROM CONTINUING OPERATIONS $ (2,938,484) $ (2,156,395)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
(used in) provided by operations
Depreciation and amortization 215,021 220,738
Common stock issued for compensation/services 814,532 83,954
CHANGE IN
Accounts receivable - 6,000
Prepaid expenses and other asets (176,502) (489)
Accounts payable 952,772 193,732
Accrued expenses and other liabilities (56,626) 189,322
-------------------------------------------
NET CASH (USED IN) PROVIDED BY CONTINUING OPERATION (1,189,286) (1,453,088)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment - (77,614)
Investment in patent protection 15,795 -
Cash used in discontinued operations (84,014) (177,594)
-------------------------------------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (64,219) (255,208)
-------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 1,234,607 1,719,740
-------------------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES $ 1,234,607 1,719,740
-------------------------------------------
NET (DECREASE) INCREASE IN CASH (22,898) 11,444
CASH
BEGINNING OF PERIOD 32,619 102,949
-------------------------------------------
END OF PERIOD $ 9,721 $ 114,493
===========================================
Supplemental schedule of non-cash investing and financing activities:
Debt satisfied with stock $ 100,000 $ 419,143
Note payable issued in satisfaction of accrued liability $ 350,000 -
The accompanying notes are an integral part of this financial statement.
F-4
TSET, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON STOCK
----------------------------- RETAINED
CAPITAL IN EARNINGS TOTAL
EXCESS OF PAR (ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT VALUE DEFICIT EQUITY (DEFICIT)
------------------------------------------------------------------------
BALANCE at June 30, 2001 34,000,978 $ 34,001 $ 12,418,350 $ (11,973,785) $ 478,566
Shares issued on July 6, 2001 for cash 238,806 239 70,761 80,000
Shares issued on July 20, 2001 as compensation 250 113 113
Shares issued on October 1, 2001 for consulting services 360,000 360 100,440 100,800
Shares issued on October 1, 2001 as compensation 2,250 2 1,446 1,448
Shares issued on October 1, 2001 for cash 1,000,000 1,000 446,982 447,982
Shares issued on November 30, 2001 for cash 100,000 100 23,400 23,500
Shares issued on December 10, 2001 for cash 50,000 50 10,950 11,000
Shares issued on December 12, 2001 for cash 100,000 100 20,900 21,000
Shares issued on December 13, 2001 for cash 75,000 75 16,050 16,125
Shares issied on December 14, 2001 for cash 500,000 500 107,000 107,500
Shares issued in January 2002 to Fusion Capital for cash 925,000 925 194,700 195,625
Shares issued in February 2002 to Fusion Capital for cash 350,000 350 69,150 69,500
Shares issued in March 2002 to Fusion Capital for cash 1,683,333 1,684 260,691 262,375
Net loss for the period ended March 31, 2002 (2,938,484) (2,938,484)
------------------------------------------------------------------------
Balance at March 31, 2002 (Unaudited) 39,385,617 $ 39,386 $ 13,749,933 $ (14,912,271) $ (1,122,951)
========================================================================
The accompanying notes are an integral part of this financial statement.
F-5
TSET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ACCOUNTING MATTERS
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments necessary to present fairly the
information set forth therein have been included. Operating results for the
three-month and nine-month periods ended March 31, 2002 are not necessarily
indicative of the results that may be experienced for the fiscal year ending
June 30, 2002.
These financial statements are those of the Company and its wholly-owned
subsidiaries. All significant inter-company accounts and transactions have been
eliminated in the preparation of the consolidated financial statements. Aperion
Audio, Inc. is disclosed as discontinued operations in these financial
statements.
The accompanying financial statements should be read in conjunction with the
TSET, Inc. Form 10-K for the fiscal year ended June 30, 2001 filed on October
15, 2001.
RECENT ACCOUNTING PRONOUNCEMENTS. On July 20, 2001, the FASB issued Statement of
Financial Accounting Standard (SFAS) No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets." These statements make
significant changes to the accounting for business combinations, goodwill, and
intangible assets.
SFAS No. 141 establishes new standards for accounting and reporting requirements
for business combinations and requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is prohibited. This statement is effective for
business combinations initiated after June 30, 2001.
SFAS No. 142 establishes new standards for goodwill acquired in a business
combination, eliminates amortization of goodwill and instead sets forth methods
to periodically evaluate goodwill for impairment. Intangible assets with a
determinable useful life will continue to be amortized over that period. The
Company adopted this statement during the quarter ending September 30, 2002.
Goodwill and intangible assets acquired after June 30, 2001 will be subject
immediately to the non-amortization and amortization provisions of the
statement. The Company does not currently have any goodwill recorded on its
financial statements and it is expected that there will be no immediate impact
on the Company's financial statements as a result of the adoption of this
statement.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations." This statement addresses the
financial accounting and reporting for the retirement of tangible long-lived
assets and the associated asset retirement costs. The Company believes the
adoption of SFAS 143 will have no significant impact on its financial
statements.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." This statement
addresses the financial accounting and reporting for the impairment or disposal
of long-lived assets. The Company believes the adoption of SFAS 144 will have no
significant impact on its financial statements.
F-6
NOTE 2 -- INCOME TAXES
The composition of deferred tax assets and the related tax effects at March 31,
2002 and June 30, 2001 are as follows:
MARCH 31, 2002
(UNAUDITED) JUNE 30, 2001
--------------------- ----------------
Benefit from carryforward of net operating $2,202,150 $ 1,538,645
losses
Other temporary differences 245,121 228,121
Less:
Valuation allowance (2,447,271) (1,766,766)
-------------- ------------
Net deferred tax asset
$ - $ -
============== ============
The other temporary differences shown above relate primarily to accrued and
deferred compensation. The difference between the income tax benefit in the
accompanying statements of operations and the amount that would result if the
U.S. Federal statutory rate of 34% were applied to pre-tax loss is as follows:
MARCH 31, 2002
(UNAUDITED) JUNE 30, 2001
---------------------------------- ------------------------------
% OF % OF
AMOUNT PRE-TAX LOSS AMOUNT PRE-TAX LOSS
------------------ ------------------ ------------ ---------------
Benefit for income tax at federal statutory rate $ 999,086 34.0% $ 3,354,468 34.0%
Non-deductible expenses (318,580) (10.8)% (1,803,355) (18.3%)
Disposed subsidiary NOL - -% (578,370) (5.9%)
Increase in valuation allowance (680,506) (23.2)% (972,743) (9.8%)
------------------ ------------------ ------------ ---------------
$ - 0.0% $ - 0.0%
================== ================== ============ ===============
The non-deductible expenses shown above related primarily to the amortization of
intangible assets and to the accrual of stock options for compensation using
different valuation methods for financial and tax reporting purposes.
The Company has filed all of its federal and state income tax returns for all
years through June 30, 2001. The Company is current on all income tax filings.
At March 31, 2002, for federal income tax and alternative minimum tax reporting
purposes, the Company has approximately $6.5 million of unused net operating
losses available for carryforward to future years. The benefit from carryforward
of such net operating losses will expire in various years between 2011 and 2023
and could be subject to limitations if significant ownership changes occur in
the Company. Of the $6.5 million of unused net operating losses noted above,
approximately $178,000 relates to losses incurred by the Company's subsidiary,
Aperion Audio. In fiscal years prior to June 30, 2000, Aperion Audio did not
file its tax returns on a consolidated basis with the Company. Accordingly, the
$178,000 loss incurred by Aperion Audio is further subject to separate
limitations that restrict the ability of the Company to use such losses.
NOTE 3 - SEGMENTS OF BUSINESS
The Company operates principally in one segment of business: The Kronos segment
licenses, manufactures and distributes air movement and purification devices
utilizing the Kronos(TM) technology. All other segments have been disposed of or
discontinued. In the nine months ended March 31, 2002, the Company operated only
in the U.S.
NOTE 4 - EARNINGS PER SHARE
On March 11, 2002, Board approved a compensation committee recommendation for
the grant of stock options to employees totaling 4,639,600 shares. As of March
F-7
31, 2002, there were outstanding options to purchase 6,563,575 shares of the
Company's common stock. These options have been excluded from the earnings per
share calculation as their effect is anti-dilutive.
NOTE 5 - DISCONTINUED OPERATIONS
In early January 2001, management committed to a formal plan of action to sell
or otherwise dispose of Atomic Soccer. Agreement was reached with a buyer group,
that included current and former Atomic Soccer management, to sell them the
outstanding shares of common stock of Atomic Soccer for $1,000. The transaction
was effective on April 11, 2001. On September 14, 2001 the board approved a
formal plan of action to sell or otherwise dispose of Aperion Audio (formerly
EdgeAudio). The Company has accrued $150,000 for anticipated operating losses
during the phase-out period. The sale of TSET-owned shares of Aperion Audio
common stock was completed on June 7, 2002, pursuant to a Settlement Agreement
and Mutual Release. The Company sold the shares to Aperion Audio's management
group, which consists of 2 individuals. Pursuant to the sale, these 2
individuals will receive 500,000 share of our common stock in exchange for any
rights these individuals may have to earn-out provisions pursuant to their
original agreement with the Company. In addition, the Company will provide
$214,000 in working capital to Aperion Audio in monthly installments of $15,000
pursuant to the original agreement withe the Company. The sale of Aperion Audio
will result in a gain of approximately $600,000. As a result, both Atomic Soccer
and Aperion are included in the financial statements as discontinued operations.
The Company's consolidated financial statements for all periods have been
reclassified to report separately results of operations and operating cash flows
from continuing operations and the discontinued operations. The net revenues are
included in the financial statements under Net Income (Loss) from Discontinued
Operations. The assets and liabilities of Aperion at March 31, 2002 are included
in the balance sheet as Net Liabilities of Discontinued Operations. Net
liabilities of discontinued operations at March 31, 2002 and operating results
of discontinued operations for the nine-months ended March 31, are as follows:
NET LIABILITIES OF DISCONTINUED OPERATIONS
APERION AUDIO
-----------------
Current Assets $335,466
Net Property and Equipment 44,654
Current Liabilities (601,859)
Minority Interest (525,811)
--------------
Net Assets (Liabilities) $(747,550)
==============
OPERATING RESULTS OF DISCONTINUED OPERATIONS:
OPERATING RESULTS OF DISCONTINUED OPERATIONS:
---------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------------
2002 2001
----------------- -------------------------------------------------------
APERION AUDIO ATOMIC APERION AUDIO TOTAL
------------------ ----------------- ------------------ ----------------
Sales $733,183 $ 714,464 $ 587,570 $1,302,034
Cost of sales (273,282) (512,282) (304,488) (816,770)
Depreciation and amortization (9,927) (215,398) (198,111) (413,509)
General and administrative (545,964) (369,058) (927,871) (1,296,929)
------------------ ----------------- ----------------- ----------------
Operating income (loss) (95,990) (382,274) (842,900) (1,225,174)
Other income 22,217 735 (537) 198
Interest expense (25,584) (69,232) (8,279) (77,511)
Provision for future operating losses 79,485 - - -
Minority interest 19,871 - 131,383 131,383
------------------ ----------------- ----------------- ----------------
Income (Loss) pre-tax 0 (450,771) (720,333) (1,171,104)
Income taxes (benefits) - - - -
------------------ ----------------- ----------------- ----------------
Loss from discontinued operations $0 $ (450,771) $(720,333) $ (1,171,104)
================== ================= ================= ================
F-8
NOTE 6 - NOTES PAYABLE
On October 15, 2001, the Company entered into an agreement with Jeffrey D.
Wilson pursuant to which the Company issued a promissory note for compensation
which was accrued but not paid to him during the time he served as an executive
officer of the Company. The amount of the note is for $350,000 and calls for
quarterly payments of principal and interest of $20,000 until the note is paid
in full. The interest is being accrued at the rate of 4.59%.
NOTE 7 - ISSUANCE OF WARRANTS
On July 9, 2001, the Company signed an agreement to utilize the strategic
planning and business plan execution services of The Eagle Rock Group, LLC. The
Eagle Rock Group will work with the Kronos Air Technologies team to fully
develop and capitalize the Kronos(TM) technology.
Pursuant to the agreement that the Company entered into with The Eagle Rock
Group, the Company issued to The Eagle Rock Group a ten-year warrant granting
them the right to purchase 1,400,000 shares of the Company's common stock at an
exercise price of $0.68 per share. The warrant was valued at $686,000 using the
Black-Scholes option valuation mode and was initially recorded as deferred
equity compensation to amortized into current period professional services
expense at a rate of $137,200 per month over 5 months. Amortization for the
three-months and nine-months ended March 31, 2002 was $0 and $686,000,
respectively. The shares underlying the warrant have piggy-back and demand
registration rights, as well as subscription rights in the event that the
Company issues any rights to all of its stockholders to subscribe for shares of
the Company's common stock. In addition, the warrant contains redemption rights
in the event that the Company enters into a transaction that results in a change
of control of the Company.
NOTE 8 - CONSULTING AGREEMENT WITH THE EAGLE ROCK GROUP
On March 1, 2002, the company entered into a 12 month consulting agreement with
The Eagle Rock Group. Pursuant to the agreement, the company will grant The
Eagle Rock Group a 10 year warrant for up to 2,000,000 shares. 500,000 shares
are immediately earned and will fully vest on March 1, 2003. The remainder of
the shares may be earned contingentthis Prospectus, or upon the occurrence of various events
including a successful capital raise equal to or greater than $1.5 million,
securing contracts with the U.S. military, securing contracts with
consumer-oriented distribution organizations, and the adoption of a
branding/marketing campaign which has been principally developed by The Eagle
Rock Group.
NOTE 9 - SUBSEQUENT EVENTS
On April 1, 2002, the company entered into an Employment agreement with Daniel
R. Dwight, our President and Chief Executive Officer, effective as of November
15, 2001. The initial term of Mr. Dwight's Employment Agreement is for 2 years
and will automatically renew for successive 1 year terms unless TSET or Mr.
Dwight provide the other party with written notice within 3 months of the end of
the initial term or any subsequent renewal term. Mr. Dwight's Employment
Agreement provides for base cash compensation of $180,000 per year. Mr. Dwight
is eligible for annual incentive bonus compensation in an amount equal to Mr.
Dwight's annual salary based on the achievement of certain bonus objectives. In
addition, TSET granted Mr. Dwight 1,000,000 immediately vested and exercisable,
ten-year stock options at various exercise prices. Mr. Dwight will be entitled
to fully participate in any and all 401(k), stock option, stock bonus, savings,
profit-sharing, insurance, and other similar plans and benefits of employment.
Mr. Dwight is entitled to be indemnified, defended, and held harmless by us from
and against any and all costs, losses, damages, penalties, fines, or expenses
(including, without limitation, reasonable attorneys' fees, court costs, and
associated expenses) suffered, imposed upon, or incurred by him in any manner in
connection with his service as our Chief Executive Officer.
In May 2002, the Company completed a private placement of its common stock
pursuant to which it sold 2,551,412 shares of its common stock at $0.17 per
share to eight accredited investors for consideration of $435,100 in cash and
841,459 shares of its common stock at $0.17 per share to five members of the
Company's management team for consideration of commitments to convert $143,048
of debt.
On June 7, 2002, the company completed the sale of its ownership in Aperion
Audio, Inc. (f/k/a EdgeAudio, Inc.) pursuant to a Settlement Agreement and
Mutual Release. This disposition completed a formal plan of action by the
company's board of directors, adopted September 14, 2001, to sell or otherwise
dispose of the company's ownership in Aperion Audio, Inc. The company previously
established an allowance for impairment in the value of its ownership of Aperion
Audio, Inc. and as a result the company will recognize a gain of approximately
$600,000legal matters in connection with the current sale transaction.
NOTE 10 - REALIZATIONregistration or offering such securities was employed for such purpose on a contingency basis. Also, at the time of such preparation, certification, or opinion or at any time thereafter, through the date of effectiveness of such registration statement or that part of such registration statement to which such preparation, certification or opinion relates, no such person had, or is to receive, in connection with the offering, a substantial interest, as defined in Item 509 of Regulation SK, in our company or any of its parents or subsidiaries. Nor was any such person connected with our company or any of its parents or subsidiaries as a promoter, managing or principal underwriter or voting trustee.
INFORMATION WITH RESPECT TO OUR COMPANY
DESCRIPTION OF ASSETS
The accompanying financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
which contemplate continuationBUSINESS
General Development of the Company as a going concern. The Company
has sustained losses from operations in recent years, and such losses have
F-9
continued throughBusiness
Kronos Advanced Technologies, Inc. (“Kronos” or the current year nine months ended March 31, 2002. In
addition,“Company”) was originally incorporated under the Company has used, rather than provided cash in its operations. The
Company is currently using its resources to raise capital necessary to complete
research and development work, and to provide for the working capital needs of
itself and its subsidiaries.
In viewlaws of the matters described in the preceding paragraph,
recoverabilityState of a major portion of the asset amounts shown in the accompanying
balance sheet is dependent upon continued operations of the Company, which in
turn is dependent upon the Company's ability to meet its financing requirements
on a continuing basis, to maintain present financing and to succeed in its
future operations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
amounts and classification of liabilities that might be necessary should the
Company be unable to continue in existence.
Management has taken the following steps with respect to its operating
and financial requirements, which it believes are sufficient to provide the
Company with the ability to continue in existence:
1. In May 2001, Kronos Air Technologies was awarded a
Small Business Innovation Research contract. This
contract is sponsored by the United States Navy and
is potentially worth up to $837,000 in product
development and testing support for Kronos Air
Technologies. The first phase of the contract is
worth up to $87,000 in funding for manufacturing and
testing a prototype device for air movement and
ventilation onboard naval vessels. In April 2002, the
U.S. Navy and Kronos mutually agreed to exercise the
option on the first phase of the U.S. Navy SBIR
contract. The option is to provide incremental
funding to Kronos to further test and evaluate
Kronos(TM)devices built during the initial SBIR
funding. Testing will include demonstrating the
ability of these U.S. Navy Kronos(TM) devices to
capture and destroy biological hazards and to
effectively manage electrical magnetic interference.
If awarded to Kronos Air Technologies, the second
phase of the contract would be worth up to $750,000
in additional funding. The Kronos(TM)devices
manufactured under this contract will be embedded in
an existing HVAC systems to move air more efficiently
than the current fan based technology. This contract
is an extension of the commercialization effort by
Kronos Air Technologies in the specialized military
marketplace. We are currently waiting for the
announcement of the award of the phase II contracts
by the Navy.
2. In December 2001, Kronos Air Technologies was awarded
an SBIR contract sponsored by the U.S. Army. This
contract is potentially worth up to $850,000 in
product development and testing support for Kronos
Air Technologies. Phase One of the contract is worth
up to $120,000 in funding to investigate and analyze
the feasibility of the Kronos(TM)technology to reduce
humidity in heating, ventilation and air conditioning
(HVAC) systems. Dehumidification is essential to
making HVAC systems more energy efficient. Phase Two
of the contract is worth up to $730,000 in additional
funding for product development and testing. In May
2002, the U.S. Army requested the company to submit a
detailed Phase Two proposal by June 10, 2002 for
review in the current year. We submitted the proposal
on June 7, 2002.
3. On June 19, 2001, we entered into a common stock
purchase agreement with Fusion Capital pursuant to
which Fusion Capital agreed to purchase on each
trading day during the term of the agreement, $12,500
of our common stock or an aggregate, under certain
conditions, of $10.0 million. The $10.0 million of
common stock is to be purchased over a 40 month
period, subject to a six-month extension or earlier
termination at our discretion. The purchase price of
the shares of common stock will be equal to the then
current market price of the common stock without any
fixed discount to the market price. The agreement is
dependent on the Company registering the associated
shares and on the ability to Fusion Capital to fund
the purchase of those shares. Assuming the Company's
share price remains at current levels, the 5 million
shares that the Company is currently registering
would allow the Company to raise approximately $1.5
to $2.0 million without registering additional
shares. We have already sold approximately 4,060,000
shares to Fusion Capital and raised $750,000.
F-10
4. On July 2, 2001, we signed an agreement to utilize
the strategic planning and business plan execution
services of The Eagle Rock Group, LLC. The Eagle Rock
Group will work with the Kronos Air Technologies team
to fully develop and capitalize on the Kronos(TM)
technology. We believe that The Eagle Rock Group can
assist us in unlocking the potential value of the
Kronos(TM)technology. The Eagle Rock Group's
multi-disciplined approach, which uses seasoned
business executives and leverages relationships and
networks, can accelerate the Kronos(TM)opportunity
versus the timing and development if we were to
continue on a go-it-alone strategy or if we were to
work and coordinate with the myriad of groups
necessary to duplicate The Eagle Rock Group team.
Specifically, we initially envision The Eagle Rock
Group working to augment and enhance our efforts in
the following areas (i) capital raising and
allocation, (ii) strategic partner introduction and
evaluation, (iii) distribution channel development,
(iv) product focus and brand development, (v) human
resource placement, and (vi) capital market
introduction and awareness. Pursuant to the agreement
that we entered into with The Eagle Rock Group, we
issued to The Eagle Rock Group a ten-year warrant
granting them the right to purchase 1,400,000 shares
of our common stock at an exercise price of $0.68 per
share. The shares underlying the warrant have
piggy-back and demand registration rights, as well as
subscription rights in the event that we issue any
rights to all of our stockholders to subscribe for
shares of our common stock. In addition, the warrant
contains redemption rights in the event that we enter
into a transaction that results in a change of
control of our company.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
LITIGATION. On June 6, 2002, Dutchess Advisors Ltd. initiated legal
proceedings in Middlesex County, Massachusetts, against TSET. The complaint
alleges, among other things, breach of contract, QUANTUM MERUIT, unjust
enrichment and conversion with respect to a letter agreement, dated June 19,
2001, between TSET and Dutchess Advisors Ltd., and seeks, among other things, a
judgment in the amount of $75,000, exclusive of pre-judgment interest, costs and
attorneys' costs. The Company believes it has meritorious defenses and intends
to vigorously defend. On February 2, 2001, we initiated, together with Kronos
Air Technologies, legal proceedings in Clackamas County, Oregon against W. Alan
Thompson, Ingrid T. Fuhriman, and robber L. Fuhriman II, each of whom were
formerly executive officers and members of the Board of Directors of Kronos Air
Technologies. This suit alleges, among other things, breach of fiduciary duties
and breach of contract by these individuals, and seeks, among other things, an
order form the court referring the dispute to arbitration in accordance with the
terms of these individuals' respective employment agreements, which were
terminated by us on January 30, 2001, and other appropriate equitable relief.
Arbitration has been ordered and the arbitrators selected. The Company ahs
agreed to arbitration proceedings in the state of Washington. The parties are in
the process of exchanging and complying with requests for discovery.
APERION AUDIO "EARN-OUT" PROVISION. Part of the consideration given by
the Company for Aperion Audio is related to an earn-out provision in which the
Company would award $3.75 million of additional common stock of the Company as
Aperion Audio achieves stipulated revenue milestones over a five year period
commencing on May 4, 2000. The earn out provides five cumulative gross revenue
milestones that range between $1,764,271 and $22,187,203. Upon achieving each
milestone, an additional $750,000 of TSET common stock will be issued. The share
conversion is to be based on an average of the closing price of the shares for
the five trading days immediately preceding the date that the revenue milestone
is achieved. Through June 7, 2002, EdgeAudio has not achieved any of these
milestones. As part of the settlement and sale of Aperion Audio, all parties
have agreed to relinquish all rights to this earn-out provision. Therefore,
there is no longer a contingency for it.
INCOME TAXES. The company has filed all of its federal and state income
tax returns through June 30, 2001 and is therefore, current in all of its income
tax filings. As with the tax returns of any other corporation, these returns
could be subject to review and potential examination by the respective taxing
authorities. Should any of these returns come under examination by federal or
state authorities, the Company's positions on certain income tax issues could be
challenged. The impact, if any, of the potential future examination cannot be
determined at this time. If the Company's positions are successfully challenged,
the results may have a material impact on the Company's financial position and
results of operations.
F-11
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
TSET, Inc.
We have audited the accompanying consolidated balance sheets of TSET, Inc. and
its subsidiaries as of June 30, 2001 and 2000, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
two years in the period ended June 30, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of TSET,
Inc. and its subsidiaries as of June 30, 2001 and 2000, and the consolidated
results of their operations and their consolidated cash flows for each of the
two years in the period ended June 30, 2001 in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss from continuing operations of $3,572,558 during
the year ended June 30, 2001, and, as of that date, the Company's current
liabilities exceeded its current assets by $1,850,915. These factors, among
others, as discussed in Note 4 of Notes to Consolidated Financial Statements,
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 4. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Grant Thornton LLP
Portland, Oregon
October 8, 2001
F-12
RANDY SIMPSON C.P.A., P.C.
11775 SOUTH NICKLAUS ROAD
SANDY, UTAH 84092
FAX & PHONE (801) 572 - 3009
Board of Directors and Stockholders
TSET, Inc.
(Formerly Technology Selection, Inc.)
Salt Lake City, Utah
Independent Auditor's Report
We have audited the balance sheet of TSET, Inc. (formerly Technology Selection,
Inc.) as of June 30, 1999 and the related statements of operations and
accumulated development stage costs, changes in stockholders' equity and cash
flows for the year then ended. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of TSET, Inc.
(formerly Technology Selection, Inc.) as of June 30, 1999 and the results of its
operations and its cash flows for year then ended in conformity with generally
accepted accounting principles.
/s/ Randy Simpson C.P.A., P.C.
Randy Simpson C.P.A., P.C.
A Professional Corporation
March 17, 2000
Except for Note 3 which is date is October 8, 2001 Salt Lake City, Utah
F-13
TSET, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30,
-----------------------------------------------------
2001 2000
(RESTATED)
------------------ ------------------
ASSETS
CURRENT ASSETS
Cash $ 32,619 $ 102,949
Accounts receivable, net - 4,648
Prepaids 37,679 23,253
------------------ ------------------
TOTAL CURRENT ASSETS 70,298 130,850
------------------ ------------------
PROPERTY AND EQUIPMENT 62,723 25,216
Less: Accumulated Depreciation (18,016) (2,197)
------------------ ------------------
NET PROPERTY AND EQUIPMENT 44,707 23,019
------------------ ------------------
OTHER ASSETS
Intangibles 2,431,524 2,970,731
Net assets of discontinued operations - 4,502,888
Deferred financing fees 520,800 -
------------------ ------------------
TOTAL OTHER ASSETS 2,952,324 7,473,619
------------------ ------------------
TOTAL
ASSETS $ 3,067,329 $ 7,627,488
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 323,045 $ 22,213
Accrued expenses 1,284,268 301,400
Notes payable, current portion 313,900 65,183
------------------ ------------------
TOTAL CURRENT LIABILITIES 1,921,213 388,796
------------------ ------------------
------------------ ------------------
NET LIABILITIES OF DISCONTINUED OPERATIONS 667,550 -
------------------ ------------------
------------------ ------------------
TOTAL LIABILITIES 2,588,763 388,796
------------------ ------------------
SHAREHOLDERS' EQUITY
Common stock, authorized 500,000,000 34,001 29,652
shares of $.001 par value
Capital in excess of par value 12,418,350 9,316,743
Retained earnings (Accumulated deficit) (11,973,785) (2,107,703)
------------------ ------------------
TOTAL SHAREHOLDERS' EQUITY 478,566 7,238,692
------------------ ------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,067,329 $ 7,627,488
================== ==================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-14
TSET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30,
----------------------------------------------
2001 2000 1999
(RESTATED) (RESTATED)
----------------------------------------------
Sales $ 95,000 $ - $ -
Cost of sales 62,500 - -
----------------------------------------------
Gross Profit 32,500 - -
----------------------------------------------
Selling, General and Administrative expenses
Compensation and benefits 1,201,048 413,414 43,150
Research and development 297,004 636,175 -
Professional services 735,296 151,989 -
Impairment of investment in CDI 272,945 - -
Depreciation and amortization 323,164 98,543 -
Other selling general & administrative expenses 561,682 88,371 8,796
----------------------------------------------
Total Selling, General and Administrative expenses 3,391,139 1,388,492 51,946
----------------------------------------------
Net Operating Income (Loss) (3,358,639) (1,388,492) (51,946)
Other Income/(expense) (207,793) 2,897 272
Interest Expense (6,126) - -
----------------------------------------------
Net Income (Loss) Before Taxes (3,572,558) (1,385,595) (51,674)
Provision for Taxes - - -
----------------------------------------------
Net Income (Loss) from continuing operations (3,572,558) (1,385,595) (51,674)
Income (Loss) from discontinued operations, net of (3,846,963) (579,588) -
income tax of $0
Loss on disposal of discontinued operations, net of
income tax of $0 (2,446,562) - -
----------------------------------------------
Net Income (Loss) $ (9,866,083) $ (1,965,183) $ (51,674)
==============================================
Basic Earnings (Loss) Per Share
Income (loss) from continuing operations (0.11) (0.06) -
Loss from discontinued operations (0.20) (0.02) -
----------------------------------------------
Net Income (loss) $ (0.31) $ (0.08) $ -
==============================================
Diluted Earnings (Loss) Per Share
Income (loss) from continuing operations (0.11) (0.06) -
Loss from discontinued operations (0.20) (0.02) -
----------------------------------------------
Net Income (loss) $ (0.31) $ (0.08) $ -
==============================================
Weighted average shares outstanding 31,481,874 25,263,333 23,997,730
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-15
TSET INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30,
----------------------------------
2001 2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES (RESTATED) (RESTATED)
----------------------------------
NET LOSS FROM CONTINUING OPERATIONS ($3,572,558)($1,385,595)($51,674)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
(USED IN) PROVIDED BY OPERATIONS
Depreciation and amortization 332,528 98,542 1,000
In-process technology - 633,229 -
Impairment of investment in CDI 272,945 50,000 -
Common stock issued for compensation/services 111,973 50,000 10,000
Cancellation of note payable (22,383)
CHANGE IN
Accounts receivable 4,648 (4,648) -
Prepaid expenses and other assets (14,426) (23,253) -
Accounts Payable 300,832 22,213 -
Accrued Expenses and other liabilities 982,868 271,250 30,150
----------------------------------
NET CASH (USED IN) PROVIDED BY CONTINUING (1,613,573) (288,262) (10,524)
OPERATIONS
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (37,507) (22,712) -
Investment in patent protection (79,697) - -
Cash used in discontinued operations (435,823) (726,225) -
----------------------------------
NET CASH (USED IN) PROVIDED BY INVESTING (553,027) (748,937) -
ACTIVITIES
----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 2,056,270 1,124,125 -
Proceeds from short-term borrowings 100,000 15,490 7,297
Deferred finance costs paid (60,000) - -
----------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 2,096,270 1,139,615 7,297
----------------------------------
NET (DECREASE) INCREASE IN CASH (70,330) 102,413 (3,227)
CASH
BEGINNING OF PERIOD 102,949 536 3,763
----------------------------------
END OF PERIOD $32,619 $102,949 $536
==================================
Supplemental schedule of non-cash investing and financing activities:
Supplemental disclosure of cash flow information:
Interest paid in cash $ - $ - $ -
Income taxes - - -
Non-cash investing and financing activities:
Deferred financing fees $ 460,800 $ - $ -
Debt satisfied with stock 516,163 - -
Issuance of notes payable 213,900 - -
Acquisition of subsidiaries with stock - 8,106,555 -
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
F-16
TSET INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON STOCK
------------------------
RETAINED
CAPITAL IN EARNINGS TOTAL
EXCESS OF PAR (ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT VALUE DEFICIT) EQUITY (DEFICIT)
-----------------------------------------------------------------------
BALANCE at June 30, 1998 24,001,730 $ 24,001 $ 41,718 $ (90,847) $ (25,128)
Shares certificate cancelled (4,000) (4) (4)
Net loss for the year ended June 30, 1999 (51,673) (51,673)
-----------------------------------------------------------------------
BALANCE at June 30, 1999 23,997,730 23,997 41,718 (142,520) (76,805)
Shares reissued from prior year cancellation 4,000 4 4
Shares issued on August 31, 1999 to acquire the
patents and technology of the utility meter 100,000 100 49,900 50,000
Shares issued on March 14, 2000 to acquire Atomic
Soccer USA, Ltd 1,000,000 1,000 1,805,250 1,806,250
Shares issued on March 14, 2000 37,555 38 (38) -
Shares issued on March 14, 2000 to acquire Kronos Air
Technologies, Inc. 2,250,000 2,250 3,344,625 3,346,875
Shares issued on May 9, 2000 to acquire EdgeAudio.com,
Inc. 1,298,701 1,299 2,548,701 2,550,000
Shares issued on May 9 to acquire Cancer Detectio
International Inc. 180,000 180 353,250 353,430
Shares issued on May 19, 2000 as compensation 14,815 15 49,985 50,000
Shares of restricted common stock issued on June 30,
2000 for cash 768,860 769 1,123,352 1,124,121
Net loss for the year ended June 30, 2000 (1,965,183) (1,965,183)
-----------------------------------------------------------------------
BALANCE at June 30, 2000 29,651,661 29,652 9,316,743 (2,107,703) 7,238,692
Purchase price adjustment on Cancer Detection
International, Inc. (20,000) (20) (39,230) (39,250)
F-17
COMMON STOCK
------------------------
RETAINED
CAPITAL IN EARNINGS TOTAL
EXCESS OF PAR (ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT VALUE DEFICIT) EQUITY (DEFICIT)
-----------------------------------------------------------------------
Shares issued on July 20, 2000 for cash 161,538 161 188,839 189,000
Shares issued on August 3, 2000 5,000 5 6,555 6,560
Shares issued to liquidate debt of Atomic Soccer USA,
Ltd 362,259 362 375,981 376,343
Shares issued in September 2000 for cash 832,000 832 831,168 832,000
Shares issued in September to liquidate TSET, Inc. debt 42,800 43 42,757 42,800
Shares issued on December 8, 2000 for cash 168,492 169 99,831 100,000
Shares issued on December 27, 2000 for cash 39,091 39 22,301 22,340
Shares issued on January 8, 2001 for cash 687,500 688 399,312 400,000
Shares issued on January 12, 2001 for cash 57,693 57 34,943 35,000
Shares issued on January 19, 2001 for cash 10,000 10 6,390 6,400
Shares issued on January 19, 2001 for services and comp 44,915 45 56,098 56,143
Shares issued on March 23, 2001 for cash 186,302 186 134,814 135,000
Shares issued on April 9, 2001 as compensation 2,000 2 1,768 1,770
Shares issued on April 9, 2001 to liquidate debt of
Atomic Soccer 97,020 97 96,923 97,020
Shares issued in April 2001 for cash 38,038 38 17,492 17,530
Shares issued on May 3, 2001 for cash 52,778 53 18,947 19,000
Shares issued on May 7, 2001 for cash 891,891 892 299,108 300,000
Shares issued on June 14, 2001 as compensation 50,000 50 47,450 47,500
Shares issued on June 29, 2001 as a financing fee 640,000 640 460,160 460,800
Net loss for the year ended June 30, 2001 (9,866,083) (9,866,083)
-----------------------------------------------------------------------
BALANCE at June 30, 2001 34,000,978 $ 34,001 $ 12,418,350 $(11,973,785) $ 478,566
=======================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
F-18
TSET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
TSET, Inc. (formerly, Technology Selection, Inc.), is a Nevada
corporation (the "Company") and was originally organized on September 17, 1980, as Penguin Petroleum, Inc. ("PPI") under the laws of the State of Utah.
