CETI 10-Q/A
Cyber Enviro-Tech, Inc. (CETI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
Or
For the transition period from ___________ to ___________
Commission file number:
| (Exact name of registrant as specified in charter) |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
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| (Address of principal executive office) | (Zip Code) |
| +1 |
| (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act: None
Common Stock, par value $0.001 per share
(Title of Class)
Indicate
by checkmark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☐ | Smaller reporting company | |||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
At October 14, 2023 there were shares of the registrant’s Common Stock issued and outstanding.
EXPLANATORY NOTE
The sole purpose of this Amendment No. 1 to the Quarterly Report on Form 10-Q for Cyber Enviro-Tech, Inc., for the period ended September 30, 2023, filed with the Securities and Exchange Commission on November 20, 2023 (the “Form 10-Q”), is to correct a typographical error in the following:
| 1) | Corrected some numbers for 12/31/2022 in the 10-Q to agree with the 2022 10-K filed 3/31/2023: |
| a. | Discount on Notes Payable. Change from $1,645 to $2,343 |
| b. | Series A Preferred shares authorized is 300,000 not 200,000. Issued and outstanding shares did not change. |
| c. | Statement of Equity – Common Stock To Be Issued, added number of shares – 154,400 |
| d. | Footnote #6 – changed Note Payable to $458,500 from $443,500 |
| 2) | Footnote #6 – Note Payable remaining on KAM Biotechnology for debt should be $17,135 as of 9/30/2023 not $417,135. |
Except for the clerical error noted in #2 above, this Amendment No. 1 does not otherwise change or update the disclosures set forth in the Form 10-Q as originally filed and does not otherwise reflect events occurring after the original filing of the Form 10-Q.
TABLE OF CONTENTS
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
CYBER ENVIRO-TECH, INC.
BALANCE SHEETS
September 30, 2023 (Unaudited) | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Texas Railroad Commission bond | ||||||||
| Intangible assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued interest | ||||||||
| Contingent liability | ||||||||
| Note payable – related party | ||||||||
Note
payable, current maturities, net of discount of$ | ||||||||
| Convertible notes payable, net of discount of $ | ||||||||
| Convertible notes payable – related parties | ||||||||
| Total current liabilities | ||||||||
| Note payable, less current maturities, net of discount of $ | ||||||||
| Note payable - related party, less current maturities | ||||||||
| Derivative liability | ||||||||
| Convertible notes payable, less current maturities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies (Note 4) | ||||||||
| Stockholders’ Equity: | ||||||||
| Series A Convertible Preferred Stock, par value $, shares authorized; share issued and outstanding | ||||||||
| Series B Convertible Preferred Stock, par value $, shares authorized; share issued and outstanding | ||||||||
| Series C Non-convertible, Preferred Stock, par value $, shares authorized; shares issued and outstanding | ||||||||
| Special 2020 Series A Preferred Stock, par value $, share authorized; share issued and outstanding | ||||||||
| Common Stock, par value $, shares authorized; and shares issued and outstanding, as of September 30,2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Common stock to be issued | ||||||||
| Unearned stock compensation | ( | ) | ( | ) | ||||
| Treasury stock, at cost | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited financial statements
| 3 |
CYBER ENVIRO-TECH, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ending | Three Months Ending | Nine Months Ending | Nine Months Ending | |||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Cost of Sales | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross Margin | ||||||||||||||||
| Operating Expenses: | ||||||||||||||||
| Professional fees | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Consulting | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense): | ||||||||||||||||
| Change in fair value of derivatives | ||||||||||||||||
| Loss on issuance of derivatives | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss on sale of asset | ( | ) | ||||||||||||||
| Amortization of intangible asset | ( | ) | ( | ) | ||||||||||||
| Gain on extinguishment of debt | ||||||||||||||||
| Change in fair value of contingent liability | ( | ) | ( | ) | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net Income (Loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Loss per share, basic and diluted | $ | ) | ) | ) | ||||||||||||
| Weighted average shares outstanding, basic and diluted | $ | $ | $ | |||||||||||||
The accompanying notes are an integral part of these unaudited financial statements
| 4 |
| CYBER ENVIRO-TECH, INC. |
| STATEMENTS OF STOCKHOLDERS’ EQUITY |
(Unaudited)
