The following is a summary of discontinued operation for the three and nine months ended December 31, 2018 and 2017:
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For the Three Months Ended
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For the Nine Months Ended
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December 31,
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December 31,
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2018
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2017
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2018
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2017
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Sales
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$ -
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$ 8,470
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$ -
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$ 23,693
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Sales - Related Party
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-
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30,840
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-
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37,730
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Total Sales
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-
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39,310
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-
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61,423
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Operating Expenses
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Cost of sales
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-
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2,306
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-
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4,949
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General and administrative
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-
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42,775
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-
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95,486
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Total Operating Expenses
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-
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45,081
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-
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100,435
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Operating Income (Loss) - Discontinued Operations
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$ -
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$ (5,771)
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$ -
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$(39,012)
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For the nine months ended December 31, 2018, discontinued operations did not have an impact on the cash flow statements. For the nine months ended December 31, 2017, significant item within the cash flow statement related to discontinued operations were depreciation expense of $11,527 and an increase in accounts payable of $1,775.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As reflected in the consolidated financial statements, the Company has incurred significant current period losses, negative cash flows from operating activities, has negative working capital, and an accumulated deficit. These conditions, among others, raise substantial doubt about the Companys ability to continue as a going concern. Managements plans regarding these matters, if needed, include raising additional debt or equity financing. The terms of which might not be acceptable to the Company. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Interim Consolidated Financial Statements
The accompanying consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). The accompanying consolidated balance sheet as of December 31, 2018, and the consolidated statements of operations for the three and nine months ended December 31, 2018, and 2017, and the consolidated statements of cash flows for the nine months ended December 31, 2018, and 2017,are unaudited. The consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Companys consolidated financial position, results of operations, and cash flows for such periods. The financial data and other information disclosed in these notes to the consolidated financial statements related to the three month period are unaudited. The results of the three and nine months ended December 31, 2018, are not necessarily indicative of the results to be expected for the year ending March 31, 2019, any other interim period, or any other future year.
Basis of Accounting
The Companys consolidated financial statements are stated in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary TORtec. All significant intercompany transactions have been eliminated in the consolidation. TORtec's operations have been included from its date of acquisition, see Note 1 for additional information.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes to consolidated financial statements. Actual results could differ from those estimates. Significant estimates made by management include allowance for doubtful accounts and the useful life of property and equipment.
Fair Value of Financial Instruments
The Company complies with the accounting guidance under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820-10,
Fair Value Measurements,
as well as certain related FASB staff positions. This guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact business and considers assumptions that marketplace participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
The guidance also establishes a fair value hierarchy for measurements of fair value as follows:
·
Level 1 - quoted market prices in active markets for identical assets or liabilities
·
Level 2 - inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
·
Level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
As of December 31, 2018 and March 31, 2018, the Company did not have Level 1, 2, or 3 financial assets or liabilities. Financial instruments consist of cash, accounts receivable, payables, and a line of credit. The fair value of financial instruments approximated their carrying values as of December 31, 2018 and March 31, 2018, due to the short-term nature of these items.
Revenue Recognition
The Company recognizes revenue when the earnings process is complete. This generally occurs as services are performed, see below for a description of former services. On April 1, 2018, the Company determined that the adoption of Accounting Standards Update No. 2014-09 (ASU 2014-09),
Revenue from Contracts with Customers
(ASC 606) had no material impact to the Companys consolidated financial statements.
The Companys primary source of revenue had been in its environmental division, providing historical site data searches, preliminary investigation and drilling, site characterization modeling, regulatory agency liaison, and full environmental clean-ups using such methods as vapor extraction, air sparging, bio-remediation, ORC (Oxygen Release Compound) and HRC (Hydrogen Release Compound) injection treatment, air stripping, and ionic exchange. Revenues from these services were recognized after services have been performed. See Note 1 for discussion regarding the discontinuance of the Company's Environmental and Engineering Divisions.
Basic and Diluted (Income) Loss per Common Share
Basic income (loss) per common share is calculated by dividing net loss by the weighted average common shares outstanding during the period. Diluted income (loss) per common share reflects the potential dilution to basic earnings per share that could occur upon conversion or exercise of securities, options, or other such items to common shares using the treasury stock method, based upon the weighted average fair value of the Companys common shares during the period. For the three and nine months ended December 31, 2018 and 2017, the Company did not have any dilutive securities.
