| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES Liquidity We have historically incurred losses from operations,
and we may continue to generate negative cash flows as we implement our business plan. Our consolidated financial statements are prepared
using US GAAP as applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal
course of business. As of May 17, 2021, we had cash on hand of $x,xxx,xxx.
Due to lower-than-expected revenue in 2019 and the current COVID-19 global pandemic impacting both our operations and that of our customers,
Management has taken several steps to ensure we are able to fund our operations from existing cash on hand, operating cash flows, additional
borrowings, and restructured debt obligations. In March of 2020, we restructured our organization
by reducing headcount by 53%, by furloughing substantially all manufacturing employees, and by implementing temporary salary reductions
ranging from 15-20%. Although we have re-employed key employees since the reductions and furloughs, annual payroll and related costs have
been reduced by 38%. In April 2020, we furloughed additional employees in our R&D and Engineering departments. Salary reductions remained
in place at the discretion of the Compensation Committee of the Board of Directors until February 1, 2021. In early April of 2020, we applied for relief under
the Coronavirus Aid, Relief and Economic Security Act (CARES) by applying with the Small Business Administration (SBA) for an Economic
Injury Disaster Loan (“EIDL”) and by submitting an application to an SBA lender bank, PNC, for a Paycheck Protection Plan
(“PPP”) loan. On April 18, 2020, we received an approved and fully executed PPP Term Note for $825,200 with a term of two
years, a six-month repayment deferral period, and an annual rate of interest of 1%, with a potential for some or all of the loan to be
forgiven, dependent upon use of the loan proceeds. On April 20, 2020, we received the $825,200 of proceeds under the PPP loan which was
subsequently reduced by $34,405 to $790,795 due to additional SBA guidance regarding 1099 income paid. On October 6, 2020, the Paycheck
Protection Flexibility Act of 2020 extended the deferral expiration period for loan repayments to either the date that the SBA remits
the borrower’s loan forgiveness or to 24 weeks after the receipt of proceeds plus 10 months or July 3, 2021. We plan to apply for
loan forgiveness before the end of the deferred expiration date. The outstanding principal that is not forgiven converts to an amortizing
term loan. On May 17, 2020, the SBA issued us a decline letter for the EIDL for which reconsideration has not been granted. On April 23, 2020, we entered into an amended and
restated Draw Loan Note and Agreement and related transaction documents (collectively, the “Amended Dow Facility”) with the
Dow Chemical Company to amend the terms of our current loan facility to allow us to structure a private placement of units (“Units”)
comprised (in part) of subordinated, secured convertible notes (“Convertible Notes” and such offering, the “Unit Offering”),
to support ongoing cash needs. In the Amended Dow Facility, the Company and Dow agreed to 1) extend the term of such loan facility by
two years to December 1, 2023, 2) significantly reduce any required prepayment to Dow from the proceeds of new equity or equity-linked
financings from the current 30-50% prepayment requirement on the pre-existing Dow Facility to a 10% prepayment requirement in the Amended
Dow Facility, which does not begin until after we have raised an additional $7 million in equity or equity-linked capital from the date
of the amendment, 3) capitalize all interest payable until such time as we have recorded GAAP revenue of at least $2 million for two consecutive
calendar quarters, 4) increase the rate of interest to 6.5% per annum from 5% in the pre-existing Dow Facility, and 5) allow for a subordinated
security interest to be granted to new investors in the Unit Offering. Immediately after the execution of the transaction
documents related to the Amended Dow Facility, we commenced the Unit Offering in a private placement to accredited investors. The Unit
Offering is comprised of the Convertible Notes and a right to exchange two shares of previously issued Common Stock of the Company for
two shares of Series B Convertible Preferred Stock of the Company (“Series B Preferred Stock”) for every $8.00 invested in
the Unit Offering (the “Exchange Rights”). The Convertible Notes are secured by a junior security interest in all the assets
of the Company, bear an interest rate of 7.5% per annum and mature on December 31, 2024. Each investor’s Exchange Rights are exercisable
for a period of thirty (30) days after acceptance by the Company of a fully executed subscription agreement. At the option of each holder, the Convertible Notes
are convertible into either i) Series B Preferred Stock at a conversion price of $8.00/share; or ii) any other form of preferred or common
stock (“Subsequent Stock”) issued by the Company at a conversion price per share equal to 80% of the purchase price per share
at which such Subsequent Stock is sold (or if the value per share is fixed, 125% of the number of shares that might otherwise be issuable). If and when we raise at least $15 million of equity
capital (excluding capital raised in this Unit Offering), the Convertible Notes will be automatically converted into whichever of the
following equity securities would result in the greatest number of shares of Common Stock being issued to the holders on an “as-if-converted”
basis at such time: (i) Series B Preferred Stock at a note conversion price of $8.00/share; or (ii) Subsequent Stock at a note conversion
price per share equal to 80% of the purchase price per share at which such Subsequent Stock is sold (or if the value per share is fixed,
125% of the number of shares that might otherwise be issuable); Each share of Series B Preferred Stock has an original