| Special 2020 Series A Preferred | Series A Preferred | Series B Preferred | Series C Preferred | Common Stock | APIC | Treasury Stock | CS to be Issued | Unearned Stock Comp | Accum Deficit | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Description | Shares | Amt | Shares | Amt | Shares | Amt | Shares | Amt | Shares | Amt | Shares | Amt | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued from prior periods | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for cash | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of Advance on joint venture | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for services | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued in connection with convertible notes payable | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of notes payable | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Book adjustments - rounding and fractional shares | — | — | — | — | — | ( | ) | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Options granted for services | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for services | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued in connection with convertible notes payable | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Income | — | — | — | — | — | — | ( | ) | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Book adjustments - rounding and fractional shares | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Options granted for services | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued in connection with convertible notes payable | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of notes payable | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | ( | ) | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued from prior periods | — | — | — | — | — | ( | ) | ( | ) | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Options granted for services | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for services | — | — | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of notes payable | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | ( | ) | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Options granted for services | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for services | — | — | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of notes payable | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | ( | ) | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants granted in settlement of CS to be issued | — | — | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Options granted for services | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants granted for services | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of contingent liability | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock compensation earned | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for conversion of notes payable | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | ( |
) | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( |
$ | ( |
) | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited financial statements
| 5 |
CYBER ENVIRO-TECH, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
| September 30, 2023 | September 30, 2022 | ||||||
| Cash flow from operating activities: | |||||||
| Net Income (loss) | $ | ( | ) | $ | |||
| Adjustments to reconcile net income (loss) to net cash from operating activities: | |||||||
| Change in fair value of derivatives | ( | ) | ( | ) | |||
| Loss on sale of property and equipment | |||||||
| Loss on issuance of derivatives | |||||||
| Options issued for services | |||||||
| Warrants issued for services | |||||||
| Gain on extinguishment of debt | ( | ) | ( | ) | |||
| Change in fair value of contingent liability | ( | ) | |||||
| Stock compensation | |||||||
| Amortization of debt discount | |||||||
| Depreciation and amortization expense | |||||||
| Changes in operating assets and liabilities: | |||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | |||
| Accounts payable | ( | ) | |||||
| Accrued interest | ( | ) | ( | ) | |||
| Net cash from operating activities | ( | ) | ( | ) | |||
| Cash flows from investing activities: | |||||||
| Proceeds from sale of property and equipment | |||||||
| Purchase of property and equipment | ( | ) | ( | ) | |||
| Acquisition of licenses from KAM Biotechnology, Ltd. | |||||||
| Net cash from investing activities | ( | ) | ( | ) | |||
| Cash flows from financing activities: | |||||||
| Repayment of notes payable | ( | ) | ( | ) | |||
| Proceeds from convertible notes payable | |||||||
| Proceeds from notes payable | |||||||
| Repayment of notes payable | ( | ) | |||||
| Proceeds from the sale of common stock | |||||||
| Net cash from financing activities | |||||||
Net change in cash and cash equivalents | ( | ) | |||||
| Cash and cash equivalents at beginning of year | |||||||
| Cash and cash equivalents at end of period | $ | $ | |||||
| Cash paid during the period for: | |||||||
| Interest | $ | $ | |||||
| Income taxes | $ | $ | |||||
| Non-cash investing and financing activities: | |||||||
| Stock issued for conversion of advance on joint venture | $ | $ | |||||
| Stock issued for conversion
of convertible notes payable and accrued interest | $ | ||||||
The accompanying notes are an integral part of these unaudited financial statements.
| 6 |
CYBER ENVIRO-TECH, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Cyber Enviro-Tech, Inc. (the “Company”) is a publicly held water science technology company that designs water purification solutions for commercial applications and industries. Its pilot project is on a 479-acre oil field in West Texas called the Alvey Oil Field. The corporate headquarters are located in Scottsdale, Arizona.
