The accompanying notes to the financial statements are an integral part of these statements.
NOTES TO FINANCIAL STATEMENTS
September 30, 2021
(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.
SecureTech is an emerging growth company focused on developing and marketing personal and automobile security and safety devices and technologies. Through a licensed patent, SecureTech has created its initial product, Top Kontrol. Top Kontrol is unlike any other product on the market – it prioritizes the driver and passengers’ safety. Not only does Top Kontrol protect your vehicle from unattended theft like other car alarms, but it is the only anti-theft and personal safety device able to thwart an active carjacking attempt without any action by the driver.
Through its advanced design and use of a licensed patent, Top Kontrol can tell the difference between an authorized driver and an unauthorized thief or carjacker using strategically placed sensors in the automobile and a unique FOB device hidden on the authorized driver’s person. Regardless of whether someone tries to steal your vehicle while it is innocently idling unattended in the parking lot or take it by force at gunpoint, Top Kontrol will only allow the unauthorized driver to drive for 15-20 seconds before automatically turning the engine off and preventing any attempt to restart the engine. This prevents the thief from stealing your car and/or allows the driver sufficient time to run to safety after being threatened at gunpoint. SecureTech is not aware of any other product on the market that solves the growing carjacking crisis as does Top Kontrol.
Because Top Kontrol is wired into the automobile’s ignition and lighting systems, it must be installed and serviced by a Top Kontrol Certified Technician.
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, 2020, has been derived from audited financial statements.
Operating results for the nine months ended September 30, 2021, are not necessarily indicative of results that may be expected for the year ending December 31, 2021. These condensed financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2020, filed with the Company’s Annual Report on Form 10-K with the Securities and Exchange Commission on March 18, 2021.
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, and the U.S. government-imposed travel restrictions on travel between the United States, Europe, and many other countries worldwide. The COVID-19 pandemic has significantly negatively affected the global economy, seriously disrupted global supply chains, and created a significant disruption of the financial and retail markets, including a substantial disruption and dampening in consumer demand for the automotive industry, including specialty equipment manufacturers such as ourselves.
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, and continues to have, a material impact on our business growth and launching Top
Kontrol, we do not have enough operating history to accurately evaluate or quantify the extent this pandemic may have impacted the following areas of our business:
|
•
|
|
Raw material and component supply chains, which have been significantly impacted in a negative manner
|
|
•
|
|
Product sales
|
|
•
|
|
Training and educating prospective Top Kontrol Certified Technicians
|
|
•
|
|
Marketing and advertising efficiencies
|
In addition to the preceding, we believe that sales continue to be negatively impacted by the ongoing COVID-19 pandemic. We have encountered numerous delays in establishing a group training and certification program to educate and authorize automobile technicians to install and repair our Top Kontrol product safely and professionally.
Having a limited number of Top Kontrol Certified Technicians available to install Top Kontrol significantly restricts the number of customer installations being performed, which subsequently influences retail customers to delay purchases until they can have it readily installed in their vehicle.
Because we did not commence marketing and selling Top Kontrol before this pandemic, we have no historical perspective to quantify or speculate on the extent COVID-19 is having on our sales and overall financial condition.
Uncertainties regarding the economic impact of COVID-19 are likely to result in sustained market turmoil while businesses remain shuttered (or operating at diminished capacity). Many prospective customers remain home under government “lockdown” mandates, guidelines, and a general fear of leaving the safety of their homes, which may also negatively impact our business, financial condition, and cash flows for an unknown length of time.
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 September 30, 2021.
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.
The worldwide spread of COVID-19 has resulted in a global slowdown of economic activity, which is likely to decrease demand for a broad variety of goods and services while also significantly disrupting supply chains, sales channels, marketing activities, and general business operations for an unknown period of time until the disease is contained at local, regional, and worldwide levels. At this point, the extent to which COVID-19 may impact our financial condition or results of operations is uncertain. As of the date of issuance of these financial statements, we are not aware of any specific event or circumstance that would require us to update our estimates, judgments, or adjust the carrying value of our assets or liabilities. These estimates may change as new events occur and additional information is obtained and is recognized in the financial statements as soon as they become known. Actual results could differ from those estimates, and any such differences may be material to our financial statements.
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 September 30, 2021, 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 nine months ended September 30, 2021.
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 ceases doing 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.
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 September 30, 2021, 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 September 30, 2021, the Company had an accumulated deficit of ($415,580). 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.