Recent Accounting Pronouncements
The Financial Accounting Standards Board issued Accounting Standard Updates (ASUs) to amend the authoritative literature in Accounting Standards Codification (ASC). There have been a number of ASUs to date that amend the original text of ASC. The Company believes those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company's operations.
NOTE 3 FINANCIAL STATEMENT ELEMENTS
Loans Receivable Construction Project
In July 2015, the Company loaned $75,000 to an unrelated third party. The loan does not incur interest and is due on demand. The loan is intended to be a short term loan used for a construction project by the borrower. During the year ended March 31, 2018, due to the delays in repayment, the Company reserved 100% of this receivable. During the year ended March 31, 2018, the Company received $20,000 from the unrelated third party.
On November 9, 2015, the Company loaned $100,000 to an unrelated third party. The loan incurs interest at 2% per annum and is due upon the earlier of October 31, 2018, or completion by the borrower of one or more projects having an aggregate value of not less than $40 million. The loan is intended to be a short term bridge loan used for working capital for the third party. During the year ended March 31, 2018, the Company reserved 100% of this receivable.
Property and Equipment
Property and equipment consists of the Company's
Tornado M which was received during the nine months ended December 31, 2018. The Company is currently making additional expenditures in order for the Tornado M to be put into production. Thus, as of December 31, 2018, the Tornado M is considered a long term capital asset for which depreciation hasn't commenced. The Company expects to depreciate costs related to the Tornado M over the period of ten years. See Note 7 for additional information.
NOTE 4 LINE OF CREDIT AND SHORT TERM ADVANCES
On January 1, 2013, the Company entered into a $100,000 revolving line of credit with an unrelated third party. Under the terms of the agreement the outstanding principal incurs interest at 24% per annum with principal and interest due nine months from the date of the agreement or July 1, 2013. The revolving line of credit is unsecured and currently in default; however, no demands for repayment have been made. Subsequent to the agreement date, the third party has continued to advance additional funds as needed under the same terms of the initial revolving line of credit. Proceeds from the revolving line of credit were used for operations. On August 24, 2017, the Company and the holder of the revolving line of credit agreed to convert the outstanding principal of $302,399 and accrued interest of $197,601 into 8,647,796 shares of common stock. The Company determined that the per share amount of $0.0578 was most representative of the fair market value. This determination was based upon the fact that although the Companys common stock is publically traded there has not been an active public trade of the Companys common stock in a significant period of time, indicating no market for the Companys common stock. In addition, the number of shares issued was negotiated between the Company and the third party.
During the year ended March 31, 2018, the Company received short term advances of $21,000 from two shareholders of the Company. The advances do not incur interest and are due on demand.
During the year ended March 31, 2017, two individuals advanced the Company a total of $40,000. The advances do not incur interest and are due on demand. The proceeds were used to purchase drilling equipment, which was used on one of the Companys projects. in November 2017, both advances were forgiven and are no longer due. One of the individuals, had recently become a shareholder of TORtec through services provided to that entity. Thus, the $20,000 advance forgiven by this individual was treated as a capital
contribution and recorded within additional paid-in capital. The other individual is a vendor of the Company and was recorded within gain on extinguishment.
In addition, the Company assumed a $20,000 advance from Capital Vario, a shareholder of the Company, in connection with the acquisition of TORtec, see Note 1. During the nine months ended December 31, 2018, Capital Vario has advanced the Company an additional $207,990 for a total of $248,990 due at December 31, 2018. The advances do not incur interest and are due on demand. The advances have been reflected as "short term advances - related parties" on the accompanying consolidated balance sheets. Included in these advances was the repayment of a $50,000 short term advance from a relative of the Company's CEO for which was received and repaid during the three months ended December 31, 2018. The advance was due on demand and incurred 10% interest per annum. Subsequent to December 31, 2018, Capital Vario has advanced an additional $60,000.
NOTE 5 COMMITMENTS AND CONTINGENCIES
The Company does not have any pending or threatened litigation.
NOTE 6 - SHAREHOLDERS DEFICIT
On August 24, 2017, the Company issued 250,000 shares to a third party for legal services rendered. The Company valued the shares at $14,455, based upon the conversion rate of the line of credit discussed above. The fair value was immediately expensed to general and administrative expense as the performance commitment was complete.