StockholdersPenguin Petroleum Inc.’s stockholders approved a name change of the corporation on October 6, 1982, to Petroleum Corporation of America, Inc. On December 29, 1996, stockholders approved a reorganization whereby they exchanged their stock on a one-for-one basis with Technology Selection, Inc., a Nevada corporation ("TSI"corporation. Technology Selection, Inc.’s shares began trading on the Over-the-Counter Bulletin Board on August 28, 1996, under the symbol “TSET”. On November 19, 1998, Technology Selection, Inc. changed its name to TSET, Inc. Effective January 12, 2002, we began doing business as Kronos Advanced Technologies, Inc.; and, as of January 18, 2002, we changed our ticker symbol to “KNOS”.
Kronos Advanced Technologies, Inc. (Kronos) was initially founded in 2002 with the primary business focus of designing and developing air movers. Over time Kronos migrated its business to focus on the consumer air cleaner business. Kronos began this stage of operations as a product development company whose designs introduced new technologies that significantly changed the way air was moved, filtered, and cleansed. Our current air cleaner products use collection plates, located internally which are easily cleaned and long-lasting, unlike some of our competitors’ designs, which require the replacement of less efficient and costly HEPA filters multiple times a year.
Business Overview
HEPA filters used in most consumer air cleaners are designed to trap pollutants such as pollen and dust. Unfortunately, based on this very design, over time, the “collection process” creates a clogged filter, and as such, HEPA air purifiers will stop working if the filter isn’t changed regularly. This clogging action can also result in pollutants that were once trapped and collected migrating through the filter elements and escaping back into the air. Further, when the air temperature is warm and contains high humidity, mold and bacteria can grow on a HEPA filter, causing foul odors and potentially hazardous waste to be emitted back into the room. Kronos’s ultra-efficient air purification module, with its washable collector plates, solves this problem by offering to the consumer an easy-clean system that is both safe and effective, allowing the collector plates to be cleansed by a simple handwash with detergent and warm water, or simply put it in the dishwasher to clean.
Our products feature a five-stage air purification process which starts at the bottom of the unit, where air is taken into the device and a pre-filter screen designed to collect large particulates, such as hair, pollen, and pet dander. The second stage forces air to pass through an array of electric emitter wires that kills bacteria and germs. The third stage forces the air through an ionic field consisting of negative ions that latch on to particles in the air, giving them an electrical charge. The electrical charge causes particles to clump together and become heavy. As the particulates move to the fourth stage, they are collected onto a plate. At the last stage – the Catalyst Stage – the purified air is freshened to remove any odors. The following diagram illustrates our process:
Today, Kronos’ product research and development produce products that move the air silently, have excellent filtering and purification capabilities, and in general, cleans ambient room air while offering reduced energy consumption. They are available in a smaller footprint to provide unequaled air cleaning in cars. Larger units are available for consumer home use, for business use, or even in extreme industrial applications requiring the destruction of certain hazardous gases. Our technology has the ability to remove contaminants and allergens down to 14.6 nanometers which is 20 times smaller than HEPA filters – a market advantage.
We are also exploring the development of a series of small multifunctional devices that can be used as space heaters, vaporizers, disinfectors, deodorizers and/or fans. The space heaters, vaporizers, disinfectors, deodorizers and/or fans have all been conceptualized during our Research and Development efforts over the past years. Each product varies in its respective level of completion. For example, our space heater design is completed and ready to go to manufacturing, our other products are still in the developmental stage. All products are waiting on capital and should be finalized as capital becomes available.
Plan of Operations
On June 17th, 2021, West Virginia Economic Development Authority (WVEDA) approved in a meeting of its board of directors to grant Kronos two loan offers with the aggregate principal amount not to exceed $2,610,000. The loans are for the Company’s acquisition of the manufacturing facility in West Virginia and for fixed equipment. The loans contain repayment terms of 15 years and 10 years respectively. Interest rates for the two notes are as follows:
Loan (1) $1,845,000: This loan shall bear interest fixed as of the third business day prior to closing equal to the rate of the 20 Year US Treasury Note rate plus 0.75%. This loan has a floor (minimum) interest rate of 2. 75% and shall be adjustable every five years. The loan will be secured by a first lien deed of trust on the project land, improvements, and appurtenances in the amount of $1,845,000, and will be cross collateralized with Loan (2), discussed below.
Loan (2) $765,000: This loan shall bear interest fixed as of the third business day prior to closing equal to the rate of the Wall Street Journal Prime rate multiplied by 0.75%. This loan has a floor (minimum) interest rate of 2.75%. The loan will be secured by a UCC-1 security filing on all assets of the Company and will be cross collateralized with Loan (1).
On April 7, 2022, we completed all conditions precedent and the loans closed by our purchase of fixed equipment, providing proofs of hazard and flood insurance, title insurance and liability insurance. We also installed all equipment and completed all renovations at the facility, which resulted in the transfer of title of the real estate to the Company from a “contract of sale” to recorded ownership.
While we currently source parts and manufacturing from China, we recently decided to eliminate our Company’s current dependence on the Chinese supply chain and transition Kronos to be a company committed to manufacturing “Made in the USA Products” using our West Virginia facility and a predominantly U.S. based supply chain. As of the date of this filing, we are in transitioning and preparing our West Virginia facility with a projected opening in the first quarter of 2022.
We believe our transition to United States suppliers and manufacturing at our West Virginia facility will provide benefits to our business. China is geographically distant from major US consumer markets. Our parts suppliers and manufacturers in China have experienced supply chain difficulties during the pandemic resulting in greater lead times to produce and ship our products.
Additionally, in January 2021, tariffs and customs duties on our products increased to 25%. As such, additional tariffs now apply to almost all goods imported from China. All companies importing to the US are affected by the new tariffs, including non-US companies importing as a foreign importer of record. For many product categories, it’s still not an option to simply shift orders to suppliers in other Asian countries, as for most categories there simply are no factories outside of China. As a result of shifting our supply and manufacturing operations to the United States, we can avoid these tariffs.
Our Products
Our technology is currently offered in the form of multiple products designed to move, sterilize, filter, and cleanse the air for businesses, homes, vehicles, and even individuals themselves. On a broader basis, the additional markets that could immediately be impacted using standalone, embedded Kronos devices include schools, universities, manufacturing clean-rooms, retail shops, hospitality, personal automobiles, buses, taxis, and commercial aircraft cabins.
Our air cleaner products are targeted to the size of the space sought to be cleansed. Our current product Kronos® Air 5G®, Models 3, 5 and 8 product line includes our devices that cleanse spaces consisting of 300, 400, and 1,000 square feet respectively. We also developed the FitAir™, a personal air cleaner device that cleans personal air space in a small room consisting of 25 square feet or less, perfect for a small office. Our personal air cleaner products also include the Kronos Car Air Cleaner™ designed to sit securely on the dashboard of cars, and the Kronosati Mini™, a wearable air purifier that is worn on a lanyard and provides the wearer with purified air around a personal breathing space.
Our air cleaners are used in homes, schools, laboratories, and retail spaces to remove allergens, airborne contaminants, and odor from the air and maintain indoor air quality for people as well as employees working in these facilities. Our product line consists of the following:
Kronos® Air 5G®
The Kronos® Air 5G® models 3, 5 and 8 are all stand-alone air cleaners used in residential and business spaces and all feature our five-stage air cleaning process. The Model 3 cleans approximately 200 square feet of space; the Model 5G® cleans 400 square feet of space; and the Model 8 cleans 1,000 square feet of space.
Kronos Car Air
Using the same Kronos air purification technologies used in our Kronos® Air Model 5G®, this unit is designed to sit securely on a car dashboard and is powered through a DC 12V Car Charger.
Fit-Air Bundle™
This device is designed to be used in conjunction with a Kronos® designed face mask to provide the user with personal air filtration and purification within 2.5 cubic feet of personal space. The mask is not a surgical mask nor one designed to provide antimicrobial or antiviral protection. The product has not been FDA cleared or approved and we do not claim that the Fit-Air Bundle™ mitigates, treats, cures, or prevents disease.
| 37 |
Market and Competition
Kronos expects growth in both the Global and the North American portable air purifier market over the next seven-year period. This growth is projected across the entire spectrum of room sized units, portable automotive units, and also wearable devices. The market is expected to be driven by rising airborne contaminants and increasing pollution levels in urban areas. Moreover, growing health consciousness, improving standards of living, and rising disposable income are expected to fuel the market growth. The rising adoption of air pollution control equipment, especially in developing regions across the globe, is anticipated to drive the market in the future. The rising awareness regarding a healthy lifestyle, especially among the urban youth, is expected to significantly contribute to the market growth. The filtering or air purification process itself generally falls into four categories: HEPA Filters; Activated Carbon Filters; Ion Generator based Filters; and Electrostatic Precipitator based Filters. Currently, products using HEPA filters are the consumers’ primary choice, controlling approximately 40% of the residential air purifier market. The other three processes all share similar market share sizes of 18% - 22%.
The primary competitors in the air purification market are well established name brands using HEPA filters:
| NAME | TECHNOLOGY | |
| 3M | HEPA | |
| Carrier | HEPA | |
| Honeywell | HEPA | |
| LG | HEPA | |
| Phillips | HEPA | |
| Sharp | HEPA | |
| Whirlpool | HEPA |
Each of these listed companies (and others) provides portable air purifiers to the North American market. Of particular significance is that even with the summation of such a diverse listing of manufacturers and suppliers participating in the portable air purifier market, no single entity, nor even a combined segment representing the sales of the top 5 companies, have a dominant market position. This market, through various market studies, is quantified and recognized as a fragmented market. The fact that such exponential growth is projected over the seven-year forecasted period in such a highly fragmented market further supports Kronos’ business decision to introduce its advanced product platform on a national scale, having superior air purification technologies for use in both commercial and consumer settings.
Today, the most significant sales and distribution channels for portable air purifiers are the large box stores. This fact is attributed to the variety of manufacturers and products being offered “firsthand” to a customer base just beginning to understand the product offerings. A recent Market Report for the forecasted period of 2019-2027 predicts a significantly growing market that will continue to see gains in this well-established (big box) distribution channel; however, per this report, the largest growth of portable air purifiers will be attributed to online store sales. In fact, on a global basis, online stores are expected to witness the fastest growth, registering a CAGR of 13.22% during the forecast period (2020-2027).
The global air purifier market size was valued at USD 10.67 billion in 2020 and is expected to expand at a compound annual growth rate of 10.0% from 2021 to 2028.
| 38 |
Sales and Marketing
We sell our products directly through our web site: https://1800safeair.com/, through independent sales representative and through select retail outlets. While we currently source components for our products in an international supply chain, we recently decided to move eliminate our Company’s current dependence on today’s Chinese Supply Chain and instead transition Kronos to be a company committed to manufacturing “Made in the USA Products” using our West Virginia facility and a predominantly U.S. based supply chain. We expect that our physical plant in West Virginia will be completed in the first quarter of 2022 and expect that our parts sourcing and manufacturing will develop apace after opening as we transition from our Chinese supply chain to the United States.
Research and Development
We are continuing our research and development into specific product applications across two distinct product application platforms: standalone devices and embedded applications. Standalone products are self-contained and only require the user to plug the Kronos device into a wall outlet to obtain air movement and filtration for their home, office, or hotel room. Embedded applications of the Kronos technology require the technology be added into another system, such as abuilding ventilation system for more efficient air movement and filtration or into an electrical device such as computer or medical equipment to replace the cooling fan or heat sink.
We are also exploring the development of our products for usage in healthcare settings. We are also researching the development of a series of small multifunctional devices that can be used as space heaters, vaporizers, disinfectors, deodorizers and/or fans. The space heaters, vaporizers, disinfectors, deodorizers and/or fans have all been conceptualized during our Research and Development efforts over the past years. Each product varies in its respective level of completion. For example, our space heater design is completed and ready to go to manufacturing, our other products are still in the developmental stage. All products are waiting on capital and should be finalized as capital becomes available.
Intellectual Property
Our current patent portfolio consists of patents issued from 2003 to 2008, as follows:
| Jurisdiction/Number | Type | Termination Date | ||
| United States: 6,664,741 B1 | Utility | December 16, 2023 | ||
| United States: 6,727,657 B2 | Utility | April 27, 2024 | ||
| United States: 6,888,314 B2 | Utility | May 3, 2025 | ||
| United States: 6,937,455 B2 | Utility | August 30, 2025 | ||
| United States: 6,963,479 B2 | Utility | November 8, 2025 | ||
| United States: 7,053,565 B2 | Utility | May 30, 2026 | ||
| United States: 7,150,780 B2 | Utility | December 19, 2026 | ||
| United States: 7,122,070 B2 | Utility | October 17, 2026 | ||
| United States: 7,248,003 B2 | Utility | July 24, 2027 | ||
| United States: 7,262,654 B2 | Utility | August 28, 2027 | ||
| United States: 7,410,532 B2 | Utility | August 12, 2028 | ||
| United States: 6,504,308 B1 | Utility | January 7, 2023 | ||
| United States: 6,919,698 B2 | Utility | July 19, 2025 | ||
| United States: 7,157,704 B2 | Utility | January 2, 2027 | ||
| United States: 6,888,314 B2 | Utility | May 3, 2025 |
On July 9, 2021, our agent Ms. Dana Rubin applied a utility patent application for a “Antibacterial and Cellphone Radiation-proof Face Mask.” She subsequently assigned the patent application to us. The patent application number is 17/372,170 and is pending review with the U.S. Patent and Trademark Office.
Employees
As of July 8, 2022, we have five (5) employees, all of whom are U.S based. None of our U.S employees are represented by a labor union.
| 39 |
Our corporate headquarters are located at 2501 Garfield Avenue, Parkersburg, WV 26101. We acquired the property in a transaction on June 30, 2021 in an exchange transaction with GX7 Limited, a West Virginia limited partnership, 50% of which is owned by current Chief Operating Officer, Joseph Florence. The property includes a 62,400 square foot manufacturing facility, a 15,900 square foot warehouse, and a 7,500 square foot auxiliary building respectively. A 10-acre paved parking lot is also included. The total purchase price of the property is $5,800,000. The Company and GX7 agreed to payment terms as follows: the issuance of 91 million shares of common stock to GX7, and the payment of $2,610,000 in cash. The Company intends to pay GX7 from the proceeds of the loans offered by the West Virginia Economic Development Authority (“WVEDA”). TSI'sOn April 7, 2022, we completed all conditions precedent and the loans closed by virtue of our purchase of fixed equipment, providing proofs of hazard and flood insurance, title insurance and liability insurance. We also installed all equipment and completed all renovations at the facility, which resulted in the transfer of title of the real estate to the Company from a “contract of sale” to recorded ownership.
The 91,000,000 shares issued to GX7 amount represents approximately 13.80% of the issued and outstanding common stock of the Company as of July 8, 2022.
The Company discloses a loss contingency if at least a reasonable possibility that a material loss has been incurred. The Company records its best estimate of loss related to pending legal proceedings when the loss is considered probable, and the amount can be reasonably estimated. The Company records the minimum estimated liability where it can reasonably estimate a range of loss with no best estimate. As additional information becomes available, the Company assesses the potential liability related to pending legal proceedings, revises its estimates, and updates its disclosures accordingly. The Company’s legal costs associated with defending itself are recorded to expenses as incurred. The Company currently is not involved in any litigation.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Shares of Common Stock trades under the symbol “KNOS” on the OTC Markets Quotation System.
The OTC Markets Quotation System is quotation service that display real-time quotes, last-sale prices, and volume information in over-the-counter equity securities. The market is limited for our stock and any prices quoted may not be a reliable indication of the value of our shares of Common Stock. The following Table 1sets forth the high and low bid prices per share of our shares of Common Stock by both the OTC Bulletin Board and OTC Markets for the periods indicated.
| For the Period Ending | High | Low | ||||||
| First Quarter, September 30, 2020 | $ | 0.38 | $ | 0.06 | ||||
| Second Quarter, December 31, 2020 | $ | 0.06 | $ | 0.04 | ||||
| Third Quarter, March 31, 2021 | $ | 0.14 | $ | 0.08 | ||||
| Fourth Quarter, June 30, 2021 | $ | 0.07 | $ | 0.04 | ||||
| First Quarter, September 30, 2021 | $ | 0.08 | $ | 0.03 | ||||
| Second Quarter, December 31, 2021 | $ | 0.04 | $ | 0.02 | ||||
| Third Quarter, March 31, 2022 | $ | 0.03 | $ | 0.01 | ||||
Holders of Record
As of July 8, 2022, we have 659,323,911 shares of our Common Stock issued and outstanding immediately prior to this offering held by approximately 400 shareholders of record.
We have never declared nor paid any cash dividends on our common stock, and currently intend to retain all of our cash and any earnings for use in our business and, therefore, do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends on our common stock will be at the discretion of the Board of Directors and will be dependent upon our consolidated financial condition, results of operations, capital requirements and such other factors as the Board of Directors deems relevant.
On December 31 2018, the Company acquired 600 million digital tokens from First Bitcoin Capital, LLC, an unrelated party, in exchange for a convertible promissory note in the amount of one million dollars. On March 30, 2021, First Bitcoin assigned the promissory note to ANI Holdings, Pty. Ltd., an unrelated third party, granting rights to convert the note into unregistered restricted common stock of the Company. Subsequently ANI Holdings, Pty. Ltd. converted the note into 23,550,100 shares of the Company, terminating the underlying obligation.
The 600 million BIT digital tokens were hosted on a unique blockchain that were later exchanged for 600 million Dogecoin Cash (Crypto:DOG) both then on the Ethereum Blockchain. In 2021, we determined to stop accepting digital currencies for the sale of our products and we sold our remaining on hand digital currencies in 2021 generating $19,635.14. On March 22, 2021, the Company formed DogeSPAC, LLC in Puerto Rico as a wholly owned subsidiary. We later transferred the 600 million digital tokens acquired in 2018 in a spin off transaction with DogeSPAC, LLC, resulting in DogeSPAC, LLC operating as a separate entity, in exchange for DogeSPAC, LLC issuing to all our shareholders one restricted unit in DogeSPAC, LLC for each share of our common stock. The spin off and unit dividend were completed on June 15, 2021, based on the record date and subsequently paid to all shareholders of record. The Company is not an affiliate of DogeSPAC, LLC and does not maintain any ownership or control over it. We subsequently liquidated our remaining crypto currency and do not intend to either accept crypto currency as consideration for the purchase of our products or otherwise acquire or invest in crypto currency. Our subsidiaries are Kronos Advanced Technologies L.L.C., a Colorado limited liability company, and Kronos Advanced Technologies WV, Inc., a West Virginia corporation.
RELATED STOCKHOLDER MATTERS
On October 1, 2019, the Company issued a convertible promissory note in the amount of $250,000. The note is due on October 1, 2024 and bears interest at 5% per annum. The loan and any accrued interest may be converted into shares of the Company’s common stock at a rate of 80% multiplied by the average of the three lowest trading prices during the previous ten (10) day trading period ending on the latest complete trading day prior to the conversion date. Pursuant to current accounting guidelines, the Company recorded a note discount of $250,000 to account for the note’s derivative liability. In addition, the Company recorded an amount of discount in excess of the note principal of $62,500 that was expensed as a financing cost.
During the period ended June 30, 2021, the Company amortized $21,875 of debt discount, and as of June 30, 2021, the balance of the unamortized debt discount was $175,000.
In April 2020 the Company issued four convertible promissory notes with investors totaling $137,500. These convertible notes payable are due one year from issuance, with interest at 5% per annum and are convertible at 80% multiplied by the Market Price (representing a discount rate of 20%). Market Price is defined as the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period ending one trading day prior to the date the conversion. Pursuant to current accounting guidelines, the Company recorded a note discount of $137,500 to account for the note’s derivative liability. In addition, the Company recorded an amount of discount in excess of the note principal of $48,177 that was expensed as a financing cost.
On July 21, 2020, the Company issued a convertible promissory note in the amount of $100,000. The note is due on July 21, 2021 and bears interest at 5% per annum. The loan and any accrued interest may be converted into shares of the Company’s common stock at a Variable Conversion Price” meaning 80% multiplied by the Market Price (representing a discount rate of 20%). “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the ten (10) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent by the Holder to the Borrower via facsimile (the “Conversion Date”).
Loan Offers From West Virginia Economic Development Authority
On June 17th, 2021, West Virginia Economic Development Authority (WVEDA) approved in a meeting of its board of directors to grant Kronos two loan offers with the aggregate principal amount not to exceed $2,610,000. The loans are for the Company’s acquisition of the manufacturing facility in West Virginia and for fixed equipment. The loans contain repayment terms of 15 years and 10 years respectively. Interest rates for the two notes are as follows:
Loan (1) $1,845,000: This loan shall bear interest fixed as of the third business day prior to closing equal to the rate of the 20 Year US Treasury Note rate plus 0.75%. This loan has a floor (minimum) interest rate of 2. 75% and shall be adjustable every five years. The loan will be secured by a first lien deed of trust on the project land, improvements, and appurtenances in the amount of $1,845,000, and will be cross collateralized with Loan (2), discussed below.
Loan (2) $765,000: This loan shall bear interest fixed as of the third business day prior to closing equal to the rate of the Wall Street Journal Prime rate multiplied by 0.75%. This loan has a floor (minimum) interest rate of 2.75%. The loan will be secured by a UCC-1 security filing on all assets of the Company and will be cross collateralized with Loan (1).
On April 7, 2022, we completed all conditions precedent and the loans closed by virtue of our purchase of fixed equipment, providing proofs of hazard and flood insurance, title insurance and liability insurance. We also installed all equipment and completed all renovations at the facility, which resulted in the transfer of title of the real estate to the Company from a “contract of sale” to recorded ownership.
C.P.A.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Kronos Advanced Technologies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Kronos Advanced Technologies, Inc. (“the Company”) as of June 30, 2020, and 2019 and the related statements of operations, changes in stockholders’ deficit and cash flows, for each of the years ended June 30, 2020, and 2019, and the related notes and schedules (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2020, and 2019, and the results of its operations and its cash flows for each of the periods ended June 30, 2020, and 2019, in conformity with generally accepted accounting principles in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As more fully described in Note 3, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| /s/ Weinstein International C.P.A. |  | |
| We have served as the Company’s auditor since 2020. | ||
| Tel- Aviv, Israel November 26, 2020 |
US Number: 1-661-466-2466 Local: +972 58-6886666 Email: i@dwacc.com Web: www.dwacc.com
Kronos Advanced Technologies, Inc.
Consolidated Balance Sheets
for the Fiscal Year Ended June 30, 2020
(Audited)
| June 30, 2020 | June 30, 2019 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 19,381 | $ | 5,698 | ||||
| Prepaid expenses | 123,382 | |||||||
| Accounts receivable | 7,721 | — | ||||||
| Loans to officer | 3,780 | 3,748 | ||||||
| Total current assets | 154,264 | 9,446 | ||||||
| Property and equipment, net | 234,250 | — | ||||||
| Intangible assets | 1,010,000 | 1,010,000 | ||||||
| Total Assets | $ | 1,398,514 | $ | 1,019,446 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 9,601 | $ | 9,555 | ||||
| Accrued expenses | 182,216 | 25,000 | ||||||
| Operating loan | 31,650 | 23,500 | ||||||
| Derivative liability | 1,679,276 | 1,250,000 | ||||||
| Convertible notes payable, net of discount | 354,823 | 100,000 | ||||||
| Total current liabilities | 2,257,566 | 1,408,055 | ||||||
| Commitment and Contingencies | — | — | ||||||
| Stockholder Deficit: | ||||||||
| Common stock, par value $0.001, 2,000,000,000 shares authorized 499,689,291 and 487,689,291 shares issued and outstanding as of June 30, 2020 and June 30, 2019, respectively | 499,689 | 487,689 | ||||||
| Additional paid in capital | 36,848,900 | 36,837,900 | ||||||
| Accumulated deficit | (38,207,641 | ) | (37,714,198 | ) | ||||
| Total Stockholders’ Deficit | (859,052 | ) | (388,609 | ) | ||||
| Total Liabilities and Stockholder’s Deficit | $ | 1,398,514 | $ | 1,019,446 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
Kronos Advanced Technologies, Inc.
Consolidated Statements of Operations
For the Fiscal Year Ended June 30, 2020
(Audited)
| June 30, 2020 | June 30, 2019 | |||||||
| Revenue | $ | 41,215 | $ | 616 | ||||
| Cost of goods sold | 6,756 | 183 | ||||||
| Gross Profit | 34,459 | 433 | ||||||
| Operating Expenses: | ||||||||
| General and administrative | 171,334 | 14,542 | ||||||
| Total operating expenses | 171,334 | 14,542 | ||||||
| Loss from operations | (136,875 | ) | (14,109 | ) | ||||
| Other (Income) Expense | ||||||||
| Interest expense | 59,969 | 25,000 | ||||||
| Change in value of derivative liability | (68,901 | ) | — | |||||
| Financing cost | 110,677 | 250,000 | ||||||
| Amortization of debt discount | 254,823 | 100,000 | ||||||
| Total Other (Income) Expense | 356,568 | 375,000 | ||||||
| Net Income (Loss) | $ | (493,443 | ) | $ | (389,109 | ) | ||
| Net income (loss) | ||||||||
| -Basic and diluted | $ | (0.01 | ) | $ | (0.01 | ) | ||
| Weighted average common shares outstanding | ||||||||
| - Basic and diluted | 489,189,291 | 487,689,291 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
Kronos Advanced Technologies, Inc.
Consolidated Statement of Stockholders’ Equity
For the Fiscal Year Ended June 30, 2020
(Audited)
| Common Shares $0.001 Par Value | Additional | |||||||||||||||||||
| Shares Issued | Amount | Paid in Capital | Accumulated Deficit | Equity (Deficit) | ||||||||||||||||
| Year Ended June 30, 2020 | ||||||||||||||||||||
| Balance, June 30, 2019 | 487,689,291 | $ | 487,689 | $ | 36,837,900 | (37,714,198 | ) | $ | (388,609 | ) | ||||||||||
| Issuance of common stock upon conversion of accrued interest | 12,000,000 | 12,000 | 11,000 | 23,000 | ||||||||||||||||
| Net loss | (493,443 | ) | $ | (493,443 | ) | |||||||||||||||
| Balance, June 30, 2020 | 499,689,291 | $ | 499,689 | $ | 36,848,900 | $ | (38,207,641 | ) | $ | (859,052 | ) | |||||||||
| Year Ended June 30, 2019 | ||||||||||||||||||||
| Balance, June 30, 2018 | 487,626,691 | $ | 487,627 | $ | 36,837,962 | $ | (37,625,089 | ) | $ | 500 | ||||||||||
| Net loss | (389,109 | ) | $ | (389,109 | ) | |||||||||||||||
| Balance, June 30, 2019 | 487,626,691 | $ | 487,627 | $ | 36,837,962 | $ | (37,714,198 | ) | $ | (388,609 | ) | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Kronos Advanced Technologies, Inc.
Consolidated Statements of Cash Flows
For the Fiscal Year Ended June 30, 2020
(Audited)
| For the Year Ended | ||||||||
| June 30, 2020 | June 30, 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (493,443 | ) | $ | (389,109 | ) | ||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation | 15,750 | — | ||||||
| Change in value of derivative liability Financing cost | 110,677 | 250,000 | ||||||
| Amortization of debt discount | 254,823 | 100,000 | ||||||
| Changes in operating liabilities Accounts receivable | (7,721 | ) | — | |||||
| Prepaid expenses | (123,382 | ) | — | |||||
| Accounts payable and accrued expenses | 111,361 | 25,055 | ||||||
| Net Cash Used in Operating Activities | (131,935 | ) | (14,054 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible notes payable | 137,500 | — | ||||||
| Operating loan | 8,150 | 23,500 | ||||||
| Loans to officer | (32 | ) | (3,748 | ) | ||||
| Net Cash Provided by Financing Activities | 145,618 | 19,752 | ||||||
| Net Increase in Cash | 13,683 | 5,698 | ||||||
| Cash at Beginning of Period | 5,698 | — | ||||||
| Cash at End of Period | $ | 19,381 | $ | 5,698 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | — | $ | — | ||||
| Income taxes paid | $ | — | $ | — | ||||
| Fair value of common stock upon conversion of accrued interest | $ | 23,000 | $ | — | ||||
The accompanying notes are an integral part of these consolidated financial statements.
KRONOS ADVANCED TECHNOLOGIES, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS
For the Year Ended June 31, 2020, and 2019
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
Kronos Advanced Technologies, Inc. (“Kronos”) is a Nevada corporation (the “Company”). The Company’s shares began trading on the over-the-counter bulletin board exchange on August 28, 1996, under the symbol "TSET." On November 19, 1998, TSI changed its name to
TSET, Inc.
In March 2000,“TSET.” Effective January 12, 2002, the Company purchased Atomic Soccer USA, Ltd. ("Atomic
Soccer"), a sports apparel manufacturerbegan doing business as Kronos Advanced Technologies, Inc. and, distributor. Atomic Soccer was sold
on April 11, 2001 (See note 15). In March 2000,as of January 18, 2002, it changed the Company also acquired ticker symbol to “KNOS” and was trading on the Pink Sheets.
GENERAL
Kronos AirAdvanced Technologies, Inc. ("is a product development and Production Company that develops and patents technology that among other things fundamentally changes the way air is moved, filtered, and sterilized. Historically, Kronos Air Technologies") which ishas focused on developing, applications for its patent pendingmarketing, and selling the Company’s proprietary air movement and purification process. In
May 2000,technology. Serving the Indoor Air Quality (IAQ) market, Kronos technology uses state-of-the-art high voltage processes without the use of traditional HEPA filters. Kronos-based products move air silently, filter and purify the air, and dramatically reduce energy consumption to half of a 60-watt light bulb. Kronos devices can be variable in shape or size, and, therefore, have the potential to be scaled down for air purification in cars or scaled up in size for industrial and hazardous gas destruction. The technology is currently being implemented in standalone products to move and filter air replacing HEPA and other filtration systems. There are broad ranges of additional markets for standalone and embedded Kronos CORE technology-based devices. Examples of immediately addressable markets include health care facilities, operating rooms, manufacturing clean rooms, and cabins of automobiles and commercial aircraft.
Currently, the Company purchased EdgeAudio.com,Inc. ("EdgeAudio"), a manufactureris planning to file additional patents to improve its existing technology as well as enter into new market segments but will continue to market air purifiers and distributor of home theater speaker systems incorporating licensed
DiAural(R) crossover circuitry. In May 2000,other consumer products. Recently the Company became the exclusive distributor and licensee of the latest generation of air purifiers based on the Company’s CORE technologies.
Fourteen of the Company’s U.S. patent applications and three international patent applications have been allowed for issuance. To date, our ability to execute our strategy has been restricted by our limited amount of capital.
The Kronos technology has numerous valuable characteristics for applications in the indoor air quality market, including moving air and gases at high velocities while filtering odors, smoke and particulates and sterilizing air from bacteria and virus contamination. In the past - a number of the scientific claims of the Kronos technology have been tested by the U. S. and foreign governments, multi-national companies and independent testing facilities (see “Independent Testing – Product Claims Platform”).
Technology Description and Benefits
The proprietary Kronos technology involves the management of corona discharge by applying high voltage management across paired electrical grids to create an ion exchange. Applications for efficient high voltage management, efficient corona discharge and ion exchange include but are not limited to:
| ● | air movement, including dielectric fluid movement and propulsion; |
| ● | air purification, including particulate removal, bacterial and viral removal, biohazard destruction, and odor removal; |
| ● | temperature and environmental management, including space heating and cooling; |
| ● | microchip, MEMS and other electronics devices and components cooling; |
| ● | air management, including sorting and separation of air streams by particle content; |
| ● | sound generation, including high fidelity sound recreation and active noise cancellation; |
| ● | high voltage management, including development of high voltage power supplies and control of energy surges and electrical discharges; |
| ● | control of water and moisture content in air streams, including dehumidification and humidification; and |
| ● | water treatment, including water purification, ionization, and water desalination. |
Independent Testing - Product Claims Platform
A number of the scientific claims of the Kronos technology have been tested by the U. S. and foreign governments, multi-national companies, and independent testing facilities. These include the 2017 research article published by the China Medical University/National Taiwan University discussing technologies used by the Company; a 2020 study on electrostatic indoor air cleaners published by the Department of the Built Environment, Aalborg University, which also purchased Cancer
Detection International ("CDI") which performs state-of-the-art blooddiscusses the efficacy of technologies used by the Company; a 2008 efficacy study of the Company’s air purifiers conducted and published by the Disinfection Research Institute in Moscow, Russia and by Environmental Health and Engineering based in Needham, Massachusetts; and a study published in 2018 by the Association of Home Appliance Manufacturing that discussed technologies used by the Company. To date, independent laboratory testing conducted in the joint study by the Disinfection Research Institute in Moscow and the Environmental Health and Engineering, Inc. has verified the filtration and sterilization capability of the Kronos technology.
Filtration Testing Results:
| ● | Environmental Health and Engineering - reduced particle matter by up to 47% compared to days when the Kronos air purifiers were not operating in the waiting room of a pediatric office while patients were present. |
| ● | Aerosol and Air Quality Research Laboratory - up to 99.8% filtration of 0.02 to 0.20-micron (20 to 200 nanometers) size particles; |
| ● | LMS Industries - removal of over 99.97% of 0.10 micron (100 nanometers) and above size particles using HVAC industry’s ASHRAE 52.2 testing standard for filtration; |
| ● | MicroTest Laboratories - HEPA Clean Room Class 1000 quality particulate reduction; and |
| ● | Intertek - tobacco smoke elimination tests in accordance with ANSI/AHAM AC-1-1988 standard entitled “American National Standard Method for Measuring Performance of Portable Household Electric Cord- Connected Room Air Cleaners,” which demonstrated a Clean Air Delivery Rate (“CADR”) for the Kronos air purifier of over 300 for the larger size Kronos air purifier and 80 for the smaller size using consumer filtration testing standards for the Association of Home Appliance Manufacturers (“AHAM”). |
Sterilization Testing Results:
| ● | Environmental Health and Engineering (viral analysis by the University of Wisconsin Department of Pediatrics and Medicine): | |
| - | collection and removal of a wide range of respiratory viruses, including influenza A, influenza B, human rhinoviruses, human coronavirus, respiratory syncytial virus, adenovirus, and bocavirus, from the waiting room of a pediatric office while patients were present. | |
● | Scientific Institution of Health Care, Central Clinical Hospital #2 in Moscow (clinical trial): | |
| ● | – | 100% decontamination of bacteria (Staphylococcus aureus) in under one hour and 80% decontamination of general bacteria in under 24 hours from a 48m (3) hospital room while people were present. |
● | Pulmonary Department of Municipal Hospital #2 in Moscow (clinical trial): | |
| – | 100% decontamination of bacteria (Staphylococcus aureus) in under five hours from a 66m (3) hospital room while four patients were present; and | |
| – | 100% decontamination of mildew fungi in under two hours from a 113.2m(3) hospital room. | |
● | Disinfection Research Institute Sterilization Laboratory in Moscow: | |
| – | disinfected a room completely contaminated with Bacteriophage | |
| – | a microorganism which lives in the E. Coli bacteria. (Bacteriophage is widely used in virus testing because the microorganism’s biological structure and size share many functional similarities with a wide range of viruses); and | |
| – | 100% decontamination of room infected with bacteria (Staphylococcus aureus strain 906 (S. aureus) and Bacillus cereus strain 96 (B. cereus) | |
| – | S. aureus is a known cause of hospital-acquired infections, including skin lesions such as boils and furunculosis and more serious infections such as pneumonia and meningitis. | |
| ● | Institute for Veterinary Medicine in the Ukraine - destroy and sterilize air which had been inseminated with Anthrax and E. coli spores; | |
| ● | New Hampshire Materials Laboratory - up to 95% reduction of hazardous gases, including numerous carcinogens found in cigarette smoke; | |
| ● | Battelle PNNL - 95% destruction of Bg (anthrax simulant); and | |
| ● | Dr. Sergey Stoylar, a bacteriologist from the American Bacteriological Society - 100% destruction of Bacillus subtilis 168 (bacteria simulant). | |
Market Segmentation
Kronos had an initial business development strategy to attempt to develop and produce products based on the Kronos technology to six distinct air quality market segments: (1) air movement and purification (residential, health care, hospitality, and commercial facilities); (2) embedded cooling and cleaning (electronic devices and medical equipment); (3) air purification for unique spaces (clean rooms, airplanes, automotive, and cruise ships); (4) specialized military (naval vessels, closed vehicles and mobile facilities); (5) industrial scrubbing (produce storage and diesel and other emissions); and (6) hazardous gas destruction (incineration and chemical facilities).