11
Table of Contents
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 September 30, 2021 and December 31, 2020:
|
Inventories
|
|
September 30,
2021
|
|
December 31, 2020
|
|
Inventories:
|
|
|
|
|
|
|
|
|
|
Raw materials and work-in-progress
|
|
$
|
1,971
|
|
|
$
|
1,971
|
|
|
Finished goods
|
|
|
39,330
|
|
|
|
47,022
|
|
|
Gross inventories
|
|
|
41,301
|
|
|
|
48,993
|
|
|
Inventory valuation reserves
|
|
|
—
|
|
|
|
—
|
|
|
Inventories, net
|
|
$
|
41,301
|
|
|
$
|
48,993
|
|
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 September 30, 2021, 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.
During the fiscal period ended September 30, 2021, the Company sold 889,000 shares of its common stock, $0.001 par value, at a purchase price of $0.25 per Share through a Regulation D, Rule 506 offering of its common shares (“Series C Private Placement Offering”). The Series C Private Placement Offering was closed on September 30, 2021.
During the three months ended September 30, 2021, the Company canceled an aggregate of 58,000,000 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 September 30, 2021, the Company had 113,331,300 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 September 30, 2021.
|
Warrants
|
|
Exercise
Price
|
|
Number
Outstanding
|
|
Expiration
Date
|
|
|
|
|
|
|
|
$
|
0.20
|
|
|
|
439,300
|
|
|
December 31, 2021
|
|
$
|
0.30
|
|
|
|
439,300
|
|
|
March 31, 2021
|
|
$
|
0.40
|
|
|
|
439,300
|
|
|
June 30, 2022
|
|
$
|
0.50
|
|
|
|
439,300
|
|
|
December 31, 2022
|
|
|
|
|
|
|
1,757,200
|
|
|
|
Below is a summary of the warrant activity for the fiscal period ended September 30, 2021:
|
Warrant Activity
|
|
Warrants
|
|
Weighted-Average
Exercise Price
|
|
Weighted-Average
Remaining
Contractual Term
(Years)
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding on January 1, 2021
|
|
|
|
1,757,200
|
|
|
$
|
0.35
|
|
|
|
0.7
|
|
|
$
|
—
|
|
|
|
Issued
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
Exercised
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
Expired
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
Outstanding on September 30, 2021
|
|
|
|
1,757,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $0.35 as of September 30, 2021, which would have been received by the warrant holders had those warrant holders exercised their options as of that date.
NOTE 6 – 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.
NOTE 7 – CONTINGENCY/LEGAL
As of September 30, 2021, 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 8 – 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]
13
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 18, 2021, which can be found in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 18, 2021. 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.
Limited Operating History; Need for Additional Capital
There is limited historical financial information about us upon which to base an evaluation of our performance. We are an emerging growth business with limited operating history. We cannot guarantee that we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources and possible cost overruns, such as increases in marketing costs, increases in administrative expenditures associated with daily operations, increases in accounting and audit fees, and increases in legal fees related to filings and regulatory compliance.
As of September 30, 2021, we had incurred ($415,580) in losses since our inception on March 2, 2017. We have not achieved profitability and expect to continue to incur net losses into subsequent fiscal periods. We expect to incur significant operating expenses and, as a result, will need to generate substantial revenues to achieve profitability, which may never occur. Even if we do achieve profitability, we may be unable to sustain or increase profitability on an ongoing basis, which could cause us to go out of business.
To become profitable and competitive, we must successfully sell our current product, Top Kontrol, and continue innovating and developing new similar personal and automobile security and safety devices and technologies that the marketplace will accept. We anticipate relying on equity sales of our common stock to continue to fund our business operations until we can generate sufficient revenues to cover our operating expenses, which may never happen. Issuances of additional shares will result in dilution to our then existing stockholders. There is no assurance that we will be able to make any additional sales of our equity securities or arrange for debt or other financings to fund our planned business activities. We may also rely on loans from our management or other significant shareholders. However, there are no assurances that management or any of our significant shareholders will provide us with any additional funds in the future.
We are continually exploring new financing sources to meet our need for additional cash, including raising funds through sales of our equity securities and loans. We cannot provide any assurances that our efforts to secure additional financing will be successful. We have no guarantee that future funding will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop, or expand our operations. Further, future equity financing could result in additional and substantial dilution to existing shareholders.