On August 24, 2017, the Company also issued 100,000 shares of common stock to a third party in settlement of $21,852 in amounts due in connection with accounting services. The Company valued these shares at $5,782, based upon the conversion rate of the line of credit discussed above. The difference between the fair market value of the shares and the amount forgiven of $16,070 was recorded as a gain on extinguishment of liabilities on the accompanying statement of operations.
Effective November 14, 2018, the Company increased its authorized common shares to 200,000,000.
See Note 1 for disclosure of additional shares.
NOTE 7 - RELATED PARTY TRANSACTION
On September 9, 2017, TORtec entered into an agreement with MTM Center GmbH, a former shareholder of TORtec, a member of the board of directors and a significant shareholder of the Company, for the construction of equipment utilizing the TORtec technology, referred to as the Tornado M. The total purchase price is 394,000 Euros for which the Company has paid in full at $474,978. The Company received the equipment during the second quarter of fiscal 2019 and reclassified to property and equipment. The Tornado M will be used in the Company's operations and is currently being tested for production.
On June 18, 2018, TORtec entered into License Agreement No. W-1/18 with Forschunginstitut GmbH pursuant to which it was granted a license to use the TOR technology and the utility model Tornado documentation for certain purposes, for which TORtec paid an initial royalty of 30,000 Euros, and agreed to pay an annual royalty equal to 10% of any after tax profit received by TORtec (and any subsidiaries) by the years result. This License Agreement expanded the licensed territory from North, Central and South America to the entire world. The amounts paid were included within the amounts disclosed above.
See Notes 1 and 4, for additional related party transactions.
NOTE 8 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events after December 31, 2018, through the date of this filing, noting no additional items which need to be disclosed within the accompanying notes to the consolidated financial statements other than those disclosed above.
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes forward-looking statements based on managements beliefs, assumptions and plans for the future, information currently available to management and other statements that are not historical in nature. Forward-looking statements include statements in which words such as expect, anticipate, intend, plan, believe, estimate, consider, or similar expressions are used. These forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions, including among others: a general economic downturn; a downturn in the securities markets; regulations that affect trading in the securities of penny stocks; the enactment of United States or foreign laws, rules and regulations that could have a materially adverse impact on current and intended operations; and other risks and uncertainties. For additional forward-looking statement information, see the heading Forward-Looking Statements at the forepart of this Quarterly Report on page 4.
Our future results and stockholder values may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results and values are beyond our ability to control or predict. We may be required to update these forward-looking statements from time to time as circumstances change.
References to we, our or us and words of similar import under this heading refer to the Company unless the context implies otherwise.
Past Plan of Operation
On June 13, 2012, we were formed as a wholly-owned subsidiary of Geo Point Technologies, Inc., a Utah corporation (Geo Point Utah), and into which Geo Point Utah simultaneously authorized the conveyance of the segment of its business comprising all of its Environmental and Engineering Divisions assets, business, operations, rights or otherwise, along with its Hydrocarbon Identification Technology (HI Technology) License Agreement dated January 31, 2008 (the License Agreement), subject to the assumption by us of all related liabilities and the indemnification of Geo Point Utah by us from any liabilities relating to these assets and operations. Also on June 13, 2012, the Board of Directors of Geo Point Utah approved a stock dividend that resulted in a spin-off of all of our shares of common stock to the Geo Point Utah stockholders, pro rata, on a one share for one share basis, on the record date (the Spin-Off). The Spin-Off had a record date of January 17, 2013; and ex-dividend date of January 15, 2013; and a Spin-Off payment date of April 22, 2013. On the effective date of the Spin-Off, there were approximately 1,002,167 outstanding shares of our common stock. For additional information about the Spin-Off, see our Prospectus dated January 7, 2013, and filed with the SEC on January 8, 2013; and our 8-K Current Report dated April 22, 2013, and filed with the SEC on such date. See Part IV, Item 15.
The Environmental and Engineering Divisions comprised the initial operations of Geo Point Utah at its inception and were commenced as a DBA in 1997, by Geo Point Utahs founder, William C. Lachmar, who then served as our President and sole director, in the State of California. The Company operated this business until February 2018 when Mr. Lachmar died. The Company has no plans to continue this business following Mr. Lachmars death.
Acquisition of TORtec Group
On November 22, 2017, (the Company entered into a Share Exchange Agreement (the Agreement) with TORtec Group, a Wyoming corporation (TORtec) and all of the shareholders of TORtec, pursuant to which the Company
acquired 100% of the issued and outstanding shares of common stock of TORtec. The acquisition of TORtec by the Company was successfully consummated on December 4, 2017.
