The accompanying notes to the financial statements are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(unaudited)
NOTE 1 – Summary of Significant Accounting Policies
Organization
SecureTech Innovations, Inc. (“Company” or “SecureTech”) was incorporated under the laws of the State of Wyoming on March 2, 2017, under the name SecureTech, Inc. The Company amended its Articles of Incorporation on December 20, 2017, to change its name to SecureTech Innovations, Inc. On November 19, 2021 and November 25, 2021, SecureTech incorporated wholly-owned subsidiaries Piranha Blockchain, Inc. under the laws of the State of Wyoming and Piranha Blockchain, Ltd. under the International Business Company (IBC) laws of Anguilla, British West Indies, respectively (collectively, “Piranha”).
SecureTech is an emerging growth company focused on developing and marketing advanced security and safety technologies. SecureTech’s products preserve life, protect property, and prevent crime. Under the Top Kontrol brand, SecureTech currently sells the world’s only anti-theft and anti-carjacking automobile security and safety system. Under its wholly owned Piranha subsidiaries, SecureTech intends to develop and acquire secure green energy data centers, advanced cybersecurity technologies, and blockchain and cryptocurrency systems and platforms for mining, storage, and trading exchanges.
Unaudited Interim Financial Information
The unaudited condensed interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of Management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
The balance sheet as of December 31, 2021, has been derived from audited financial statements.
Operating results for the six months ended June 30, 2022, are not necessarily indicative of results that may be expected for the year ending December 31, 2022. These condensed financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2021, filed with the Company’s Annual Report on Form 10-K with the Securities and Exchange Commission on March 30, 2022.
Impact of the COVID-19 (Coronavirus) Pandemic
In December 2019, a novel strain of coronavirus, which causes the disease known as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 coronavirus has spread globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic causing the U.S. government to impose travel restrictions between the United States, Europe, and many other countries worldwide, which have subsequently cycled between being lifted, reimposed, and modified on an ongoing basis. As of June 30, 2022, the effects of the COVID-19 situation continue to negatively affect the global economy, significantly disrupt global supply chains, and create major financial and retail marketplace disruptions.
Because we began manufacturing and selling Top Kontrol during the fiscal year ended December 31, 2020, we cannot determine, compare, or estimate with any degree of accuracy to what extent the pandemic may be hindering our sales efforts. While we believe this pandemic has had a material impact on our business, particularly relating to sales of Top Kontrol, we do not have enough operating history to accurately evaluate or quantify the extent to which this pandemic may have impacted the following areas of our business:
•
|
| Raw material and component supply chains
|
•
|
| Product sales
|
•
|
| Training and educating prospective Top Kontrol Certified Technicians
|
•
|
| Marketing and advertising efficiencies
|
Uncertainties regarding the economic impact of COVID-19 are likely to result in sustained market turmoil through the fiscal year ending December 31, 2022, while many businesses continue to operate at diminished capacities and the global supply chain remains fractured. Even though medical experts have a growing consensus that the pandemic is becoming more of an endemic, many market experts still believe businesses will continue to experience adverse effects and supply chain disruptions resulting from the prolonged repercussions of the COVID-19 pandemic into the fiscal year ending December 31, 2023.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP”) for financial information and in accordance with the Securities and Exchange Commission’s (“SEC”) Regulation S-X. They reflect all adjustments which are, in the opinion of the Company’s Management, necessary for a fair presentation of the financial position and operating results as of and for the fiscal period ended June 30, 2022.
Use of Estimates
The accompanying financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgment. Actual results may vary from these estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents. As of June 30, 2022, the Company had no cash equivalents.
Fair Value of Financial Instruments
ASC 820, “Fair Value Measurements” and ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:
Level
|
| Description
|
|
|
|
Level 1
|
| Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
|
Level 2
|
| Applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
|
Level 3
|
| Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
|
Inventory and Cost of Sales
Inventories are stated at the lower of cost or realizable value, using the weighted average cost method. When an impairment indicator suggests that the carrying amounts of inventories might not be recoverable, the Company reviews such carrying amounts and estimates the net realizable value based on the most reliable evidence available at that time. An impairment loss is recorded if the net realizable value is less than the carrying value. Impairment indicators considered for these purposes are, among others, obsolescence, decrease in market prices, damage, and a firm commitment to sell.
Net Loss per Share Calculation
Basic net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per shares is calculated similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. SecureTech
excludes all potentially dilutive securities from its diluted net loss per share computation since their effect would be anti-dilutive because SecureTech recorded a loss for the six months ended June 30, 2022.
Revenue Recognition
Effective January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers.
The Company’s primary source of revenue is from the sale of our Top Kontrol product. We began selling Top Kontrol in late April 2020.
Top Kontrol requires installation by a Certified Top Kontrol Technician. To become a Certified Top Kontrol Technician, an automotive technician must complete a one-day hands-on course hosted by the Company. Failure to have Top Kontrol installed by a Certified Top Kontrol Technician voids the product’s limited liability warranty.
Because of this professional installation requirement, the Company sells its products to and through Authorized Dealers and Certified Top Kontrol Technicians. In the instances where the Company sells directly to the end-user, product installation must be performed by authorized Company personnel.