Business Overview
SecureTech is an emerging growth company focused on developing and marketing personal and automobile security and safety devices and technologies. SecureTech first product, Top Kontrol, is currently being sold in the United States.
Products
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
14
Table of Contents
level – it prioritizes the driver 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.
Top Kontrol knows the difference between the authorized driver and an unauthorized thief or carjacker through its advanced patented design. This is achieved using strategically placed sensors in the vehicle and a unique FOB device hidden on the authorized driver’s person. Regardless of whether someone tries to steal your vehicle while it is innocently idling unattended in a parking lot or attempt to take it by force at gunpoint, Top Kontrol will only allow the unauthorized driver to drive for 15-20 seconds before automatically turning the engine off and preventing any restart attempts. This prevents the thief from stealing your car and allows the occupants sufficient time to run for safety in the event of an armed carjacking. SecureTech is not aware of any other product on the market that offers a cost-effective solution to the skyrocketing carjacking problem.
Because Top Kontrol is wired into the automobile’s ignition and lighting systems, it must be installed and serviced by a Top Kontrol Certified Technician.
Key Advantages of Top Kontrol:
|
•
|
|
Anti-theft circuits actively prevent automobile theft and carjacking
|
|
•
|
|
Automatically prevents theft although keys are in ignition and engine is idling
|
|
•
|
|
Active and passive prevention of carjacking
|
|
•
|
|
Does not interfere with vehicle’s other systems
|
|
•
|
|
Compatible with most makes and models of cars and trucks
|
|
•
|
|
Manual engine kill switch
|
|
•
|
|
Key-based system prevents thieves from hacking wirelessly transmitted security codes
|
|
•
|
|
Does not draw battery power – system works even with a disabled car battery
|
|
|
|
|
|
Retail Package Top
|
|
Retail Package Bottom
|
For additional information on our Top Kontrol product, please visit our product website www.topkontrol.com.
Industry: Carjackings Skyrocketing
Carjackings more than doubled during 2020. 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 just a few reports about this growing problem without any long-term solutions:
15
Table of Contents
|
•
|
|
Minneapolis, MN police report carjackings up more than 537% in 2020 (source: ABC, December 12, 2020)
|
|
•
|
|
Chicago, IL police report carjackings up more than 134% in 2020 (source: ABC7, December 4, 2020)
|
|
•
|
|
Jackson, MS police report carjackings up more than 120% in 2020 (source: WLBT, December 24, 2020)
|
|
•
|
|
New Orleans, LA police report carjackings up more than 153% in 2020 (source: 4WWL, December 9, 2020)
|
|
•
|
|
Washington, DC police report carjacking up more than 141% in 2020 (source: WUSA, December 27, 2020)
|
Through the fiscal period ended September 30, 2021, carjackings continued climbing to historic all-time highs:
|
•
|
|
Minneapolis, MN police report carjackings up more than 222% in 2021 YTD (source: FOX9, May 20, 2021)
|
|
•
|
|
Indianapolis, IN police report carjackings up more than 82% in 2021 YTD (source: Wish TV, August 9, 2021)
|
|
•
|
|
Oakland, CA police report carjackings up more than 115% in 2021 YTD (source: OPD, June 2, 2021)
|
|
•
|
|
Chicago, IL police report carjackings up more than 135% in 2021 YTD (source: Civic Federation, April 1, 2021https://www.wlbt.com/2020/12/21/jpd-reports-percent-increase-carjackings-percent-increase-homicides/)
|
|
•
|
|
New Orleans, LA police report carjackings up more than 120% in 2021 YTD (source: KFLY10, June 14, 2021)
|
|
•
|
|
Washington, DC police report carjacking up nearly 74% in 2021 YTD (source: Daily News, July 16, 2021)
|
Corporate History
SecureTech was incorporated under the State of Wyoming’s laws on March 2, 2017, under SecureTech, Inc. The Company amended its Articles of Incorporation on December 20, 2017, to change its name to SecureTech Innovations, Inc.