Technology Application and Product Development
To best serve Kronos’ targeted market segments, the very early detectionCompany is developing specific product applications across two distinct product application platforms. A Kronos device can be either used as a standalone product or can be embedded. Standalone products are self-contained and only require the user to plug the Kronos device into a wall outlet to obtain air movement and filtration for their home, office, or hotel room. Embedded applications of cancerthe Kronos technology require the technology be added into another system, such as a building ventilation system for more efficient air movement and filtration or into an electrical device such as computer or medical equipment to replace the cooling fan or heat sink.
Standalone Platform
Residential Products. The Company historically had been seeking select business opportunities
globally amongdeveloped a wide range of prospects. Overresidential product SilentNight Air Purifier and in the past two yearssold it through independent sales reps.
Medical Products. The Company is planning to engage in development of Healthcare related products based on our technology.
Commercial and Other Standalone Products. Utilizing our expanded product development resources, in the past Kronos completed the initial design, development and production of a series of small multifunctional devices that can be used as space heaters, vaporizers, disinfectors, deodorizers and/or fans.
Embedded Platform
In addition, Kronos has developed an air filtration and purification mechanism capable of performing to HEPA quality standards, while eliminating bacteria and viruses. The Company believes that Kronos devices could replace current HEPA filters with a permanent, easily cleaned, low-cost solution. Among the technical advantages of the Kronos technology over HEPA filters is the ability of the Kronos-based devices to eliminate the energy burden on air handling systems, which must generate high levels of backpressure necessary to move air through HEPA-based systems. Kronos-based devices enhance the air flow, while providing better than HEPA level filtration and purification. Kronos is seeking one or more strategic partners to commercialize, market and distribute Kronos based commercial embedded air filtration and purification devices; however, due to a lack of funding, the Company made several investments, includingis no longer working on this project.
Market Segmentation
Kronos’ initial business development strategy was to develop and produce products based on the Kronos Air Technologies, Atomic Soccertechnology to six distinct air quality market segments: (1) air movement and EdgeAudio. After further evaluationpurification (residential, health care, hospitality, and commercial facilities); (2) embedded cooling and cleaning (electronic devices and medical equipment); (3) air purification for unique spaces (clean rooms, airplanes, automotive, and cruise ships); (4) specialized military (naval vessels, closed vehicles and mobile facilities); (5) industrial scrubbing (produce storage and diesel and other emissions); and (6) hazardous gas destruction (incineration and chemical facilities).
Patents and Intellectual Property
Kronos has received notification that fifteen of these investments,its patent applications have been allowed for issuance by the Company decided to
only continue withUnited States Patent and Trademark Office and six of its international patent applications have been allowed for issuance by the developmentCanadian Intellectual Property Office, the Commonwealth of Kronos Air Technologies. As a result,Australia Patent Office, and the Company has prioritized itsMexican Institute of Industrial Property. These patents are considered utility patents which describe fundamental innovations in the generation, management, and financial resourcescontrol of electrostatic fluids, including air movement, filtration, and purification. Each of the patents contain multiple part claims for both general principles as well as specific designs for incorporating the Kronos technology into air movement, filtration, and purification products. The patents provide protection for both specific product implementations of the Kronos technology, as well as more general processes for applying the unique attributes and performance characteristics of the technology.
U.S. Patents
| i. | December, 2003; #664741; Method and Apparatus for Electrostatic Fluid Acceleration Control of a Fluid Flow; Expires 2022; | |
| ii. | April, 2004; #6,727,657; Electrostatic Fluid Accelerator for and a Method for Controlling Fluid; Expires 2022; | |
| iii. | May, 2005; #6,888,314; Electrostatic Fluid Accelerator – Electrode design Geometries; Expires 2022; | |
| iv. | August 2005; #6,937,455; Spark Management Method & Device; Expires 2022; | |
| v. | November 2005; #6,963,479; Electrostatic Fluid Accelerator – Electrode design Geometries; Expires 2023; | |
| vi. | May 2006; #7,053,565; Electrostatic Fluid Accelerator – Power Management; Expires 2024; | |
| vii. | July 2006; #7,150,780; Electrostatic Air Cleaning Device; Expires 2024; | |
| viii. | October 2006; #7,122,070; Method of and Apparatus for Electrostatic Fluid Acceleration; Expires 2025; | |
| ix. | July, 2007; #7,248,003; Electric Field Management; Expires 2025; | |
| x. | August 2007; #7,262,564; Alternative Geometries and Voltage Supply Management; Expires 2024; and, | |
| xi. | August 2008; #7,410,531; Method of Controlling Fluid Control; Expires 2025. | |
| xii. | January 7, 2003; #6,504,308; Electrostatic Fluid Accelerator; Expires 2023. | |
| xiii. | July 19, 2005; #6,919,698; Electrostatic Fluid Accelerator and for Method of Controlling Fluid Flow; Expires 2025. | |
| xiv. | January 2, 2007; #7,157,704; Corona Discharge Electrode and Method for Operating Same; Expires 2027. | |
| xv. | January 7, 2003; #6,504,308; Electrostatic Fluid Accelerator; Expires 2023. | |
| xvi. | May 3, 2005; # 6,888,314; Electrostatic Fluid Accelerator; Expires 2025. |
International Patents
Kronos intends to focus on this
investment opportunity. In April 2001,continue to aggressively file patent applications in the Company sold Atomic Soccer. Further,
the Company has decided not to pursue its investment in CDIU.S. and has adopted a
formal plan to dispose of EdgeAudio (See note 15).
internationally.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING METHOD. The Company's financial statements are prepared
using the accrual method
Principles of accounting. The Company has elected a June 30 fiscal
year end.
PRINCIPLES OF CONSOLIDATION. Consolidation
The consolidated financial statements of the Company include those of the Company and of each of its subsidiariessubsidiary for the periods in which the subsidiaries weresubsidiary was owned/held by the Company. All significant intercompany accounts and transactions have been eliminated in the preparation of the consolidated financial statements. Atomic SoccerAt June 30, 2020 and EdgeAudio are disclosed as discontinued operations in these financial statements
and CDI's carrying value is $0 due to impairment
USE OF ESTIMATES. 2019, respectively, the Company had only one subsidiary, Kronos Advanced Technologies, LLC.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted accounting principlesGenerally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the datesdate of the financial statements and the reported amounts of revenues and expenses during the periods.reporting period. Actual results could differ from those estimates. CONCENTRATIONS OF CREDIT RISK. Financial instruments which can
potentially subjectSignificant estimates include assumptions made in estimated useful lives of property and equipment, assumptions inherent in a purchase price allocation, accruals for potential liabilities, certain assumptions used in deriving the Company to concentrationsfair value of credit risk consist
principallyderivative liabilities, share-based compensation, and beneficial conversion feature of trade receivables. notes payable, and realization of deferred tax assets.
Stock-Based Compensation
The Company manages its exposureperiodically issues stock options and warrants to risk
through ongoing credit evaluationsemployees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock- based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.
The fair value of the Company’s common stock option and warrant grants is estimated using the Black- Scholes option pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes option pricing model and based on actual experience. The assumptions used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods.
Fair Value of Financial Instruments
The Company follows paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its customersfinancial instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments. Paragraph 820-10-35- 37 establishes a framework for measuring fair value in accounting principles generally does not
require collateral. accepted in the United States of America (U.S. GAAP) and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
| Level 3 | Pricing inputs that are generally observable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amount of the Company’s derivative liability of $1,679,276 and $1,250,000 as of June 30, 2020 and June 30, 2019, respectively and was based on Level 3 measurements.
The carrying amounts of the Company’s other financial assets and liabilities, such as cash, prepaid expense, accounts payable and accrued payables and notes payable, approximate their fair values because of the short maturity of these instruments.
Acquisitions and Business Combinations
The Company maintains an allowance for doubtful accounts for
potential lossesallocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and doesseparately identified intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not believe itlimited to, future expected cash flows from, acquired technology, trademarks and trade names, useful lives, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is exposedone year from the acquisition date, we may record adjustments to concentrationsthe assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of credit
riskthe measurement period, any subsequent adjustments are recorded to earnings.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are likely to have a material adverse impact onaccounted for as liabilities, the Company's
financial position or resultsderivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. CASH AND CASH EQUIVALENTS. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Cash Equivalents
The Company considers all highly liquid short-term investments with a remaining maturity of three months or less when purchased to be cash equivalents.
ACCOUNTS RECEIVABLE.
Accounts Receivable
All of the Company’s accounts receivable balance is related to trade receivables. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts, if any, is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company provides an allowance for losses on
trade receivables based on a review of the current status of existing
receivables and management's evaluation of periodic aging of accounts. Accounts
receivable are shown net ofwill maintain allowances for doubtful accounts, estimating losses resulting from the inability of $0its customers to make required payments for products. Accounts with known financial issues are first reviewed and $0 at
June 30, 2001 and June 30, 2000, respectively.specific estimates are recorded. The Company charges offremaining accounts receivable balances are then grouped into categories by the number of days the balance is past due, and the estimated loss is calculated as a percentage of the total category based upon past history. Account balances are charged off against the allowance for losses when it is probable that the receivable will not be recovered.
Net Income (Loss) Per Share
Basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed using the weighted-average number of common shares and the dilutive effect of contingent shares outstanding during the period. Potentially dilutive contingent shares, which primarily consist of convertible notes, stock issuable to the exercise of stock options and warrants have been excluded from the diluted loss per share calculation because their effect is anti-dilutive.
Segments
The Company determined its reporting units in accordance with ASC 280, “Segment Reporting” (“ASC 280”). Management evaluates a reporting unit by first identifying its’ operating segments under ASC 280. The Company then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an accountoperating segment that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is deemedappropriate to be
uncollectable.
F-19
PROPERTY AND EQUIPMENT. aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated.
Management has determined that the Company has one consolidated operating segment. The Company’s reporting segment reflects the manner in which its chief operating decision maker reviews results and allocates resources. The Company’s reporting segment meets the definition of an operating segment and does not include the aggregation of multiple operating segments.
| F-11 |
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the assets, which range from three to seven years. Expenditures for major renewals and betterments that extend the original estimated economic useful lives of the applicable assets are capitalized. Expenditures for normal repairs and maintenance are charged to expense as incurred. The cost and related accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts, and any gain or loss is included in operations.
INTANGIBLES. Intangible
Digital Assets Translations and Remeasurements
Digital Assets are included in intangible assets in the consolidated balance sheets. Digital Assets are recorded at cost less impairment.
An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
Realized gain (loss) on sale of Digital Assets are included in other income (expense) in the consolidated statements of operations.
The Company assesses impairment of Digital Assets quarterly if the fair value of digital assets is less than its cost basis. The Company recognizes impairment losses on Digital Assets caused by decreases in fair value using the average U.S. dollar spot price of the related Digital Asset as of each impairment date. Such impairment in the value of Digital Assets are recorded as a component of costs and expenses in our consolidated statements of operations. There were no impairment losses related to Digital Assets during the period ended June 30, 2020.
Intangibles
The Company uses assumptions in establishing the carrying value, fair value and estimated lives of the Company’s long-lived assets and goodwill. The criteria used for these evaluations include marketing intangiblesmanagement’s estimate of the assets’ continuing ability to generate positive income from operations and developed and purchased patent technology which are being amortized over 10
years. Patent technology represents acquired patents which are being further
developedpositive cash flow in future periods compared to achieve commercial viability and generate revenue. Thethe carrying value of intangiblesthe asset, the strategic significance of any identifiable intangible asset in its business objectives, as well as the market capitalization of the Company. Cash flow projections used for recoverability and impairment analysis use the same key assumptions and are reviewed whenever circumstances occur that indicateconsistent with projections used for internal budgeting, and for lenders and other third parties. If assets are considered to be impaired, the impairment recognized is the amount by which the carrying values may notvalue of the assets exceeds the fair value of the assets. Useful lives and related amortization or depreciation expense are based on the Company’s estimate of the period that the assets will generate revenues or otherwise be recoverable.
INCOME TAXES. used by Kronos. Factors that would influence the likelihood of a material change in the Company’s reported results include significant changes in the assets’ ability to generate positive cash flow, loss of legal ownership or title to the asset, a significant decline in the economic and competitive environment on which the asset depends, significant changes in the Company’s strategic business objectives, and utilization of the asset.
Income Taxes
Income taxes are accounted for in accordance with the provisions of SFASStatement of Financial Accounting Standards (“SFAS”) No. 109. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized, but no less than quarterly. RESEARCH AND DEVELOPMENT EXPENSES. Currently the company has not valued any NOL because of the expectation that it will not be used.
Research and Development Expenses
Costs related to research and development are charged to research and development expense as incurred.
EARNINGS (LOSS) PER SHARE.
Revenue Recognition
The Company accounts for revenues in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (1) identifying the contract(s) or agreement(s) with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. Under ASC 606, revenue is recognized when performance obligations under the terms of a contract are satisfied, which occurs for the Company upon shipment or delivery of products or services to our customers based on written sales terms, which is also when control is transferred. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products or services to a customer.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases. This ASU establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This ASU and all the related amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted this guidance in the first quarter of fiscal 2020, the quarter ended September 30, 2019 using the optional transitional method afforded under ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. Results for reporting periods beginning after the adoption date are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 840 (see Note 7 - Leases).
The Company elected and applied the available transition practical expedients. By electing these practical expedients, the Company did:
| a. | not reassess whether expired or existing contracts contain leases under the new definition of a lease; |
| b. | not reassess lease classification for expired or existing leases; and |
| c. | not reassess whether previously capitalized initial direct costs would qualify for capitalization under Topic 842. |
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments
- Credit Losses. The amendments in this ASU align the implementation date for nonpublic entities’ annual financial statements with the implementation date for their interim financial statements. In addition, the amendment clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20; instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842: Leases. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments
- Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825 Financial Instruments. The amendments in this ASU further clarify certain aspects of ASU No. 2016-13. For entities that have not yet adopted ASU No. 2016-13, this ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief. The amendments in this ASU provide transition relief for ASU No. 2016-13 by providing an option to irrevocably elect the fair value option for certain financial assets measured at an amortized cost basis. For entities that have not yet adopted ASU No. 2016-13, this ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact this ASU will have on its financial statements and related disclosures.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants and the SEC did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statement presentation or disclosures.
NOTE 3 - REALIZATION OF ASSETS AND GOING CONCERN
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has sustained losses from operations in recent years, and such losses have continued through the current period ended June 30, 2020. In addition, the Company has used, rather than provided, cash in its operations. The Company has attempted during the period to use its resources to commercialize its technology and develop viable commercial products and to provide for its working capital needs.
In view of the matters described in the preceding paragraph, recoverability of a major portion of the asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financing requirements on a continuing basis, to maintain present financing and to succeed in its future operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
NOTE 4. ACQUSITION OF CERTAIN ASSETS
On October 1, 2019, the Company entered into an operating assets purchase agreement with the First Bitcoin Capital, LLC wherein the Company acquired three check cashing kiosks operating in the United States. The purchase price for the assets was $250,000 in the form of a convertible note payable. (See Note 6.)
NOTE 5 - INTANGIBLES
Intangible assets consisted of the following at June 30, 2020:
| Crypto Currency | $ | 1,000,000 | ||
| Developed and Purchased Patent Technology (devalued) | 10,000 | |||
| Less accumulated amortization | — | |||
| Net intangible assets | $ | 1,010,000 |
Developed and purchased patent technology includes developed technology as well as property that was acquired in the Kronos acquisition. See Note 1. Management had assessed that the value is not more than $10,000 and the patents were written down to that amount in 2009.
Intangible assets will be amortized on a straight-line basis over 10 years once operations increase.
NOTE 6 – CONVERTIBLE NOTES PAYABLE
On December 31, 2018, the Company issued a convertible promissory note in the amount of $1,000,000. The note is due on December 31, 2023 and bears interest at 5% per annum. The loan and any accrued interest may be converted into shares of the Company’s common stock at a rate of 80% multiplied by the average of the three lowest trading price during the previous ten (10) day trading period ending on the latest complete trading day prior to the conversion date. Pursuant to current accounting guidelines, the Company recorded a note discount of $1,000,000 to account for the note’s derivative liability. In addition, the Company recorded an amount of discount in excess of the note principal of $250,000 that was expensed as a financing cost.
During the period ended June 30, 2020 the Company amortized $200,000 of debt discount, and as of June 30, 2020, the balance of the unamortized debt discount was $700,000.
On October 1, 2019, the Company issued a convertible promissory note in the amount of $250,000. The note is due on October 1, 2024 and bears interest at 5% per annum. The loan and any accrued interest may be converted into shares of the Company’s common stock at a rate of 80% multiplied by the average of the three lowest trading price during the previous ten (10) day trading period ending on the latest complete trading day prior to the conversion date. Pursuant to current accounting guidelines, the Company recorded a note discount of $250,000 to account for the note’s derivative liability. In addition, the Company recorded an amount of discount in excess of the note principal of $62,500 that was expensed as a financing cost.
During the period ended June 30, 2020 the Company amortized $37,500 of debt discount, and as of June 30,
2020, the balance of the unamortized debt discount was $212,500.
In April, and June 2020, the Company issued four convertible promissory notes with investors totaling $137,500. These convertible notes payable are due one year from issuance, with interest at 5% per annum and are convertible at 80% multiplied by the Market Price (representing a discount rate of 20%). Market Price is defined as the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period ending one trading day prior to the date the conversion.
Pursuant to current accounting guidelines, the Company recorded a note discount of $137,500 to account for the note’s derivative liability. In addition, the Company recorded an amount of discount in excess of the note principal of $48,177 that was expensed as a financing cost.
During the period ended June 30, 2020 the Company amortized $17,323 of debt discount, and as of June 30, 2020, the balance of the unamortized debt discount was $120,177.
NOTE 7 – DERIVATIVE LIABILITY
The FASB has issued authoritative guidance whereby instruments which do not have fixed settlement provisions are deemed to be derivative instruments. Certain warrants issued to investors and conversion features of notes payable did not have fixed settlement provisions because either their exercise prices will be lowered if the Company issues securities at lower prices in the future or the conversion price is variable. In addition, since the number of shares to be issued is not explicitly limited, the Company is unable to conclude that enough authorized and unissued shares are available to share settle the conversion option. In accordance with the FASB authoritative guidance, the conversion feature of the notes was separated from the host contract (i.e., the notes) and the fair value of the warrants have been recognized as a derivative and will be re-measured at the end of every reporting period with the change in value reported in the statement of operations.
The derivative liabilities were valued at the following dates using a Binomial Lattice Model with the following average assumptions:
| June 30, 2020 | June 30, 2019 | |||||||
| Stock Price | 0.0909 | 0.0042 | ||||||
| Risk free interest rate | 0.37 | 2.50 | ||||||
| Expected Volatility | 506 | 573 | ||||||
| Expected life in years | 3.75 -4.50 | 4.50 | ||||||
| Expected dividend yield | 0 | 0 | ||||||
| Fair Value – Warrants | 0 | 0 | ||||||
| Fair Value – Note Conversion Feature | 1,679,276 | 1,250,000 | ||||||
| Total | $ | 1,679,276 | 1,250,000 | |||||
The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected life of the derivative securities was determined by the remaining contractual life of the derivative instrument. For derivative instruments that already matured, the Company used the estimated life. The expected dividend yield was based on the fact that the Company has not paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.
During the period ended June 30, 202, the Company recorded $498,177 in derivative liability as a result of conversion features from the issuance of new convertible note payables (see Note 6). In addition, the Company recorded a gain of $68,901 as a result of the change in value of derivative liability at June 30, 2019.
NOTE 8 – LEASES
The Company sub-leases its offices on a month-to-month basis as of June 30, 2020.
NOTE 9 – LEGAL PROCEEDINGS
The company had several lawsuits from 2008 and prior. These have all run their course as far as the statute of limitations is concerned. It is the opinion of management that no lawsuits or debts exist as of June 30, 2020.
NOTE 10 - MAJOR CUSTOMERS
As of June 30, 2020 Kronos, has no major customers.
NOTE 11 - SEGMENTS OF BUSINESS
The Company operates principally in one segment of business: the Kronos segment licenses, manufactures and distributes air movement and purification devices utilizing the Kronos technology. The Company operates only in the United States of America.
NOTE 12 - RELATED PARTIES
During the period ended June 30, 2020, the Company advanced to the Company’s former CEO the amount of $3,780. This advance is due on demand and bears no interest.
NOTE 13 - STOCKHOLDERS’ EQUITY/ (DEFICIT)
During the year ended June 30, 2020, the Company issued 12,000,000 shares of common stock valued at $23,000 upon conversion of accrued interest, convertible at 80% multiplied by the Market Price (representing a discount rate of 20%). Market Price is defined as the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period ending one trading day prior to the date the conversion.
NOTE 14 - SUBSEQUENT EVENTS
The Company received a Notice of Conversion from the holder of the $1,000,000 convertible note payable (See Note 6). The holder of the note is converting principal of $58,693 and accrued interest of $41,142 into 13,000,000 shares of common stock. The principal balance of the note after conversion will be $941,307.
Subsequent to the year ended June 30, 2020, the Company received Notice of Conversions from the four holders of the $137,500 convertible notes payable (See Note 6). The holders of the notes are converting the principal balance of $137,500 into 7,611,666 shares of common stock.
C.P.A.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Kronos Advanced Technologies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Kronos Advanced Technologies, Inc. (“the Company”) as of June 30, 2021, and 2020 and the related statements of operations, changes in stockholders’ deficit and cash flows, for each of the years ended June 30, 2021, and 2020, and the related notes and schedules (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021, and 2020, and the results of its operations and its cash flows for each of the periods ended June 30, 2021 and 2020, in conformity with generally accepted accounting principles in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As more fully described in Note 3, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| /s/ Weinstein International. C.P.A. |  |
| We have served as the Company's a | |
| Tel - Aviv, Israel Sep 26,2021 |
US Number: 1-661-466-2466 Local: +972 58-6886666 Email: i@dwacc.com Web: www.dwacc.com
| F-16 |
KRONOS ADVANCED TECHNOLOGIES, INC.
Consolidated Balance Sheets
For the Fiscal Year Ended June 30, 2021
(Audited)
| June 30, 2021 | June 30, 2020 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 19,320 | $ | 19,381 | ||||
| Inventory | 233,154 | — | ||||||
| Prepaid expenses | 16,893 | 123,382 | ||||||
| Accounts receivable | 20,115 | 7,721 | ||||||
| Loans to officer | 0 | 3,780 | ||||||
| Total current assets | 289,482 | 154,264 | ||||||
| Property and equipment, net | 5,802,276 | 234,250 | ||||||
| Intangible assets | 234,486 | 1,010,000 | ||||||
| Total Assets | $ | 6,326,244 | $ | 1,398,514 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 10,200 | $ | 9,601 | ||||
| Accrued expenses | 29,232 | 182,216 | ||||||
| Accrued Interest Payable | 26,585 | 0 | ||||||
| Operating loan | 31,650 | 31,650 | ||||||
| Derivative liability | 302,055 | 1,679,276 | ||||||
| Sales Tax Payable | 11,290 | — | ||||||
| Convertible notes payable, net of discount | 175,000 | 354,823 | ||||||
| Total current liabilities | 586,012 | 2,257,566 | ||||||
| Long Term Liabilities | ||||||||
| State of West Virginia | 2,610,000 | — | ||||||
| Total Liabilities | 3,196,012 | 2,257,566 | ||||||
| Stockholder Deficit: | ||||||||
| Common stock, par value $0.001, 2,000,000,000 shares authorized 659,323,911 and 499,689,291 shares issued and outstanding as of June 30, 2021 and June 30, 2020, respectively | 659,324 | 499,689 | ||||||
| Additional paid in capital | 43,143,410 | 36,848,900 | ||||||
| Accumulated deficit | (40,672,502 | ) | (38,207,641 | ) | ||||
| Total Stockholders’ Equity (Deficit) | 3,130,232 | (859,052 | ) | |||||
| Total Liabilities and Stockholder’s Deficit | $ | 6,326,244 | $ | 1,398,514 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
Kronos Advanced Technologies, Inc.
Consolidated Statements of Operations
For the Fiscal Year Ended June 30, 2021
(Audited)
| June 30, 2021 | June 30, 2020 | |||||||
| Revenue | $ | 503,742 | $ | 41,215 | ||||
| Cost of goods sold | 276,083 | 6,756 | ||||||
| Gross Profit | 227,658 | 34,459 | ||||||
| Operating Expenses: | ||||||||
| General and administrative | 2,164,633 | 171,334 | ||||||
| Total operating expenses | 2,164,633 | 171,334 | ||||||
| Loss from operations | (1,936,975 | ) | (136,875 | ) | ||||
| Other (Income) Expense | ||||||||
| Capital Gain on Crypto Currency | (19,635 | ) | — | |||||
| Interest expense | 183,463 | 59,969 | ||||||
| Change in value of derivative liability | (1,377,221 | ) | (68,901 | ) | ||||
| Bad Debt Expense | 4,027 | 110,677 | ||||||
| Financing cost | 0 | |||||||
| Amortization of debt discount | 737,500 | 254,823 | ||||||
| Total Other (Income) Expense | (471,866 | ) | 356,568 | |||||
| Net Income (Loss) | $ | (1,465,109 | ) | $ | (493,443 | ) | ||
| Net income (loss) -Basic and diluted | $ | (0.01 | ) | $ | (0.01 | ) | ||
| Weighted average common shares outstanding - Basic and diluted | 659,323,911 | 489,189,291 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
Kronos Advanced Technologies, Inc.
Consolidated Statement of Stockholders’ Equity
For the Fiscal Year Ended June 30, 2021
(Audited)
Common Shares $0.001 Par Value | Additional | |||||||||||||||||||
Shares Issued | Amount | Paid in Capital | Accumulated Deficit | Equity (Deficit) | ||||||||||||||||
| Year Ended June 30, 2021 | ||||||||||||||||||||
| Balance, June 30, 2020 | 499,689,291 | $ | 499,689 | $ | 36,848,900 | (38,207,393 | ) | $ | (858,805 | ) | ||||||||||
| Issuance of common stock for services rendered | 10,986,115 | 10,986 | 877,288 | 888,275 | ||||||||||||||||
| Issuance of common stock for retirement | 13,100,000 | 13,100 | 1,126,600 | 1,139,700 | ||||||||||||||||
| Issuance of common stock for notes payable conversions | 44,548,505 | 44,549 | 1,191,622 | 1,236,171 | ||||||||||||||||
| Issuance of common stock for acquisition | 91,000,000 | 91,000 | 3,099,000 | 3,190,000 | ||||||||||||||||
| Dividend Declared | (1,000,000 | ) | $ | (1,000,000 | ) | |||||||||||||||
| Net loss | (1,465,109 | ) | $ | (1,465,109 | ) | |||||||||||||||
| Balance, June 30, 2021 | 659,323,911 | $ | 659,324 | $ | 43,143,410 | $ | (40,672,502 | ) | $ | (3,130,232 | ) | |||||||||
| Year Ended June 30, 2020 | ||||||||||||||||||||
| Balance, June 30, 2019 | 487,689,291 | $ | 487,689 | $ | 36,837,900 | $ | (37,714,198 | ) | $ | (388,609 | ) | |||||||||
| Issuance of common stock upon conversion of accrued interest | 12,000,000 | 12,000 | 11,000 | 23,000 | ||||||||||||||||
| Net loss | (493,443 | ) | $ | (493,443 | ) | |||||||||||||||
| Balance, June 30, 2020 | 499,689,291 | $ | 499,689 | $ | 36,848,900 | $ | (38,207,641 | ) | $ | (859,052 | ) | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Kronos Advanced Technologies, Inc.
Consolidated Statements of Cash Flows
For the Fiscal Year Ended June 30, 2021
(Audited)
| For the Year ended | ||||||||
| June 30, 2021 | June 30, 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (1,465,109 | ) | $ | (493,443 | ) | ||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation | 21,000 | 15,750 | ||||||
| Change in value of derivative liability | (1,377,221 | ) | 0 | |||||
| Financing cost | 0 | 110,677 | ||||||
| Consulting Fees | - | 254,823 | ||||||
| Inventory | (233,154 | ) | — | |||||
| Convertible Notes Adjustments | (179,823 | ) | — | |||||
| Changes in operating liabilities | ||||||||
| Accounts receivable | (10,967 | ) | (7,721 | ) | ||||
| Prepaid expenses | 106,490 | (123,282 | ) | |||||
| Sales Tax Payable | 11,190 | |||||||
| Accounts payable and accrued expenses | (125,699 | ) | 111,361 | |||||
| Net Cash Used in Operating Activities | (3,253,293 | ) | (131,935 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Machinery & Equipment | (315,000 | ) | ||||||
| Building & Land Acquisition | (5,419,026 | ) | ||||||
| Intangible Assets Adjustments | 986,487 | |||||||
| Intellectual Property Purchases | (65,974 | ) | ||||||
| Net Cash Used in Investing Activities | (4,813,513 | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible notes payable | 0 | 137,500 | ||||||
| Operating loan | 0 | 8,150 | ||||||
| Long-Term Loans | 2,610,000 | |||||||
| Additional Paid-in Capital | 6,294,511 | |||||||
| Common Stock | 159,634 | |||||||
| Dividends Declared | (1,000,000 | ) | ||||||
| Loans to officer | 4,027 | (32 | ) | |||||
| Net Cash Provided by Financing Activities | 8,068,172 | 145,618 | ||||||
| Net Increase in Cash | 1,366 | 13,683 | ||||||
| Cash at Beginning of Period | 19,381 | 5,698 | ||||||
| Cash at End of Period | $ | 20,747 | $ | 19,381 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | — | $ | — | ||||
| Income taxes paid | $ | — | $ | — | ||||
| Fair value of common stock upon conversion of accrued interest | $ | — | $ | — | ||||
The accompanying notes are an integral part of these consolidated financial statements.
KRONOS ADVANCED TECHNOLOGIES, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS
For the Year Ended June 30, 2021, and 2020
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
Kronos Advanced Technologies, Inc. (“Kronos”) is a Nevada corporation (the “Company”). The Company’s shares began trading on the over-the-counter bulletin board exchange on August 28, 1996, under the symbol “TSET.” Effective January 12, 2002, the Company began doing business as Kronos Advanced Technologies, Inc. and, as of January 18, 2002, it changed the Company ticker symbol to “KNOS” and is trading on the OTC Markets
GENERAL
Kronos Advanced Technologies, Inc., is a product development and Production Company that develops and patents technology that among other things fundamentally changes the way air is moved, filtered, and sterilized. Historically, Kronos has focused on developing, marketing, and selling the Company’s proprietary air movement and purification technology. Serving the Indoor Air Quality (IAQ) market, Kronos technology uses state-of-the-art high voltage processes without the use of traditional HEPA filters. Kronos-based products move air silently, filter and purify the air, and dramatically reduce energy consumption to half of a 60-watt light bulb. Kronos devices can be variable in shape or size, and, therefore, have the potential to be scaled down for air purification in cars or scaled up in size for industrial and hazardous gas destruction. The technology is currently being implemented in standalone products to move and filter air replacing HEPA and other filtration systems. There are broad ranges of additional markets for standalone and embedded Kronos CORE technology-based devices. Examples of immediately addressable markets include health care facilities, operating rooms, manufacturing clean rooms, and cabins of automobiles and commercial aircraft.
Currently, the Company is planning to file additional patents to improve its existing technology as well as enter into new market segments but will continue to market air purifiers and other consumer products. Recently the Company became the exclusive distributor and licensee of the latest generation of air purifiers based on the Company’s CORE technologies.
Fourteen of the Company’s U.S. patent applications and three international patent applications have been allowed for issuance. To date, our ability to execute our strategy has been restricted by our limited amount of capital.
On July 13, 2020 Kronos filed for provisional us patent protection for new antibacterial face mask with cellphone radiation protection features
The Kronos technology has numerous valuable characteristics for applications in the indoor air quality market, including moving air and gases at high velocities while filtering odors, smoke and particulates and sterilizing air from bacteria and virus contamination. In the past - a number of the scientific claims of the Kronos technology have been tested by the U. S. and foreign governments, multi- national companies, and independent testing facilities (see “Independent Testing – Product Claims Platform”).
Technology Description and Benefits
The proprietary Kronos technology involves the management of corona discharge by applying high voltage management across paired electrical grids to create an ion exchange. Applications for efficient high voltage management, efficient corona discharge and ion exchange include but are not limited to:
| ● | air movement, including dielectric fluid movement and propulsion; |
| ● | air purification, including particulate removal, bacterial and viral removal, biohazard destruction, and odor removal; |
| ● | temperature and environmental management, including space heating and cooling; | |
| ● | microchip, MEMS and other electronics devices and components cooling; | |
| ● | air management, including sorting and separation of air streams by particle content; | |
| ● | sound generation, including high fidelity sound recreation and active noise cancellation; | |
| ● | high voltage management, including development of high voltage power supplies and control of energy surges and electrical discharges; | |
| ● | control of water and moisture content in air streams, including dehumidification and humidification; and, | |
| ● | water treatment, including water purification, ionization, and water desalination. |
Independent Testing - Product Claims Platform
A number of the scientific claims of the Kronos technology have been tested by the U. S. and foreign governments, multi-national companies, and independent testing facilities. These include the 2017 research article published by the China Medical University/National Taiwan University discussing technologies used by the Company; a 2020 study on electrostatic indoor air cleaners published by the Department of the Built Environment, Aalborg University, which also discusses the efficacy of technologies used by the Company; a 2008 efficacy study of the Company’s air purifiers conducted and published by the Disinfection Research Institute in Moscow, Russia and by Environmental Health and Engineering based in Needham, Massachusetts; and a study published in 2018 by the Association of Home Appliance Manufacturing that discussed technologies used by the Company. To date, independent laboratory testing conducted in the joint study by the Disinfection Research Institute in Moscow and the Environmental Health and Engineering, Inc. has verified the filtration and sterilization capability of the Kronos technology.