Under the terms of the Agreement, a total of 90,000,000 shares of the Companys restricted common stock were issued to the seventeen TORtec shareholders as consideration in exchange for all 10,000,000 issued and outstanding shares of TORtec common stock being transferred to the Company, making TORtec a wholly-owned subsidiary of the Company. As a result, the former TORtec shareholders collectively own ninety percent (90.0%) of our issued and outstanding shares of our common stock immediately following the acquisition. New directors and officers of the Company were appointed in connection with the acquisition.
Stephen Smoot was a former consultant and officer of Capital Vario CR S.A. (Capital Vario), which was the controlling shareholder of the Company prior to the acquisition, but resigned from his affiliation with Capital Vario prior to a $500,000 debt-to-equity conversion by Capital Vario with the Company. Smoot became the President/CEO and Director of TORtec Group on September 8, 2017.
As part of the closing of the acquisition, the Companys then sole director (William C. Lachmar) elected Franc Smidt, Alex Schmidt, Maksim Goncharenko, Jeffrey R. Brimhall, Stephen H. Smoot, and Irina Kochetkova to the Companys Board of Directors before resigning as an officer and director of the Company. The following persons were then elected as officers of the Company: Franc Smidt Chairman of the Board of Directors, Stephen H. Smoot - President and CEO, Alex Schmidt Vice President, and Irina Kochetkova Secretary and
Treasurer. Jeffrey R. Brimhall resigned as an officer of the Company but has been appointing to serve as a director. Maksim Goncharenko subsequently resigned as a director on July 3, 2018.
For additional information concerning the acquisition of TORtec, see the Companys Current Report on Form 8-K dated December 4, 2017 and filed with the SEC on December 8, 2017, as amended in a Form 8-K/ Amendment dated June 22, 2018 and filed with the SEC on June 22, 2018.
Future Plan of Operations
Now that the acquisition of TORtec is complete, we will become engaged, through our subsidiary TORtec Group, in the business of harnessing the natural implosion forces of a vortex (tornado), employing resonating frequencies, to disintegrate soft to ultra-hard materials into micron or nano-sized particles.
On September 9, 2017, TORtec Group entered into General Agreement No. US-17 on cooperation and joint activities on commercialization of TOR-technologies, introduction of new productions, products and services in the markets of North, Central and South America (the Exclusive License Agreement) with the parties that invented the TOR-technology. The Exclusive License Agreement grants to TORtec Group an exclusive license to utilize the technology for certain purposes throughout North, Central and South America. The TOR-technology equipment is best described as a cascaded adiabatic resonance vortex mill utilizing compressed air as the energy in the system. This proprietary technology includes the ability to size and classify material processed by elemental composition and specific gravity. A more detailed description of the acquisition is included in the Companys two Current Reports on Form 8-K: (a) dated November 22, 2017 and filed with the SEC on November 29, 2017; and (b) dated December 4, 2017 and filed with the SEC on December 8, 2017, as amended in a Form 8-K/ Amendment dated June 22, 2018 and filed with the SEC on June 22, 2018; both of which are incorporated herein by this reference.
On June 18, 2018, TORtec Group entered into License Agreement No. W-1/18 with Forschunginstitut GmbH pursuant to which it was granted a license to use the TOR technology and the utility model Tornado documentation for certain purposes, for which TORtec Group paid an initial royalty of 30,000 Euros, and agreed to pay an annual royalty equal to 10% of any after tax profit received by TORtec Group (and any subsidiaries) by the years result. This License Agreement expanded the licensed territory from North, Central and South America to the entire world. A copy of this License Agreement is attached to the Companys Annual Report on Form 10-K for the fiscal year ended March 31, 2018 as Exhibit 10.1.
On September 9, 2017, TORtec entered into an agreement with MTM Center GmbH, then a shareholder of TORtec, for the construction of a mobile machine that utilizes the TORtec technology, referred to as the Tornado M. The total purchase price is 394,000 Euros ($474,159 as of September 9, 2017 date of the agreement). On March 3, 2018, the agreement was amended to the amount of 305,535 Euros or $367,696 representing the original amount of 394,000 Euros or $474,159 less the amount of 88,465 Euros or $106,463 originally allocated to the Kaeser screw-compressor, plus the additional amount of 48,040 Euros or $57,814 in the form of prepayment for transportation and expenses of technical personnel to come to the USA to commission the mobile TORNADO M unit and payment in advance for an additional vortex chamber with resonating frequency rings for additional applications for the mobile TORNADO M unit, including transportation & insurance to Idaho.