Revenue is recognized when performance obligations under the terms of a contract with our customers are satisfied. Revenue is recorded net of marketing allowances, volume discounts, and other forms of variable consideration. Generally, this occurs with the transfer of control of our product to the customer and payment has been received. The Company presently does not offer terms or credit to any of its customers.
Revenue Recognition; ASC 606 Five-Step Model
Under ASC 606, the Company recognizes revenue from the sale of service contracts by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
Revenue Recognition; General Right of Return
Customers are allowed to return goods that are defective (warranty returns). In some instances, customers may be allowed to return a limited number of units for periodic stock adjustment returns. Such stock adjustment returns would be limited to no more than 5% of their total units sold.
As is standard in the industry, we only will accept returns from active customers. If a customer discontinues conducting business with us, we have no further obligation to accept additional product returns from that customer.
Income Taxes
The Company accounts for income taxes pursuant to FASB ASC 740, Income Taxes. Under FASB ASC 740-10-25, deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.
The Company maintains a valuation allowance with respect to deferred tax assets. The Company establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carryforward period under the Federal tax laws.
Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about its ability to realize the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimate.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the following majority-owned subsidiaries as of June 30, 2022:
Subsidiary
|
| Percentage Owned
|
|
|
|
Piranha Blockchain, Inc.
|
| 100.0%
|
Piranha Blockchain, Ltd.
|
| 100.0%
|
Fiscal Year
The Company elected December 31st for its fiscal year-end.
Recent Accounting Pronouncements
There are various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
NOTE 2 – GOING CONCERN
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the ordinary course of business. As shown in the accompanying financial statements during the fiscal period ended June 30, 2022, the Company has not established a source of revenues sufficient to cover its operating costs. As such, it has incurred an operating loss since its inception. Further, as of June 30, 2022, the Company had an accumulated deficit of ($617,243). These and other factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s existence depends on Management’s ability to develop profitable operations and obtain additional financing sources. There can be no assurance that the Company’s financing efforts will result in profitable operations or resolve the Company’s liquidity problems. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
NOTE 3 – INVENTORIES
Inventory is stated at the lower of cost or realizable value, using the weighted average cost method. When an impairment indicator suggests that the carrying amounts of inventories might not be recoverable, the Company reviews such carrying amounts and estimates the net realizable value based on the most reliable evidence available at that time. An impairment loss is recorded if the net realizable value is less than the carrying value. Impairment indicators considered for these purposes are, among others, obsolescence, decrease in market prices, damage, and a firm commitment to sell. The following table summarizes the Company’s inventories as of June 30, 2022 and December 31, 2021:
| | |
June 30, 2022 | |
December 31, 2021 |
| Inventories: | |
| | | |
| | |
| Raw materials and work-in-progress | |
$ | 1,754 | | |
$ | 1,955 | |
| Finished goods | |
| 33,329 | | |
| 38,020 | |
| Gross inventories | |
| 35,083 | | |
| 39,975 | |
| Inventory valuation reserves | |
| — | | |
| — | |
| Inventories, net | |
$ | 35,083 | | |
$ | 39,975 | |
11
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NOTE 4 – STOCKHOLDERS’ EQUITY
Preferred stock
The Company has authorized 50,000,000 shares of preferred stock, $0.001 par value. The Company’s Board of Directors is authorized, without further action by the shareholders, to issue shares of preferred stock and to fix the designations, number, rights, preferences, privileges, and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and sinking fund terms.
As of June 30, 2022, the Company had no classes and -0- shares of preferred stock issued and outstanding.
Common stock
The Company has authorized 500,000,000 shares of common stock, with a par value of $0.001 per share.
Share Issuances
During the six months ended June 30, 2022, the Company sold 113,500 shares of its common stock, $0.001 par value, at a purchase price of $1.00 per Share through a Regulation D, Rule 506 offering of its common shares.
Share Cancellations
During the six months ended June 30, 2022, the Company canceled an aggregate of 1,700,000 shares of its common stock. Management continues to explore additional possibilities to cancel and retire shares with the overall goal of reducing the number of issued and outstanding shares of common stock.
As of June 30, 2022, the Company had 111,749,800 shares of common stock issued and outstanding.
NOTE 5 – WARRANTS
The following table summarizes information with respect to outstanding warrants to purchase shares of the Company’s common stock as of June 30, 2022.
Exercise
Price
|
| Number
Outstanding
|
| Expiration
Date
|
|
|
|
|
|
|
$
| 0.50
|
| 439,300
|
| December 31, 2022
|
|
|
| 439,300
|
|
|
Warrant Issuances, Exercises, and Expirations
Private Placement Warrant Issuances
During the fiscal year ended December 31, 2020, the Company undertook a private placement of its securities through a private placement Unit offering. Each Unit included one share of the Company's common stock and four stock purchase warrants with incremental exercise prices and expiration dates. An aggregate of 1,757,200 stock purchase warrants were issued under this offering, which was closed on June 30, 2020.
The warrants were valued using the Black-Scholes model with a 53.0% volatility rate and discount rates ranging from 0.16% - 0.21% for a total fair value of $19,257.