Filtration Testing Results:
| ● | Environmental Health and Engineering - reduced particle matter by up to 47% compared to days when the Kronos air purifiers were not operating in the waiting room of a pediatric office while patients were present. |
| ● | Aerosol and Air Quality Research Laboratory - up to 99.8% filtration of 0.02 to 0.20-micron (20 to 200 nanometers) size particles; |
| ● | LMS Industries - removal of over 99.97% of 0.10 micron (100 nanometers) and above size particles using HVAC industry’s ASHRAE 52.2 testing standard for filtration; |
| ● | Micro Test Laboratories - HEPA Clean Room Class 1000 quality particulate reduction; and |
| ● | Intertek - tobacco smoke elimination tests in accordance with ANSI/AHAM AC-1-1988 standard entitled “American National Standard Method for Measuring Performance of Portable Household Electric Cord-Connected Room Air Cleaners,” which demonstrated a Clean Air Delivery Rate (“CADR”) for the Kronos air purifier of over 300 for the larger size Kronos air purifier and 80 for the smaller size using consumer filtration testing standards for the Association of Home Appliance Manufacturers (“AHAM”). |
Sterilization Testing Results
| ● | Environmental Health and Engineering (viral analysis by the University of Wisconsin Department of Pediatrics and Medicine): | |
| – | collection and removal of a wide range of respiratory viruses, including influenza A, influenza B, human rhinoviruses, human coronavirus, respiratory syncytial virus, adenovirus, and bocavirus, from the waiting room of a pediatric office while patients were present. | |
| ● | Scientific Institution of Health Care, Central Clinical Hospital #2 in Moscow (clinical trial): | |
| – | 100% decontamination of bacteria (Staphylococcus aureus) in under one hour and 80% decontamination of general bacteria in under 24 hours from a 48m (3) hospital room while people were present. | |
| ● | Pulmonary Department of Municipal Hospital #2 in Moscow (clinical trial): | |
| – | 100% decontamination of bacteria (Staphylococcus aureus) in under five hours from a 66m (3) hospital room while four patients were present; and | |
| – | 100% decontamination of mildew fungi in under two hours from a 113.2m(3) hospital room. | |
| ● | Disinfection Research Institute Sterilization Laboratory in Moscow: | |
| – | disinfected a room completely contaminated with Bacteriophage | |
| – | a microorganism which lives in the E. Coli bacteria. (Bacteriophage is widely used in virus testing because the microorganism’s biological structure and size share many functional similarities with a wide range of viruses); and | |
| – | 100% decontamination of room infected with bacteria (Staphylococcus aureus strain 906 (S. aureus) and Bacillus cereus strain 96 (B. cereus) | |
| – | S. aureus is a known cause of hospital-acquired infections, including skin lesions such as boils and furunculosis and more serious infections such as pneumonia and meningitis. | |
| ● | Institute for Veterinary Medicine in the Ukraine - destroy and sterilize air which had been inseminated with Anthrax and E. coli spores; |
| ● | New Hampshire Materials Laboratory - up to 95% reduction of hazardous gases, including numerous carcinogens found in cigarette smoke: |
| ● | Battelle PNNL - 95% destruction of Bg (anthrax simulant); and, |
| ● | Dr. Sergey Stoylar, a bacteriologist from the American Bacteriological Society - 100% destruction of Bacillus subtilis 168 (bacteria simulant). |
Market Segmentation
Kronos had an initial business development strategy to attempt to develop and produce products based on the Kronos® technology to six distinct air quality market segments: (1) air movement and purification (residential, health care, hospitality, and commercial facilities); (3) air purification for unique spaces (clean rooms, airplanes, automotive, and cruise ships); (4) specialized military (naval vessels, closed vehicles and mobile facilities); (5) industrial scrubbing (produce storage and diesel and other emissions); and (6) hazardous gas destruction (incineration and chemical facilities).
Technology Application and Product Development
To best serve Kronos’ targeted market segments, the Company is developing specific product applications across two distinct product application platforms. A Kronos device can be either used as a standalone product or can be embedded. Standalone products are self- contained and only require the user to plug the Kronos device into a wall outlet to obtain air movement and filtration for their home, office, or hotel room. Embedded applications of the Kronos technology require the technology be added into another system, such as a building ventilation system for more efficient air movement and filtration or into an electrical device such as computer or medical equipment to replace the cooling fan or heat sink.
Standalone Platform
Residential Products. The Company had developed a residential product “SilentNight” Air Purifier and in the past sold it through independent sales reps.
Medical Products. The Company is planning to engage in development of Healthcare related products based on our technology.
Commercial and Other Standalone Products. Utilizing our expanded product development resources, in the past Kronos completed the initial design, development and production of a series of small multifunctional devices that can be used as space heaters, vaporizers, disinfectors, deodorizers and/or fans.
Embedded Platform
In addition, Kronos has developed an air filtration and purification mechanism capable of performing to HEPA quality standards, while eliminating bacteria and viruses. The Company believes that Kronos devices could replace current HEPA filters with a permanent, easily cleaned, low-cost solution. Among the technical advantages of the Kronos technology over HEPA filters is the ability of the Kronos-based devices to eliminate the energy burden on air handling systems, which must generate high levels of backpressure necessary to move air through HEPA-based systems. Kronos-based devices enhance the air flow, while providing better than HEPA level filtration and purification. Kronos is seeking one or more strategic partners to commercialize, market and distribute Kronos based commercial embedded air filtration and purification devices.
Market Segmentation
Kronos’ initial business development strategy was to develop and produce products based on the Kronos technology to six distinct air quality market segments: (1) air movement and purification (residential, health care, hospitality, and commercial facilities); (2) embedded cooling and cleaning (electronic devices and medical equipment); (3) air purification for unique spaces (clean rooms, airplanes, automotive, and cruise ships); (4) specialized military (naval vessels, closed vehicles and mobile facilities); (5) industrial scrubbing (produce storage and diesel and other emissions); and (6) hazardous gas destruction (incineration and chemical facilities).
Patents and Intellectual Property
Kronos has received notification that fifteen of its patent applications have been allowed for issuance by the United States Patent and Trademark Office and six of its international patent applications have been allowed for issuance by the Canadian Intellectual Property Office, the Commonwealth of Australia Patent Office, and the Mexican Institute of Industrial Property. These patents are considered utility patents which describe fundamental innovations in the generation, management, and control of electrostatic fluids, including air movement, filtration, and purification. Each of the patents contain multiple part claims for both general principles as well as specific designs for incorporating the Kronos technology into air movement, filtration, and purification products. The patents provide protection for both specific product implementations of the Kronos technology, as well as more general processes for applying the unique attributes and performance characteristics of the technology.
U.S. Patents
| i. | December, 2003; #664741; Method and Apparatus for Electrostatic Fluid Acceleration Control of a Fluid Flow; Expires 2022; | |
| ii. | April, 2004; #6,727,657; Electrostatic Fluid Accelerator for and a Method for Controlling Fluid; Expires 2022; | |
| iii. | May, 2005; #6,888,314; Electrostatic Fluid Accelerator – Electrode design Geometries; Expires 2022; | |
| iv. | August 2005; #6,937,455; Spark Management Method & Device; Expires 2022; | |
| v. | November 2005; #6,963,479; Electrostatic Fluid Accelerator – Electrode design Geometries; Expires 2023; | |
| vi. | May 2006; #7,053,565; Electrostatic Fluid Accelerator – Power Management; Expires 2024; | |
| vii. | July 2006; #7,150,780; Electrostatic Air Cleaning Device; Expires 2024; | |
| viii. | October 2006; #7,122,070; Method of and Apparatus for Electrostatic Fluid Acceleration; Expires 2025; | |
| ix. | July, 2007; #7,248,003; Electric Field Management; Expires 2025; | |
| x. | August 2007; #7,262,564; Alternative Geometries and Voltage Supply Management; Expires 2024; and, | |
| xi. | August 2008; #7,410,531; Method of Controlling Fluid Control; Expires 2025. | |
| xii. | January 7, 2003; #6,504,308; Electrostatic Fluid Accelerator; Expires 2023. | |
| xiii. | July 19, 2005; #6,919,698; Electrostatic Fluid Accelerator and for Method of Controlling Fluid Flow; Expires 2025. | |
| xiv. | January 2, 2007; #7,157,704; Corona Discharge Electrode and Method for Operating Same; Expires 2027. | |
| xv. | January 7, 2003; #6,504,308; Electrostatic Fluid Accelerator; Expires 2023. | |
| xvi. | May 3, 2005; # 6,888,314; Electrostatic Fluid Accelerator; Expires 2025. |
International Patents
Kronos intends to continue to aggressively file patent applications in the U.S. and internationally. On July 13, 2020 Kronos filed for provisional us patent protection for new antibacterial face mask with cellphone radiation protection features.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements of the Company include those of the Company and its subsidiary for the periods in which the subsidiary was owned/held by the Company. All significant intercompany accounts and transactions have been eliminated in the preparation of the consolidated financial statements. On March 22, 2021, the Company formed DogeSPAC, LLC in Puerto Rico as a wholly owned subsidiary. In April and May 2021, the Company decided to no longer hold or acquire significant amounts of digital assets and began a process whereby the resulting 600,000,000 Dogecoin Cash tokens would be transferred in a spin off transaction to DogeSPAC, LLC, in exchange for DogeSPAC, LLC issuing to all our shareholders one restricted unit in DogeSPAC, LLC for each share of our common stock. The spin off and unit dividend were completed on June 15, 2021, based on the record date and subsequently paid to all shareholders. The Company is no longer an affiliate of DogeSPAC, LLC and does not maintain any ownership or control over it. The only operating subsidiary of the Company at June 30, 2021 is Kronos Advanced Technologies L.L.C., a Colorado limited liability company.
Accounting Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include assumptions made in estimated useful lives of property and equipment, assumptions inherent in a purchase price allocation, accruals for potential liabilities, certain assumptions used in deriving the fair value of derivative liabilities, share-based compensation, and beneficial conversion feature of notes payable, and realization of deferred tax assets.
Stock-Based Compensation
The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock- based compensation charge is recorded in the period of the measurement date.
The fair value of the Company’s common stock option and warrant grants is estimated using the Black-Scholes option pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes option pricing model and based on actual experience. The assumptions used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods.
Fair Value of Financial Instruments
The Company follows paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP) and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
| Level 3 | Pricing inputs that are generally observable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amount of the Company’s derivative liability of $302,055 and $1,679,276 as of June 30, 2021 and June 30, 2020, respectively and was based on Level 3 measurements.
The carrying amounts of the Company’s other financial assets and liabilities, such as cash, prepaid expense, accounts payable and accrued payables and notes payable, approximate their fair values because of the short maturity of these instruments.
Acquisitions and Business Combinations
The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and separately identified intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from, acquired technology, trademarks and trade names, useful lives, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Accounts Receivable
All of the Company’s accounts receivable balance is related to trade receivables. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts, if any, is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company will maintain allowances for doubtful accounts, estimating losses resulting from the inability of its customers to make required payments for products. Accounts with known financial issues are first reviewed and specific estimates are recorded. The remaining accounts receivable balances are then grouped into categories by the number of days the balance is past due, and the estimated loss is calculated as a percentage of the total category based upon past history. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered.
Net Income (Loss) Per Share
Basic earnings (loss) per share is computed using the weighted averageweighted-average number of common shares outstanding.outstanding during the period. Diluted earnings (loss) per share is computed using the weighted averageweighted-average number of common shares and the dilutive effect of contingent shares outstanding adjusted forduring the incrementalperiod. Potentially dilutive contingent shares, attributedwhich primarily consist of convertible notes, stock issuable to outstandingthe exercise of stock options and warrants to purchase common stock, whenhave been excluded from the diluted loss per share calculation because their effect is dilutive.
REVENUE RECOGNITION. Revenuesanti-dilutive.
Segments
The Company determined its reporting units in accordance with ASC 280, “Segment Reporting” (“ASC 280”). Management evaluates a reporting unit by first identifying its’ operating segments under ASC 280. The Company then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated.
Management has determined that the Company has one consolidated operating segment. The Company’s reporting segment reflects the manner in which its chief operating decision maker reviews results and allocates resources. The Company’s reporting segment meets the definition of an operating segment and does not include the aggregation of multiple operating segments.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the assets, which range from salesthree to seven years. Expenditures for EdgeAudiomajor renewals and Atomic
Soccerbetterments that extend the original estimated economic useful lives of the applicable assets are capitalized. Expenditures for normal repairs and maintenance are charged to expense as incurred. The cost and related accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts, and any gain or loss is included in operations.
Digital Assets Translations and Remeasurements
Digital Assets are included in current assets in the consolidated balance sheets. Digital Assets are recorded at cost less impairment.
An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired.
Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
Realized gain (loss) on sale of Digital Assets are included in other income (expense) in the consolidated statements of operations.
The Company assesses impairment of Digital Assets quarterly if the fair value of digital assets is less than its cost basis. The Company recognizes impairment losses on Digital Assets caused by decreases in fair value using the average U.S. dollar spot price of the related Digital Asset as of each impairment date. Such impairment in the value of Digital Assets is recorded as a component of costs and expenses in our consolidated statements of operations. There were no impairment losses related to Digital Assets during the period ended June 30, 2021.
Intangibles
The Company uses assumptions in establishing the carrying value, fair value and estimated lives of the Company’s long-lived assets and goodwill. The criteria used for these evaluations include management’s estimate of the assets’ continuing ability to generate positive income from operations and positive cash flow in future periods compared to the carrying value of the asset, the strategic significance of any identifiable intangible asset in its business objectives, as well as the market capitalization of the Company. Cash flow projections used for recoverability and impairment analysis use the same key assumptions and are consistent with projections used for internal budgeting, and for lenders and other third parties. If assets are considered to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets. Useful lives and related amortization or depreciation expense are based on the Company’s estimate of the period that the assets will generate revenues or otherwise be used by Kronos. Factors that would influence the likelihood of a material change in the Company’s reported results include significant changes in the assets’ ability to generate positive cash flow, loss of legal ownership or title to the asset, a significant decline in the economic and competitive environment on which the asset depends, significant changes in the Company’s strategic business objectives, and utilization of the asset.
Income Taxes
Income taxes are accounted for in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 109. Deferred tax assets and liabilities are recognized upon shipmentfor the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized, but no less than quarterly. Currently the company has not valued any NOL because of the productexpectation that it will not be used.
Research and Development Expenses
Costs related to customers. As discussed in
Note 15 - Discontinued Operations, the operations of Atomic Soccer have been
disposed ofresearch and management has committeddevelopment are charged to a formal plan of action to sell or
otherwise dispose of the operations of EdgeAudio. Kronos Air Technologies
recognizes revenue on the sale of non-custom stock units upon shipment of the
product to customers. Kronos Air Technologies recognizes revenue on the sale of
custom-designed contract sales under the percentage of completion method of
accounting in the ratio that costs incurred to date bear to estimated total
costs. For uncompleted contracts where costsresearch and estimated profits exceed
billings, the net amount is includeddevelopment expense as an asset in the balance sheet. For
uncompleted contracts where billings exceed costs and estimated profits, the net
amount is included as a liability in the balance sheet. Sales are reported net
of applicable cash discounts and allowances for returns.
STOCK ISSUED FOR SERVICES. Issuances of shares of the Company's stock
to employees or third-parties for compensation or services is valued using the
closing market price on the date of grant for employees and the date services
are completed for non-employees.
STOCK OPTIONS. incurred.
Revenue Recognition
The Company accounts for its stock option plansrevenues in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (1) identifying the contract(s) or agreement(s) with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. Under ASC 606, revenue is recognized when performance obligations under SFAS No. 123 "Accountingthe terms of a contract are satisfied, which occurs for Stock-Based Compensation." As allowed under this
statement, the Company continuesupon shipment or delivery of products or services to accountour customers based on written sales terms, which is also when control is transferred. Revenue is measured as the amount of consideration we expect to receive in exchange for stock options for employees
under APB No. 25, "Accounting for Stocktransferring the products or services to a customer.
Recently Issued to Employees," and has adopted
the disclosure only requirements of SFAS No. 123. Accordingly, no compensation
expense has been recognized for stock option grants to employees since the
options have exercise prices equal to the market value of the stock on the date
of grant.
OTHER ASSETS. Deferred Financing costs associated with a common stock
purchase agreement will be ratably offset against the proceeds as they are
received.
RECENT ACCOUNTING PRONOUNCEMENTS. On July 20, 2001,Accounting Pronouncements
In February 2016, the FASB issued SFASASU No. 141, "Business Combinations,"2016-02, Leases. This ASU establishes a right-of-use model that requires a lessee to record a right-of-use asset and SFAS No. 142, "Goodwill and Other
Intangible Assets." These statements make significant changes toa lease liability on the accounting
for business combinations, goodwill, and intangible assets.
SFAS No. 141 establishes new standards for accounting and reporting
requirements for business combinations and will require that the purchase method
of accounting be usedbalance sheet for all business combinations initiated after June 30,
2001. Use of the pooling-of-interests methodleases with terms longer than 12 months. Leases will be prohibited.classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This statementASU and all the related amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted this guidance in the first quarter of fiscal 2020, the quarter ended September 30, 2019, using the optional transitional method afforded under ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. Results for reporting periods beginning after the adoption date are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 840 (see Note 7 - Leases).
The Company elected and applied the available transition practical expedients. By electing these practical expedients, the Company did:
| a. | not reassess whether expired or existing contracts contain leases under the new definition of a lease; |
| b. | not reassess lease classification for expired or existing leases; and |
| c. | not reassess whether previously capitalized initial direct costs would qualify for capitalization under Topic 842. |
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU is effective for business combinations initiatedfiscal years, and for interim periods within those fiscal years, beginning after June 30, 2001.
F-20
SFASDecember 15, 2019. In November 2018, the FASB issued ASU No. 142 establishes new standards2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. The amendments in this ASU align the implementation date for goodwill acquirednonpublic entities’ annual financial statements with the implementation date for their interim financial statements. In addition, the amendment clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20; instead, impairment of receivables arising from operating leases should be accounted for in a
business combination, eliminates amortizationaccordance with Topic 842: Leases. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825 Financial Instruments. The amendments in this ASU further clarify certain aspects of goodwill and instead sets forth
methodsASU No. 2016-13. For entities that have not yet adopted ASU No. 2016-13, this ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief. The amendments in this ASU provide transition relief for ASU No. 2016-13 by providing an option to periodically evaluate goodwillirrevocably elect the fair value option for impairment. Intangiblecertain financial assets with
a determinable useful life will continue to bemeasured at an amortized overcost basis. For entities that period.have not yet adopted ASU No. 2016-13, this ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company expects to adoptis currently evaluating the impact this statement during the quarter ending September 30,
2002. Goodwill and intangible assets acquired after June 30, 2001ASU will be
subject immediately to the non-amortization and amortization provisions of the
statement. The Company does not currently have any goodwill recorded on its financial statements and it is expected that there will be no immediaterelated disclosures.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants and the SEC did not or are not believed by management to have a material impact on the Company'sCompany’s present or future consolidated financial statements as a result of the adoption of this
statement.
RECLASSIFICATION. Certain reclassifications have been made to the 2000
financial statements in order to conform to the 2001 presentation.
statement presentation or disclosures.
NOTE 3 - RESTATEMENT
In September 2001, the Company determined that a 1999 employment
agreement between the Company and its Chief Executive Officer was not properly
executed under the laws of the State of Nevada (the state of incorporation.) As
a result, the Company has determined that the employment agreement was null and
void from its inception. During 1999 and 2000, the Company recognized
compensation expense as a result of stock grants and contingent stock grants
under the agreement. The Company has now determined that it is appropriate to
restate the 1999 and 2000 financial statements to correct this error in
previously issued financial statements
The effect of the change on the 2000 financial statements was to
decrease compensation expense and net loss by $892,476 and decrease the basic
and diluted loss per share by $0.03. The effect of the change on the 1999
financial statements was to decrease compensation expense and net loss by
$300,000, and decrease the basic and diluted loss per share by $0.01.
NOTE 4 - REALIZATION OF ASSETS AND GOING CONCERN
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has sustained losses from operations in recent years, and such losses have continued through the current year ended June 30, 2001.2021. In addition, the Company has used, rather than provided, cash in its operations. The Company is currently
usinghas attempted during the period to use its resources to raise capital necessary to complete researchcommercialize its technology and development work,develop viable commercial products and to provide for theits working capital needs of itself and its
subsidiaries.
needs.
In view of the matters described in the preceding paragraph, recoverability of a major portion of the asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company'sCompany’s ability to meet its financing requirements on a continuing basis, to maintain present financing and to succeed in its future operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
Management has taken the following steps with respect to its operating
and financial requirements, which it believes are sufficient to provide
NOTE 4. ACQUSITION OF CERTAIN ASSETS
On October 1, 2019, the Company withentered into an operating assets purchase agreement wherein the ability to continueCompany acquired three check cashing kiosks operating in existence:
1. In May 2001, Kronos Air Technologies was awarded a Small
Business Innovation Research contract. This contract is
sponsored by the United States Navy and is potentially worth
up to $837,000 in product development and testing support for
Kronos Air Technologies. The first phase of the contract is
worth up to $87,000 in funding for manufacturing and testing a
prototype device for air movement and ventilation onboard
naval vessels. If awarded to Kronos Air Technologies, the
second phase of the contract would be worth up to $750,000 in
additional funding. The phase two award, if any, will be
announced in December 2001. The Kronos(TM) devices
manufactured under this contract will be embedded in an
existing HVAC systems to move air more efficiently than the
current fan based technology. This contract is an extension of
the commercialization effort by Kronos Air Technologies in the
specialized military marketplace.
2. On June 19, 2001, we entered into a common stock purchase
agreement with Fusion Capital pursuant to which Fusion Capital
agreed to purchase on each trading day during the term of the
agreement, $12,500 of our common stock or an aggregate, under
certain conditions, of $10.0 million. The $10.0 million of
common stock is to be purchased over a 40 month period,
subject to a six-month extension or earlier termination at our
discretion.States. The purchase price for the assets was $250,000 in the form of the shares of common stock
will be equal to the then current market price of the common
stock without any fixed discount to the market price. The
F-21
agreement is dependent ona convertible note payable. (See Note 6.)
On June 30, 2021, the Company registering the
associated shares andcompleted an acquisition that begun on the ability of Fusion Capital to fund
the purchase of those shares. Assuming the Company's share
price remains at current levels, the 5 million shares that the
Company is currently registering would allow the Company to
raise approximately $1.5 to $2.0 million without registering
additional shares.
3. On July 2, 2001, we signed an agreement to utilize the
strategic planning and business plan execution services of The
Eagle Rock Group, LLC. The Eagle Rock Group will work with the
Kronos Air Technologies team to fully develop and capitalize
on the Kronos(TM) technology. We believe that The Eagle Rock
Group can assist us in unlocking the potential value of the
Kronos(TM) technology. The Eagle Rock Group's
multi-disciplined approach, which uses seasoned business
executives and leverages relationships and networks, can
accelerate the Kronos(TM) opportunity versus the timing and
development if we were to continue on a go-it-alone strategy
or if we were to work and coordinate with the myriad of groups
necessary to duplicate The Eagle Rock Group team.
Specifically, we initially envision The Eagle Rock Group
working to augment and enhance our efforts in the following
areas (i) capital raising and allocation, (ii) strategic
partner introduction and evaluation, (iii) distribution
channel development, (iv) product focus and brand development,
(v) human resource placement, and (vi) capital market
introduction and awareness. Pursuant to the agreement that we
entered into with The Eagle Rock Group, we issued to The Eagle
Rock Group a ten-year warrant granting them the right to
purchase 1,400,000 shares of our common stock at an exercise
price of $0.68 per share. The shares underlying the warrant
have piggy-back and demand registration rights, as well as
subscription rights in the event that we issue any rights to
all of our stockholders to subscribe for shares of our common
stock. In addition, the warrant contains redemption rights in
the event that we enter into a transaction that results in a
change of control of our company (See note 19).
NOTE 5 - BUSINESS COMBINATIONS
On March 13, 2000,June 18, 2020, wherein the Company acquired an electronic manufacturing facility, all intellectual property belonging to the seller regarding the facility, and all manufacturing equipment within the facility located in Parkersburg, WV. The purchase price for the assets was $5,800,000 in the form of partial cash payment ($2,610,000) with the remainder paid in shares totaling $3,190,000.
Kronos Air Technologies (a
development stage company),has purchased a Nevada corporation. Kronos Air Technologiesturn-key manufacturing campus centrally located in the USA in a Federal Opportunity Zone. This factory is situated on 10.5 acres of land with three buildings: the Main Manufacturing Facility, Auxiliary Facility, and Warehouse totaling 85,000 square feet. This acquisition included Machinery and Equipment, Intellectual Property, Infrastructure, IT assets, and planned initial Renovations. The closing of this acquisition is pending facility improvements and is scheduled to be completed before year’s end. This acquisition is a researchCritical-To-Success Tactic for Kronos in our pursuit of manufacturing our products “In America by Americans” (Transition To America initiative) and development company having headquarters in Redmond, Washington.
Kronos Air Technologies owns all of the intellectual property rights, including
certain patents pending, for a technology known as "Kronos(TM)" (formerly named
the "electron wind generator"). The consideration for the acquisition was
2,250,000 shares of the Company's common stock. The Company acquired all of the
issued and outstanding shares of Kronos Air Technologies. The transaction was
accounted for using the purchase method of accounting, accordingly, the results
of operations from March 13, 2000 are included in the consolidated statement of
operations. The total purchase price of $3.3 million was determined based upon
the market value of stock issued which incorporates the restrictions on the
transferability of the shares and was allocated to the net assets acquired based
on their fair market values at the date of acquisition. Of the purchase price,
$633,000 was allocated to in-process technology which had not reached
technological feasibility which the Company expensed as of the acquisition date.
The remainder of the purchase price was allocated to purchased technology ($2.1
million) and identifiable intangibles ($0.6 million), which are being amortized
on a straight line basis over 10 years.
On March 6, 2000, the Company acquired of all of the issued and
outstanding shares of Atomic Soccer, a Wisconsin corporation (See note 15). The
consideration for the acquisition was 1,000,000 shares of TSET common stock. The
transaction was accounted for using the purchase method of accounting. The total
purchase price of $1.8 million was determined based upon the market value of
stock issued which incorporates the restrictions on the transferability of the
shares and was allocated to the net assets acquired based on their fair market
values at the date of acquisition. The fair value of the tangible assets
acquired and liabilities assumed were $700,000 and $1.6 million, respectively.
The remainder of the purchase price was allocated to goodwill ($2.7 million).
This subsidiary was sold in April 2001 generating a loss of $2.3 million.
On May 4, 2000, the Company acquired EdgeAudio. The Company acquired
all of EdgeAudio's issued and outstanding shares in exchange for 1,298,701
shares of the Company's common stock. The transaction was accounted for using
the purchase method of accounting. The total purchase price of $2.6 million was
determined based upon the market value of stock issued which incorporates the
restrictions on the transferability of the shares and was allocated to the net
assets acquired based on their fair market values at the date of acquisition. At
the time this acquisition was completed, the purchase price was allocated to
goodwill ($2.6 million) which management determined was fully impaired at June
30, 2001. EdgeAudio is included in the financial statements as a discontinued
operation of the Company. The resulting impairment adjustment of $2.3 million is
disclosed as a loss from discontinued operations.
F-22
On May 4, 2000, the Company acquired 100% ownership of CDI, in exchange
for 160,000 shares of the Company's common stock. The transaction was accounted
for using the purchase method of accounting. The total adjusted purchase price
of $314,000 was determined based upon the market value of stock issued which
incorporates the restrictions on the transferability of the shares and was
allocated to the net assets acquired based on their fair market values at the
date of acquisition. Since CDI is a development stage company, the purchase
price was allocated to goodwill which management determined was fully impaired
at June 30, 2001.
The following table reflects the unaudited proforma combined results of
operations of the Company, Kronos Air Technologies, Atomic Soccer, EdgeAudio and
CDI as if the acquisitions had taken place at the beginning of the fiscal year
for each of the periods presented, excluding the effects of the one time charge
of in-process technology and the reclassifications resulting from Atomic Soccer
and EdgeAudio as discontinued operations:
June 30, 2000 June 30, 1999
(In thousands, except per share data) (Restated) (Restated)
-------------------- ---------------
Revenue $ 960 $ 730
========= =======
Net Income (loss) $ (2,392) $ (1,134)
========= =======
Basic earnings (loss) per share $( 0.09) $( 0.05)
========= =========
Number of shares used in computing 25,263 24,001
basic earnings per share ========= =========
In management's opinion, the unaudited pro forma combined results of
operations are not necessarily indicative of the actual results that would have
occurred had the acquisitions been consummated at the beginning of the
respective years under the management of the Company.
executing our Touchless Manufacturing Initiative.
NOTE 6 -5 – INVENTORY VALUATION AND PREPAID AND OTHER CURRENT ASSETS
Prepaid and other current assets at June 30, consist of the following:
2001 2000
------------------- -------------------
Lease deposits $ 29,110 $ 23,253
Professional retainers 8,569 -
------------------- -------------------
Prepaid assets $ 37,679 $ 23,253
=================== ===================
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment at June 30, consists of the following:
2001 2000
---------------------------- --------------------------
Leasehold improvements $ 5,139 $ -
Office furniture and fixtures 54,061 25,216
Machinery and equipment 3,522 -
---------------------------- --------------------------
62,722 25,216
Less accumulated depreciation (18,015) (2,197)
---------------------------- --------------------------
Net property and equipment $ 44,707 $ 23,019
============================ ==========================
Depreciation expense for the years ended June 30, 2001 and 2000 was $16,456 and $2,197, respectively.
F-23
NOTE 8 - INTANGIBLES
Intangible assets at June 30, consist of the following:
2001 2000
------------------------ ------------------------
Marketing intangibles $ 587,711 $ 587,711
Purchased patent technology 2,125,935 2,125,935
Developed patent technology 79,697 -
Goodwill - 353,430
------------------------ ------------------------
2,793,343 3,067,076
Less accumulated amortization (361,819) (96,345)
------------------------ ------------------------
Net intangible assets $ 2,431,524 $ 2,970,731
======================== ========================
Amortization expense for the years ended June 30, 2001 and 2000 was $306,709 and $96,345, respectively. The Company
recognized an impairment loss of $272,945 on the goodwill of CDI during 2001.
NOTE 9 - ACCRUED EXPENSES
Accrued expenses at June 30, consist of the following:
2001 2000 (Restated)
---------------------- ----------------------
Accrued compensation cash $ 238,740 $ 35,000
Accrued compensation stock 241,642 -
Deferred compensation 200,000 180,000
Accrued interest 33,423 11,400
Accrued professional services 420,463 75,000
Other accruals 150,000 -
---------------------- ----------------------
$ 1,284,268 $ 301,400
====================== ======================
NOTE 10 - NOTES PAYABLE
There are no outstanding notes payable at June 30 that are long-term in
nature. The current portion of notes payable outstanding at June 30, 2001 of
$313,900 consists of a $100,000 advance from Fusion Capital, which was satisfied
subsequent to year end, and $213,900 of working capital due to EdgeAudio under
the EdgeAudio acquisition agreement (see Note 17).
NOTE 11 - LEASES
The Company has entered into noncancelable operating leases for
facilities. Rental expense was approximately $53,000 and $12,000 for years ended
June 30, 2001 and 2000, respectively. Future minimum lease payments under these
operating leases for the years ending June 30, are as follows:
Year Ended Redmond,
June 30, WA Tigard Total
----------------- -------------- --------- ---------
2002 $ 42,670 $ 6,900 $ 49,570
2003 36,633 - 36,633
Thereafter - - -
-------------- ---------- --------
Total $ 79,303 $ 6,900 $ 86,203
============== ========== ========
F-24
NOTE 12 - EARNINGS (LOSS) PER SHARE
As of June 30, 2001, there2021, Kronos has $233,154 worth of inventory stored in their newly acquired manufacturing facility in West Virginia. Majority of their inventory consists of air purifiers and other related products to sell to consumers. Kronos values their inventory based on FIFO (First-In-First-out) accounting method.
As of June 30, 2021, prepaid expenses were outstanding options$16,893. Prepaid expenses consist of prepaid advertising expenses for promotions and marketing that will be realized in future months.
NOTE 6 - INTANGIBLES
Intangible assets consisted of the following on June 30, 2021:
| Crypto Currency | $ | 13,512 | ||
| Developed and Purchased Patent Technology (devalued) | 10,000 | |||
| Less accumulated amortization | — | |||
| Goodwill | $ | 145,000 | ||
| Intellectual Property | $ | 65,974 | ||
| Net intangible assets | $ | 89,486 | ||
Developed and purchased patent technology includes developed technology as well as property that was acquired in the Kronos acquisition. See Note 1. Management had assessed that the value is not more than $10,000 and the patents were written down to purchase
1,557,075that amount in 2009.
Intellectual property includes IT software, computer programming software, and other such intangibles assets acquired during the acquisition of the West Virginia manufacturing facility deal.
Intangible assets will be amortized on a straight-line basis over 10 years once operations increase.
NOTE 7 – CONVERTIBLE NOTES PAYABLE
On December 31, 2018, the Company issued a convertible promissory note in the amount of $1,000,000. The note is due on December 31, 2023 and bears interest at 5% per annum. The loan and any accrued interest may be converted into shares of TSETthe Company’s common stock. These options have been excluded fromstock at a rate of 80% multiplied by the earnings per share calculationaverage of the three lowest trading price during the previous ten (10) day trading period ending on the latest completed trading day prior to the conversion date. Pursuant to current accounting guidelines, the Company recorded a note discount of $1,000,000 to account for the note’s derivative liability. In addition, the Company recorded an amount of discount in excess of the note principal of $250,000 that was expensed as their effect is anti-dilutive.
NOTE 13 - INCOME TAXES
The composition of deferred tax assets and the related tax effects ata financing cost.
On June 30, 2001 and 2000 are as follows:
On October 1, 2019, the Company issued a convertible promissory note in the accompanying statementsamount of operations$250,000. The note is due on October 1, 2024, and bears interest at 5% per annum. The loan and any accrued interest may be converted into shares of the Company’s common stock at a rate of 80% multiplied by the average of the three lowest trading price during the previous ten (10) day trading period ending on the latest complete trading day prior to the conversion date. Pursuant to current accounting guidelines, the Company recorded a note discount of $250,000 to account for the note’s derivative liability. In addition, the Company recorded an amount of discount in excess of the note principal of $62,500 that was expensed as a financing cost. The lender elected to convert 12 months interest totaling 12,000 into 12 million shares of common stock.
During the period ended June 30, 2021, the Company amortized $21,875 of debt discount, and as of June 30, 2021, the balance of the unamortized debt discount was $175,000.
In April and June 2020, the Company issued four convertible promissory notes with investors totaling $137,500. These convertible notes payable is due one year from issuance, with interest at 5% per annum and are convertible at 80% multiplied by the Market Price (representing a discount rate of 20%). Market Price is defined as the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period ending one trading day prior to the date the conversion. Pursuant to current accounting guidelines, the Company recorded a note discount of $137,500 to account for the note’s derivative liability. In addition, the Company recorded an amount of discount in excess of the note principal of $48,177 that was expensed as a financing cost.