The Company has paid the total amount of two (2) payments totaling 354,600 euros or $425,510 plus an additional payment of 30,000 Euros or $35,947 for the one-time License fee. The Company received the Tornado M machine in second fiscal quarter of 2019. The Tornado M is currently being prepared to be used in the Company's operations.
The TORtec Technology Business
As described above, the Company s wholly-owned subsidiary, TORtec Group, entered into an Exclusive License Agreement on cooperation and joint activities on commercialization of TOR-technologies, introduction of new productions, products and services in the markets of North, Central and South America with the parties that invented the TOR-technology. The Exclusive License Agreement grants to TORtec Group an exclusive license to utilize the technology for certain purposes throughout North, Central and South America. The TOR-technology equipment is best described as a cascaded adiabatic resonance vortex mill utilizing compressed air as the energy in the system. This proprietary technology includes the ability to size and classify material processed by elemental composition and specific gravity.
The TOR Technology
A new technology is being used inside the resonance Tornado mills, a noncontact material grinding, where the grinding processes are performed by means of an air vortex, artificially produced in an enclosed space within the processing chamber.
As an energy carrier (fuel), the following may be used:
pressurized air (compressor or a turbine);
any inert gas supplied under pressure
high-pressure steam (superheated steam);
the medium in the supercritical state (fluids), such as (CO2);
cooling agents
The resonant vortex TORNADO installation is a gas-dynamic mill in which the technology of cascaded adiabatic resonance impact grinding is implemented, impact velocities of which are close to a breakdown threshold. The installation is designed in a way so that any particle of the input material gets literally torn by the repeated crossing of the differential pressure zones in the intervortex vacuum chamber, which produces ultrahigh gradient (pressure drops) at the interface (up to hundreds of thousands atmospheres).
When the material is injected into such area of pressure differential, a rupture of the materials structure and clusters occurs. Such mechanism can be compared to the mechanism of materials sample destruction, which is done in order to determine its strength characteristics at tensile test plants. That is, the grinding occurs not due to the friction or any other mechanic force, but by air and resonances, which provide a high and efficient performance, great flow rate of raw material as well as inexpensive exploitation (no rubbing parts) with low power consumption.
The TOR technology can be used for: (1) micropulverization; (2) blending of materials; and (3) concentrating of materials.
Principal Products or Services and their Markets
The Company has no present contracts to provide any products or services. The Company has been in contact with companies that sell zeolites about the possibility of using the TOR technology to break down or reduce the size of zeolites to approximately 3 to 5 microns in size, which can then be used for different commercial purposes. Now that the Tornado M machine has arrived, the Company intends to test it on zeolites first. If the technology is successful, then the Company may pursue a contract with these third parties.
According to Explainthatstuff.com, zeolites are hydrated aluminosilicate minerals made from interlinked tetrahedra of alumina (AlO4) and silica (SiO4). In simpler words, they're solids with a relatively open, three-dimensional crystal structure built from the elements aluminum, oxygen, and silicon, with alkali or alkaline-Earth metals (such as sodium, potassium, and magnesium) plus water molecules trapped in the gaps between them. Zeolites form with many different crystalline structures, which have large open pores (sometimes referred to as cavities) in a very regular arrangement and roughly the same size as small molecules. There are about 40 naturally occurring zeolites, forming in both volcanic and sedimentary rocks; according to the US Geological Survey, the most commonly mined forms include chabazite, clinoptilolite, and mordenite. Dozens more artificial, synthetic zeolites (around 150) have been designed for specific purposes, the best known of which are zeolite A (commonly used as a laundry detergent), zeolites X and Y (two different types of faujasites, used for catalytic cracking), and the petroleum catalyst ZSM-5 (a branded name for pentasil-zeolite).
Results of Operations
Three Months Ended December 31, 2018, Compared to the Three Months Ended December 31, 2017
We reported no sales for the three months ended December 31, 2018, and because of the discontinued operations, we reported no sales during the three months ended December 31, 2017.