Warrant Expirations
During the fiscal period ended June 30, 2022, an aggregate of 878,600 warrants expired with an average exercise price of $0.35 a share.
A summary of the warrant activity for the fiscal period ended June 30, 2022, is as follows:
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on warrants with an exercise price less than the Company’s stock price of $1.75 (based on the bid price quoted on the OTC Pink Tier of the OTC Market Group, Inc.) as of June 30, 2022, which the warrant holders would have received had those warrant holders exercised their warrants as of that date.
NOTE 6 – STOCK OPTIONS
Employee Stock Options Issuances
During the fiscal period ended June 30, 2022, the Company issued an aggregate of 1,500,000 stock purchase options to Ken Salway, our Vice President of Sales, as part of his total compensation package. These warrants have a fixed exercise price of $1.35 a share, vesting between December 31, 2022 and December 31, 2031, and expiring on December 31, 2032.
The warrants were valued using the Black-Scholes model with a 316.0% volatility rate and discount rate of 2.8% for a total fair value of $1.5 million roughly with $18,488 recognized in the fiscal quarter ended June 30, 2022 in general and administrative and additional paid in capital for the period ended June 30, 2022.
The following table summarizes information with respect to outstanding stock options to purchase shares of the Company’s common stock as of June 30, 2022.
| Outstanding Stock Options |
|
Exercise
Price
|
| Number
Outstanding
|
| Vesting
Date
|
| Remaining Life
in Years
|
|
|
|
|
|
|
|
|
$
| 1.35
|
| 50,000
|
| December 31, 2022
|
| 10.5
|
$
| 1.35
|
| 75,000
|
| December 31, 2023
|
| 10.5
|
$
| 1.35
|
| 100,000
|
| December 31, 2024
|
| 10.5
|
$
| 1.35
|
| 125,000
|
| December 31, 2025
|
| 10.5
|
$
| 1.35
|
| 150,000
|
| December 31, 2026
|
| 10.5
|
$
| 1.35
|
| 200,000
|
| December 31, 2027
|
| 10.5
|
$
| 1.35
|
| 200,000
|
| December 31, 2028
|
| 10.5
|
$
| 1.35
|
| 200,000
|
| December 31, 2029
|
| 10.5
|
$
| 1.35
|
| 200,000
|
| December 31, 2030
|
| 10.5
|
$
| 1.35
|
| 200,000
|
| December 31, 2031
|
| 10.5
|
Total
|
|
| 1,500,000
|
|
|
|
|
NOTE 7 – RELATED PARTY FOUNDER’S SHARE ISSUANCES
On March 2, 2017, the Company issued an aggregate of shares of its common stock, $0.001 par value, as Founder’s Shares with $-- value.
Of these original Founder’s Shares were issued to the Company’s officers, to an entity controlled by one of the Company’s founding directors, and to outside consultants who assisted with the Company’s formation and early organization.
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NOTE 8 – CONTINGENCY/LEGAL
As of June 30, 2022, and during the preceding ten years, no director, person nominated to become a director or executive officer, or promoter of the Company has been involved in any legal proceeding that would require disclosure hereunder.
From time to time, the Company may become subject to various legal proceedings and claims that arise in the ordinary course of our business activities. However, litigation is subject to inherent uncertainties for which the outcome cannot be predicted. Any adverse result in these or other legal matters could arise and cause harm to the Company’s business. The Company currently is not a party to any claim or litigation, the outcome of which, if determined adversely to the Company, would individually or in the aggregate be reasonably expected to have a material adverse effect on the Company’s business.
NOTE 9 – SUBSEQUENT EVENTS
No other material events or transactions have occurred during this subsequent event reporting period that required recognition or disclosure in the financial statements.
[This space intentionally left blank]
14
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our independent registered public accounting firm has issued a going concern opinion in their audit report dated March 30, 2022, which can be found in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 30, 2022. This means that our auditors believe there is substantial doubt that we can continue as an ongoing business for the next 12 months.
The following discussion should be read in conjunction with our financial statements and the notes thereto and the other information included in this Quarterly Report as filed with the SEC on Form 10-Q.
Business Overview
SecureTech is an emerging growth company that develops and markets security and safety devices and technologies – our products preserve life, protect property, and prevent crime. SecureTech is the maker of Top Kontrol®, the only anti-theft and anti-carjacking system known that can safely stop a carjacking without any action by the driver. Through its Piranha Blockchain subsidiary, SecureTech is developing advanced cybersecurity technologies for blockchain and cryptocurrency systems and platforms involving cryptocurrency mining, digital asset storage and protection, and trading exchanges.
Corporate Structure
The following diagram illustrates our corporate structure as of June 30, 2022:
Corporate History
SecureTech was incorporated under the laws of the State of Wyoming on March 2, 2017, under the name SecureTech, Inc. SecureTech amended its Articles of Incorporation on December 20, 2017, to change its name to SecureTech Innovations, Inc. On November 19, 2021 and November 25, 2021, SecureTech incorporated wholly-owned subsidiaries Piranha Blockchain, Inc. under the laws of the State of Wyoming and Piranha Blockchain, Ltd. under the International Business Company (IBC) laws of Anguilla, British West Indies, respectively.