issue price of $8.00 per share (the “Series B Original Issue Price”) and a liquidation preference of $8.00 per share, with
both the Series B Original Issue Price and the liquidation preference per share subject to adjustment for stock splits, recapitalizations,
and the like. The Series B Preferred Stock will be senior to the Company’s Common Stock and pari-passu with the Series A Preferred
Stock in terms of right of repayment in a liquidation. The Series B Preferred Stock has full ratchet antidilution
protection that provides that each share of Series B Preferred Stock outstanding may be converted by an Investor at any time into that
number of shares of Common Stock determined by dividing the then current Series B Original Issue Price by the applicable Conversion Price
(as defined below) with the resulting fraction equal to the “Series B Conversion Rate”. The total number of shares of Common
Stock issuable will be equal to the number of shares of Series B Preferred Stock being converted multiplied by the Series B Conversion
Rate. The “Conversion Price” is, at any time, the price per share equal to the lesser of a) the Series B Original Issue Price
per share and b) the lowest price per share at which the Company has sold equity or equity-linked securities (other than customary exclusions)
at any future date while any shares of the Series B Preferred Stock remain outstanding. The Series B Original Issue Price and Conversion
Price in effect at any time are also subject to proportional adjustment for share splits, share dividends, recapitalizations, and the
like. On April 23, 2020, certain members of our Board of
Directors and their affiliates purchased $550,000 of convertible notes. In addition, these Board members and their affiliates purchased
$800,000, $1,801,504, and 515,016 of convertible notes in the quarters ended September 30, 2020, December 31, 2020 and March 31, 2021.
In total, the Board members and their affiliates purchased a total of $3,666,520 of convertible notes through March 31, 2021 from the
Company. Non-Board affiliated third parties purchased $700,160 and $2,073,600 of convertible notes in the quarters ended December 31,
2020 and March 31, 2021 from the Company for a total purchase of $2,773,760. Total proceeds from the sale of Convertible Notes as of March
31, 2021 was $6,440.280. Taking into consideration our current cash on hand,
we estimate that we will need to raise approximately $500,000 - $1,000,000 of additional capital in order to continue our operations for
the next twelve months in a minimal to no revenue growth environment. Our continuation as a going concern is dependent upon continued
financial support from our shareholders, our ability to obtain necessary equity and/or debt financing to continue operations, and growth
in revenue from operations. These factors raise substantial doubt regarding our ability to continue as a going concern. We cannot make
any assurances that additional financings will be available to us and, if available, completed on a timely basis, on acceptable terms
or at all. If we are unable to complete an equity or debt offering, or otherwise obtain sufficient financing when and if needed, it would
negatively impact our business and operations. It could also lead to the reduction or suspension of our operations and ultimately force
us to cease our operations. There has been no public market for our securities
and a public market may never develop, or, if any market does develop, it may not be sustained. Our Common Stock is not currently quoted
on or traded on any exchange or on any over-the-counter market. In the event we are unable to fund our operations from existing cash
on hand, operating cash flows, additional borrowings or raising equity capital, we may be forced to reduce our expenses, slow down our
growth rate, or discontinue operations. Our condensed consolidated financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary
should we be unable to continue as a going concern. Inventory The following amounts were included in inventory at
the end of the period:
September 30, December 31,
2020 2019
Raw materials $ 64,948 $ 68,784
Consumables 70,103 $ 70,103
Finished goods 631,465 $ 752,700
Total $ 766,516 $ 891,587 Recent Accounting Pronouncements In December 2019, the FASB issued ASU 2019-12, “Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain
exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas
of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for us for annual periods beginning January 1, 2021.
We are currently reviewing the provisions of this new pronouncement, and the impact, if any, the adoption of this guidance has on our
financial position and results of operations. In January 2020, the FASB issued ASU 2020-01, “Investments—Equity
Securities (Topic 321)”, “Investments—Equity Method and Joint Ventures (Topic 323)”, and “Derivatives and
Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815”, which clarifies that an entity should
consider observable transactions when either applying or discontinuing the equity method of accounting for the purposes of applying the
measurement alternative in accordance with Topic 321. ASU 2020-01 clarifies that for certain forward contracts or purchased options to
acquire investments, an entity should not consider whether, upon settlement of the forward contract or exercise of the purchased option,
the underlying securities would be accounted for under the equity method or the fair value option. ASU 2020-01 is effective for us for
annual periods beginning January 1, 2021. Early adoption is permitted. We are currently reviewing the provisions of this new pronouncement
and the impact, if any, the adoption of this guidance has on our financial position and results of operations. Except for the standards discussed above, we believe
there have been no new accounting pronouncements effective or not yet effective that have significance, or potential significance, to
our Consolidated Financial Statements. |