During the fiscal year ended March 31, 2018, we terminated our environmental remediation business and commenced our TORtec technology business. As a result we had a loss from discontinued operations of $0 during the three months ended December 31, 2018 compared to a loss of $5,771 during the prior comparable period. The effects of the discontinued operations were retroactively applied to prior periods presented.
General and administrative expenses during the three months ended December 31, 2018, were $33,057, compared to $33,711, during the three months ended December 31, 2017, a decrease of $654. The consistency in general and administrative expenses during the three months ended December 31, 2018 as compared to the prior period, was directly related to additional professional fees paid in connection with the additional public reporting needed in connection with the TORtec acquisition during the three months ended December 31, 2017 compared to increased professional fees paid in connection with various filings in order to change the Company's name and increase the authorized shares during the three months ended December 31, 2018.
We incurred an expense for the fair value of shares issued in connection with the acquisition of the TORtec assets of $4,689,275 during the three month period ended December 31, 2017, and had no such expense in the three month period ended December 31, 2018.
We experienced no gain on extinguishment of liabilities during the three months ended December 31, 2018 as compared to a gain on extinguishment of liabilities of $20,000 experienced during the three months ended December 31, 2017. We incurred interest expense of $120 in the three months ended December 31, 2018 as compared to no interest expense incurred in the three months ended December 31, 2017.
We incurred a net loss of $33,177 in the three months ended December 31, 2018 which is a decrease of $4,675,580 over the net loss of $4,708,757 reported for the three months ended December 31, 2017. The net loss in the prior year was related primarily to the excess fair market value of common stock issued in connection with the TORtec acquisition.
Nine Months Ended December 31, 2018, Compared to the Nine Months Ended December 31, 2017
We reported no sales for the nine months ended December 31, 2018, and because of the discontinued operations, we reported no sales during the nine months ended December 31, 2017.
During the fiscal year ended March 31, 2018, we terminated our environmental remediation business and commenced our TORtec technology business. As a result we had a loss from discontinued operations of $0 during the nine months ended December 31, 2018 compared to a loss of $39,012 during the prior comparable period. The effects of the discontinued operations were retroactively applied to prior periods presented.
General and administrative expenses incurred during the nine months ended December 31, 2018, were $107,222, compared to $73,581, during the nine months ended December 31, 2017, an increase of $33,641. The increase in general and administrative expenses during the nine months ended December 31, 2018, was directly related to additional professional fees paid in connection with the additional public reporting needed in connection with the TORtec acquisition, name change and increase in authorized shares.
We incurred an expense for the fair value of shares issued in connection with the acquisition of the TORtec assets of $4,689,275 during the nine month period ended December 31, 2017, and had no such expense in the nine month period ended December 31, 2018.
We experienced no gain on extinguishment of liabilities during the nine months ended December 31, 2018 as compared to a gain on extinguishment of liabilities of $36,070 experienced during the nine months ended December 31, 2017. We incurred $120 of interest expense in the nine months ended December 31, 2018 as compared to interest expense of $26,682 incurred in the nine months ended December 31, 2017, due to having interest bearing loans in the prior comparable period.
We incurred a net loss of $107,342 in the nine months ended December 31, 2018 which is a decrease of $4,685,138 from the net loss of $4,792,480 reported for the nine months ended December 31, 2017. The net loss in the prior year was primarily related to the excess fair market value of common stock issued in connection with the TORtec acquisition.
Liquidity
Current assets at December 31, 2018, included cash of $17,497 and other current assets of $1,300. At December 31, 2018, we had a negative working capital of $244,077, as compared a negative working capital of $28,759 at March 31, 2018. The decrease in working capital is due to cost incurred in connection with preparing our Tornado M unit for production.
Capital Resources
During the nine months ended December 31, 2018, operating activities used cash of $114,202 compared to $95,508 net cash used in the nine months ended December 31, 2017, an increase of $18,694. The increase was primary related to the current period net loss being mostly cash related, whereby, in the prior year the net loss had a significant amount of non-cash add backs to operations.
During the nine months ended December 31, 2018, investing activities consisted of costs incurred in connection with preparing the Company's primary asset,
Tornado M, for production. In the prior comparable period, there were no such expenditures.
During the nine months ended December 31, 2018, we received cash from financing activities of $207,990 from Capital Vario to fund operations. During the nine months ended December 31, 2017, we received cash from financing activities of $34,649 from Capital Vario under the line of credit prior to the conversion into common stock.