15
Table of Contents
Top Kontrol
Top Kontrol is the world’s most advanced anti-theft and anti-carjacking system currently available. Unlike our competitors’ products that only protect a vehicle from unattended theft, Top Kontrol takes vehicle security and passenger safety to the next level – it prioritizes the driver’s and passengers’ safety. Top Kontrol is presently the only automobile security and personal safety system able to thwart an active carjacking attempt without any action by the driver.
Key Advantages of Top Kontrol:
ü
|
| Anti-theft circuits actively prevent automobile theft and carjacking
|
ü
|
| Automatically prevents theft although keys are in ignition and engine is idling
|
ü
|
| Active and passive prevention of carjacking
|
ü
|
| Does not interfere with the vehicle’s other systems
|
ü
|
| Compatible with most makes and models of cars and trucks
|
ü
|
| Manual engine kill switch
|
ü
|
| Key-based system prevents thieves from hacking wirelessly transmitted security codes
|
ü
|
| Does not draw battery power – system works even with a disabled car battery
|
|
| 
|
Retail Package Top
|
| Retail Package Bottom
|
For additional information on Top Kontrol or view product demonstration videos, please visit the Top Kontrol website at www.topkontrol.com or the Top Kontrol YouTube Channel, respectively.
16
Table of Contents
Industry: Automobile Theft in America
Automobile theft in America continues to rise on an annual basis. Top Kontrol keeps your car safe when you are not there. Top Kontrol prevents car thieves from stealing your car when parked and unattended. Below is some recent data showcasing America’s auto theft crisis:
873,080
|
| Number of US cars stolen in 2020
|
$7.4 Billion
|
| Value of cars stolen in the US in 2020
|
$9,166
|
| Average dollar loss per theft
|
11.8%
|
| Increase in US car thefts over 2019
|
36 Seconds
|
| How often a car is stolen in the US
|
Industry: Carjackings Skyrocketing
Carjackings more than doubled during 2020, followed by an even sharper rise in carjackings to new record highs in 2021. Top Kontrol is presently the only known automobile safety device that can thwart an active carjacking attempt without any action by the driver. Below are some highlighted major US cities that experienced record levels of carjackings in 2021:
Increase in Carjackings
2021
|
|
US City
|
|
|
|
343%
|
| Washington, DC
|
222%
|
| Minneapolis, MN
|
133%
|
| Chicago, IL
|
121%
|
| New Orleans, LA
|
115%
|
| Oakland, CA
|
Competition
SecureTech faces formidable competition in every aspect of its business. Our company’s success or failure will depend largely upon management’s ability to develop competitive products and successfully market them to attract enough new customers, enabling us to generate sufficient revenues to become profitable.
SecureTech competes against better-established competitors with more significant financial resources and longer operating histories. Our competitors’ resources and market presence may give them considerable marketing, purchasing, and negotiating leverage advantages. Some of our better-known competitors include Viper (www.viper.com), Clifford (www.clifford.com), and OnStar (www.onstar.com). In addition to these known competitors, we are competing with other lesser-known competitors as well as competitors presently not known to us or possibly, not even formed yet.
We believe that our targeted industry is sufficiently large enough that we will be able to compete successfully against our competitors with our existing and future products. However, it is essential to note that the underlying product technology is constantly evolving and expanding with new competitors continuously innovating better products that could eventually outperform our then-offered products or, worse, possibly render them obsolete.
Manufacturing
SecureTech presently uses US-based contract manufacturers to manufacture its products, with final assembly performed at SecureTech’s Minnesota headquarters. SecureTech does not have any long-term or exclusivity agreements with any contract manufacturer and is free to change or negotiate with new contract manufacturers at its sole discretion.
SecureTech’s products proudly carry the “Made in the USA” designation.
17
Table of Contents
Piranha Blockchain
SecureTech is expanding into advanced cybersecurity and blockchain technologies through its newly formed Piranha Blockchain subsidiaries (collectively, “Piranha”). Through Piranha, SecureTech intends to:
•
|
| Build secure low-cost green energy data centers
|
•
|
| Offer advanced cybersecurity products to secure and protect client data, identity, and digital assets from theft and ransom
|
•
|
| Develop blockchain and cryptocurrency systems and platforms for mining, storage, and trading exchanges
|
Piranha intends to generate revenue through four potential sources:
•
|
| Individual one-time product sales of cybersecurity hardware and applications
|
•
|
| Recurring monthly revenue from cybersecurity subscriptions and hosting services
|
•
|
| Cryptocurrency mining
|
•
|
| Transaction fees from cryptocurrency exchange trades and conversions into and from fiat currencies
|
Piranha will pursue growth in this business expansion through a combination of internally developed products and technologies and strategic acquisitions.
Government Regulation
Our products are designed to meet all known existing or proposed governmental regulations. We believe that we currently meet current standards for approvals by government regulatory agencies for our products and services.
Top Kontrol was issued a Federal Communications Commission (FCC) Declaration of Conformity certification in March 2020.