Competition
SecureTech faces formidable competition in every aspect of its business. Our company’s success or failure will depend mainly 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 substantially greater financial resources and longer operating histories. Our competitors’ resources and market presence may provide them with significant advantages in marketing, purchasing, and negotiating leverage. Some of our better-known competitors include Viper (www.viper.com) and LoJack Corporation (www.lojack.com). Below is a table providing a comparative overview of how Top Kontrol stacks up to the competitors’ product offerings:
|
FEATURES
|
TOP KONTROL
|
VIPER1
|
LOJACK2
|
|
Prevents theft by immobilizing engine and starter system
|
√
|
√
|
|
|
Lights and siren
|
√
|
√
|
|
|
Kills engine during a carjacking situation
|
√
|
|
|
|
Passively and actively stops a carjacking
|
√
|
|
|
|
Prevents auto theft even if keys are left in the ignition and/or the engine is idling
|
√
|
|
|
|
Key-based system to prevent interception of wirelessly transmitted security codes
|
√
|
|
|
|
Does not require a 24/7 power source
|
√
|
|
|
|
GPS tracking
|
|
|
√
|
|
MSRP
|
$449
|
$499+
|
$695+
|
(1)Viper 5806 car alarm model.
(2)LoJack® Stolen Vehicle Recovery System; requires annual subscription in addition to purchase price.
16
Table of Contents
In addition to the competitors listed above, we are competing with other lesser-known competitors and 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 always 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.
Additionally, Management has been exploring the feasibility of establishing a warehouse and manufacturing facility in Florida once the ongoing COVID-19 pandemic has passed. Our goal with this location would be to facilitate international sales and exports while reducing overall manufacturing and shipping expenses.
SecureTech’s products proudly carry the “Made in the USA” designation.
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.
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 material costs associated with our compliance with environmental laws. We did not incur environmental expenses in fiscal periods ended September 30, 2021, and December 31, 2020, 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 are continually upgraded and enhanced 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 protection for our products and technologies’ novel features. Prior to the filing and granting of 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®.
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, both during and after employment or working relationship.
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Employees
As of September 30, 2021, we had no full-time or part-time employees; we have three non-paid founding executive officers and three commission-based independent sales representatives based in our Roseville, Minnesota office.
During the fiscal year ending December 31, 2021, our founding executive team intends to transition into working for SecureTech full-time. Additionally, we are currently building a sales team and are actively in the hiring process to staff it with qualified full-time sales personnel. However, the COVID-19 pandemic continues to hinder this process.
Results of Operations
Comparison of the Three Months Ended September 30, 2021 and 2020
The following table sets forth the results of our operations for the three months ended September 30, 2021 and 2020.
|
|
|
Three months ended September 30,
|
|
|
|
2021
|
|
2020
|
|
Sales
|
$
|
6,677
|
$
|
4,730
|
|
Cost of goods sold
|
|
(2,098)
|
|
(1,212)
|
|
Gross profit
|
|
4,579
|
|
3,518
|
|
Operating expenses
|
|
(39,082)
|
|
(20,222)
|
|
Loss from operations
|
|
(34,503)
|
|
(16,704)
|
|
Net loss
|
$
|
(34,503)
|
$
|
(16,704)
|
Sales
Sales for the three months ended September 30, 2021, were $6,677, compared to $4,730 for the same period of 2020, representing an increase of $1,947, or a 41.2% increase compared to the previous fiscal period. All sales were attributable to Top Kontrol.
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 September 30, 2021, was $2,098, compared to $1,212 for the same period of 2020. As a percentage of overall sales, the cost of goods sold was 31.4% during the three months ended September 30, 2021, compared to 25.6% for the same fiscal period a year ago. The percentage increase in cost of goods sold is due to our shifting sales primarily to distributors and resellers versus solely the end-user a year ago.
Gross Profit
Gross profit for the three months ended September 30, 2021, was $4,579, compared to $3,518 for the same period of 2020. Our gross profit margin was 68.6% during the three months ended September 30, 2021, compared to 74.4% for the same fiscal period a year ago. The decrease in gross profit margin is due to a shift towards selling Top Kontrol primarily to distributors and resellers versus solely the end-user a year ago.
Operating Expenses
|
|
|
Three months ended September 30,
|
|
|
|
2021
|
|
2020
|
|
Operating expenses:
|
|
|
|
|
|
|
General and administrative
|
$
|
39,082
|
$
|
19,792
|
|
|
Research and development
|
|
-
|
|
430
|
|
|
Operating expenses
|
$
|
39,082
|
$
|
20,222
|
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Our operating expenses for the fiscal period consisted of two components: general and administrative expenses and research and development expenses. Total operating expenses were $39,082 in the three months ended September 30, 2021, compared to $20,222 in the same period of 2020, representing an increase in operating expenses of $18,860, or 93.3%, from the three months ended September 30, 2020. The increase in operating expenses was primarily attributable to increases in legal and accounting expenses related to regulatory compliance requirements, including registering shares of our common stock on behalf of private placement investors. As SecureTech continues to grow, we anticipate that our regulatory compliance expenses will likely continue to rise.