On July 21, 2020, the Company issued a convertible promissory note in the amount that would result ifof $100,000. The note is due on July 21, 2021, and bears interest at 5% per annum. The loan and any accrued interest may be converted into shares of the U.S. Federal statutoryCompany’s common stock at a rate of 34% were applied to pre-tax loss is as follows:
NOTE 8- LONG-TERM LIABILITIES
On June 17th, 2021, West Virginia Economic Development and Authority (WVEDA) approved in a meeting of intangible assets andits board of directors to the accrual of stock options for
compensation using different valuation methods for financial and tax reporting
purposes.
At June 30, 2001, for federal income tax and alternative minimum tax
reporting purposes, the Company has approximately $4.9 million of unused net
operating losses available for carryforward to future years. The benefit from
carryforward of such net operating losses will expire in various years between
2011 and 2020 and could be subject to limitations if significant ownership
changes occur in the Company. Of the $4.9 million of unused net operating losses
noted above, approximately $1.1 million relates to losses incurred by the
Company's subsidiaries, Atomic Soccer and EdgeAudio. In fiscal years prior to
June 30, 2000, Atomic Soccer and EdgeAudio did not file their tax returns ongrant Kronos a consolidated basisloan with the Company. Accordingly, the $1.1 million loss incurred
by Atomic Soccer and EdgeAudioaggregate principal amount not to exceed $2,610,000. This is further subject to separate limitations that
restrict the ability of the Company to use such losses.
NOTE 14 -- PURCHASED IN PROCESS RESEARCH AND DEVELOPMENT
Purchased in process research and development (IPR&D) represents the
value assigned inbe considered a purchase business combination to research and development
projects of the acquired business that had commenced but had not yet been
completed at the date of acquisition and which have no alternative future use.
In accordance with SFAS No. 2, "Accounting for Research and Development Costs,"
as clarified by FASB Interpretation No. 4, amounts assigned to IPR&D meeting the
above stated criteria must be charged to expenseloan as part of the allocationacquisition of the purchase pricemanufacturing facility in West Virginia. This loan is to serve as a cash payment for the acquisition of the business combination. Accordingly, charges totaling
$633,000 were recorded during fiscal 2000manufacturing facility as part of the allocationagreement. The loan is broken down into real estate improvement loan and equipment loan with repayment terms of the
purchase price related to the acquisition of Kronos.
The method used to determine the purchase price allocations of IPR&D
was an income or cash flow method. The calculations were based on estimates of
F-25
operating earnings, capital charges (representing the effect of capital
expenditures), trade name royalties, charges for core technology,15 years and working
capital requirements to support the cash flows attributed to the technologies.
The after tax cash flows were bifurcated to reflect the stage of development of
the technology. A discount rate reflecting the stage of development and the risk
associated with the technology was used to value IPR&D. The Company believes
there is limited risk that the projects described below will not be concluded
within reasonable proximity to the expected completion date.
The allocation of the purchase price of Kronos Air Technologies
resulted in the recording of an IPR&D charge of $633,000, which has been
included in the Kronos Air Technologies segment. Projects associated with the
Kronos(TM) technology acquired include development of the technology and
development of devices incorporating the Kronos(TM) technology in a full range
of automotive, military, hospital/medical clinic, medical equipment, hotel, and
home applications. These projects were approximately 40 percent complete, with
expected completion in10 years 2000 through 2004.
NOTE 15 - DISCONTINUED OPERATIONS
In early January 2001, management committed to a formal plan of action
to sell or otherwise dispose of Atomic Soccer. Agreement was reached with a
buyer group, that included current and former Atomic Soccer management, to sell
them the outstanding shares of common stock of Atomic Soccer for $1,000. The
transaction was effective on April 11, 2001. On September 14, 2001 the board
approved a formal plan of action to sell or otherwise dispose of EdgeAudio. The
Company has accrued $150,000 for anticipated operating loses during the
phase-out period. As a result, both Atomic Soccer and EdgeAudio are included in
the financial statements as discontinued operations.
The Company's audited consolidated financial statements for all periods
have been reclassified to report separately results of operations and operating
cash flows from continuing operations and the discontinued operations. The net
revenues are included in the financial statements under Net Income (Loss) from
Discontinued Operations. The assets and liabilities of EdgeAudio and Atomic
Soccer at June 30, 2000 are included in the balance sheet under Net Assets of
Discontinued Operations and the assets and liabilities of EdgeAudio at June 30,
2001 are included in Net Liabilities of Discontinued Operations. Net assets of
discontinued operations at June 30, and operating results of discontinued
operationsrespectively.
Interest rates for the year ended June 30,two notes are as follows:
Loan #1: This loan shall bear interest fixed as of the option grant date. The options generally have terms of
threethird business day prior to ten years. The Company granted non-qualified stock options totaling
1,557,075, 0, and 0 shares inclosing equal to the years ended June 30, 2001, 2000 and 1999,
respectively.
The Company has elected to follow APB No. 25; "Accounting for Stock
Issued to Employees" ("APB 25"), and related interpretations in accounting for
its employee stock options. Under APB 25, because the exercise pricerate of the Company's employee stock options equals the market price20 Year US Treasury Note rate plus 0.75%. This loan has a floor (minimum) interest rate of 2. 75% and shall be adjustable every five years.
Loan #2: This loan shall bear interest fixed as of the underlying stock
onthird business day prior to closing equal to the daterate of the grant, no compensation expense is recognized. Pro forma
information regarding net income per share is requiredWall Street Journal Prime rate multiplied by SFAS No. 123,
"Accounting for Stock-Based Compensation",0.75%. This loan has a floor (minimum) interest rate of 2.75%.
NOTE 9- DERIVATIVE LIABILITY
The FASB has issued authoritative guidance whereby instruments which do not have fixed settlement provisions are deemed to be derivative instruments. Certain warrants issued to investors and has been determined asconversion features of notes payable did not have fixed settlement provisions because either their exercise prices will be lowered if the Company had accounted for its employee stock options underissues securities at lower prices in the fair value methodfuture or the conversion price is variable. In addition, since the number of shares to be issued is not explicitly limited, the Company is unable to conclude that statement. The fair value of these options was estimated atenough authorized and unissued shares are available to share settle the date of
grant using Black-Scholes option pricing modelconversion option. In accordance with the following rangeFASB authoritative guidance, the conversion feature of assumptions for the year ended June 30, 2001:
The derivative liabilities were valued at the following dates using a Binomial Lattice Model with the following average assumptions:
| June 30, 2021 | June 30, 2020 | |||||||
| Stock Price | 0.057 | 0.0909 | ||||||
| Risk free interest rate | 0.46 | 0.37 | ||||||
| Expected Volatility | 424 | 506 | ||||||
| Expected life in years | 2.50 - 3.25 | 3.75 - 4.50 | ||||||
| Expected dividend yield | 0 | 0 | ||||||
| Fair Value – Warrants | 0 | 0 | ||||||
| Fair Value – Note Conversion Feature | 302,055 | 1,679,276 | ||||||
| Total | 302,055 | 1,679,276 | ||||||
The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock options.
F-27
Usingto estimate the Black-Scholes option valuation model,future volatility for its common stock. The expected life of the weighted average
grant date fair valuederivative securities was determined by the remaining contractual life of options granted during the years endedderivative instrument. For derivative instruments that already matured, the Company used the estimated life. The expected dividend yield was based on the fact that the Company has not paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.
NOTE 10 – LEASES
The Company owns its offices as of June 30, 2001,
20002021.
NOTE 11 – LEGAL PROCEEDINGS
The company had several lawsuits from 2008 and 1999 was $.65, $0, and $0 per option share, respectively.
Forprior. These have all run their course as far as the purposestatute of pro forma disclosures,limitations is concerned. It is the estimated fair valueopinion of the options is amortized over the vesting period.
The Company's pro forma information ismanagement that no debts exist as follows (in thousands, except
per share amounts):
From time to arbitration in accordance with the
terms of these individuals' respective employment agreements, which were
terminated by us on January 30, 2001, and other appropriate equitable relief.
Arbitration has been ordered and the arbitrators selected. The Company has
agreed to arbitration proceedings in the state of Washington. The parties are in
the process of exchanging and complying with requests for discovery.
EdgeAudio "Earn-out" provision. Part of the consideration given bytime, the Company for EdgeAudio is related to an earn-out provision in which the Company
would award $3.75 million of additional common stock of the Company as EdgeAudio
achieves stipulated revenue milestones over a five year period commencing on May
4, 2000. The earn out provides five cumulative gross revenue milestones that
range between $1,764,271 and $22,187,203. Upon achieving each milestone, an
additional $750,000 of TSET common stock will be issued. The share conversion is
to be based on an average of the closing price of the shares for the five
trading days immediately preceding the date that the revenue milestone is
achieved. Through June 30, 2001, EdgeAudio has not achieved any of these
milestones.
Placement agent fee. We have engaged Dutchess Advisors Ltd. to act as
our placement agent in connection with the Fusion Capital equity line of credit.
We will pay to Dutchess Advisors Ltd. a one-time cash fee equal to $75,000 once
we have received $575,000 under the common stock purchase agreement with Fusion
Capital.
Income taxes. The company is delinquent in filing its 1997 through 2000
federal and state income tax returns. When filed, these returns couldmay be subject to review and potential examination byroutine litigation, claims or disputes in the respective taxing authorities. Should
anyordinary course of these returns come under examination by federalbusiness. The Company defends itself vigorously in all such matters. In the opinion of management, no pending or state authorities,known threatened claims, actions or proceedings against the Company's positions on certain income tax issues could be challenged. The
impact, if any, of the potential future examination cannot be determined at this
time. If the Company's positionsCompany are successfully challenged, the results mayexpected to have a material impactadverse effect on the Company'sits financial position, and results of operations.
operations or cash flows. However, the Company cannot predict with certainty the outcome or effect of any such litigation or investigatory matters or any other pending litigations or claims. There can be no assurance as to the ultimate outcome of any such lawsuits and investigations. The Company will record a liability when it believes that it is both probable that a loss has been incurred and the amount can be reasonably estimated. The Company periodically evaluates developments in its legal matters that could affect the amount of liability that it has previously accrued, if any, and makes adjustments as appropriate. Significant judgment is required to determine both the likelihood of there being, and the estimated amount of, a loss related to such matters, and the Company’s judgment may be incorrect. The outcome of any proceeding is not determinable in advance. Until the final resolution of any such matters that the Company may be required to accrue for, there may be an exposure to loss in excess of the amount accrued, and such amounts could be material.
NOTE 1812 - MAJOR CUSTOMERS
As of June 30, 2021, Kronos’ major customers are Walmart.com and School Districts.
NOTE 13 - SEGMENTS OF BUSINESS
The Company operates principally in one segment of business: Thethe Kronos segment licenses, manufactures, and distributes air movement and purification devices utilizing the Kronos(TM)Kronos technology. All other segments have been
disposedThe Company operates primarily in the United States of or discontinued. Although there are future plans for expansion into
foreign markets,America and Israel.
NOTE 14 - RELATED PARTIES
As of June 30, 2021, in accordance with the Exchange Transaction, GX7 Limited, partially owned by current CTO Joseph Florence, received 91,000,000 shares as part of the purchase agreement of the newly owned warehouse facility by Kronos. This share amount stock represents 13.79% of the issued and outstanding common stock of the Company as of June 30, 2021.
NOTE 15 - STOCKHOLDERS’ EQUITY/ (DEFICIT)
During the year ended June 30, 2001,2021, total amount of shares issued throughout the period were 159,634,620 shares:
| ● | 10,986,115 shares of common stock issued for services rendered | |
| ● | 13,100,000 shares of common stock issued to former officer of the company for retirement shares | |
| ● | 44,548,505 shares of common stock issued for notes payable conversions | |
| ● | 91,000,000 shares of common stock issued for acquisition of facility in West Virginia |
Kronos distributed $1,000,000 worth of its assets pro rata based on record date of June 15, 2021, to its shareholders in the form of membership interest in its former subsidiary, DodgeSPAC LLC. Kronos acquired such membership equity through the transfer of its $1,000,000 cost basis of its crypto assets in April of 2021. As form of dividend, Kronos distributed to all shareholders one unit of DogeSPAC for each one share of KNOS held wherein each shareholder received one unit of DodgeSPAC LLC for each share of KNOS held as of June 15, 2021.
NOTE 16 - SUBSEQUENT EVENTS
No Subsequent events have occurred.
Kronos Advanced Technologies Inc
Consolidated Balance Sheets
For the Quarter Ended March 31, 2022 (Unaudited)
And the Year Ended June 30, 2021 (Audited)
| 3/31/2022 | 6/30/2021 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivelancies | $ | 15,114 | $ | 19,320 | ||||
| Inventory | $ | 232,093 | $ | 233,154 | ||||
| Loans Receivable | $ | 5,100 | $ | - | ||||
| Prepaid Expenses | $ | - | $ | 16,893 | ||||
| Accounts Receivable | $ | 21,722 | $ | 20,115 | ||||
| Total current assets | $ | 274,029 | $ | 289,482 | ||||
| Property, Plant and equipment, net | $ | 5,786,526 | $ | 5,802,276 | ||||
| Intangible Assets | $ | 236,064 | $ | 234,486 | ||||
| Total Assets | $ | 6,296,619 | $ | 6,326,244 | ||||
| Liabilities and Stockholders Equity | ||||||||
| Liabilities | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | (3,486 | ) | $ | 10,200 | |||
| Accrued expenses | $ | 29,232 | $ | 29,232 | ||||
| Accrued interest payable | $ | 39,711 | $ | 26,585 | ||||
| Operating loans | $ | 216,150 | $ | 31,650 | ||||
| Loans payable | $ | 845 | $ | - | ||||
| Derivative liability | $ | 302,055 | $ | 302,055 | ||||
| Sales tax payable | $ | 12,275 | $ | 11,290 | ||||
| Convertible notes payable, net of discount | $ | 212,500 | $ | 175,000 | ||||
| Total Current Liabilities | $ | 809,282 | $ | 586,012 | ||||
| Long-term liabilities | $ | 2,610,000 | $ | 2,610,000 | ||||
| Total Liabilities | $ | 3,419,282 | $ | 3,196,012 | ||||
| Equity | ||||||||
| Common stock | $ | 659,324 | $ | 659,324 | ||||
| Additional paid-in capital | $ | 43,143,410 | $ | 43,143,410 | ||||
| Accumulated deficit | $ | (40,925,397 | ) | $ | (40,672,502 | ) | ||
| Total Equity | $ | 2,877,337 | $ | 3,130,232 | ||||
| Total Liabilities and stockholders equity | $ | 6,296,619 | $ | 6,326,244 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-33 |
Kronos Advanced Technologies Inc
Consolidated Statement of Operations
For the Nine Months ended March 31, 2022 and 2021 (Unaudited)
and the Fiscal Years ended June 30, 2021 and 2020 (Audited)
| Nine Month Ended 03/31/2022 | Nine Months Ended 03/31/2021 | |||||||||||||||
| 3/31/2022 | 6/30/2021 | 3/31/2021 | 6/30/2020 | |||||||||||||
| Revenue | $ | 16,055 | $ | 503,742 | $ | 455,163.00 | $ | 41,215 | ||||||||
| Cost of goods sold | $ | 15,514 | $ | 276,083 | $ | 225,518.00 | $ | 6,756 | ||||||||
| Gross profit | $ | 541 | $ | 227,658 | $ | 229,645.00 | $ | 34,459 | ||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative expenses | $ | 93,967 | $ | 2,145,883 | $ | 1,956,853.00 | $ | 171,334 | ||||||||
| Total Operating Expenses | $ | 93,967 | $ | 2,145,883 | $ | 1,956,853.00 | $ | 171,334 | ||||||||
| Loss from operations | $ | (93,426 | ) | $ | (1,918,225 | ) | $ | (1,727,208.00 | ) | $ | (136,875 | ) | ||||
| Other (Income) Expenses | ||||||||||||||||
| Capital Gain on Crypto Currency | $ | - | $ | (19,635 | ) | $ | - | $ | - | |||||||
| Interest Expense | $ | 4,357 | $ | 169,443 | $ | 166,318.00 | $ | 59,969 | ||||||||
| Change in value of derivative liability | $ | - | $ | (1,377,221 | ) | $ | (236,599.00 | ) | $ | (68,901 | ) | |||||
| Bad debt expense | $ | - | $ | 4,028 | $ | - | $ | 110,677 | ||||||||
| Financing cost | $ | - | $ | - | $ | - | $ | - | ||||||||
| Amortiation of debt discount | $ | 12,500 | $ | 678,807 | $ | 171,849.00 | $ | 254,823 | ||||||||
| Total other (Income) Expenses | $ | 16,857 | $ | (544,578 | ) | $ | 101,568.00 | $ | 356,568 | |||||||
| Net Income (Loss) | $ | (110,283 | ) | $ | (1,373,647 | ) | $ | (1,828,776.00 | ) | $ | (493,443 | ) | ||||
| Weighted Average Common Shares Outstanding | 659,323,911 | 659,323,911 | 520,739,848 | 489,189,291 | ||||||||||||
| Basic and Diluted | $ | (0.0001 | ) | $ | (0.0001 | ) | $ | (0.0001 | ) | $ | (0.0001 | ) | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-34 |
Kronos Advanced Technologies Inc
Consolidated Statement of Stockholders Equity
For the Nine Months Ended March 31, 2022
| Shares Issued | Amount | Additional Paid-In Capital | Accumulated Deficit | Equity (Deficit | ||||||||||||||||
| Quarter Ended March 31, 2022 | ||||||||||||||||||||
| Balance as of December 31, 2022 | 749,323,911 | $ | 659,324 | $ | 43,143,410 | $ | (40,815,114 | ) | $ | 2,987,620 | ||||||||||
| Shares returned to authorized capital | (90,000,000 | ) | $ | - | $ | - | $ | - | $ | - | ||||||||||
| Net loss | $ | (110,283 | ) | $ | (110,283 | ) | ||||||||||||||
| Balance March 31, 2022 | 659,323,911 | $ | 659,324 | $ | 43,143,410 | $ | (40,925,397 | ) | $ | 2,877,337 | ||||||||||
| Quarter Ended December 31, 2021 | �� | |||||||||||||||||||
| Balance as of September 30, 2021 | 749,323,911 | $ | 659,324 | $ | 43,143,410 | $ | (40,746,341 | ) | $ | 3,056,393 | ||||||||||
| Issuance of Common Stock | 0 | $ | - | $ | - | $ | - | $ | - | |||||||||||
| Net Income (Loss) | $ | (68,773 | ) | $ | (68,773 | ) | ||||||||||||||
| Balance December 31, 2021 | 749,323,911 | $ | 659,324 | $ | 43,143,410 | $ | (40,815,114 | ) | $ | 2,987,620 | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Kronos Advanced Technologies Inc
Consolidated Statement of Cash Flows
For the Nine Months ended March 31, 2022 and 2021 (Unaudited)
and the Fiscal Years ended June 30, 2021 and 2020 (Audited)
| Nine Months Ended 03/31/2022 | Nine Months Ended 03/31/2021 | |||||||||||||||
| 3/31/2022 | 6/30/2021 | 3/31/2021 | 6/30/2020 | |||||||||||||
| Cash Flows from operating activities | ||||||||||||||||
| Net Loss | $ | (110,283 | ) | $ | (1,465,109 | ) | $ | (1,828,776 | ) | $ | (493,443 | ) | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities | ||||||||||||||||
| Depreciation | $ | 5,250 | $ | 21,000 | $ | 15,750 | $ | 15,750 | ||||||||
| Change in derivative liability | $ | - | $ | (1,377,221 | ) | $ | (236,599 | ) | $ | - | ||||||
| Stock Based Compensation | $ | - | $ | - | $ | 1,797,075 | $ | - | ||||||||
| Financing Cost | $ | - | $ | - | $ | - | $ | 110,677 | ||||||||
| Consulting Fees | $ | - | $ | - | $ | - | $ | 254,823 | ||||||||
| Inventory | $ | 3,166 | $ | (233,154 | ) | $ | (103,876 | ) | $ | - | ||||||
| Convertible notes adjustments | $ | 12,500 | $ | (179,823 | ) | $ | - | $ | - | |||||||
| Amortization of Debt Discount | $ | - | $ | - | $ | 171,849 | $ | - | ||||||||
| Chnages in operating liabilities | ||||||||||||||||
| Accounts receivable | $ | (5,100 | ) | $ | (10,967 | ) | $ | (112,658 | ) | $ | (7,721 | ) | ||||
| Prepaid Expenses | $ | - | $ | 106,490 | $ | 3,173 | $ | (123,282 | ) | |||||||
| Sales tax payable | $ | 410 | $ | 11,190 | $ | 11,106 | $ | - | ||||||||
| Accounts payable and accrued expenses | $ | (5,386 | ) | $ | (125,699 | ) | $ | 265,594 | $ | 111,361 | ||||||
| Net cash used in operating activities | $ | (99,443 | ) | $ | (3,253,293 | ) | $ | (17,362 | ) | $ | (131,835 | ) | ||||
| Cash Flows from investing activities | ||||||||||||||||
| Machinery & Equipment | $ | (315,000 | ) | $ | - | $ | - | |||||||||
| Building & Land Acquisition | $ | (5,419,026 | ) | $ | - | $ | - | |||||||||
| Intellectual Property Purchases | $ | (65,974 | ) | $ | - | $ | - | |||||||||
| Intangible assets adjustments | $ | (159 | ) | $ | 986,487 | $ | - | $ | - | |||||||
| Net cash provided by investing activities | $ | (159 | ) | $ | (4,813,513 | ) | $ | - | $ | - | ||||||
| Cash Flows from financing activities | ||||||||||||||||
| Proceeds from convertible notes payable | $ | 82,325 | $ | 137,500 | ||||||||||||
| Long-Term Loans | $ | 2,610,000 | $ | - | ||||||||||||
| Additional Paid-In Capital | $ | 6,294,511 | $ | - | ||||||||||||
| Common Stock | $ | 159,634 | $ | - | ||||||||||||
| Dividends Issued | $ | (1,000,000 | ) | $ | - | |||||||||||
| Loans to officers | $ | 4,027 | $ | - | $ | (32 | ) | |||||||||
| Operating Loans | $ | 73,000 | $ | - | $ | 8,050 | ||||||||||
| Net cash provided by financing activities | $ | 73,000 | $ | 8,068,172 | $ | 82,325 | $ | 145,518 | ||||||||
| Net Increase (Decrease) in cash | $ | (26,602 | ) | $ | 1,366 | $ | 64,963 | $ | 13,683 | |||||||
| Cash at beginning of period | $ | 41,716 | $ | 19,381 | $ | 19,381 | $ | 5,698 | ||||||||
| Cash at end of period | $ | 15,114 | $ | 20,747 | $ | 84,344 | $ | 19,381 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
KRONOS ADVANCED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
For the Quarter Ended March 31, 2022
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
Kronos Advanced Technologies, Inc. (“Kronos”) is a Nevada corporation (the “Company”). The Company’s shares began trading on the over-the-counter bulletin board exchange on August 28, 1996, under the symbol “TSET.” Effective January 12, 2002, the Company operated onlybegan doing business as Kronos Advanced Technologies, Inc. and, as of January 18, 2002, it changed the Company ticker symbol to “KNOS” and is trading on the OTC Markets
GENERAL
Kronos Advanced Technologies, Inc., is a product development and Production Company that develops and patents technology that among other things fundamentally changes the way air is moved, filtered and sterilized. Historically, Kronos has focused on developing, marketing, and selling the Company’s proprietary air movement and purification technology. Serving the Indoor Air Quality (IAQ) market, Kronos technology uses state-of-the-art high voltage processes without the use of traditional HEPA filters. Kronos-based products move air silently, filter and purify the air, and dramatically reduce energy consumption to half of a 60-watt light bulb. Kronos devices can be variable in shape or size, and, therefore, have the potential to be scaled down for air purification in cars or scaled up in size for industrial and hazardous gas destruction. The technology is currently being implemented in standalone products to move and filter air replacing HEPA and other filtration systems. There are broad ranges of additional markets for standalone and embedded Kronos CORE technology-based devices. Examples of immediately addressable markets include health care facilities, operating rooms, manufacturing clean rooms, and cabins of automobiles and commercial aircraft.
Currently, the Company is planning to file additional patents to improve its existing technology as well as enter into new market segments but will continue to market air purifiers and other consumer products. Recently the Company became the exclusive distributor and licensee of the latest generation of air purifiers based on the Company’s CORE technologies.
Fourteen of the Company’s U.S. patent applications and three international patent applications have been allowed for issuance. To date, our ability to execute our strategy has been restricted by our limited amount of capital.
On July 13, 2020 Kronos filed for provisional us patent protection for new antibacterial face mask with cellphone radiation protection features. On July 9, 2021, our agent applied a utility patent application for a “Antibacterial and Cellphone Radiation-proof Face Mask.” The Agent subsequently assigned the patent application to us. The patent application number is 17/372,170 and is pending review with the U.S. Patent and Trademark Office.
The Kronos technology has numerous valuable characteristics for applications in the indoor air quality market, including moving air and gases at high velocities while filtering odors, smoke and particulates and sterilizing air from bacteria and virus contamination. In the past - a number of the scientific claims of the Kronos technology have been tested by the U. S. and foreign governments, multi- national companies and independent testing facilities (see “Independent Testing – Product Claims Platform”).
Technology Description and Benefits
The proprietary Kronos technology involves the management of corona discharge by applying high voltage management across paired electrical grids to create an ion exchange. Applications for efficient high voltage management, efficient corona discharge and ion exchange include but are not limited to:
| ● | air movement, including dielectric fluid movement and propulsion; | |
| ● | air purification, including particulate removal, bacterial and viral removal, biohazard destruction, and odor removal; | |
| ● | temperature and environmental management, including space heating and cooling; | |
| ● | microchip, MEMS and other electronics devices and components cooling; | |
| ● | air management, including sorting and separation of air streams by particle content; | |
| ● | sound generation, including high fidelity sound recreation and active noise cancellation; | |
| ● | high voltage management, including development of high voltage power supplies and control of energy surges and electrical discharges; | |
| ● | control of water and moisture content in air streams, including dehumidification and humidification; and | |
| ● | water treatment, including water purification, ionization and water desalination. |
Independent Testing - Product Claims Platform
A number of the scientific claims of the Kronos technology have been tested by the U. S. and foreign governments, multi-national companies and independent testing facilities. To date, independent laboratory testing has verified the filtration and sterilization capability of the Kronos technology. Summary results from select independent testing facilities are provided below. The tests were conducted in the U.S. unless otherwise indicated.
Filtration Testing Results:
| ● | Environmental Health and Engineering - reduced particle matter by up to 47% compared to days when the Kronos air purifiers were not operating in the waiting room of a pediatric office while patients were present. | |
| ● | Aerosol and Air Quality Research Laboratory - up to 99.8% filtration of 0.02 to 0.20-micron (20 to 200 nanometers) size particles; | |
| ● | LMS Industries - removal of over 99.97% of 0.10 micron (100 nanometers) and above size particles using HVAC industry’s ASHRAE 52.2 testing standard for filtration; | |
| ● | MicroTest Laboratories - HEPA Clean Room Class 1000 quality particulate reduction; and | |
| ● | Intertek - tobacco smoke elimination tests in accordance with ANSI/AHAM AC-1-1988 standard entitled “American National Standard Method for Measuring Performance of Portable Household Electric Cord-Connected Room Air Cleaners,” which demonstrated a Clean Air Delivery Rate (“CADR”) for the Kronos air purifier of over 300 for the larger size Kronos air purifier and 80 for the smaller size using consumer filtration testing standards for the Association of Home Appliance Manufacturers (“AHAM”). |
| F-38 |
Sterilization Testing Results
| ● | Environmental Health and Engineering (viral analysis by the University of Wisconsin Department of Pediatrics and Medicine): | ||
| – | collection and removal of a wide range of respiratory viruses, including influenza A, influenza B, human rhinoviruses, human coronavirus, respiratory syncytial virus, adenovirus, and bocavirus, from the waiting room of a pediatric office while patients were present. | ||
| ● | Scientific Institution of Health Care, Central Clinical Hospital #2 in Moscow (clinical trial): | ||
| – | 100% decontamination of bacteria (Staphylococcus aureus) in under one hour and 80% decontamination of general bacteria in under 24 hours from a 48m (3) hospital room while people were present. | ||
| ● | Pulmonary Department of Municipal Hospital #2 in Moscow (clinical trial): | ||
| – | 100% decontamination of bacteria (Staphylococcus aureus) in under five hours from a 66m (3) hospital room while four patients were present; and | ||
| – | 100% decontamination of mildew fungi in under two hours from a 113.2m(3) hospital room. | ||
| ● | Disinfection Research Institute Sterilization Laboratory in Moscow: | ||
| – | disinfected a room completely contaminated with Bacteriophage | ||
| – | a microorganism which lives in the E. Coli bacteria. (Bacteriophage is widely used in virus testing because the microorganism’s biological structure and size share many functional similarities with a wide range of viruses); and | ||
| – | 100% decontamination of room infected with bacteria (Staphylococcus aureus strain 906 (S. aureus) and Bacillus cereus strain 96 (B. cereus) | ||
| – | S. aureus is a known cause of hospital-acquired infections, including skin lesions such as boils and furunculosis and more serious infections such as pneumonia and meningitis. | ||
| ● | Institute for Veterinary Medicine in the Ukraine - destroy and sterilize air which had been inseminated with Anthrax and E.coli spores; |
| ● | New Hampshire Materials Laboratory - up to 95% reduction of hazardous gases, including numerous carcinogens found in cigarette smoke: |
| ● | Battelle PNNL - 95% destruction of Bg (anthrax simulant); and |
| ● | Dr. Sergey Stoylar, a bacteriologist from the American Bacteriological Society - 100% destruction of Bacillus subtilis 168 (bacteria simulant). |
| F-39 |
Medical Product Approval
In September 2006, the Russian Research Institute of Medical Equipment approved EOL’s Kronos-based Tree air purification device for use in hospitals and other healthcare facilities. The device received Category I approval, which means the product has met the strictest regulations required for a device to be used in operating rooms and other areas that require a sterile environment. In November 2006, following the Russian Research Institute approval, the Ministry of Health Care and Social Development of the Russian Federation issued a Registration Certificate that designates the Kronos-based Tree air purification device for medical use.
Market Segmentation
Kronos had an initial business development strategy to attempt to develop and produce products based on the Kronos® technology to six distinct air quality market segments: (1) air movement and purification (residential, health care, hospitality, and commercial facilities); (3) air purification for unique spaces (clean rooms, airplanes, automotive, and cruise ships); (4) specialized military (naval vessels, closed vehicles and mobile facilities); (5) industrial scrubbing (produce storage and diesel and other emissions); and (6) hazardous gas destruction (incineration and chemical facilities).
Technology Application and Product Development
To best serve Kronos’ targeted market segments, the Company is developing specific product applications across two distinct product application platforms. A Kronos device can be either used as a standalone product or can be embedded. Standalone products are self- contained and only require the user to plug the Kronos device into a wall outlet to obtain air movement and filtration for their home, office or hotel room. Embedded applications of the Kronos technology require the technology be added into another system, such as a building ventilation system for more efficient air movement and filtration or into an electrical device such as computer or medical equipment to replace the cooling fan or heat sink.
Standalone Platform
Residential Products. The Company had developed a residential product SilentNight Air Purifier and in the past sold it through independent sales reps.
Medical Products. The Company is planning to engage in development of Healthcare related products based on our technology.
Commercial and Other Standalone Products. Utilizing our expanded product development resources, in the past Kronos completed the initial design, development and production of a series of small multifunctional devices that can be used as space heaters, vaporizers, disinfectors, deodorizers and/or fans.
Embedded Platform
In addition, Kronos has developed an air filtration and purification mechanism capable of performing to HEPA quality standards, while eliminating bacteria and viruses. The Company believes that Kronos devices could replace current HEPA filters with a permanent, easily cleaned, low-cost solution. Among the technical advantages of the Kronos technology over HEPA filters is the ability of the Kronos-based devices to eliminate the energy burden on air handling systems, which must generate high levels of backpressure necessary to move air through HEPA-based systems. Kronos-based devices enhance the air flow, while providing better than HEPA level filtration and purification. Kronos is seeking one or more strategic partners to commercialize, market and distribute Kronos based commercial embedded air filtration and purification devices.
Market Segmentation
Kronos’ initial business development strategy was to develop and produce products based on the Kronos technology to six distinct air quality market segments: (1) air movement and purification (residential, health care, hospitality, and commercial facilities); (2) embedded cooling and cleaning (electronic devices and medical equipment); (3) air purification for unique spaces (clean rooms, airplanes, automotive, and cruise ships); (4) specialized military (naval vessels, closed vehicles and mobile facilities); (5) industrial scrubbing (produce storage and diesel and other emissions); and (6) hazardous gas destruction (incineration and chemical facilities).
Patents and Intellectual Property
Kronos has received notification that fifteen of its patent applications have been allowed for issuance by the United States Patent and Trademark Office and six of its international patent applications have been allowed for issuance by the Canadian Intellectual Property Office, the Commonwealth of Australia Patent Office and the Mexican Institute of Industrial Property. These patents are considered utility patents which describe fundamental innovations in the generation, management and control of electrostatic fluids, including air movement, filtration and purification. Each of the patents contain multiple part claims for both general principles as well as specific designs for incorporating the Kronos technology into air movement, filtration and purification products. The patents provide protection for both specific product implementations of the Kronos technology, as well as more general processes for applying the unique attributes and performance characteristics of the technology.
U.S. Patents
| Date | U.S. Patent # | Patent Title | Description | Protection | ||||
| August 2008 | 7,410,531 | Method of Controlling Fluid Flow | an electrode array corona including an array of corona electrodes discharge electrodes and an array of acceleration flow | 2025 | ||||
| August 2007 | 7,262,564 | Alternative Geometries and Voltage Supply Management | geometry, voltage ratios and power requirements for improved operational performance | 2024 | ||||
| July 2007 | 7,248,003 | Electric Field Management | effective electric field management for reduced sparking | 2025 | ||||
| October 2006 | 7,122,070 | Method of and Apparatus for Electrostatic Fluid Acceleration | inertialess power supply for safe operation and spark prevention | 2025 | ||||
| July 2006 | 7,150,780 | Electrostatic Air Cleaning Device | method for improving the efficiency of electrodes for filtering micron and sub- micron size particles | 2024 | ||||
| May 2006 | 7,053,565 | Electrostatic Fluid Accelerator - Power Management | effective powering of the electrodes for high level of air velocity | 2024 | ||||
| November 2005 | 6,963,479 | Electrostatic Fluid Accelerator - Advanced Geometries | advanced voltage management impacts air filtration and sterilization, air flow and ozone as well as safe operation and spark prevention | 2023 | ||||
| August 2005 | 6,937,455 | Spark Management Method and Device | analysis, detection and prevention of sparks in a high voltage field - creating safe, effective electrostatic technology Products | 2022 |
| F-41 |
| May 2005 | 6,888,314 | Electrostatic Fluid Accelerator - Electrode Design Geometries | electrode design geometries and attributes including micro channeling to achieve unique air movement and purification performance | 2022 | ||||
| April 2004 | 6,727,657 | Electrostatic Fluid Accelerator for and a Method of Controlling Fluid | synchronization of multiple stages of arrays - increasing air flow and air flow efficiency | 2022 | ||||
| December 2003 | 6,664,741 | Method of and Apparatus for Electrostatic Fluid Acceleration Control of a Fluid Flow | ratio of voltage for producing ion discharge to create air movement and base level filtration | 2022 | ||||
| January 2003 | 6,504,308 | Electrostatic Fluid Accelerator | electrode density core for producing ion discharge to create air movement and base level filtration | 2019 |
International Patents
Kronos intends to continue to aggressively file patent applications in the U.S. and internationally. On July 13, 2020 Kronos filed for provisional us patent protection for new antibacterial face mask with cellphone radiation protection features. On July 9, 2021, our agent applied a utility patent application for a “Antibacterial and Cellphone Radiation-proof Face Mask.” The agent subsequently assigned the patent application to us. The patent application number is 17/372,170 and is pending review with the U.S. Patent and Trademark Office.