Compliance with Environmental Laws
We believe there are no material issues or costs associated with our compliance with environmental laws. We did not incur environmental expenses in fiscal periods ended June 30, 2022 and 2021, nor do we anticipate environmental expenses in the foreseeable future.
Intellectual Property Rights and Proprietary Information
We operate in an industry where innovation, investment in new ideas, and protection of resulting intellectual property rights are essential drivers of success. We rely on various intellectual property protections for our products and technologies, including patent, trademark and trade secret laws, and contractual obligations. We pursue a policy of vigorously enforcing our intellectual property rights.
Patents that have been issued and/or licensed to SecureTech and their dates of issuance are:
·On May 7, 2013, Shongkawh, LLC, a related party controlled by our President and CEO, was issued US Patent No. 8,436,721 entitled “Automobile Theft Protection and Disablement System,” by the US Patent & Trademark Office (“USPTO”). This patent expires on March 19, 2030. SecureTech has the exclusive license for the use of this patent through its expiration date.
In addition to such factors as innovation, technological expertise, and experienced personnel, we believe robust product offerings that we continue to upgrade and enhance will keep us competitive. We will seek patent protection on significant technological improvements that we make. We have an ongoing policy of filing patent applications to seek legal protections
18
Table of Contents
for our products and technologies’ novel features. Before filing and granting patents, our policy is to disclose critical elements to patent counsel and maintain these features as trade secrets before product introduction. Patent applications may not result in issued patents covering all-important claims and could be denied in their entirety.
We also file for trade name and trademark protection when appropriate. We are the owner of federally registered trademarks, including SECURETECH INNOVATIONS® and TOP KONTROL®. Additionally, SecureTech has a pending trademark registration application with the USPTO for PIRANHA BLOCKCHAIN.
Our policy is to enter into nondisclosure agreements with each employee, consultant, or third party to whom any of our proprietary information may be disclosed. These agreements prohibit disclosing our confidential information to others during and after employment or working relationships.
Employees
As of June 30, 2022, we had five employees (two full-time employees and three part-time employees), and three independent commission-based sales representatives.
Results of Operations
Comparison of the Three Months Ended June 30, 2022 and 2021
The following table sets forth the results of our operations for the three months ended June 30, 2022 and 2021.
|
| Three months ended June 30,
|
|
|
2022
|
|
2021
|
Sales
| $
| 7,803
| $
| 9,482
|
Cost of goods sold
|
| (2,068)
|
| (2,534)
|
Gross profit
|
| 5,735
|
| 6,948
|
Operating expenses
|
| (108,949)
|
| (31,610)
|
Loss from operations
|
| (103,214)
|
| (24,662)
|
Other income
|
| 1,215
|
| -
|
Net loss
| $
| (101,999)
| $
| (24,662)
|
Sales
Sales for the three months ended June 30, 2022, were $7,803, compared to $9,482 for the same period of 2021, representing a decline of ($1,679), or a (17.7%) decrease compared to the previous fiscal period. All sales were attributable to Top Kontrol and the efforts of our President and CEO, Kao Lee.
During the fiscal period that ended June 30, 2022, we hired a Vice President of Sales, Ken Salway. Mr. Salway is creating a structured Top Kontrol sales program. We anticipate his efforts will start generating significantly higher Top Kontrol sales during the upcoming fiscal periods.
Cost of Goods Sold
Our cost of goods sold consists primarily of purchasing components and circuitry from various vendors then utilizing third-party contract manufacturing facilities to produce our products, with final assembly conducted at our Minnesota headquarters. Cost of goods sold for the three months ended June 30, 2022, was $2,068, compared to $2,534 for the same period of 2021. As a percentage of overall sales, the cost of goods sold was 26.5% during the three months ended June 30, 2022, compared to 26.7% for the same fiscal period a year ago.
Gross Profit
Gross profit for the three months ended June 30, 2022, was $5,735, compared to $6,948 for the same period of 2021. Our gross profit margin was 73.5% during the three months ended June 30, 2022, compared to 73.3% for the same fiscal period a year ago.
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Table of Contents
Operating Expenses
|
| Three months ended June 30,
|
|
|
2022
|
|
2021
|
Operating expenses:
|
|
|
|
|
| General and administrative
| $
| 103,647
| $
| 31,533
|
| Research and development
|
| 5,302
|
| 77
|
| Operating expenses
| $
| 108,949
| $
| 31,610
|
Our operating expenses for the fiscal period consisted of two components: general and administrative expenses and research and development expenses. Total operating expenses were $108,949 in the three months ended June 30, 2022, compared to $31,610 in the same period of 2021, representing an increase in operating expenses of $77,339, or 244.7%, from the three months ended June 30, 2021. The increase in operating expenses was primarily attributable to (i) beginning to pay certain employees cash salaries (prior to January 1, 2022, no employee received cash compensation, only restricted equity awards), (ii) hiring a new Vice President of Sales and incurring a one-time non-cash stock option expense, (iii) boosting research and development efforts on our second-generation Top Kontrol product line, and (iv) increases in legal, accounting, and regulatory compliance expenses. As SecureTech grows and expands, we anticipate that these expenses will continue rising moving forward.