Loss From Operations
As a result of the foregoing, our loss from operations was ($34,503) during the three months ended September 30, 2021, compared with ($16,704) for the same period of 2020. This $17,798, or 106.5%, increase in our loss from operations was primarily attributable to increases in legal and accounting expenses related to regulatory compliance requirements, including registering shares of our common stock on behalf of private placement investors. As SecureTech continues to grow, we anticipate that our regulatory compliance expenses will likely continue to rise.
Net Loss
The result was that our net loss was ($34,503) during the three months ended September 30, 2021, compared with ($16,704) for the same period of 2020. This $17,798, or 106.5%, increase in our net loss was primarily attributable to increases in legal and accounting expenses related to regulatory compliance requirements, including registering shares of our common stock on behalf of private placement investors. As SecureTech continues to grow, we anticipate that our regulatory compliance expenses will likely continue to rise.
Comparison of the Nine Months Ended September 30, 2021 and 2020
The following table sets forth the results of our operations for the nine months ended September 30, 2021 and 2020.
|
|
|
Nine months ended September 30,
|
|
|
|
2021
|
|
2020
|
|
Sales
|
$
|
27,209
|
$
|
11,479
|
|
Cost of goods sold
|
|
(7,604)
|
|
(2,822)
|
|
Gross profit
|
|
19,605
|
|
8,657
|
|
Operating expenses
|
|
(88,167)
|
|
(52,591)
|
|
Loss from operations
|
|
(68,562)
|
|
(43,934)
|
|
Net loss
|
$
|
(68,562)
|
$
|
(43,934)
|
Sales
Sales for the nine months ended September 30, 2021, were $27,209, compared to $11,479 for the same period of 2020, representing an increase of $15,730, or a 137.0% increase compared to the previous fiscal period. All sales were attributable to Top Kontrol.
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 nine months ended September 30, 2021, was $7,604, compared to $2,822 for the same period of 2020. As a percentage of overall sales, the cost of goods sold was 27.9% during the nine months ended September 30, 2021, compared to 24.6% for the same fiscal period a year ago. The percentage increase in cost of goods sold is due to our shifting sales primarily to distributors and resellers versus solely the end-user a year ago.
Gross Profit
Gross profit for the nine months ended September 30, 2021, was $19,605, compared to $8,657 for the same period of 2020. Our gross profit margin was 72.1% during the nine months ended September 30, 2021, compared to 75.4% for the same fiscal
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period a year ago. The decrease in gross profit margin is due to a shift towards selling Top Kontrol primarily to distributors and resellers versus solely the end-user a year ago.
Operating Expenses
|
|
|
Nine months ended September 30,
|
|
|
|
2021
|
|
2020
|
|
Operating expenses:
|
|
|
|
|
|
|
General and administrative
|
$
|
88,090
|
$
|
52,161
|
|
|
Research and development
|
|
77
|
|
430
|
|
|
Operating expenses
|
$
|
88,167
|
$
|
52,591
|
Our operating expenses for the fiscal period consisted of two components: general and administrative expenses and research and development expenses. Total operating expenses were $88,167 in the nine months ended September 30, 2021, compared to $52,591 in the same period of 2020, representing an increase in operating expenses of $35,576, or 67.6%, from the nine months ended September 30, 2020. The increase in operating expenses was primarily attributable to increases in legal and accounting expenses related to regulatory compliance requirements, including registering shares of our common stock on behalf of private placement investors. As SecureTech continues to grow, we anticipate that our regulatory compliance expenses will likely continue to rise.
Loss From Operations
As a result of the foregoing, our loss from operations was ($68,562) during the nine months ended September 30, 2021, compared with ($43,934) for the same period of 2020. This $24,628, or 56.1%, increase in our loss from operations was primarily attributable to increases in legal and accounting expenses related to regulatory compliance requirements, including registering shares of our common stock on behalf of private placement investors. As SecureTech continues to grow, we anticipate that our regulatory compliance expenses will likely continue to rise.