NOTE 192 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements of the Company include those of the Company and its subsidiary for the periods in which the subsidiary was owned/held by the Company. All significant intercompany accounts and transactions have been eliminated in the preparation of the consolidated financial statements. At March 31, 2022 and December 31, 2021, respectively, the Company had only one subsidiary, Kronos Advanced Technologies, LLC.
Accounting Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include assumptions made in estimated useful lives of property and equipment, assumptions inherent in a purchase price allocation, accruals for potential liabilities, certain assumptions used in deriving the fair value of derivative liabilities, share-based compensation, and beneficial conversion feature of notes payable, and realization of deferred tax assets.
Stock-Based Compensation
The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock- based compensation charge is recorded in the period of the measurement date.
The fair value of the Company’s common stock option and warrant grants is estimated using the Black-Scholes option pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes option pricing model and based on actual experience. The assumptions used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods.
Fair Value of Financial Instruments
The Company follows paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. | |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | |
| Level 3 | Pricing inputs that are generally observable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amount of the Company’s derivative liability of $302,055 and $302,055 as of March 31, 2022 and December 31, 2021, respectively and was based on Level 3 measurements.
The carrying amounts of the Company’s other financial assets and liabilities, such as cash, prepaid expense, accounts payable and accrued payables and notes payable, approximate their fair values because of the short maturity of these instruments.
Acquisitions and Business Combinations
The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and separately identified intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from, acquired technology, trademarks and trade names, useful lives, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Accounts Receivable
All of the Company’s accounts receivable balance is related to trade receivables. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts, if any, is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company will maintain allowances for doubtful accounts, estimating losses resulting from the inability of its customers to make required payments for products. Accounts with known financial issues are first reviewed and specific estimates are recorded. The remaining accounts receivable balances are then grouped into categories by the number of days the balance is past due, and the estimated loss is calculated as a percentage of the total category based upon past history. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered.
Net Income (Loss) Per Share
Basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed using the weighted-average number of common shares and the dilutive effect of contingent shares outstanding during the period. Potentially dilutive contingent shares, which primarily consist of convertible notes, stock issuable to the exercise of stock options and warrants have been excluded from the diluted loss per share calculation because their effect is anti-dilutive.
Segments
The Company determined its reporting units in accordance with ASC 280, “Segment Reporting” (“ASC 280”). Management evaluates a reporting unit by first identifying its’ operating segments under ASC 280. The Company then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated.
Management has determined that the Company has one consolidated operating segment. The Company’s reporting segment reflects the manner in which its chief operating decision maker reviews results and allocates resources. The Company’s reporting segment meets the definition of an operating segment and does not include the aggregation of multiple operating segments.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the assets, which range from three to seven years. Expenditures for major renewals and betterments that extend the original estimated economic useful lives of the applicable assets are capitalized. Expenditures for normal repairs and maintenance are charged to expense as incurred. The cost and related accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts, and any gain or loss is included in operations.
Digital Assets Translations and Remeasurements
Digital Assets are included in current assets in the consolidated balance sheets. Digital Assets are recorded at cost less impairment.
An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired.
Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
Realized gain (loss) on sale of Digital Assets are included in other income (expense) in the consolidated statements of operations.
The Company assesses impairment of Digital Assets quarterly if the fair value of digital assets is less than its cost basis. The Company recognizes impairment losses on Digital Assets caused by decreases in fair value using the average U.S. dollar spot price of the related Digital Asset as of each impairment date. Such impairment in the value of Digital Assets is recorded as a component of costs and expenses in our consolidated statements of operations. There were no impairment losses related to Digital Assets during the period ended March 31, 2022.
Intangibles
The Company uses assumptions in establishing the carrying value, fair value and estimated lives of the Company’s long-lived assets and goodwill. The criteria used for these evaluations include management’s estimate of the assets’ continuing ability to generate positive income from operations and positive cash flow in future periods compared to the carrying value of the asset, the strategic significance of any identifiable intangible asset in its business objectives, as well as the market capitalization of the Company. Cash flow projections used for recoverability and impairment analysis use the same key assumptions and are consistent with projections used for internal budgeting, and for lenders and other third parties. If assets are considered to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets. Useful lives and related amortization or depreciation expense are based on the Company’s estimate of the period that the assets will generate revenues or otherwise be used by Kronos. Factors that would influence the likelihood of a material change in the Company’s reported results include significant changes in the assets’ ability to generate positive cash flow, loss of legal ownership or title to the asset, a significant decline in the economic and competitive environment on which the asset depends, significant changes in the Company’s strategic business objectives, and utilization of the asset.
Income Taxes
Income taxes are accounted for in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 109. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized, but no less than quarterly. Currently the company has not valued any NOL because of the expectation that it will not be used.
Research and Development Expenses
Costs related to research and development are charged to research and development expense as incurred.
Revenue Recognition
The Company accounts for revenues in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (1) identifying the contract(s) or agreement(s) with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. Under ASC 606, revenue is recognized when performance obligations under the terms of a contract are satisfied, which occurs for the Company upon shipment or delivery of products or services to our customers based on written sales terms, which is also when control is transferred. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products or services to a customer.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases. This ASU establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This ASU and all the related amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted this guidance in the first quarter of fiscal 2020, the quarter ended September 30, 2019, using the optional transitional method afforded under ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. Results for reporting periods beginning after the adoption date are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 840 (see Note 7 - Leases).
The Company elected and applied the available transition practical expedients. By electing these practical expedients, the Company did:
| a. | not reassess whether expired or existing contracts contain leases under the new definition of a lease; | |
| b. | not reassess lease classification for expired or existing leases; and | |
| c. | not reassess whether previously capitalized initial direct costs would qualify for capitalization under Topic 842. |
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. The amendments in this ASU align the implementation date for nonpublic entities’ annual financial statements with the implementation date for their interim financial statements. In addition, the amendment clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20; instead impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842: Leases. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825 Financial Instruments. The amendments in this ASU further clarify certain aspects of ASU No. 2016-13. For entities that have not yet adopted ASU No. 2016-13, this ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief. The amendments in this ASU provide transition relief for ASU No. 2016-13 by providing an option to irrevocably elect the fair value option for certain financial assets measured at an amortized cost basis. For entities that have not yet adopted ASU No. 2016-13, this ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact this ASU will have on its financial statements and related disclosures.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants and the SEC did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statement presentation or disclosures.
NOTE 3 - REALIZATION OF ASSETS AND GOING CONCERN
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has sustained losses from operations in recent years, and such losses have continued through the current quarter ended March 31, 2022. In addition, the Company has used, rather than provided, cash in its operations. The Company has attempted during the period to use its resources to commercialize its technology and develop viable commercial products and to provide for its working capital needs.
In view of the matters described in the preceding paragraph, recoverability of a major portion of the asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financing requirements on a continuing basis, to maintain present financing and to succeed in its future operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
NOTE 4. ACQUSITION OF CERTAIN ASSETS
On October 1, 2019, the Company entered into an operating assets purchase agreement wherein the Company acquired three check cashing kiosks operating in the United States. The purchase price for the assets was $250,000 in the form of a convertible note payable. (See Note 6.)
On June 30, 2021, the Company completed an acquisition that begun on June 18, 2020, wherein the Company acquired an electronic manufacturing facility, all intellectual property belonging to the seller regarding the facility, and all manufacturing equipment within the facility located in Parkersburg, WV. The purchase price for the assets was $5,800,000 in the form of partial cash payment ($2,610,000) with the remainder paid in shares totaling $3,190,000.
Kronos has purchased a turn-key manufacturing campus centrally located in the USA in a Federal Opportunity Zone. This factory is situated on 10.5 acres of land with three buildings: the Main Manufacturing Facility, Auxiually Facility, and Warehouse totaling 85,000 square feet. This acquisition included Machinery and Equipment, Intellectual Property, Infrastructure, IT assets, and planned initial Renovations. The closing of this acquisition is pending facility improvements and is scheduled to be completed before year’s end. This acquisition is a Critical - To Success Tactic for Kronos in our pursuit of manufacturing our products “In America by Americans” (Transition To America initiative) and executing our Touchless Manufacturing Initiative.
NOTE 5 – INVENTORY VALUATION AND PREPAID EXPENSES
As of March 31, 2022, Kronos has $232,093 worth of inventory stored partially in their newly acquired manufacturing facility in West Virginia and partially in other 3PL warehouse distribution locations. Majority of their inventory consists of air purifiers and other related products to sell to consumers. Kronos values their inventory based on FIFO (First-In-First-out) accounting method.
As of March 31, 2022, there are no prepaid expenses.
NOTE 6 - INTANGIBLES
Intangible assets consisted of the following on March 31, 2022
| Crypto Currency | $ | 15,090 | ||
| Developed and Purchased Patent Technology | $ | 10,000 | ||
| Less Accumulated Amortization | $ | - | ||
| Intellectual Property | $ | 65,974 | ||
| Goodwill | $ | 145,000 | ||
| Net Tangible Assets | $ | 236,064 |
Developed and purchased patent technology includes developed technology as well as property that was acquired in the Kronos acquisition. See Note 1. Management had assessed that the value is not more than $10,000 and the patents were written down to that amount in 2009.
Intellectual property includes IT software, computer programming software, and other such intangibles assets acquired during the acquisition of the West Virginia manufacturing facility deal.
Intangible assets will be amortized on a straight-line basis over 10 years once operations increase.
NOTE 7 – CONVERTIBLE NOTES PAYABLE
On December 31, 2018, the Company issued a convertible promissory note in the amount of $1,000,000. The note is due on December 31, 2023 and bears interest at 5% per annum. The loan and any accrued interest may be converted into shares of the Company’s common stock at a rate of 80% multiplied by the average of the three lowest trading price during the previous ten (10) day trading period ending on the latest completed trading day prior to the conversion date. Pursuant to current accounting guidelines, the Company recorded a note discount of $1,000,000 to account for the note’s derivative liability. In addition, the Company recorded an amount of discount in excess of the note principal of $250,000 that was expensed as a financing cost.
On June 30, 2021, The Company converted the entirety of the note into shares eliminating the liability of this note completely.
On October 1, 2019, the Company issued a convertible promissory note in the amount of $250,000. The note is due on October 1, 2024, and bears interest at 5% per annum. The loan and any accrued interest may be converted into shares of the Company’s common stock at a rate of 80% multiplied by the average of the three lowest trading price during the previous ten (10) day trading period ending on the latest complete trading day prior to the conversion date. Pursuant to current accounting guidelines, the Company recorded a note discount of $250,000 to account for the note’s derivative liability. In addition, the Company recorded an amount of discount in excess of the note principal of $62,500 that was expensed as a financing cost.
During the period ended December 31, 2021, the Company amortized $12,500 of debt discount, and as of December 31, 2021, the balance of the unamortized debt discount was $150,000.
In April 2020 the Company issued four convertible promissory notes with investors totaling $137,500. These convertible notes payable are due one year from issuance, with interest at 5% per annum and are convertible at 80% multiplied by the Market Price (representing a discount rate of 20%). Market Price is defined as the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period ending one trading day prior to the date the conversion. Pursuant to current accounting guidelines, the Company recorded a note discount of $137,500 to account for the note’s derivative liability. In addition, the Company recorded an amount of discount in excess of the note principal of $48,177 that was expensed as a financing cost.
On July 21, 2020, the Company issued a convertible promissory note in the amount of $100,000. The note is due on July 21, 2021, and bears interest at 5% per annum. The loan and any accrued interest may be converted into shares of the Company’s common stock at a rate of 80% multiplied by the average of the three lowest trading price during the previous three (3) day trading period ending on the latest complete trading day prior to the conversion date.
Note 8- Long-Term Liabilities
On June 17th, 2021, West Virginia Economic Development and Authority (WVEDA) approved in a meeting of its board of directors to grant Kronos a loan with the aggregate principal amount not to exceed $2,610,000. This is to be considered a loan as part of the acquisition of the manufacturing facility in West Virginia. This loan is to serve as a cash payment for the acquisition of the manufacturing facility as part of the agreement. The loan is broken down into real estate improvement loan and equipment loan with repayment terms of 15 years and 10 years respectively.
Interest rates for the two notes are as follows:
| 1. | Loan #1: This loan shall bear interest fixed as of the third business day prior to closing equal to the rate of the 20 Year US Treasury Note rate plus 0.75%. This loan has a floor (minimum) interest rate of 2. 75% and shall be adjustable every five years. | |
| 2. | Loan #2: This loan shall bear interest fixed as of the third business day prior to closing equal to the rate of the Wall Street Journal Prime rate multiplied by 0.75%. This loan has a floor (minimum) interest rate of 2.75%. |
Note 9- Derivative Liability
The FASB has issued authoritative guidance whereby instruments which do not have fixed settlement provisions are deemed to be derivative instruments. Certain warrants issued to investors and conversion features of notes payable did not have fixed settlement provisions because either their exercise prices will be lowered if the Company issues securities at lower prices in the future or the conversion price is variable. In addition, since the number of shares to be issued is not explicitly limited, the Company is unable to conclude that enough authorized and unissued shares are available to share settle the conversion option. In accordance with the FASB authoritative guidance, the conversion feature of the notes was separated from the host contract (i.e., the notes) and the fair value of the warrants have been recognized as a derivative and will be re-measured at the end of every reporting period with the change in value reported in the statement of operations.
The derivative liabilities were valued at the following dates using a Binomial Lattice Model with the following average assumptions:
| March 31, 2022 | December 31, 2021 | |||||||
| Stock Price | $ | 0.0140 | $ | 0.0203 | ||||
| Risk free interest rate | 0.46 | 0.46 | ||||||
| Expected Volatility | 424 | 424 | ||||||
| Expected life in years | 2.25 -3.00 | 2.50-3.25 | ||||||
| Expected dividend yield | 0 | 0 | ||||||
| Fair Value – Warrants | $ | 0 | $ | 0 | ||||
| Fair Value – Note Conversion Feature | 302,055 | 302,055 | ||||||
| Total | $ | 302,055 | $ | 302,055 | ||||
The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected life of the derivative securities was determined by the remaining contractual life of the derivative instrument. For derivative instruments that already matured, the Company used the estimated life. The expected dividend yield was based on the fact that the Company has not paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.
NOTE 10 – LEASES
The Company owns its offices as of March 31, 2022.
NOTE 11 – LEGAL PROCEEDINGS
The company had several lawsuits from 2008 and prior. These have all run their course as far as the statute of limitations is concerned. It is the opinion of management that no debts exist as of March 31, 2022.
From time to time, the Company may be subject to routine litigation, claims or disputes in the ordinary course of business. The Company defends itself vigorously in all such matters. In the opinion of management, no pending or known threatened claims, actions or proceedings against the Company are expected to have a material adverse effect on its financial position, results of operations or cash flows. However, the Company cannot predict with certainty the outcome or effect of any such litigation or investigatory matters or any other pending litigations or claims. There can be no assurance as to the ultimate outcome of any such lawsuits and investigations. The Company will record a liability when it believes that it is both probable that a loss has been incurred and the amount can be reasonably estimated. The Company periodically evaluates developments in its legal matters that could affect the amount of liability that it has previously accrued, if any, and makes adjustments as appropriate. Significant judgment is required to determine both the likelihood of there being, and the estimated amount of, a loss related to such matters, and the Company’s judgment may be incorrect. The outcome of any proceeding is not determinable in advance. Until the final resolution of any such matters that the Company may be required to accrue for, there may be an exposure to loss in excess of the amount accrued, and such amounts could be material.
NOTE 12 - MAJOR CUSTOMERS
As of March 31, 2022, Kronos’ major customers are Walmart.com and School Districts.
NOTE 13 - SEGMENTS OF BUSINESS
The Company operates principally in one segment of business: the Kronos segment licenses, manufactures, and distributes air movement and purification devices utilizing the Kronos technology. The Company operates primarily in the United States of America and Israel.
NOTE 14 - RELATED PARTIES
N/A
NOTE 15 - STOCKHOLDERS’ EQUITY/ (DEFICIT)
During the period ended March 31, 2022, no new shares have been issued.
NOTE 16 - SUBSEQUENT EVENTS
On July 2, 2001, we signed an agreement
As of March 31, 2022, Kronos Advanced Technologies is still engaged with Israeli investment bankers to utilize the strategic
planningraise funds from European and business plan execution servicesAsian investors for upwards of The Eagle Rock Group, LLC. The
Eagle Rock Group will work with the Kronos Air Technologies team to fully
develop and capitalize$10M in investments. No shares have been issued thus far, however major progress is on the Kronos(TM) technology
The Eagle Rock Group will work to augment and enhance our efforts in
the following areas (i) capital raising and allocation, (ii) strategic partner
introduction and evaluation, (iii) distribution channel development, (iv)
product focus and brand development, (v) human resource placement, and (vi)
capital market introduction and awareness.
We issued to The Eagle Rock Group a ten-year warrant granting them the
right to purchase 1,400,000 shares of our common stock at an exercise price of
$0.68 per share. The shares underlying the warrant have piggy-back and demand
registration rights, as well as subscription rights in the event that we issue
any rights to all of our stockholders to subscribe for shares of our common
stock.rise. In addition, Kronos ATI has filed their form S-1 to raise funds in preparation for entrance into the warrant contains redemption rights in the event that we
enter into a transaction that results in a change of control of our company.
During the quarter ending September 30, 2001,NASDAQ exchange. The Company is obligated to issue 1,000,000 shares to Cukierman Investment House. On May 20, 2022, the Company cancelled the engagement incurring no penalty or liquidated damages.
On March 11, 2022, Kronos Advanced Technologies terminated its acquisition agreement of Zyppah Inc. and 90,000,000 shares were canceled and returned to Authorized Capital.
On April 27, 2022 Kronos announced its financial closing on the acquisition of an 85,000 square-foot manufacturing campus located in Parkersburg, West Virginia. As previously announced, the facility, which for the past 25 years designed and produced advanced electronics containing high-density circuit boards for aviation, military, industrial, and medical products, will recognizebe modified to produce advanced air purification devices and other wellness products based on Kronos’ Disease-Free living concept.
This acquisition was for a consulting expensetotal amount of $5.8 million. The state of West Virginia provided $2.6 million in financing under West Virginia Economic Development Direct Loan Program. The remaining financing came as an equity contribution that provided Kronos with $3.2 million in real estate equity.
Originally the purchase was via contract of sale which has now been converted into title ownership by grant deed.
On June 9, 2022, the Company liquidated its remaining crypto currency.
MANAGEMENT’S DISCUSSION AND ANALYSIS
The statements contained in this report that are not statements of historical fact, including without limitation, statements containing the words “believes,” “expects,” “anticipates” and similar words, constitute forward-looking statements that are subject to a number of risks and uncertainties. From time to time we may make other forward-looking statements. Investors are cautioned that such forward-looking statements are subject to an associated liability of $837,200inherent risk that actual results may materially differ as a result of many factors, including the issuancerisks discussed from time to time in this report, including the risks described under “Risk Factors” in this Prospectus.
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, certain disclosures at the date of the warrants. The Company will not recognize shareholder equity from
this transaction until the warrants are exercised.
On July 7, 2001, we entered into a mutual release and settlement
agreement with Foster & Price and Alex D. Saenz, pursuant to which our company,
Foster & Price and Mr. Saenz mutually and fully released each other from all
related claims and counterclaims and agreed to the dismissal of the litigation
F-29
initiated by us against Foster & Price on January 13, 2000. The settlement
agreement does not contain any admission of liability or fault by any party. The
parties also agreed, among other things, to not institute any future litigation
relating to the term sheet of the previous relationship. As settlement
consideration, we have agreed to deliver to Foster & Price and Mr. Saenz,
collectively, a total of 375,000 shares of our common stock. Foster & Price and
Mr. Saenz have agreed to time restrictions on the sale of these shares. Foster &
Price and Mr. Saenz have agreed to certain confidential provisions and to
indemnify us against claims arising out of any dispute between Foster & Price
and Mr. Saenz relating to any allocation of shares between themfinancial statements, as well as claims brought by persons who are not parties to the settlement agreement.
As a resultreported amounts of revenues and expenses during the reporting period. Significant estimates affecting the financial statements have been prepared on the basis of the mutual releasemost current and settlement,best available information. However, actual results from the Company
recognized $213,750resolution of settlement expenses subsequent to year-end. The amountsuch estimates and assumptions may vary from those used in the preparation of the settlement expense was determined based upon the market value of the 375,000
shares on the date of settlement.
On July 20, 2001, James P. McDermott accepted an appointment as a
director of the Company. His annual compensation will be 50,000 shares of common
stock of the Company. Mr. McDermott is Managing Director of The Eagle Rock
Group.
In September, 2001, the Company determined that a 1999 employment
agreement between the Company and its Chief Executive Officer was not properly
executedfinancial statements.
Background
We were originally incorporated under the laws of the State of Utah on September 17, 1980, as Penguin Petroleum, Inc. Penguin Petroleum Inc.’s stockholders approved a name change on October 6, 1982, to Petroleum Corporation of America, Inc. On December 29, 1996, stockholders approved a reorganization whereby they exchanged their stock on a one-for-one basis with Technology Selection, Inc., a Nevada (the statecorporation. Technology Selection, Inc.’s shares began trading on the Over-the-Counter Bulletin Board on August 28, 1996, under the symbol “TSET”. On November 19, 1998, Technology Selection, Inc. changed its name to TSET, Inc. Effective January 12, 2002, we began doing business as Kronos Advanced Technologies, Inc.; and, as of incorporation.)January 18, 2002, we changed our ticker symbol to “KNOS”.
Our operations beginning in 2002 focused on the research and development of air movers. Over time, we migrated into a consumer air purification business. We began as a product research and development company whose investigations were focused and the development of new technologies that significantly changed the way air was moved, filtered, and sterilized. Our technologies, designed to revolutionize the Indoor Air Quality (IAQ) market, uses state-of-the-art, high voltage patented processes, thereby eliminating the need for traditional porous HEPA filters. We originally focused on developing and licensing our technologies. However, over time we decided to leverage our technologies, patents, and intellectual properties to manufacture and sell our own air cleaning products.
Our technology is currently offered in the form of multiple products designed to move, sterilize, filter, and purify the air for businesses, homes, vehicles, and even individuals themselves. On a broader basis, the additional markets that could immediately be impacted using standalone, embedded KRONOS® CORE technology-based devices include schools, universities, healthcare facilities, operating rooms, manufacturing clean-rooms, personal automobiles, buses, taxis, and commercial aircraft cabins.
Special Disclosures Concerning Our Business and the Russian Invasion of Ukraine
None of the Company’s business segments, products, lines of service, projects, or operations are involved with (i) sales to Russia, Belarus, or Ukraine; (ii) sourcing any material or commodities for the manufacture of the Company’s products from Russia, Belarus, or Ukraine; (iii) effected by any export restrictions, sanctions, or Russia’s ongoing invasion Ukraine, or Belarus; (iv) effected by any supply chain risks related to Russia’s invasion of Ukraine and/or the related geopolitical tensions caused thereby. There is no material impact to our plans to de-globalize our supply chain. As there is no material impact, there is nothing to mitigate and nothing to quantify.
Our current globally sourced products are purchased through a result,comparatively simple, well-established supply chain process. With the supplier of our products, the Company only needs to forecast and order a single “stock-keeping unit” (SKU) for each item, as a finished, turnkey assembly. The Company will continually measure and access the most current manufacturing lead times for these products, our then-current inventory levels, and our estimated market demand. This ongoing analysis will drive the requirement to release new purchase orders in a timely manner to ensure that we have the necessary product inventory to meet market demand, regardless of supply chain inefficiencies.
Additional strategies the Company has determined thatused to reduce the employment agreement was null and
void from its inception. In October 2001, Jeffrey D. Wilson resignedrisk associated with today’s new-normal global supply chain disruptions are as follows:
| ● | The Company’s global supplier of our Air Purifiers has opened a USA warehouse enabling the Company to Purchase from a supplier-owned warehouse located in the USA, thus reducing the risk of backed-up international ports. In addition, this USA west-coast warehouse can serve as another direct fulfillment center for the Company, thus reducing the Company’s freight charge to our customers. |
| ● | The recent purchase of a turnkey manufacturing facility, as part of our Transition to America strategy, positions the Company with the ability to discuss with our current global suppliers the strategy to identify specific critical sub-assemblies that the Company could manufacture in our new USA facility to the benefit of both parties, resulting in an improved supply chain. The focus of these discussions will be potential cost savings as related to both tariff costs and shipping costs of sub-assemblies versus those of shipping a completed assembly, supported by a plan to select the most economical components to manufacture in the USA. | |
| ● | The Company has reached out to other global research and development companies having conceptual and early-stage manufacturing products in our Air Purification market. In doing so, we have strategically approached these companies and began conversations to jointly select the components or in some cases, the entire product, to be built in the USA. This too will provide additional supply chain resilience. |
The above comments illustrate the Company's ChairmanCompany’s focus on the New Normal of the Board and Chief Executive Officer. Mr. Wilson remains
a director of the Company.
NOTE 20 - RELATED PARTIESan inefficient global supply chain. The Company, has consulting agreementsas well as, all our competitors are having to deal with certain membersthis partially broken global supply chain. However, we believe that we, as outlined above, are making strategic investments, and as such, we have positioned ourselves better than our competitors to allow our Company the ability to not only adjust to supply chain inefficiencies but to eliminate or reduce the associated risks.
Results of Operations
Comparative Overview and Financial Condition, for the board
of directors who are acting officers of the Company. The agreements provide for
cash and equity compensation per hour of service provided. AtYears Ended June 30, 2001, the
Company had accrued cash compensation under these agreements of $255,4002021, and had
granted options to acquire 354,600 shares at an exercise price of $0.96 per
share.
NOTE 21 - QUARTERLY RESULTS (UNAUDITED)
2020.
Going Concern
The Company was inactive fromsustained continued operating losses during the time that it discontinued operations
in 1996 until the time it was reactivated in mid-1999 and from inception through
June 30, 2000 it had no significant revenues from operations. Therefore, the
unaudited results of operations by quarter for the yearyears ended June 30, 1999 are2021 and 2020 of $1,918,225 and $136,875 respectively. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations, in which it has not disclosed. been successful, and/or obtaining additional financing from its shareholders or other sources, as may be required.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern; however, the above conditions raise substantial doubt about the Company’s ability to do so. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classifications of liabilities that may result, should the Company be unable to continue as a going concern.
Management is endeavoring to expand revenue-generating operations. While priority is on generating cash from operations through the sale of the Company’s products, management is also seeking to raise additional working capital through various financing sources, including the sale of the Company’s equity and/or debt securities, which may not be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to continue our business as desired and our operating results will be adversely affected. In addition, any financing arrangement may have potentially adverse effects on us and/or our shareholders. Debt financing (if available and undertaken) will increase expenses, must be repaid regardless of operating results, and may involve restrictions limiting our operating flexibility. If we issue equity securities to raise additional funds, the percentage ownership of our existing shareholders will be reduced, and the new equity securities may have rights, preferences, or privileges senior to those of the current holders of our shares of Common Stock.
Results of Operations
The following is a summary of unauditedtable sets forth the audited results of continuingour operations for the years ended June 30, 20002021, and 2001:
2020.
| 2021 | 2020 | |||||||
| Net Sales | $ | 503,742 | $ | 41,215 | ||||
| Cost of goods sold: | 276,083 | 6,756 | ||||||
| Gross profit | 227,658 | 34,459 | ||||||
| Operating Expenses | 2,145,883 | 171,344 | ||||||
| Loss from operations | (1,918,225 | ) | (136,875 | ) | ||||
| Other expense | (544,578 | ) | 356,568 | |||||
| Net Loss | $ | (1,373,647 | ) | $ | (493,443 | ) | ||
| 44 |
Operating Results
Fiscal Year Ended June 30, 2021, Compared to June 30, 2020
Our sales totaled $503,742 for the year ended June 30, 2021, and $41,215 for the year ended June 30, 2020 resulting in an increase of $462,527. We believe the increase is primarily related to an increase in units sold due to increased consumer interest in air purification products, and increased marketing of our products during the COVID-19 pandemic. In 2020, the COVID-19 pandemic had an impact on worldwide manufacturing, supply and sales and affected our ability to sell inventory, resulting in lower sales comparatively.
Cost of sales and gross margins for the year ended June 30, 2021, and for the year ended June 30, 2020 were $276,083 and $6,756 respectively, an increase of $269,327. Our cost of sales consists of the cost of parts, materials, distribution, shipping, tariffs, and customs expenses. The increase in gross margin is primarily attributed to an increase in manufacturing and selling in 2021 due to increased consumer interest in air purification products, which we believe was one result increased marketing during the COVID-19 pandemic.
We expect our sales and costs of sales to grow as we continue increased marketing and selling of our air purification products. Trends related to climate change did not have a material effect on our results of operations for fiscal years 2021 and 2020. We do believe that the COVID-19 pandemic did have a material impact on increased sales year over year, as we believe consumers were more interested in air purification products. We expect this positive trend to continue, along with negative uncertainties created by COVID-19 related to supply chains and distribution, which we are actively trying to mitigate through our Transition to America Manufacturing Plan.
The following table sets forth the operating expenses for the years ended June 30, 2021 and 2020:
| 2021 | 2020 | Change | ||||||||||
| Advertising & Marketing | $ | 40,343 | $ | 1,451 | $ | 38,892 | ||||||
| Freight and Shipping | $ | 55,143 | $ | 930 | $ | 54,213 | ||||||
| Regulatory Fees | $ | 17,251 | $ | 18,661 | $ | (1,410 | ) | |||||
| Consulting fees | $ | 1,918,210 | $ | 0 | $ | 1,198,210 | ||||||
| Professional fees | $ | 62,189 | $ | 9,455 | $ | 52,734 | ||||||
| Other General and Administrative | $ | 52,697 | $ | 140,847 | $ | (88,150 | ) | |||||
| $ | 2,145,883 | $ | 171,344 | $ | 1,974,489 | |||||||
General and administrative expenses consist primarily of consulting expenses, shipping, commissions, professional fees, sales and marketing, research and development and other operating expenses. General and administrative expenses totaled $2,145,833 for the year ended June 30, 2021 and $171,344 for the year ended June 30, 2020, an increase of $1,974,489 or about 1152%. The change is primarily due to increases in consulting fees of $1,918,210. The increase in consulting and professional fees relates primarily to costs associated with initiatives to relocate parts sourcing and manufacturing operations from China to the United States and securing the establishment of the West Virginia facility, including physical changes to the facility, upgrades to infrastructure and code compliance.
Consulting expenses generally include analysis of our business plans, and the development of findings, conclusions and recommendations concerning technical disciplines and industry specific knowledge. Specifically, consulting services involve the identification of Company objectives, fact-finding, determining problems or opportunities, and evaluating alternatives, formulating actions and follow up. The share compensation was issued as director and officer compensation. Our consultants provide counsel, based mostly, if not entirely, on existing personal knowledge about us, our business and circumstances and the technical matters involved. Our consultants help us develop findings, conclusions, and evaluate recommendations for our decision-making process.
As a result of the foregoing, we recorded a net loss of $1,373,647 for the year ended June 30, 2021, compared to a net loss of $493,443 for the year ended June 30, 2020. The increase in net loss is primarily attributed to the increase in consulting fees, selling, general and administrative expenses.
Liquidity and Capital Resources
During the fourthyear ended June 30, 2021, our cash and cash equivalents increased by $9,785 reflecting net proceeds from change in value of derivative liability, amortization of debt discount and investments in the relocation of parts sourcing and manufacturing operations. At June 30, 2021, the Company had a working capital deficit of $267,309 and cash on hand of $19,320. At June 30, 2020, the Company had a working capital deficit of $2,103,302 and cash on hand of $19,381. During the year ended June 30, 2021, our working capital deficit decreased $1,835,993.
Until such time as we become profitable, we will be required to obtain additional financing or capital investments in order to maintain and expand our operations and take advantage of future business opportunities. Obtaining additional financing will be subject to, among other factors, market conditions, industry trends, investor sentiment and investor acceptance of our business plan and management. These factors may make the timing, amount, terms, and conditions of additional financing unattractive or unavailable to us. There are no assurances that we will be able to raise cash from equity or debt financing efforts or that, even if raised, such cash would be sufficient to satisfy our anticipated capital requirements. Further, there is no assurance concerning the terms on which such capital might be available. Failure to obtain financing sufficient to meet our anticipated capital requirements could have a material adverse effect on our business, operating results, and financial condition.
Operating Activities
Net Loss totaled ($1,373,646) for the year ended June 30, 2021, as compared to net losses of ($493,443) for the year ended June 30, 2020. The increase in cash flows used in operating activities is primarily the result of increased costs related to Company operations, including costs associated with an increase in consulting fees, interest expense and the amortization of debt discount.
Financing Activities
Cash flows provided from financing activities totaled $0 for the year ended June 30, 2021, as compared to $145,618 for the year ended June 30, 2020. The cash flows provided in the 2020 period are primarily the result of the following cash inflows:
$137,500 in net proceeds from convertible promissory notes
$8,150 in net proceeds from operating loan
Investment Activities
On December 31 2018, the Company acquired 600 million digital tokens from First Bitcoin Capital, LLC, an unrelated party, in exchange for a convertible promissory note in the amount of one million dollars. On March 30, 2021, First Bitcoin assigned the promissory note to ANI Holdings, Pty. Ltd., an unrelated third party, granting rights to convert the note into unregistered restricted common stock of the Company. Subsequently ANI Holdings, Pty. Ltd. converted the note into 23,550,100 shares of the Company, terminating the underlying obligation.
The 600 million BIT digital tokens were hosted on a unique blockchain that were later exchanged for 600 million Dogecoin Cash (Crypto:DOG) both then on the Ethereum Blockchain. In 2021, we determined to stop accepting digital currencies for the sale of our products and we sold our remaining on hand digital currencies in 2021 generating $19,635.14. On March 22, 2021, the Company formed DogeSPAC, LLC in Puerto Rico as a wholly owned subsidiary. We later transferred the 600 million digital tokens acquired in 2018 in a spin off transaction with DogeSPAC, LLC, resulting in DogeSPAC, LLC operating as a separate entity, in exchange for DogeSPAC, LLC issuing to all our shareholders one restricted unit in DogeSPAC, LLC for each share of our common stock. Each of our shareholders of record as of June 15, 2021 received one LLC unit for each share of common stock beneficially owned. The units are “restricted securities” as that term is defined by Rule 144(a)(3). The Interests were acquired directly in an unregistered transaction between the Company and DogeSPAC, LLC not involving any public offering. Resales of the LLC units must be registered under Section 5 of the Act, or have an available registration exemption before the LLC Interests may be sold or transferred. The spin off and unit dividend were completed on June 15, 2021, based on the record date, and subsequently paid to all shareholders. The Company is not an affiliate of DogeSPAC, LLC and does not maintain any ownership or control over it. We subsequently liquidated our remaining crypto currency in June 2022 and do not intend to either accept crypto currency as consideration for the purchase of our products or otherwise acquire or invest in crypto currency. Our remaining current subsidiaries are Kronos Advanced Technologies L.L.C., a Colorado limited liability company, and Kronos Advanced Technologies WV, Inc., a West Virginia corporation.