Loss From Operations
As a result of the foregoing, our loss from operations was ($103,214) during the three months ended June 30, 2022, compared with ($24,662) for the same period of 2021. This $78,552, or 318.5%, increase in our loss from operations was primarily attributable to (i) beginning to pay certain employees cash salaries (prior to January 1, 2022, no employee received cash compensation, only restricted equity awards), (ii) hiring a new Vice President of Sales and incurring a one-time non-cash stock option expense, (iii) boosting research and development efforts on our second-generation Top Kontrol product line, and (iv) increases in legal, accounting, and regulatory compliance expenses. As SecureTech grows and expands, we anticipate that these expenses will continue rising moving forward.
Other Income
Our other income is comprised of bank interest received on cash deposits and cashback rewards generated from a bank credit card. During the three months that ended June 30, 2022, we received $1,215 in other income, compared to $-0- for the same period of 2021.
Net Loss
The result was that our net loss was ($101,999) during the three months ended June 30, 2022, compared with ($24,662) for the same period of 2021. This $77,337, or 313.6%, increase in our net loss was primarily attributable to (i) beginning to pay certain employees cash salaries (prior to January 1, 2022, no employee received cash compensation, only restricted equity awards), (ii) hiring a new Vice President of Sales and incurring a one-time non-cash stock option expense, (iii) boosting research and development efforts on our second-generation Top Kontrol product line, and (iv) increases in legal, accounting, and regulatory compliance expenses. As SecureTech grows and expands, we anticipate that these expenses will continue rising moving forward.
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Comparison of the Six Months Ended June 30, 2022 and 2021
The following table sets forth the results of our operations for the six months ended June 30, 2022 and 2021.
|
| Six months ended June 30,
|
|
|
2022
|
|
2021
|
Sales
| $
| 17,153
| $
| 20,532
|
Cost of goods sold
|
| (4,690)
|
| (5,506)
|
Gross profit
|
| 12,463
|
| 15,026
|
Operating expenses
|
| (156,702)
|
| (49,085)
|
Loss from operations
|
| (144,239)
|
| (34,059)
|
Other income
|
| 1,215
|
| -
|
Net loss
| $
| (143,024)
| $
| (34,059)
|
Sales
Sales for the six months ended June 30, 2022, were $17,153, compared to $20,532 for the same period of 2021, representing a decline of ($3,379), or a (16.5%) decline compared to the previous fiscal period. All sales were attributable to Top Kontrol and the efforts of our President and CEO, Kao Lee.
During the fiscal period that ended June 30, 2022, we hired a Vice President of Sales, Ken Salway. Mr. Salway is creating a structured Top Kontrol sales program. We anticipate his efforts will start generating significantly higher Top Kontrol sales during the upcoming fiscal periods.
Cost of Goods Sold
Our cost of goods sold consists primarily of purchasing components and circuitry from various vendors then utilizing third-party contract manufacturing facilities to produce our products, with final assembly conducted at our Minnesota headquarters. Cost of goods sold for the six months ended June 30, 2022, was $4,690, compared to $5,506 for the same period of 2021. As a percentage of overall sales, the cost of goods sold was 27.3% during the six months ended June 30, 2022, compared to 26.8% for the same fiscal period a year ago.
Gross Profit
Gross profit for the six months ended June 30, 2022, was $12,463, compared to $15,026 for the same period of 2021. Our gross profit margin was 72.7% during the six months ended June 30, 2022, compared to 73.2% for the same fiscal period a year ago.
Operating Expenses
|
| Six months ended June 30,
|
|
|
2022
|
|
2021
|
Operating expenses:
|
|
|
|
|
| General and administrative
| $
| 166,238
| $
| 49,008
|
| Research and development
|
| 8,952
|
| 77
|
| Operating expenses
| $
| 175,190
| $
| 49,085
|
Our operating expenses for the fiscal period consisted of two components: general and administrative expenses and research and development expenses. Total operating expenses were $175,190 in the six months ended June 30, 2022, compared to $49,085 in the same period of 2021, representing an increase in operating expenses of $126,105, or 256.9%, from the six months ended June 30, 2021. The increase in operating expenses was primarily attributable to (i) beginning to pay certain employees cash salaries (prior to January 1, 2022, no employee received cash compensation, only restricted equity awards), (ii) hiring a new Vice President of Sales and incurring a one-time non-cash stock option expense, (iii) boosting research and development efforts on our second-generation Top Kontrol product line, and (iv) increases in legal, accounting, and regulatory compliance expenses. As SecureTech grows and expands, we anticipate that these expenses will continue rising moving forward.
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Loss From Operations
As a result of the foregoing, our loss from operations was ($162,727) during the six months ended June 30, 2022, compared with ($34,059) for the same period of 2021. This $128,668, or 377.8%, increase in our loss from operations was primarily attributable to (i) beginning to pay certain employees cash salaries (prior to January 1, 2022, no employee received cash compensation, only restricted equity awards), (ii) hiring a new Vice President of Sales and incurring a one-time non-cash stock option expense, (iii) boosting research and development efforts on our second-generation Top Kontrol product line, and (iv) increases in legal, accounting, and regulatory compliance expenses. As SecureTech grows and expands, we anticipate that these expenses will continue rising moving forward.