As reflected in the consolidated financial statements, the Company has incurred significant current period losses, negative cash flows from operating activities, has negative working capital, and an accumulated deficit. These conditions, among others, raise substantial doubt about the Companys ability to continue as a going concern.
We intend to fund future operations for the next 12 months through cash on hand, through additional advances from related parties and if needed from the sale of debt or equity securities. Currently, we cannot provide assurance that such financing will be available to us on favorable terms, or at all. If, after utilizing the existing sources of capital available to us, further capital needs are identified and if we are not successful in obtaining the required financing, we may be forced to curtail our existing or planned future operations. We believe our plans will enable us to continue our current operations for in excess of one year from the issuance date of this Quarterly Report. However, those plans are dependent upon obtaining additional capital until cash flows from operations generated are sufficient to fund operations.
Off-Balance Sheet Arrangements
We had no off balance sheet arrangements during the quarter ended December 31, 2018.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company (as defined by Item 10 of Regulation S-K) is not required to provide the information required by this Item pursuant to Item 305(e) of Regulation S-K.
Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of December 31, 2018, our disclosure controls and procedures were not effective, and provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (the SEC) rules, regulations and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
The following material weakness was first identified by management during the fiscal year ended March 31, 2018 and still remains as of December 31, 2018.
·
Lack of Management review as the Company has one employee that enters into, reviews, and controls all transactions. The individual is also responsible for financial and regulatory reporting.
We cannot remedy the weakness until additional employee(s) and/or consultants can be retained to adequately segregate duties. Until such time, Management is maintaining adequate records to substantiate transactions.
Changes in Internal Control over Financial Reporting
Our management, with the participation of the chief executive officer and chief financial officer, has concluded there were no significant changes in our internal controls over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1.
Legal Proceedings
The Company is not a party to any other material pending legal proceedings. To the best of the Companys knowledge, no governmental authority or other party has threatened or is contemplating the filing of any material legal proceeding against the Company.
Item 1A.
Risk Factors
A smaller reporting company (as defined by Item 10 of Regulation S-K) is not required to provide the information specified by this Item.
Item 2
.
Unregistered Sales of Equity Securities and Use of Proceeds
There were no sales of unregistered securities made by us during the three month period ended December 31, 2018. For a description of any sales of shares of the Companys unregistered stock made by us in the past three years, please refer to the Companys Annual Reports on Form 10-K, and the Companys Quarterly Reports on Form 10-Q filed since March 31, 2015.
Item 3.
Defaults Upon Senior Securities
This Item is not applicable.
Item 4.
Mine Safety Disclosures
This Item is not applicable.
Item 5.
Other Information
This Item is not applicable.
Item 6.
Exhibits
(a)
Exhibits:
Exhibit 3.1
**
Articles of Incorporation of the Company (incorporated by reference from the Form S-1 Registration Statement filed with the Commission on October 12, 2012).
Exhibit 3.2
**
By-laws of the Company (incorporated by reference from the Form S-1 Registration Statement filed with the Commission on October 12, 2012).
Exhibit 10.1
***
License Agreement No. W-1/18 by and between TORtec Forschungsinstitut GmbH (TRI, Switzerland), Licensor, and TORtec Group, Licensee, dated June 18, 2018
Exhibit 31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 101.INS
XBRL Instance Document
Exhibit 101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Exhibit 101.LAB
XBRL Taxonomy Extension Label Linkbase
Exhibit 101.DEF
XBRL Taxonomy Extension Definition Linkbase
Exhibit 101.CAL
XBRL Taxonomy Extension Calculation Linkbase
Exhibit 101.SCH
XBRL Taxonomy Extension Schema
**
10-K Annual Report for the fiscal year ended March 31, 2017
, which was filed with the SEC on August 21, 2017.
***
10-K Annual Report for the fiscal year ended March 31, 2018
, which was filed with the SEC on July 12, 2018.
**
Prospectus
filed with the SEC on January 8, 2013.
**Previously filed and incorporated by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TORTEC GROUP CORPORATION
Date: February 14, 2019
By:
/s/ Stephen H. Smoot
Stephen H. Smoot
President and Chief Executive
Officer
Date: February 14, 2019
By
:/s/ Irina Kochetkova
Irina Kochetkova
Chief Financial Officer and Principal
Accounting Officer