Net Loss
The result was that our net loss was ($68,562) during the nine months ended September 30, 2021, compared with ($43,934) for the same period of 2020. This $24,628, or 56.1%, increase in our net loss was primarily attributable to increases in legal and accounting expenses related to regulatory compliance requirements, including registering shares of our common stock on behalf of private placement investors. As SecureTech continues to grow, we anticipate that our regulatory compliance expenses will likely continue to rise.
Total Stockholders’ Equity.
Our stockholders’ equity was $289,655 as of September 30, 2021.
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.
We rely primarily on internally generated cash flow and available working capital to support operations and growth. As of September 30, 2021, we did not have any credit facilities. 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 $289,655 as of September 30, 2021, an increase of $153,688, or 113.0%, from net working capital of $135,967 as of December 31, 2020. The ratio of current assets to current liabilities was 96.5-to-1 on September 30, 2021.
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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 nine months ended September 30, 2021 and 2020:
|
|
Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
Cash provided by (used in):
|
|
|
|
|
|
Operating activities
|
($60,665)
|
|
($93,594)
|
|
|
Financing activities
|
$222,250
|
|
$65,894
|
Net cash used in operating activities was ($60,665), a decrease of ($32,929), or (35.2%), from cash used in operating activities of ($93,594) during the same period of 2020.
Net cash provided by financing activities was $222,250, an increase of $156,356, or 237.3%, from cash generated from financing activities of $65,894 during the same period of 2020. The increase in cash inflow from financing activities was from our Series C Private Placement Offering, which was closed on September 30, 2021. Through this offering, we sold an aggregate of 889,000 shares at a fixed price of $0.25 per share for gross proceeds of $222,250 in cash.
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, and the U.S. government imposed travel restrictions on travel between the United States, Europe, and many other countries worldwide. The COVID-19 pandemic has significantly negatively affected the global economy, seriously disrupted global supply chains, and created a significant disruption of the financial and retail markets, including a substantial disruption and dampening in consumer demand for the automotive industry, including specialty equipment manufacturers such as ourselves.
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, and continues to have, a material impact on our business growth and launching Top Kontrol, we do not have enough operating history to accurately evaluate or quantify the extent this pandemic may have impacted the following areas of our business:
|
•
|
|
Raw material and component supply chains, which have been significantly impacted in a negative manner
|
|
•
|
|
Product sales
|
|
•
|
|
Training and educating prospective Top Kontrol Certified Technicians
|
|
•
|
|
Marketing and advertising efficiencies
|
In addition to the preceding, we believe that sales continue to be negatively impacted by the ongoing COVID-19 pandemic. We have encountered numerous delays in establishing a group training and certification program to educate and authorize automobile technicians to install and repair our Top Kontrol product safely and professionally.
Having a limited number of Top Kontrol Certified Technicians available to install Top Kontrol significantly restricts the number of customer installations being performed, which subsequently influences retail customers to delay purchases until they can have it readily installed in their vehicle.
Because we did not commence marketing and selling Top Kontrol before this pandemic, we have no historical perspective to quantify or speculate on the extent COVID-19 is having on our sales and overall financial condition.
Uncertainties regarding the economic impact of COVID-19 are likely to result in sustained market turmoil while businesses remain shuttered (or operating at diminished capacity). Many prospective customers remain home under government “lockdown” mandates, guidelines, and a general fear of leaving the safety of their homes, which may also negatively impact our business, financial condition, and cash flows for an unknown length of time.
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Going Concern Consideration
Our independent registered public accounting firm has issued a going concern opinion in their audit report dated March 18, 2021, which can be found in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 18, 2021. 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 September 30, 2021, we had no off-balance sheet activities or operations.
Contractual Obligations
As of September 30, 2021, 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.
The worldwide spread of COVID-19 has resulted in a global slowdown of economic activity, which is likely to decrease demand for a broad variety of goods and services while also significantly disrupting supply chains, sales channels, marketing activities, and general business operations for an unknown period of time until the disease is contained at local, regional, and worldwide levels. At this point, the extent to which COVID-19 may impact our financial condition or results of operations is uncertain. As of the date of issuance of these financial statements, we are not aware of any specific event or circumstance that would require us to update our estimates, judgments, or adjust the carrying value of our assets or liabilities. These estimates may change as new events occur and additional information is obtained, and are recognized in the financial statements as soon as they become known. Actual results could differ from those estimates, and any such differences may be material to our financial statements.
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 September 30, 2021 and December 31, 2020, 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.
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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 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 nine months ended September 30, 2021.
Revenue Recognition
Effective January 1, 2018, the Company 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
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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.
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.