Other Income
Our other income is comprised of bank interest received on cash deposits and cashback rewards generated from a bank credit card. During the six months that ended June 30, 2022, we received $1,215 in other income, compared to $-0- for the same period of 2021.
Net Loss
The result was that our net loss was ($161,512) during the six months ended June 30, 2022, compared with ($34,059) for the same period of 2021. This $127,453, or 374.2%, increase in our net loss was primarily attributable to (i) beginning to pay certain employees cash salaries (prior to January 1, 2022, no employee received cash compensation, only restricted equity awards), (ii) hiring a new Vice President of Sales and incurring a one-time non-cash stock option expense, (iii) boosting research and development efforts on our second-generation Top Kontrol product line, and (iv) increases in legal, accounting, and regulatory compliance expenses. As SecureTech grows and expands, we anticipate that these expenses will continue rising moving forward.
Total Stockholders’ Equity.
Our stockholders’ equity was $220,981 as of June 30, 2022.
Liquidity and Capital Resources
Our principal demands for liquidity are related to our efforts to generate sales, manufacture inventory, and expenditures related to sales, regulatory compliance, and general corporate purposes. We intend to meet our liquidity demands, including capital expenditures related to the manufacture of inventory and the expansion of our business, primarily through cash flow provided by operations and sales of our securities.
As of June 30, 2022, we had a cashback revolving credit line of $25,000. As of June 30, 2022, we had an outstanding balance of $10,765 on this credit line. Under the terms of this line of credit, SecureTech is to receive 1.5% back on all purchases made through this credit line. Management strives to put as many ordinary operating expenses as possible through this credit line to reduce operating expenses passively. SecureTech will pay this credit line in full at the end of each billing cycle and does not intend to carry any balances to avoid unnecessary interest expenses.
We rely primarily on internally generated cash flow and available working capital to support operations and growth. Although we believe that our current cash and anticipated cash receipts from sales of Top Kontrol will be sufficient to meet our planned working capital requirements and capital expenditures over the next 12 months, we are constantly exploring additional sources of new capital. Without limiting our available options, future financings will most likely be through the sale of additional shares of our common stock. We may also include warrants, options, and/or rights in conjunction with any future issuances of our common stock. However, we can give no assurance that future financing will be available to us and, if available to us, in amounts or on terms acceptable to us.
We had net working capital of $217,672 as of June 30, 2022, a decrease of ($32,832), or (13.1%), from net working capital of $250,504 as of December 31, 2021. The ratio of current assets to current liabilities was 15.9-to-1 on June 30, 2022.
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The following is a summary of cash provided by or used in each of the indicated types of activities during the six months ended June 30, 2022 and 2021:
| Six Months Ended June 30,
|
| 2022
|
| 2021
|
Cash provided by (used in):
|
|
|
|
| Operating activities
| ($126,935)
|
| ($28,334)
|
| Investing activities
| ($3,423)
|
| $-0-
|
| Financing activities
| $113,501
|
| $172,250
|
Net cash used in operating activities was ($126,935), an increase of $98,601, or 348.0%, from cash used in operating activities of ($28,334) during the same period of 2021. The increase in our cash used by operating activities was primarily attributable to (i) beginning to pay certain employees cash salaries (prior to January 1, 2022, no employee received cash compensation, only restricted equity awards), (ii) boosting research and development efforts on our second-generation Top Kontrol product line, and (iii) increases in legal, accounting, and regulatory compliance expenses. As SecureTech grows and expands, we anticipate that these expenses will continue rising moving forward.
Net cash used in investing activities was ($3,423) during the six months ended June 30, 2022, compared to $-0- used during the same period in 2021. Cash used in investing activities was for the purchase of new office equipment resulting from the hiring of our new Vice President of Sales during the six months ended June 30, 2022.
Net cash provided by financing activities was $113,501, a decrease of ($58,749), or (34.1%), from cash generated from financing activities of $172,250 during the same period of 2021. During the six months ended June 30, 2022, we sold 113,500 shares of our common stock for $113,501 in cash, or $1.00 per share, compared to the same period in 2021, where we sold 689,000 shares for $172,250 in cash, or $0.25 per share.
Ongoing and Future Capital Funding Efforts
As of August 15, 2022, SecureTech is presently offering a maximum of 200,000 shares of its common stock to private investors at a price of $1.75 per share. These shares are being offered pursuant to Regulation D, Rule 506. Funds generated from this private placement offering will be used for general working capital and to build initial inventory for our upcoming second-generation Top Kontrol product line.
SecureTech is concurrently preparing a Regulation A registered securities offering to raise up to a maximum of $5 million. Funds generated from this planned securities offering will be used for general working capital and to build Piranha Blockchain’s first hydroelectric-powered green data center.