The spin off and unit dividend were completed on June 15, 2021, based on the record date and subsequently paid to all shareholders. Of those shareholders receiving restricted units in DogeSPAC, LLC, affiliates of our Company received the following units: Michael Rubinov: 450,000 restricted units; Mary Taylor: 50,000 restricted units; Joseph Florence: 100,000 restricted units, totally comprising a total of less than 0.001% of the total number of restricted units issued in the spin off transaction. The Company is no longer an affiliate of DogeSPAC, LLC and does not maintain any ownership or control over it.
The DogeSPAC LLC Interests as “Restricted Securities” as that term is defined by Rule 144(a)(3). The Interests were acquired directly in an unregistered spin off transaction between DogeSPAC, LLC and the Company’s shareholders not involving any public offering, such as under Section 4(a)(2). Resales of the LLC Interests must be registered under Section 5 of the Act or have an available registration exemption before the LLC Interests may be sold or transferred.
We had no crypto currency transactions in 2019 or 2020. Our purchases of crypto currencies began in 2021, as represented by the tables below:
DogeCoin
| Date | Amount Paid | Coins Received | Average Price Per Coin | |||
| 2/2/21 | 12.62 | 367.61376000 | 0.03432950931978170 | |||
| 2/4/21 | 2205.26 | 51,158.90646000 | 0.04304346558879660 | |||
| 2/4/21 | 621.51 | 13,894.37574100 | 0.04340188189554410 | |||
| 2/4/21 | 1609.24 | 37,585.46020000 | 0.04318791738489170 | |||
| 2/5/21 | 1768.29 | 41,918.69577000 | 0.04289748333476480 | |||
| 2/5/21 | 621.51 | 14,119.31330000 | 0.04299699640454220 | |||
| 2/8/21 | 1082.95 | 14,863.36154000 | 0.04554932749153120 | |||
| 2/10/21 | 690.41 | 10,407.54955000 | 0.04672314835695910 | |||
| 4/19/21 | 828.64 | 2,507.26961000 | 0.05053153490096790 | |||
| 4/20/21 | 677.13 | 2,160.84779000 | 0.05353676744178250 | |||
| 4/22/21 | 748.74 | 2,879.85402000 | 0.05663565131905110 | |||
| 4/22/21 | 672.62 | 2,703.43813000 | 0.05930573339595470 | |||
| 5/5/21 | 1654.52 | 3,016.87025000 | 0.06677397785026380 |
LiteCoin
| Date | Amount Paid | Coins Received | Average Price Per Coin | |||
| 2/2/21 | 71.42 | 0.49308000 | 144.84465 | |||
| 2/19/21 | 846.82 | 3.56629000 | 237.4512449 |
Bitcoin
| Date | Amount Paid | Coins Received | Average Price Per Coin | |||
| 2/3/21 | 46.79 | 0.00133000 | 35180.45113 | |||
| 2/23/21 | 5485.17 | 0.11514000 | 47639.13497 |
Prior to the Company’s spin off transaction, its Dogecoin balances for 2021 were as follows; Note: the Company had no crypto currency assets in 2020:
| Date | Coins sold | Avg trading price | Selling Price | Cost/Price | Gain (Loss) | |||||||||
| 2/3/21 | 353 | 0.0329 | $ | 11.6137 | 12 | $ | (0.50 | ) | ||||||
| 2/5/21 | 25,528 | 0.0453 | $ | 1,156.4184 | 1097.627324 | $ | 58.79 | |||||||
| 2/5/21 | 19,146 | 0.0453 | $ | 867.3138 | 823.2204932 | $ | 44.09 | |||||||
| 2/5/21 | 20,000 | 0.0455 | $ | 910.0000 | 859.9399281 | $ | 50.06 | |||||||
| 2/11/21 | 30,000 | 0.0727 | $ | 2,181.0000 | 1401.694451 | $ | 779.31 | |||||||
| 2/11/21 | 30,000 | 0.072 | $ | 2,160.0000 | 1401.694451 | $ | 758.31 | |||||||
| 5/3/21 | 10,000 | 0.4123 | $ | 4,123.0000 | 593.057334 | $ | 3,529.94 | |||||||
| 5/3/21 | 10,000 | 0.5 | $ | 5,000.0000 | 593.057334 | $ | 4,406.94 | |||||||
| 5/4/21 | 10,000 | 0.45 | $ | 4,500.0000 | 593.057334 | $ | 3,906.94 | |||||||
| 5/6/21 | 5,000 | 0.6538 | $ | 3,269.0000 | 333.8698893 | $ | 2,935.13 | |||||||
| 5/8/21 | 5,000 | 0.7 | $ | 3,500.0000 | 333.8698893 | $ | 3,166.13 | |||||||
| 165,027 | $ | 19,635.14 | ||||||||||||
The Company’s crypto currencies noted in the above table consisted of Dogecoin, Bitcoin, Tether, and LiteCoin. The Company had no material crypto currency transactions in 2019 or 2020. As of April 25, 2022, the Company had the following remaining crypto currencies:
| Coin | Balance | BTC Value | U.S. Dollar Value | |||||||||
| Tether [Omni Layer] | 6281.520 | 0.16776503 | $ | 6279.50 | ||||||||
| Bitcoin | 0.270269 | 0.270269 | $ | 947.02 | ||||||||
| Tether [ERC20] | 63.81719200 | 0.00170441 | $ | 63.80 | ||||||||
| Dogecoin | 7,785.16989 | 0.000007284 | $ | 2,047.54 | ||||||||
As of June 9, 2022, the Company sold its remaining crypto currencies, and its account balance is zero.
Convertible Notes Payable
Since December 31, 2018, the Company has issued an aggregate of $1,487,500 of convertible promissory notes. Of this amount $1,250,000 was issued for acquisitions and $237,500 was issued for cash. Of the issued notes, four were paid back prior to maturity. There are two convertible notes outstanding: one to Intellicalm in the amount of $100,000; one to First Bitcoin Capital in the amount of $250,000. Neither note has been satisfied or converted into common stock as of the date of this filing. A description of each note follows:
On December 31, 2018, the Company issued a convertible promissory note in the amount of $1,000,000. The note is due on December 31, 2023, and bears interest at 5% per annum. The loan and any accrued interest may be converted into shares of the Company’s common stock at a rate of 80% multiplied by the average of the three lowest trading prices during the previous ten (10) day trading period ending on the latest completed trading day prior to the conversion date. Pursuant to current accounting guidelines, the Company recorded a note discount of $1,000,000 to account for the note’s derivative liability. In addition, the Company recorded an amount of discount in excess of the note principal of $250,000 that was expensed as a financing cost. On June 30, 2021, The Company converted the entirety of the note into shares eliminating the liability of this note completely.
On April 29, 2020, we issued a convertible promissory note to Julius Toth in the amount of $37,500. Mr. Toth is not an affiliate or control person of the Company and is not a related party having a direct or indirect interest in any current or proposed transaction with the Company. The note included interest of 5% per annum. The maturity date was April 29, 2021. The note included rights to convert outstanding principal and interest into shares of our common stock calculated at a discount of 20% to the lowest three trading prices over a ten-day period prior to the date a conversion notice is delivered. We repaid principal and interest on this note prior to the maturity date.
On April 29, 2020, we issued a convertible promissory note to Nina Levy in the amount of $40,000. Ms. Levy is not an affiliate or control person of the Company and is not a related party having a direct or indirect interest in any current or proposed transaction with the Company. The note included interest of 5% per annum. The maturity date was April 29, 2021. The note included rights to convert outstanding principal and interest into shares of our common stock calculated at a discount of 20% to the lowest three trading prices over a ten-day period prior to the date a conversion notice is delivered. We repaid principal and interest on this note prior to the maturity date.
On June 5, 2020, we issued a convertible promissory note to Mark Grossman in the amount of $20,000. Mr. Grossman is not an affiliate or control person of the Company and is not a related party having a direct or indirect interest in any current or proposed transaction with the Company. The note included interest of 5% per annum. The maturity date was June 5, 2020. The note included rights to convert outstanding principal and interest into shares of our common stock calculated at a discount of 20% to the lowest three trading prices over a ten-day period prior to the date a conversion notice is delivered. We repaid principal and interest on this note prior to the maturity date.
On June 8, 2020, we issued a convertible promissory note to Intellicalm, Inc. in the amount of $40,000. Neither Intellicalm, Inc. nor any Intellicalm control person is an affiliate or control person of the Company and are not related parties having a direct or indirect interest in any current or proposed transaction with the Company. The note included interest of 5% per annum. The maturity date was April 29, 2021. The note included rights to convert outstanding principal and interest into shares of our common stock calculated at a discount of 20% to the lowest three trading prices over a ten-day period prior to the date a conversion notice is delivered. We repaid principal and interest on this note prior to the maturity date.
On July 21, 2020, we issued a convertible promissory note to Intellicalm, Inc. in the amount of 100,000. Neither Intellicalm, Inc. nor any Intellicalm control person is an affiliate or control person of the Company and are not related parties having a direct or indirect interest in any current or proposed transaction with the Company. The note included interest of 5% per annum. The maturity date was July 21, 2021. The note included rights to convert outstanding principal and interest into shares of our common stock calculated at a discount of 20% to the lowest three trading prices over a ten-day period prior to the date a conversion notice is delivered. This note remains outstanding.
On October 1, 2019, the Company issued a convertible promissory note in the amount of $250,000 to First Bitcoin Capital, LLC (“First Bitcoin”). Neither First Bitcoin nor any First Bitcoin affiliate are a control person or affiliate of the Company. The note is outstanding and due on October 1, 2024, and bears interest at 5% per annum. The loan and any accrued interest may be converted into shares of the Company’s common stock at a rate of 80% multiplied by the average of the three lowest trading prices during the previous ten (10) day trading period ending on the latest complete trading day prior to the conversion date. Pursuant to current accounting guidelines, the Company recorded a note discount of $250,000 to account for the note’s derivative liability. In addition, the Company recorded an amount of discount in excess of the note principal of $62,500 that was expensed as a financing cost. This note was assigned by First Bitcoin to ANI Holdings, Pty. Ltd. The note remains outstanding.
On June 17th, 2021, West Virginia Economic Development and Authority (WVEDA) approved in a meeting of its board of directors to grant Kronos two loan offers with the aggregate principal amount not to exceed $2,610,000. The loans are for the Company’s acquisition of the manufacturing facility in West Virginia and for fixed equipment. The loans contain repayment terms of 15 years and 10 years respectively. Interest rates for the two notes are as follows:
Loan (1) $1,845,000: This loan shall bear interest fixed as of the third business day prior to closing equal to the rate of the 20 Year US Treasury Note rate plus 0.75%. This loan has a floor (minimum) interest rate of 2. 75% and shall be adjustable every five years. The loan will be secured by a first lien deed of trust on the project land, improvements, and appurtenances in the amount of $1,845,000, and will be cross collateralized with Loan (2), discussed below.
Loan (2) $765,000: This loan shall bear interest fixed as of the third business day prior to closing equal to the rate of the Wall Street Journal Prime rate multiplied by 0.75%. This loan has a floor (minimum) interest rate of 2.75%. The loan will be secured by a UCC-1 security filing on all assets of the Company and will be cross collateralized with Loan (1).
On April 7, 2022, we completed all conditions precedent and the loans closed by our purchase of fixed equipment, providing proofs of hazard and flood insurance, title insurance and liability insurance. We also installed all equipment and completed all renovations at the facility, which resulted in the transfer of title of the real estate to the Company from a “contract of sale” to recorded ownership.
On January 30, 2020, the World Health Organization declared the COVID-19 outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the COVID-19 include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. COVID-19, and actions taken to mitigate it, have had, and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical areas in which the Company operates. While it is unknown how long these conditions will last and what the complete financial effect will be to the company, COVID-19 has had an adverse effect on our business, including our supply chains and distribution systems. While we are taking diligent steps to mitigate disruptions to our supply chain, through our Transition to America Manufacturing Plan, we are unable to predict the extent or nature of these impacts at this time to our future financial condition and results of operations.
The Company sustained continued operating losses during the years ended December 31, 2021 and 2020. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations, in which it has not been successful, and/or obtaining additional financing from its shareholders or other sources, as may be required.
We are endeavoring to expand revenue-generating operations. Without the funding provided by this registration statement, we estimate that we will be able to continue to conduct operations for 12 months. While our priority is on generating cash from operations through the sale of the Company’s products, management is also seeking to raise additional working capital through various financing sources, including the sale of the Company’s equity and/or debt securities, which may not be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to continue our business for as long or as desired and our operating results will be adversely affected. In addition, any financing arrangement may have potentially adverse effects on us and/or our shareholders. Debt financing (if available and undertaken) will increase expenses, must be repaid regardless of operating results, and may involve restrictions limiting our operating flexibility. If we issue equity securities to raise additional funds, the percentage ownership of our existing shareholders will be reduced, and the new equity securities may have rights, preferences, or privileges senior to those of the current holders of our shares of Common Stock.
| 49 |
Overview and Financial Condition, for the Nine Months Ended March 31, 2022 and March 31, 2021
Results of Operations
The following table sets forth the unaudited results of our operations for the quarter ended March 31, 2022 and March 31, 2021.
| As of March 31, 2022 [Unaudited] | As of March 31, 2021 [Unaudited] | |||||||
| Net Sales | $ | 16,055 | $ | 455,163 | ||||
| Cost of goods sold: | (15,514 | ) | 225,518 | |||||
| Gross profit | (541 | ) | 229,645 | |||||
| Operating Expenses | (93,967 | ) | (1,956,853 | ) | ||||
| Loss from operations | (93,426 | ) | (1,727,408 | ) | ||||
| Other expense | 16,857 | 101,568 | ||||||
| Net Loss | $ | (110,823 | ) | $ | (1,828,776 | ) | ||
Operating Results
Quarter Ended March 31, 2022 Compared to Quarter Ended March 31, 2021
Our sales totaled $16,055 for the quarter ended March 31, 2022 compared to $455,163 for the quarter ended March 31, 2021, a decrease of $439,108. The decrease is primarily related to the COVID-19 pandemic, which had an impact on worldwide manufacturing, supply and sales, which affected our ability to sell inventory, and our focus on transitioning and developing our physical plant and manufacturing facility to our West Virginia location, which also diverted our efforts at sales.
Cost of sales and gross margins for the quarter ended March 31, 2022 and for the quarter ended March 31, 2021 were $15,514 and $225,518 respectively, a decrease of $210,004. Our cost of sales consists of the cost of parts, materials, distribution, shipping, tariffs, and customs expenses. The decrease in gross margin is primarily attributed to a decrease in manufacturing and selling in during the quarter ended March 31, 2022 as we focused on moving our manufacturing facilities to the United States. Another contributing factor was the COVID-19 pandemic and its impact on worldwide manufacturing, supply, and sales.
General and administrative expenses consist primarily of consulting expenses, shipping, commissions, professional fees, sales and marketing, research and development and other operating expenses. General and administrative expenses totaled for the quarter ended March 31, 2022 of $93,967 and $1,956,830 for the quarter ended March 31, 2021, a decrease of $1,862,863. The change is primarily due to previous increases in 2021 consisting of $1,797,075 in stock based compensation for consulting fees related primarily to costs associated with initiatives to relocate parts sourcing and manufacturing operations from China to the United State and securing the establishment of the West Virginia facility.
As a result of the foregoing, we recorded a net loss of $110,283 for the nine months ended March 31, 2022, compared to a net loss of $1,828,276 the nine months ended March 31, 2021. The decrease in net loss is primarily attributed to our previous increases in selling, general and administrative expenses and stock based compensation during the fiscal year end June 30, 2021.
Liquidity and Capital Resources
During the nine months ended March 31, 2022, our cash and cash equivalents were $15,114 compared to $19,320 at for the year end June 30, 2021 and $41,716 as of the quarter ended December 31, 2021.
Operating Activities
Net cash used in operating activities totaled ($99,443) for the nine months ended March 31, 2022 as compared to ($17,362) for the nine months ended March 31, 2021, an increase of $82,801. The increase reflects expenditures related to the establishment of our West Virgina facility during the nine months ended March 31, 2022.
Financing Activities
Cash flows provided from financing activities totaled $73,000 for the nine months ended March 31, 2022 as compared to $82,835 for the nine months ended March 31, 2021.
Convertible Notes Payable
Since December 31, 2018, the Company has issued an aggregate of $1,487,500 of convertible promissory notes. Of this amount $1,250,000 was issued for acquisitions and $237,500 was issued for cash. Of the issued notes, four were paid back prior to maturity. There are two convertible notes outstanding: one to Intellicalm in the amount of $100,000; one to First Bitcoin Capital in the amount of $250,000. Neither note has been satisfied or converted into common stock as of the date of this filing. A description of each note follows:
On December 31, 2018, the Company issued a convertible promissory note in the amount of $1,000,000. The note is due on December 31, 2023, and bears interest at 5% per annum. The loan and any accrued interest may be converted into shares of the Company’s common stock at a rate of 80% multiplied by the average of the three lowest trading prices during the previous ten (10) day trading period ending on the latest completed trading day prior to the conversion date. Pursuant to current accounting guidelines, the Company recorded a note discount of $1,000,000 to account for the note’s derivative liability. In addition, the Company recorded an amount of discount in excess of the note principal of $250,000 that was expensed as a financing cost. On June 30, 2021, The Company converted the entirety of the note into shares eliminating the liability of this note completely.
On April 29, 2020, we issued a convertible promissory note to Julius Toth in the amount of $37,500. Mr. Toth is not an affiliate or control person of the Company and is not a related party having a direct or indirect interest in any current or proposed transaction with the Company. The note included interest of 5% per annum. The maturity date was April 29, 2021. The note included rights to convert outstanding principal and interest into shares of our common stock calculated at a discount of 20% to the lowest three trading prices over a ten-day period prior to the date a conversion notice is delivered. We repaid principal and interest on this note prior to the maturity date.
On April 29, 2020, we issued a convertible promissory note to Nina Levy in the amount of $40,000. Ms. Levy is not an affiliate or control person of the Company and is not a related party having a direct or indirect interest in any current or proposed transaction with the Company. The note included interest of 5% per annum. The maturity date was April 29, 2021. The note included rights to convert outstanding principal and interest into shares of our common stock calculated at a discount of 20% to the lowest three trading prices over a ten-day period prior to the date a conversion notice is delivered. We repaid principal and interest on this note prior to the maturity date.
On June 5, 2020, we issued a convertible promissory note to Mark Grossman in the amount of $20,000. Mr. Grossman is not an affiliate or control person of the Company and is not a related party having a direct or indirect interest in any current or proposed transaction with the Company. The note included interest of 5% per annum. The maturity date was June 5, 2020. The note included rights to convert outstanding principal and interest into shares of our common stock calculated at a discount of 20% to the lowest three trading prices over a ten-day period prior to the date a conversion notice is delivered. We repaid principal and interest on this note prior to the maturity date.
On June 8, 2020, we issued a convertible promissory note to Intellicalm, Inc. in the amount of $40,000. Neither Intellicalm, Inc. nor any Intellicalm control person is an affiliate or control person of the Company and are not related parties having a direct or indirect interest in any current or proposed transaction with the Company. The note included interest of 5% per annum. The maturity date was April 29, 2021. The note included rights to convert outstanding principal and interest into shares of our common stock calculated at a discount of 20% to the lowest three trading prices over a ten-day period prior to the date a conversion notice is delivered. We repaid principal and interest on this note prior to the maturity date.
On July 21, 2020, we issued a convertible promissory note to Intellicalm, Inc. in the amount of 100,000. Neither Intellicalm, Inc. nor any Intellicalm control person is an affiliate or control person of the Company and are not related parties having a direct or indirect interest in any current or proposed transaction with the Company. The note included interest of 5% per annum. The maturity date was July 21, 2021. The note included rights to convert outstanding principal and interest into shares of our common stock calculated at a discount of 20% to the lowest three trading prices over a ten-day period prior to the date a conversion notice is delivered. This note remains outstanding.
On October 1, 2019, the Company issued a convertible promissory note in the amount of $250,000 to First Bitcoin Capital, LLC (“First Bitcoin”). Neither First Bitcoin nor any First Bitcoin affiliate are a control person or affiliate of the Company. The note is outstanding and due on October 1, 2024, and bears interest at 5% per annum. The loan and any accrued interest may be converted into shares of the Company’s common stock at a rate of 80% multiplied by the average of the three lowest trading prices during the previous ten (10) day trading period ending on the latest complete trading day prior to the conversion date. Pursuant to current accounting guidelines, the Company recorded a note discount of $250,000 to account for the note’s derivative liability. In addition, the Company recorded an amount of discount in excess of the note principal of $62,500 that was expensed as a financing cost. This note was assigned by First Bitcoin to ANI Holdings, Pty. Ltd. The note remains outstanding.
On June 17th, 2021, West Virginia Economic Development and Authority (WVEDA) approved in a meeting of its board of directors to grant Kronos two loan offers with the aggregate principal amount not to exceed $2,610,000. The loans are for the Company’s acquisition of the manufacturing facility in West Virginia and for fixed equipment. The loans contain repayment terms of 15 years and 10 years respectively. Interest rates for the two notes are as follows:
Loan (1) $1,845,000: This loan shall bear interest fixed as of the third business day prior to closing equal to the rate of the 20 Year US Treasury Note rate plus 0.75%. This loan has a floor (minimum) interest rate of 2. 75% and shall be adjustable every five years. The loan will be secured by a first lien deed of trust on the project land, improvements, and appurtenances in the amount of $1,845,000, and will be cross collateralized with Loan (2), discussed below.
Loan (2) $765,000: This loan shall bear interest fixed as of the third business day prior to closing equal to the rate of the Wall Street Journal Prime rate multiplied by 0.75%. This loan has a floor (minimum) interest rate of 2.75%. The loan will be secured by a UCC-1 security filing on all assets of the Company and will be cross collateralized with Loan (1).
On April 7, 2022, we completed all conditions precedent and the loans closed by our purchase of fixed equipment, providing proofs of hazard and flood insurance, title insurance and liability insurance. We also installed all equipment and completed all renovations at the facility, which resulted in the transfer of title of the real estate to the Company from a “contract of sale” to recorded ownership.
On January 30, 2020, the World Health Organization declared the COVID-19 outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the COVID-19 include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. COVID-19, and actions taken to mitigate it, have had, and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical areas in which the Company operates. While it is unknown how long these conditions will last and what the complete financial effect will be to the company, COVID-19 has had an adverse effect on our business, including our supply chains and distribution systems. While we are taking diligent steps to mitigate disruptions to our supply chain, including our Transition to America manufacturing strategy, we are unable to predict the extent or nature of these impacts at this time to our future financial condition and results of operations.
For the quarter ended March 31, 2022, we received an operating loan of $73,000.
Related Party Transactions
We follow FASB ASC subtopic 850-10, “Related Party Transactions”, for the identification of related parties and disclosure of related party transactions.
Pursuant to ASC 850-10-20, related parties include: a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
Material related party transactions are required to be disclosed in the financial statements, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which statements of operation are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which statements of operations are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Our corporate headquarters are located at 2501 Garfield Avenue, Parkersburg, WV 26101. We acquired the property in a transaction on June 30, 2021 in an exchange transaction with GX7 Limited, a West Virginia limited partnership, 50% of which is owned by current Chief Operating Officer, Joseph Florence. GX7 received 91,000,000 shares as part of the purchase agreement for our newly owned warehouse facility, which includes our offices as well as 62,400 square feet of infrastructure in place for manufacturing, product design and research and development. Two separate buildings on the property contains 15,900 and 7,500 square feet respectively. A 10-acre paved parking lot is also included.
The 91,000,000 shares issued to GX7 amount represents approximately 13.80% of the issued and outstanding common stock of the Company as of July 8, 2021.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
| 52 |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table lists, as of July 8, 2022, the number of shares of common stock of our Company that is beneficially owned by (i) each person or entity is known to our Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each officer and director of our Company; and (iii) all sole officer and director as a group. Information relating to beneficial ownership of the common stock by our principal shareholders and management is based upon each person’s information using “beneficial ownership” concepts under the Securities and Exchange Commission rules. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within sixty (60) days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.
The percentages below are calculated based on 659,323,911 shares of our common stock issued and outstanding as of July 8, 2022.
EXECUTIVE AND DIRECTOR COMPENSATION
Officers and Directors
| Name and Address (1) | Title of Class | Number of Shares Beneficially Owned | Percent of Class | |||||||
| Michael Rubinov, Director, President, CEO, CFO, Secretary | Common | 1,574,325 | 0.647 | % | ||||||
| Joseph Florence, Chief Operating Officer | Common | 1,669,821 | 0.687 | % | ||||||
| Mary Taylor, Director | Common | 100,000 | 0.004 | % | ||||||
| Common | 0 | 0.0 | % | |||||||
| Officers and Directors as a group (3 persons) | Common | 3,344,146 | 1.376 | % | ||||||
(1) Addresses for all officers and directors are 2501 Garfield Avenue, Parkersburg, WV 26101.
Beneficial Owners of 5% or More of Our Issued and Outstanding Shares
| Name and Address | Title of Class | Number of Shares Beneficially Owned | Percent of Class (2) | |||||||
| GX7 Limited Partnership (1) | Common | 91,000,000 | 13.80 | % | ||||||
| 5% Beneficial Owners as a group | Common | 91,000,000 | 13.80 | % | ||||||
(1) Our Chief Operating Officer Mr. Joseph Florence is the control person with voting and dispositive control of GX7 Limited Partnership.
(2) Based on total issued and outstanding shares of 659,323,911 as of July 8, 2022.
The following table represents our compensation to our directors and officers through the end of fiscal 2001,year June 30, 2021:
| Name and principal position | Year | Salary(1) ($) | Bonus ($) | Stock awards(2) ($) | Option awards ($) | Nonequity incentive plan compensation ($) | Nonqualified deferred compensation earnings ($) | All other compensation ($) | Total ($) | |||||||||||||||||||||||||||
| Michael Rubinov | 2021 | $ | 0 | $ | 0 | $ | 88,260 | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 88,260 | ||||||||||||||||||||
| 2020 | $ | 0 | $ | 0 | $ | 39,150 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 39,150 | ||||||||||||||||||||
| 2019 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||
| Joseph Florence | 2021 | $ | 0 | $ | 0 | $ | 119,777 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 119,777 | |||||||||||||||||||
| 2020 | $ | 0 | $ | 0 | $ | 8,700 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 8,700 | ||||||||||||||||||||
| 2019 | $ | 0 | $ | 0 | $ | $0 | $ | 0 | $ | 0 | $ | 0 | $ | |||||||||||||||||||||||
| Mary Taylor | 2021 | $ | 0 | $ | 0 | $ | 1,500 | $ | $0 | $ | 0 | $ | 0 | $ | 1,500 | |||||||||||||||||||||
| 2020 | $ | 0 | $ | 0 | $ | 4,350 | $ | $0 | $ | 0 | $ | 0 | $ | 4,350 | ||||||||||||||||||||||
| 2019 | $ | 0 | $ | 0 | $ | 0 | $ | $0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||
(1) None of our Directors are compensated in cash, and none have received any cash payments for the previous two fiscal years.
(2) All stock awards valued as of the price per share on the date of issuance.
Summary Compensation Table
The following tables set forth certain information about cash compensation paid, earned, or accrued for services by (i) our Chief Executive Officer, our Directors and (ii) all other executive officers (“Named Executive Officers”):
| Michael Rubinov | 2021 | $ | — | $ | — | |||||
| Director, Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary | 2020 | $ | — | $ | — | |||||
| 2019 | $ | — | $ | — | ||||||
| Joseph Florence | 2021 | $ | — | $ | — | |||||
| 2020 | $ | — | $ | - | ||||||
| Chief Operating Officer | 2019 | $ | — | $ | — | |||||
| Mary Taylor | 2021 | $ | — | $ | — | |||||
| 2020 | $ | — | $ | — | ||||||
| Director | 2019 | $ | — | $ | — |
| 54 |
Outstanding Equity Awards at Fiscal Year-End
| Option awards | Stock awards | |||||||||||||||||||||||||||||||||||
| Name | Number of securities underlying unexercised options (#) exercisable | Number of securities underlying unexercised options (#) unexercisable | Equity incentive plan awards: Number of securities underlying unexercised unearned options (#) | Option exercise price ($) | Option expiration date | Number of shares or units of stock that have not vested (#) | Market value of shares of units of stock that have not vested ($) | Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) | Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($) | |||||||||||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||||||
| Michael Rubinov | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
| Joseph Florence | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
| Mary Taylor | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
We have no plan providing for the payment of retirement benefits, or benefits that will be paid primarily following retirement, including but not limited to tax-qualified defined benefit plans, supplemental executive retirement plans, tax-qualified defined contribution plans and nonqualified defined contribution plans.
We have no agreement, plan, or arrangement, whether written or unwritten, with our named executive officers providing for payment(s) following, or in connection with, the resignation, retirement or other termination of a named executive officer, or a change in control of our company or a change in the named executive officer’s responsibilities following a change in control, with respect to each named executive officer.
OUR DIRECTORS AND EXECUTIVE OFFICERS
Michael Rubinov – Director, President, Secretary, Chief Executive Officer, Chief Financial Officer; Mr. Rubinov has been an executive in the hi-tech industry for the last 20 years and served in various business roles with global companies Intel, Boeing, NICE Systems as well as with start-up companies in fintech, cyber and telecom markets. Mr. Rubinov holds BSEE (from NYIT), MsCS (Stevens Institute of Technology) and MBA from UK Bradford School of Management.
From 2017 to 2019, Mr. Rubinov served as a business and accounts executive with L&T Technology, a global engineering services firm with its headquarters in India. L&T Technology hired Mr. Rubinov to help establish local presence in Israel. L&T Technology’s focus was to offer various engineering services in outsourcing model. Mr. Rubinov’s duties were to penetrate large accounts in Israel, build a local brand via marketing activities and increase sales. With Mr. Rubinov’s help, in 2 years sales increased by approximately 50% from 2 million dollars to $3.5 million dollars, and the firm developed its brand and sales from existing accounts.
From 2020 to date, Mr. Rubinov, age 55, has been our Director, President, Secretary and CEO.
Joseph Florence – Chief Operating Officer; Prior to joining Kronos, Florence, age 59, worked more than 30 years in custom electronics manufacturing, as an owner/founder, as well as running several manufacturing and supply chain solution companies. He was awarded Ernst and Young’s WV Entrepreneur of the Year. Most recently, he directed a 200-person domestic manufacturing technology company directed toward the supply chain globalization of America while improving market share and profitability. Mr. Florence has twenty-five years of experience in entrepreneurial middle-market businesses, and a complete understanding of all levels of business processes and operations. He successfully led companies at the “C” level, ensuring the clear communication of strategic plans and any associated company risks to all stakeholders.
As an experienced middle-market Chief Financial Officer and Treasurer, Mr. Florence successfully funded and provided ongoing financing through both private equity offerings and debt obligations for six companies, responsible for financial management and cash management with an understanding of debt financing of middle-market companies and developing financial projections.
Mr. Florence co-developed new internal engineering design methodologies for Fortune 100 defense contractor, focused on embedding manufacturing involvement into the design process, achieving a 40%-unit production cost savings. Successfully conceptualized, designed, manufactured in China, and licensed patents for several consumer products.
Mr. Florence is a supply chain expert, including quoting, negotiating with vendors, and development of effective internal controls. His experience allowed him to develop new processes, including MRP share, with key suppliers resulting in a 60% reduction in personnel.
During the previous five years, Mr. Florence has served as an independent product consultant, focused on designing, licensing, and globally manufacturing consumer products. Additionally, Mr. Florence provided outside consulting services for a national marketing and distribution company; and provided contract accounting services and business consulting strategies. In 2020 Kronos appointed Mr. Florence as an officer focused on operations and the development of long-term business strategies for the Company.
Mary Taylor – Independent Director, Ms. Taylor, age 55, is a certified public accountant and, prior to her political career, spent 16 years in the private sector, including 12 years with Bober Markey Fedorovich, an Akron-based CPA and advisory firm.
From 2011 to 2019, Ms. Taylor was Lieutenant Governor for the State of Ohio, where she was elected to serve two terms and was appointed by the Governor as the Director of the Ohio Department of Insurance.
From 2019 to 2020, Ms. Taylor was the Chair of the Finance and Operations Advisory Committee, and Executive Vice President & CFO, Responsible for Finance and Accounting, and IT. Member of the Executive Leadership Team for Welty Building Company, Fairlawn, Ohio.
Family Relationships
There are no family relationships among any of the directors or executive officers.
Director Independence
Our board of directors has undertaken a review of the independence of each director. Based on information provided by each director concerning her or his background, employment and affiliations, our board of directors has determined that Mary Taylor have no relationships that would interfere with their exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the listing standards of the New York Stock Exchange (“NYSE”). In making these determinations, our board of directors considered the current and prior relationships that each has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our shares by each and Ms. Taylor, and the transactions described in the section titled “Certain Relationships and Related Party Transactions.”
Long-Term Incentive Plans
There are no arrangements or plans in which we provide pension, retirement, or similar benefits for directors or executive officers, except that our directors and executive officers receive stock options at the discretion of our Board. We do not have any material bonus or profit-sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of our Board.
Changes in Control
We are unaware of any contract or other arrangement the operation of which may result in a change in control of our company at a subsequent date.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Our corporate headquarters are located at 2501 Garfield Avenue, Parkersburg, WV 26101. We acquired the property in a transaction on June 30, 2021 in an exchange transaction with GX7 Limited, a West Virginia limited partnership, 50% of which is owned by current Chief Operating Officer, Joseph Florence. The property includes a 62,400 square foot manufacturing facility, a 15,900 square foot warehouse, and a 7,500 square foot auxiliary building respectively. A 10-acre paved parking lot is also included. The total purchase price of the property is $5,800,000. The Company and GX7 agreed to payment terms as follows: the issuance of 91 million shares of common stock to GX7, and the payment of $2,610,000 in cash. The Company intends to pay GX7 from the proceeds of the loans offered by the West Virginia Economic Development Authority (“WVEDA”). As of the date of this filing, the loans offered by the WVEDA have not been consummated and are contingent upon the Company determined that
its investmentcompleting renovations to the physical buildings on the property, and the purchase of fixed equipment, including our providing proofs of hazard and flood insurance, title insurance and liability insurance. On April 7, 2022, we completed all conditions precedent and the loans closed by our purchase of fixed equipment, providing proofs of hazard and flood insurance, title insurance and liability insurance. We also installed all equipment and completed all renovations at the facility, which resulted in EdgeAudio was impaired. The Company recognized $2.3 million as
an impairment loss. Also during the fourth quartertransfer of 2001,title of the real estate to the Company determinedfrom a “contract of sale” to recorded ownership.
The 91,000,000 shares issued to GX7 amount represents approximately 13.80% of the issued and outstanding common stock of the Company as of July 8, 2022.
LEGAL MATTERS
Mailander Law Office, Inc., will render a legal opinion as to the validity of the shares of the common stock to be registered hereby.