Impact of the COVID-19 (Coronavirus) Pandemic
In December 2019, a novel strain of coronavirus, which causes the disease known as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 coronavirus has spread globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic causing the U.S. government to impose travel restrictions between the United States, Europe, and many other countries worldwide, which have subsequently cycled between being lifted, reimposed, and modified on an ongoing basis. As of June 30, 2022, the COVID-19 situation continues to negatively affect the global economy, significantly disrupt global supply chains, and create major financial and retail marketplace disruptions.
Because we began manufacturing and selling Top Kontrol during the fiscal year ended December 31, 2020, we cannot determine, compare, or estimate with any degree of accuracy to what extent the pandemic may be hindering our sales efforts. While we believe this pandemic has had a material impact on our business, particularly relating to sales of Top Kontrol, we do not have enough operating history to accurately evaluate or quantify the extent to which this pandemic may have impacted the following areas of our business:
•
|
| Raw material and component supply chains
|
•
|
| Product sales
|
•
|
| Training and educating prospective Top Kontrol Certified Technicians
|
•
|
| Marketing and advertising efficiencies
|
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Uncertainties regarding the economic impact of COVID-19 are likely to result in sustained market turmoil through the fiscal year ending December 31, 2022, while many businesses continue to operate at diminished capacities and the global supply chain remains fractured. Many market experts believe businesses will continue to experience adverse effects and supply chain disruptions from the COVID-19 pandemic into the fiscal year ending December 31, 2023.
Going Concern Consideration
Our independent registered public accounting firm has issued a going concern opinion in their audit report dated March 30, 2022, which can be found in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 30, 2022. This means that our auditors believe there is substantial doubt that we can continue as an ongoing business for the next 12 months.
Off-Balance Sheet Operations
As of June 30, 2022, we had no off-balance sheet activities or operations.
Contractual Obligations
As of June 30, 2022, we did not have any contractual obligations.
Critical Accounting Policies
Use of Estimates
The accompanying financial statements of SecureTech have been prepared in accordance with generally accepted accounting principles in the United States of America. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgment. Actual results may vary from these estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, SecureTech considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents. As of June 30, 2022 and December 31, 2021, SecureTech had no cash equivalents.
Fair Value of Financial Instruments
ASC 820, “Fair Value Measurements” and ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:
Level
|
| Description
|
|
|
|
Level 1
|
| Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
|
Level 2
|
| Applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
|
Level 3
|
| Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
|
Inventory and Cost of Sales
Inventories are stated at the lower of cost or realizable value, using the weighted average cost method. When an impairment indicator suggests that the carrying amounts of inventories might not be recoverable, Management reviews such carrying amounts and estimates the net realizable value based on the most reliable evidence available at that time. An impairment loss
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is recorded if the net realizable value is less than the carrying value. Impairment indicators considered for these purposes are, among others, obsolescence, decrease in market prices, damage, and a firm commitment to sell.
Net Loss per Share Calculation
Basic net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated similarly to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. SecureTech excludes all potentially dilutive securities from its diluted net loss per share computation since their effect would be anti-dilutive because SecureTech recorded a loss for the six months ended June 30, 2022.
Revenue Recognition
Effective January 1, 2018, SecureTech adopted ASC 606 — Revenue from Contracts with Customers.
SecureTech’s primary source of revenue is from the sale of our Top Kontrol product. We began selling Top Kontrol in late April 2020.
Top Kontrol requires installation by a Certified Top Kontrol Technician. To become a Certified Top Kontrol Technician, an automotive technician must complete a one-day hands-on course hosted by SecureTech. Failure to have Top Kontrol installed by a Certified Top Kontrol Technician voids the product’s limited liability warranty.
Because of this professional installation requirement, SecureTech generally sells its products to and through Certified Top Kontrol Technicians. In the instances where SecureTech sells directly to the end-user, product installation is performed by authorized SecureTech personnel.
Revenue is recognized when performance obligations under the terms of a contract with our customers are satisfied. Revenue is recorded net of marketing allowances, volume discounts, and other forms of variable consideration. Generally, this occurs with the transfer of control of our product to the customer and payment has been received. SecureTech does not offer terms or credit to any of its customers.
Revenue Recognition; ASC 606 Five-Step Model
Under ASC 606, SecureTech recognizes revenue from the sale of service contracts by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
Revenue Recognition; General Right of Return
Customers are allowed to return goods that are defective (warranty returns). In some instances, customers may be allowed to return a limited number of units for periodic stock adjustment returns. Such stock adjustment returns would be limited to no more than 5% of their total units sold.
As is standard in the industry, we only will accept returns from active customers. If a customer ceases doing business with us, we have no further obligation to accept additional product returns from that customer.
Income Taxes
SecureTech accounts for income taxes pursuant to FASB ASC 740, Income Taxes. Under FASB ASC 740-10-25, deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.
SecureTech maintains a valuation allowance with respect to deferred tax assets. SecureTech establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration SecureTech’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carryforward period under the Federal tax laws.
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Changes in circumstances, such as SecureTech generating taxable income, could cause a change in judgment about its ability to realize the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimate.
Election to Use Extended Transitional Period Under Jumpstart Our Business Startups Act (“JOBS Act”)
We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the JOBS Act, which 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 result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
Recent Accounting Pronouncements
There are various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on SecureTech’s financial position, results of operations or cash flows.