The financial statements of our company included in this Prospectus, for the fiscal years ended June 30, 2021, and 2020, were audited by Weinstein International to the extent and for the period outlined in their report appearing elsewhere in the Prospectus and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.
No expert named in the registration statement of which this Prospectus forms a part as having prepared or certified any part thereof (or is named as having prepared or certified a report or valuation for use in connection with such registration statement) or counsel named in this Prospectus as having given an opinion upon the validity of the securities being offered pursuant to this Prospectus, or upon other legal matters in connection with the registration or offering such securities was employed for such purpose on a contingency basis. Also, at the time of such preparation, certification, or opinion or at any time thereafter, through the date of effectiveness of such registration statement or that part of such registration statement to which such preparation, certification or opinion relates, no such person had or is to receive, in connection with the offering, a substantial interest, as defined in Item 509 of Regulation SK, in our company or any of its investmentparents or subsidiaries. Nor was any such person connected with our company or any of its parents or subsidiaries as a promoter, managing or principal underwriter, or voting trustee.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation and Bylaws provide that we may indemnify our officers and directors to the maximum extent permitted by Nevada law, and we have entered into agreements with our directors to provide contractual indemnification in CDI was impaired. The Company recognized
$273,000addition to the indemnification provided in our Bylaws. Insofar as an impairment loss.
F-31
PARTindemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
| 57 |
Kronos Advanced Technologies, Inc.
80,526,056
Shares of Common Stock
July 14,2022
PROSPECTUS
| 58 |
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13.
Information Not Required in Prospectus
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth estimatedthe costs and expenses expected to be
incurred in connection with the issuance and distribution of the securities being registered.
| Securities and Exchange Commission registration fees | $ | 194.08 | ||
| Accounting fees and expenses | $ | 11,000.00 | ||
| Legal fees and expenses | $ | 10,000.00 | ||
| Miscellaneous fees and expenses | $ | 00.00 | ||
| Total | $ | 21,194.08 |
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act”) may be permitted to directors, officers and controlling persons of the expenses associated with this offering will
be borne by the selling stockholders.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
We will indemnify each director,small business issuer pursuant to the fullest extent permitted by
law, fromforegoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against anypublic policy as expressed in the Act and all claimsis, therefore, unenforceable.
The Company’s Certificate of any type arising fromIncorporation provides that no director of the Company shall be personally liable to the Company or related to
his past or future acts or omissionsits stockholders for monetary damages for breach of fiduciary duty as a director except as limited by Nevada law. The Company’s Bylaws provide that the Company shall indemnify to the full extent authorized by law each of its directors and officers against expenses incurred in connection with any proceeding arising by reason of the fact that such person is or was an agent of the corporation.
Nevada law
Section 78.751 of the Nevada General Corporation Laws provides as follows: “78.751 Indemnification of officers, directors, employees and agents; advance of expenses. 1. A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of our Companythe corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorney’s fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of our subsidiaries. In addition, we have agreedany action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to advancebe in or not opposed to the best interests of the corporation, and that, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was lawful.”
“A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation.
“Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.”
“To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections 1 and 2, or in defense of any claim, issue or matter therein, he must be indemnified by the corporation against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with the defense.”
“Any indemnification under subsections 1 and 2, unless ordered by a court or advanced pursuant to subsection 5, must be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made: (a) By the stockholders: (b) By the board of directors by majority vote of a quorum consisting of directors who were not parties to act, suit or proceeding; (c) If a majority vote of a quorum consisting of directors who were not parties to the act, suit or proceeding so orders, by independent legal counsel in a written opinion; or (d) If a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion. The Articles of Incorporation, the Bylaws or an agreement made by the corporation may provide that the expenses of each directorofficers and directors incurred in defending a civil or criminal, suit or proceeding must be paid by the corporation as they are incurred and in advance of the final disposition of any claim.
Pursuant to our Bylaws, we are obligated to indemnify each of our
directors and officers to the fullest extent permitted by law with respect to
all liability and loss suffered, and reasonable expenses incurred, by such
person in any action, suit or proceeding, in which such person wasupon receipt of an undertaking by or is made or
threatened to be made a party or is otherwise involved by reasonon behalf of the fact
that such person is or was a director or officer to repay the amount if it is ultimately determined by a court of our Company. Our bylaws
further eliminate personal liabilitycompetent jurisdiction that he is not entitled to be indemnified by corporation. The provisions of this subsection do not affect any rights to advancement of expenses to which corporate personnel other than the directors or officers may be entitled under any contract or otherwise by law.”
“The indemnification and advancement of expenses authorized in or ordered by a court pursuant to this section: (a) Does not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the articles of incorporation or any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, for either an action in his official capacity or an action in another capacity while holding his office, except that indemnification, unless ordered by a court pursuant to subsection 2 or for the advancement of expenses made pursuant to subsection 5, may not be made to or on behalf of any director or an officer to our Company
or to any of our stockholders for monetary damages forif a breach of fiduciary
duty as a director or an officer except for: (i) actsfinal adjudication establishes that his act or omissions which involveinvolved intentional misconduct, fraud or a knowing violation of law; or (ii) the paymentlaw and was material to the cause of distributions in violation of Section 78.300 of Nevada Revised
Statutes. We are also obligated to pay the reasonable expenses of indemnified
directors or officers in defending such proceedings if the indemnified party
agrees to repay all amounts advanced should it be ultimately determined that
such person is not entitled to indemnification.
We also maintain an insurance policy covering directors and officers
under which the insurer agrees to pay, subject to certain exclusions, for any
claim made against the directors and officers of our Companyaction. (b) Continues for a wrongful actperson who has ceased to be a director, officer, employee, or agent and inures to the benefit of the heirs, executors, and administrators of such a person. Insofar as indemnification for which theyliabilities arising under the Securities Act may become legally obligatedbe permitted to paydirectors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or for which we are required
to indemnify our directors and officers.
ITEM 15. otherwise.
RECENT SALES OF UNREGISTERED SECURITIES
All of
The issuances were made in reliance on the following shares were issuedexemptions from registration provided by Sections 4(a)(2) and options and warrants
granted4.2. Each beneficial owner holder was an “accredited investor” and/or “sophisticated investor” pursuant to the exemption provided for under Section 4(2)501(a)(b) of the Securities Act, of 1933, as amended,who provided the Company with representations, warranties and information concerning their respective qualifications as a "transaction not involving a public
offering." No commissions were paid,“sophisticated investor” and/or “accredited investor.” The Company provided and made available to each note holder full information regarding its business and operations. There was no underwriter participated,general solicitation in connection with anythe offer or sale of these transactions.
In April 1999, wethe restricted securities. The note holders acquired the restricted common stock for their own account, for investment purposes and not with a view to public resale or distribution thereof.
During the past three years, the Company has sold the following unregistered securities:
Year Ended June 30, 2019
During the year ended June 30, 2019, the Company issued 1,000,000no common stock.
Year Ended June 30, 2020
On February 26, 2020, issued 12,000,000 shares of ourrestricted common stock valued
at $0.30 per share, at an aggregate valueto First Bitcoin Capital, LLC as conversion of $300,000, toaccrued interest due under a promissory note.
On April 6, 2020, the nominee of a
director and executive officer of TSET, based on an employment agreement dated
April 16, 1999. The fair market value of a share of our common stock on April
16, 1999, the date of grant, was $1.00 per share. In September 2001, TSET
determined that such employment agreement was null and void from its inception.
As a consequence, the issuance of the 1,000,000 common shares is void as of
April 16, 1999, the effective date of the employment agreement, and theseCompany issued 12,000,000 shares of common stock will be treatedto First Bitcoin Capital, LLC valued at $23,000 upon conversion of accrued interest, convertible at 80% multiplied by the Market Price (representing a discount rate of 20%). Market Price is defined as if they neverthe average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period ending one trading day prior to the date the conversion. The shares issued were issued.valued at the date interest was accrued under the agreement. The issuanceCompany relied upon the Section 4(a)(2) exemption from registration provided by Rule 506(b) of suchRegulation D.
Year Ended June 30, 2021
On August 6, 2020, we issued 400,000 shares is not reflectedof restricted common stock to Julius Toth in the financial statements.
Inexchange for consulting services.
On August 1999,6, 2020, we issued 450,000 shares of restricted common stock to Michael Rubinov in exchange for consulting and director & officer services.
On August 6, 2020, we issued 225,000 shares of restricted common stock to Vyacheslav Abramov in exchange for consulting services.
On August 6, 2020, we issued 100,000 shares of ourrestricted common stock valued at
$0.50 per share (the fair market value for our shares as of such date), at an
aggregate value of $50,000, to twelve personsJoseph Florence in exchange for ownership of U.S.
patent no. 4,803,632 (issued February 7, 1989)consulting and related intellectual property
rights relating to a technology and device referred to as the "Intelligent
Utility Meter System".
II-1
In January 2000,director & officer services.
On August 6, 2020, we issued 74,094114,500 shares of ourrestricted common stock valued at
$0.69 per share (the negotiated purchase price for such shares), to one person,
a stockholder of TSET,Vladimir Gorobets in exchange for $51,125 in cash.
In February 2000, we issued 80,435 shares of our common stock, valued
at $0.92 per share (the negotiated purchase price for such shares), to one
person, a stockholder of TSET, in exchange for $74,000 in cash.
In March 2000, we issued 619,645 shares of our common stock, valued at
$1.81 per share (the negotiated purchase price for such shares), at an aggregate
value of $1,119,234, to nine persons in exchange for all of the issued and
outstanding shares of common stock of Atomic Soccer owned by such persons.
In March 2000, we issued 380,355 shares of our common stock, valued at
$1.81 per share (the negotiated purchase price for such shares), at an aggregate
value of $687,016, to one person in exchange for all of the issued and
outstanding shares of common stock of Atomic Soccer owned by such person.
In March 2000, we issued 37,555 shares of our common stock as part of
the Atomic Soccer acquisition. There was no value received for these shares. We
are seeking their return.
In March 2000, we issued 2,250,000 shares of our common stock, valued
at $1.49 per share (the negotiated purchase price for such shares), at an
aggregate value of $3,346,875, to six persons in exchange for 100% of the issued
and outstanding common stock of Kronos Air Technologies.
In March 2000, we issued 45,045 shares of our common stock, valued at
$2.22 per share (the negotiated purchase price for such shares), to one person,
a stockholder of TSET, in exchange for $100,000 in cash.
In March 2000, we issued 78,325 shares of our common stock, valued at
$2.03 per share (the negotiated purchase price for such shares), to one person,
a stockholder of TSET, in exchange for $159,000 in cash.
In April 2000, we issued 77,670 shares of our common stock, valued at
$1.03 per share (the negotiated purchase price for such shares), to one person,
a stockholder of TSET, in exchange for $80,000 in cash.
In April 2000, we issued 179,641 shares of our common stock, valued at
$1.67 per share (the negotiated purchase price for such shares), to one person,
a stockholder of TSET, in exchange for $300,000 in cash.
In May 2000, we issued 1,298,701 shares of our common stock, valued at
$1.96 per share (the negotiated purchase price for such shares), at an aggregate
value of $2,550,000, to five persons in exchange for 100% of the issued and
outstanding common stock of EdgeAudio.
In May 2000, we issued 180,000 shares of our common stock, valued at
$1.96 per share (the negotiated purchase price for such shares), at an aggregate
value of $353,430, to five persons in exchange for 100% of the issued and
outstanding membership interests of Cancer Detection International. In 2001,
there was a 20,000 common share adjustment ($39,250) to this purchase, resulting
in a net 160,000 shares of our common stock being issued.
In May 2000, we issued 57,971 shares of our common stock, valued at
$1.38 per share (the negotiated purchase price for such shares), to one person,
a stockholder of TSET, in exchange for $80,000 in cash.
In May 2000, we issued 14,815 shares of our common stock, valued at
$3.375 per share (the fair market value for our shares as of such date), at an
aggregate value of $50,000, to a director and executive officer of TSET, based
on an employment agreement dated May 19, 2000.
In June 2000, we issued 52,980 shares of our common stock, valued at
$1.51 per share (the negotiated purchase price for such shares), to one person,
a stockholder of TSET, in exchange for $80,000 in cash.
In June 2000, we issued 122,699 shares of our common stock, valued at
$1.63 per share (the negotiated purchase price for such shares), at an aggregate
value of $200,000, to one person who is a director and executive officer of
TSET.
In July 2000, we issued 161,538 shares of our common stock, valued at
$1.17 per share (the negotiated purchase price for such shares), to one person,
a stockholder of TSET, in exchange for $189,000 in cash.
II-2
Inconsulting services.
On August 2000, we issued 5,000 shares of our common stock, valued at
$1.312 per share (the fair market value for our shares as of such date), at an
aggregate value of $6,560, to an executive officer of TSET, as compensation.
In August 2000, we issued 120,000 shares of our common stock, valued at
$1.00 per share (the negotiated purchase price for such shares), to one person,
a stockholder of TSET, in exchange for $120,000 in cash.
In August 2000, we issued 8,004 shares of our common stock, valued at
$1.42 per share (the negotiated exchange value of such shares), at an aggregate
value of $11,366, to one person in liquidation of indebtedness of Atomic Soccer.
In August 2000, we issued 44,667 shares of our common stock, valued at
$1.24 per share (the negotiated exchange value of such shares), at an aggregate
value of $55,388, to two persons in liquidation of indebtedness of Atomic
Soccer.
In September 2000, we issued 309,588 shares of our common stock, valued
at $1.00 per share (the negotiated exchange value of such shares), at an
aggregate value of $309,588, to two persons in liquidation of indebtedness of
Atomic Soccer.
In September 2000, we issued 45,800 shares of our common stock, valued
at $1.00 per share (the negotiated purchase price for such shares), to one
person, a stockholder of TSET, in exchange for $45,800 in cash.
In September 2000, we issued 559,000 shares of our common stock, valued
at $1.00 per share (the negotiated purchase price for such shares), to one
person, a stockholder of TSET, in exchange for $559,000 in cash.
In September 2000, we issued 150,000 shares of our common stock, valued
at $1.00 per share (the negotiated purchase price for such shares), to one
person, a stockholder of TSET, in exchange for $150,000 in cash.
In December 2000, we issued 168,492 shares of our common stock, valued
at $0.59 per share (the negotiated purchase price for such shares), to one
person, a stockholder of TSET, in exchange for $100,000 in cash.
In December 2000, we issued 39,091 shares of our common stock, valued
at $0.57 per share (the negotiated purchase price of such shares), to two
persons, stockholders of TSET, in exchange for $22,340 in cash.
In January 2001, we issued 687,500 shares of our common stock, valued
at $0.58 per share (the negotiated purchase price for such shares), to one
person, a stockholder of TSET, in exchange for $400,000 in cash.
In January 2001, we issued 7,693 shares of our common stock, valued at
$0.65 per share (the negotiated purchase price for such shares), to one person,
a stockholder of TSET, in exchange for $5,000 in cash.
In January 2001,6, 2020, we issued 50,000 shares of ourrestricted common stock valued at
$0.60 per share (the negotiated purchase price for such shares), to one person,
a stockholder of TSET,Mary Tayler in exchange for $30,000 in cash.
In January 2001,consulting and director services.
On August 6, 2020, we issued 10,00013,100,000 shares of ourrestricted common stock valued at
$0.64 per share (the negotiated purchase price for such shares), to one person,
a stockholderMarc Kloner as retirement shares.
On August 6, 2020, we issued 5,000,000 shares of TSET,restricted common stock to KBHS, LLC in exchange for $6,400 in cash.
In January 2001,consulting services.
On August 6, 2020, we issued 40,0003,283,713 shares of ourrestricted common stock valued at
$1.25to Nina Levy in conversion of a note payable.
On August 6, 2020, we issued 2,813,022 shares of restricted common stock to Julius Toth in conversion of a note payable.
On August 6, 2020, we issued 1,136,364 shares of restricted common stock to Intellicam, Inc. in conversion of a note payable.
On August 6, 2020, we issued 765,306 shares of restricted common stock to Mark Grossman in conversion of a note payable.
On May 27, 2021, we issued 13,000,000 shares of restricted common stock to FBC, LLC in partial conversion of a note payable.
On June 30, 2021, we issued 23,550,100 shares of restricted common stock to ANI Holdings Party Ltd. in conversion of a note payable.
On June 30, 2021, we issued 91,000,000 shares of restricted common stock to GX7 Limited Partnership for a purchase price of $0.035 per share (the fair market value for ourshare.
On June 30, 2021, we issued 1,124,325 shares as of such date), at an
aggregate value of $50,000,restricted common stock to one personMichael Rubinov in exchange for legal services
rendered to Kronos Air Technologies.
In January 2001,consulting and director & officer services.
On June 30, 2021, we issued 4,915624,000 shares of ourrestricted common stock valued at
$1.25 per share (the fair market value for our shares as of such date), at an
aggregate value of $6,144, to five persons, directors, executive officers, and
employees of Kronos Air Technologies, as compensation.
In March 2001, we issued 186,302 shares of our common stock, valued at
$0.72 per share (the negotiated purchase price for such shares), to one person,
a stockholder of TSET,Vyacheslav Abramov in exchange for $135,000 in cash.
In April 2001,consulting services.
On June 30, 2021, we issued 97,0201,569,821 shares of ourrestricted common stock valued at
$1.00 per share (the negotiated exchange value for such shares), at an aggregate
value of $97,020, to two persons, in liquidation of indebtedness of Atomic
Soccer.
II-3
In April 2001, we issued 38,038 shares of our common stock, valued at
$0.46 per share (the negotiated purchase price for such shares), to one person,
a stockholder of TSET,Joseph Florence in exchange for $17,530 in cash.
In April 2001,consulting and director & officer services.
On June 30, 2021, we issued 2,0001,099,098 shares of ourrestricted common stock valued at
$0.885 per share (the fair market value for our shares as of such date), at an
aggregate value of $1,770, to one person, an employee of Kronos Air
Technologies, as compensation.
In April 2001, pursuant to a stock option agreement, we granted
five-year options to acquire 450,000 shares of our common stock, at an exercise
price of $0.885 per share (the fair market value for our shares as of the date
of grant), at an aggregate value $398,250, to nine persons who are directors,
executive officers, and key employees of TSET and Kronos Air Technologies, as
compensation for services. All such options immediately vested.
In April 2001, pursuant to a stock option agreement, we granted
ten-year options to acquire 350,000 shares of our common stock, at an exercise
price of $0.885 per share (the fair market value for our shares as of the date
of grant), at an aggregate value of $309,750, to one person who is a director
and executive officer of TSET, in consideration of the waiver of certain
contract rights. 125,000 of such options are immediately vested, and 225,000 of
such options vest upon achievement of certain milestones. In September 2001,
these options were determined to be null and void as of the date of grant and
the issuance of such options is not reflected in the financial statements.
In April 2001, pursuant to a stock option agreement, we granted
ten-year options to acquire 398,475 shares of our common stock, at an exercise
price of $0.885 per share (the fair market value for our shares as of the date
of grant), at an aggregate value of $352,650, to one person who is a director
and executive officer of TSET, in consideration of the waiver of certain
contract rights. All such options immediately vested.
In April 2001, we granted five-year options to acquire shares of our
common stock, at an exercise price of $1.12 per share (the fair market value for
our shares as of the date of grant), to one person who is an officer of Kronos
Air Technologies, as partial compensation for services pursuant to an accrual
formula set forth in a consulting agreement. As of September 14, 2001, such
accrued options entitled this person to acquire 148,000 shares of our common
stock, at an aggregate value of $165,760. All such options are immediately
vested.
In May 2001, we issued 891,891 shares of our common stock, valued at
$0.34 per share (the negotiated purchase price for such shares), to one person,
a stockholder of TSET,Dana Rubin in exchange for $300,000 in cash.
In May 2001,consulting services.
On June 30, 2021, we issued 52,778179,371 shares of ourrestricted common stock valued at
$0.36 per share (the negotiated purchase price for such shares), to one person,
a stockholder of TSET,Vladimir Gorobets in exchange for $19,000 in cash.
In May 2001, pursuant to a stock option agreement, we granted ten-year
options to acquire 250,000 shares of our common stock, at an exercise price of
$0.710 per share (the fair market value for our shares as of the date of grant),
at an aggregate value of $177,500, to two persons who are directors of TSET, as
compensation for services as directors. All such options immediately vested.
In May 2001, we granted five-year options to acquire shares of our
common stock, at an exercise price of $0.96 per share (the fair market value for
our shares as of the date of grant), to two persons who are directors of TSET,
as partial compensation for services pursuant to an accrual formula set forth in
a consulting agreement. As of October 10, 2001, such accrued options entitled
these two persons to acquire 498,400 shares of our common stock, at an aggregate
value of $478,464. All such options immediately vested.
Inservices.
On June 2001,30, 2021, we issued 50,000 shares of ourrestricted common stock valued at
$0.95 per share (the fair market value for our shares as of such date) at an
aggregate value of $47,500, to a former director of TSET, as compensation for
his service as a director.
In June 2001, we issued 640,000 shares of our common stock, valued at
$0.72 per share (the fair market value for our shares as of such date), at an
aggregate value of $460,800, to one person as compensation under a Common Stock
Purchase Agreement dated as of June 19, 2001.
In July 2001, we issued 238,806 shares of our common stock, valued at
$0.33 per share (the negotiated purchase price for such shares), to one person,
a stockholder of TSET, in exchange for $80,000 in cash.
II-4
In July 2001, we issued 375,000 shares of our common stock, valued at
$0.57 per share (the fair market value of our shares as of such date), at an
aggregate value of $213,750, to one person in settlement of litigation pursuant
to a Mutual Release and Settlement Agreement dated as of July 7, 2001. These
shares were delivered to the escrow agent on May 31, 2002.
In July 2001, we issued 250 shares of our common stock, valued at $0.45
per share (the fair market value of our shares as of such date), at an aggregate
value of $113, to one person, an employee of Kronos Air Technologies, as
compensation.
In August 2001, we granted a ten-year warrant to acquire 1,400,000
shares of our common stock, at an exercise price of $0.68 per share (the fair
market value for our shares as of the date of grant), at an aggregate value of
$686,000, to one person as compensation pursuant to a warrant agreement dated
August 7, 2001, for services to be provided in connection with a consulting
agreement dated July 2, 2001. Pursuant to such consulting agreement, a principal
of the recipient of the warrant currently serves as a director of TSET. Such
warrant vested immediately.
On October 1, 2001, we authorized the issuance of 360,000 shares of our
common stock pursuant to a consulting agreement, valued at $0.28 per share (the
fair-market value of our shares as of such date), at an aggregate value of
$100,800, to Fusion Capital, LLC,Mary Taylor in exchange for consulting and director services.
On October 1, 2001, we authorized
Year Ended June 30, 2021 to Date
During the issuance of 1,000,000 shares of
ournine months ended March 31, 2022, the Company issued no common stock pursuant to a pledge, valued at $0.448 per share, at an
aggregate value of $447,982, to Fusion Capital, LLC, in exchange for $447,982 in
cash.
On October 1, 2001, we issued 2,250 shares of our common stock, valued
at $0.452 per share (the fair-market value of our shares on April 9, 2001stock.
Item 16. Exhibits and 1,250 of our shares on September 7, 2001), at an aggregate value of $4,147.50,
to an employee of TSET, as compensation.
From November 30, 2001 through April 15, 2002, we issued 4,059,752
shares of our common stock, at an average value of $0.184 per share, at an
aggregate value of $746,625, to Fusion Capital, LLC, pursuant to a common stock
purchase agreement between TSET and Fusion Capital, in exchange for $746,625 in
cash.
In May 2002, we completed a private placement of our common stock
pursuant to which we sold 2,551,412 shares of our common stock at $0.17 per
share to eight accredited investors for consideration of $435,100 in cash and
841,459 shares of our common stock at $0.17 per share to five members of our
management team for consideration of commitments to convert $143,048 of debt.
On June 12, 2002, we issued 500,000 shares of our common stock, valued
at $0.21 per share (the fair-market value of our shares as of such date) at an
aggregate value of $105,000 to two person pursuant to a Settlement agreement,
dated June 7, 2002, with Aperion Audio.
II-5
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed as part of this registration
statement:
Financial Statement Schedules
| (a) | The exhibits to the registration statement are set forth within the Exhibit Index below. |
| (b) | No financial statement schedules are provided because the information called for is not required or is shown either in the financial statements or notes. |
| 61 |
Exhibit Index
Exhibit No. | Description of | Location | ||
| 3.1 | Certificate of Incorporation. | Incorporated by Reference as Previously Filed on Form S-1; January 14, 2022. | ||
| 3.1(a) | Amendment to Certificate of Incorporation; Name Change from TSET to Kronos Advanced Technologies, Inc. | Incorporated by Reference as Previously Filed on Form S-1/A; April 25, 2022. | ||
| 3.1(b) | Amendment to Certificate of Incorporation; Name Change from Technology Selection, Inc. | Filed herewith. | ||
| 3.2 | Corporate Bylaws. | Incorporated by | ||
| 5.1 | Opinion of | Filed herewith. | ||
| 10.1 | Employment Contract: Joseph Florence. | Incorporated by | ||
| 10.2 | Amendment to Employment Contract: Joseph Florence. | Incorporated by | ||
| 10.3 | Employment | Incorporated by | ||
| 10.4 | Employment Contract: Michael Rubinov. | Incorporated by | ||
| 10.5 | Approval letter from West Virginia Economic Development Authority. | Incorporated by | ||
| 10.6 | Commitment letter from West Virginia Economic Development Authority. | Incorporated by | ||
| 10.7 | Common Stock Purchase Agreement, | Incorporated by | ||
| 10.8 | Registration Rights Agreement, | Incorporated by | ||
| 10.9 | Convertible Promissory Note, April 29, 2020; Julius Toth. | Incorporated by | ||
| 10.10 | Convertible Promissory Note, June 5, 2020; Mark Grossman. | Incorporated by | ||
| 10.11 | Convertible Promissory Note, June 8, 2020; Intellicalm, Inc. | Incorporated by | ||
| 10.12 | Convertible Promissory Note, July | Incorporated by | ||
| 10.13 | Convertible Promissory Note, April 29, 2020; Nina Levy. | Incorporated by | ||
| 10.14 | Convertible Promissory Note, | Incorporated by | ||
| 10.15 | Settlement Agreement; First Bitcoin and ANI Holdings, Pty. Ltd. | Incorporated by |
| 10.16 | Assignment and Assumption Agreement; First Bitcoin and ANI Holdings, Pty. Ltd. | Incorporated by Reference as Previously Filed on Form S-1; January 14, 2022. | ||
| 10.17 | Share Exchange Agreement, Zyppah | Incorporated by Reference as Previously Filed on Form S-1; January 14, 2022. | ||
| 10.18 | Postponement Agreement, Zyppah | Incorporated by Reference as Previously Filed on Form S-1; January 14, 2022. | ||
| 10.19 | Termination Agreement, Zyppah | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.20 | Purchase Agreement; December 24, 2018; First Bitcoin Capital. | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.21 | Convertible Promissory Note; October 1, 2019; First Bitcoin Capital | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.22 | Agreement of Conveyance, Transfer, Assignment of an Asset, Assumption of Obligations and Spin Off | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.23 | Written Consent of the Board of Directors; Spin Off of DogeSPAC, LLC and Issuance of Dividend. | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.24 | Written Action in Lieu of Meeting of the Members of DogeSPAC, LLC | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.25 | Asset Purchase Agreement; GX7 Limited Partnership | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.26 | Amendment to | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.27 | Agreement of Conveyance, Transfer and Assignment of Assets; Assumption of Obligations and Spin Off | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.28 | Written Consent Members of DogeSPAC, LLC | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.29 | Purchase Agreement; First Bitcoin Capital | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.30 | Convertible Promissory Note, First Bitcoin Capital | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.31 | West Virginia Economic Development Authority Certificate of Completion, Equity Injection & Sources and Uses of Funds | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.32 | West Virginia Economic Development Authority Documents List | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.33 | West Virginia Economic Development Authority Loan Agreement | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.34 | Promissory Note; Equipment Loan | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.35 | Promissory Note; Real Estate Loan | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. |
| 10.36 | Kronos Advanced Technology, Inc. Secretary’s, and Incumbency Certificate | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.37 | Kronos Advanced Technology, Inc. WV Secretary’s, and Incumbency Certificate | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.38 | Security Agreement between Kronos Advanced Technology, Inc., and West Virginia Economic Development Authority | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.39 | Credit Line Deed of Trust | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.40 | Recorded Deed of Trust; GX7-Kronos Advanced Technology, Inc. April 7, 2022 | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.41 | Recorded Deed of Trust; Fixture Filing | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.42 | Written Consent; Board of Directors; Kronos to | Incorporated by Reference as Previously Filed on form S-1/A; April 25, 2022. | ||
| 10.43 | Asset Purchase Agreement: First Bitcoin-Kronos; October | Incorporated by Reference as Previously Filed on form S-1/A; April | ||
| 10.44 | Cancellation of Investment Banking Agreement; Cukierman | Filed herewith | ||
| 21 | Subsidiaries of | Filed herewith. | ||
| 99.1 | Kronos Patent US6664741 | Incorporated by Reference as Previously Filed on Form S-1; January 14, 2022. | ||
| 99.2 | Kronos Patent US6727657 | Incorporated by Reference as Previously Filed on Form S-1; January 14, 2022. | ||
| 99.3 | Kronos Patent US6888314 | Incorporated by Reference as Previously Filed on Form S-1; January 14, 2022. | ||
| 99.4 | Kronos Patent US6937455 | Incorporated by Reference as Previously Filed on Form S-1; January 14, 2022. | ||
| 99.5 | Kronos Patent US6963479 | Incorporated by Reference as Previously Filed on Form S-1; January 14, 2022. | ||
| 99.6 | Kronos patent US7053565 | Incorporated by Reference as Previously Filed on Form S-1; January 14, 2022. | ||
| 99.7 | Kronos Patent US7150780 | Incorporated by Reference as Previously Filed on Form S-1; January 14, 2022. | ||
| 99.8 | Kronos Patent US7122070 | Incorporated by Reference as Previously Filed on Form S-1; January 14, 2022. | ||
| 99.9 | Kronos Patent US7248003 | Incorporated by Reference as Previously Filed on Form S-1; January 14, 2022. | ||
| 99.10 | Kronos Patent US7262564B2 | Incorporated by Reference as Previously Filed on Form S-1; January 14, 2022. |
| 99.11 | Kronos Patent US7410532 | Incorporated by Reference as Previously Filed on Form S-1; January 14, 2022. | ||
| 99.12 | Kronos Patent US6504308 | Incorporated by Reference as Previously Filed on Form S-1; January 14, 2022. | ||
| 99.13 | Kronos Patent US6919698B2 | Incorporated by Reference as Previously Filed on Form S-1; January 14, 2022. | ||
| 99.14 | Kronos Patent US7157704 | Incorporated by Reference as Previously Filed on Form S-1; January 14, 2022. | ||
| 99.15 | Kronos Patent US6504308 | Incorporated by Reference as Previously Filed on Form S-1; January 14, 2022. | ||
| 99.16 | Kronos Patent US6888314 | Incorporated by Reference as Previously Filed on Form S-1; January 14, 2022. | ||
| 99.17 | Current Account Statement Registrant | Filed herewith | ||
| 99.18 | Filed herewith | |||
| 107 | Filing fee table | Filed herewith. | ||
| 23.1 | Consent of | Filed herewith. |
UNDERTAKINGS
The undersigned registrantRegistrant hereby undertakes:
(a)(1) To file, during any period in which offers, or sales of securities are being made, a post-effective amendment to this registration statement:
statement to:
(i) to includeInclude any prospectusProspectus required by Section 10(a)(3) of the Securities Act of 1933, as amended;
1933;
(ii) toTo reflect in the prospectus anYProspectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectusProspectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) (ss.230.424(b) of this chapter) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation“Calculation of Registration Fee"Fee” table in the effective registration statement;
and
statement.
(iii) toTo include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities Act of 1933, as amended, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) IfThat, for the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any financial
statements required by Rule 3-19purpose of this chapter at the start of any delayed
offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) ofdetermining liability under the Securities Act of 1933 as amended, need not be furnished, PROVIDED, thatto any purchaser:
(i) If the registrant includesis subject to Rule 430C, each Prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than Prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the prospectus, by meansregistration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a post-effective amendment, financial statements
required pursuantregistration statement or Prospectus that is part of the registration statement will, as to this paragraph (a)(4) and other information necessarya purchaser with a time of contract of sale prior to ensuresuch first use, supersede or modify any statement that all other informationwas made in the prospectus is at least as current asregistration statement or Prospectus that was part of the registration statement or made in any such document immediately prior to such date of those financial statements. Notwithstandingfirst use.
(5) That, for the foregoing, with
respect to registration statements on Form F-3, a post-effective amendment need
not be filed to include financial statements and information required by Section
10(a)(3)purpose of determining liability of the registrant under the Securities Act of 1933 as amended, or Rule 3-19to any purchaser in the initial distribution of this chapter
if such financial statements and information are containedthe securities: The undersigned registrant undertakes that in periodic reports
filed with or furnished toa primary offering of securities of the Securities and Exchange Commission by theundersigned registrant pursuant to Section 13 or Section 15(d)this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary Prospectus or Prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
Insofar as indemnification for liabilities arising under the Securities Exchange Act of 1934, as amended,1933 (the “Act”) may be permitted to our directors, officers and controlling persons pursuant to the provisions above, or otherwise, we have been advised that are incorporated by reference in the Form F-3.
II-10
In the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid by one of our directors, officers, or controlling persons in the successful defense of any action, suit or proceeding, is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Securities Act, and we will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to
In accordance with the requirements of the Securities Act of 1933, as amended,
the registrantRegistrant certifies that it has duly causedreasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has authorized this Registration Statementregistration statement to be signed on ourits behalf by the undersigned, thereunto duly authorized, in Lake Oswego, OregonTel-Aviv, Israel, on June 25, 2002.
TSET, INC.
By:
-------------------------------------
Daniel R. Dwight
President and Chief Executive Officer
July 14, 2022.
| KRONOS ADVANCED TECHNOLOGIES, INC. | ||
| (Registrant) | ||
| By: | /s/ Michael Rubinov | |
| Name: | Michael Rubinov | |
| Title: | President and CEO (principal executive officer | |
| By: | /s/ Michael Rubinov | |
| Name: | Michael Rubinov | |
| Title: | CFO (principal financial and accounting officer) | |
POWER OF ATTORNEY
KNOW ALL MENPERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Daniel R. Dwight,Michael Rubinov, as his or her true and lawful attorney-in-fact and agent with full power of substitution, and revocation, for him and in his name, place and stead,or her in any and all capacities, (until revoked
in writing), to sign any and all amendments to this registration statement (including post-effective amendments)amendments or any abbreviated registration statement and any amendments thereto filed pursuant to this Registration StatementRule 462(b) under the Securities Act of 1933 increasing the number of securities for which registration is sought), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact, proxy, and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, proxy and agent, or ishis substitute, or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to
In accordance with the requirements of the Securities Act of 1933, as amended,
this Registration Statement has beenregistration statement was signed by the following persons in the capacities and on the dates indicated.
stated.
| Signature | Title | Date | ||
| /s/ Michael Rubinov | CEO, CFO, Secretary, Treasurer & Director | July 14, 2022 | ||
| /s/ Mary Taylor | Director | July 14, 2022 |
| 67 |