On September 3, 2020, Synergy Management Group, LLC
(“Synergy”) and Global Environmental Technologies, Inc (“Global”), which was formed on April 20, 2020, entered
into a securities purchase agreement, whereby Synergy sold its share of Special 2020 Series A preferred stock and its one-half share of
Series C preferred stock to Global for $
Effective April 30, 2021, the Company effectuated a twenty to one reverse stock split. All shares throughout these financial statements have been adjusted to reflect the reverse split.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue recognition
The Company recognizes revenue in accordance with Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” (“Topic 606”). Revenue is recognized when a customer obtains control of promised goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of Topic 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company expects to recognize revenues as the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied.
The Company recognizes sales when oil is picked up by the delivery company and control passes to the customer.
Cash equivalents
The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents. There were
| 7 |
Property and Equipment
Property and equipment is recorded at cost. Cost of improvements that substantially extend the useful lives of the assets are capitalized. Maintenance and repair costs are expensed when incurred. When other property and equipment is sold or retired, the capitalized costs and related accumulated depreciation are removed from their respective accounts.
Asset Retirement Obligations
To cover the estimated future asset retirement obligations
("ARO") related to its oil and gas properties, the Company maintains a $
The Company believes the bond should cover the estimated liability for abandoning wells. Revisions to the liability could occur due to changes in estimated abandonment costs, changes in well economic lives, or if federal or state regulators enact new requirements regarding the abandonment of wells.
Impairment of Long-Lived Assets
In accordance with authoritative guidance on accounting for the impairment or disposal of long-lived assets, as set forth in Topic 360 of the Accounting Standards Codification (“ASC”), the Company assesses the recoverability of the carrying value of its non-oil and gas long-lived assets when events occur that indicate an impairment in value may exist. An impairment loss is indicated if the sum of the expected undiscounted future net cash flows is less than the carrying amount of the assets. If this occurs, an impairment loss is recognized for the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets.
Intangible Assets
The Company recognizes intangible assets in accordance with ASC 350. Intangible assets are defined as identifiable non-monetary assets without physical substance, acquired through purchase, internally generated, or acquired as part of a business combination, which provide future economic benefits and are under the control of the Company.
Intangible assets with finite useful lives are
amortized over their estimated useful lives on a straight-line basis, unless another systematic and rational method better
represents the consumption of the economic benefits. Intangible assets with indefinite useful lives are not amortized but are tested
for impairment annually or more frequently if there are indications of impairment. The intangible assets consists of exclusive
licenses obtained by the Company from KAM Biotechnology Ltd (“KAM”) in May 2023 and the agreement has a term of ten
years. The asset is stated at the fair value of $758,501, less amortization from May to September of
$
The Company reviews intangible assets for indicators of impairment at least annually, or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized if the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. Any impairment loss is recognized in the income statement. Upon impairment, the carrying amount of the intangible asset is reduced to its recoverable amount. The impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the asset and then to the remaining balance of the asset. The impairment loss is recognized as an expense in the income statement, unless the asset had previously been revalued, in which case the loss is recognized against any revaluation surplus.
Oil and Gas Producing Activities
The Company uses the successful efforts method of
accounting for oil and gas activities. Under this method, the costs of productive exploratory wells, all development wells, related asset
retirement obligation assets, and productive leases are capitalized and amortized, principally by field, on a units-of-production basis
over the life of the remaining proved reserves. Exploration costs, including personnel costs, geological and geophysical expenses, and
delay rentals for oil and gas leases are charged to expense as incurred. Exploratory drilling costs are initially capitalized, but charged
to expense if and when the well is determined not to have found reserves in commercial quantities. The sale of a partial interest in a
proved property is accounted for as a cost recovery, and no gain or loss is recognized as long as this treatment does not significantly
affect the units-of-production amortization rate. A gain or loss is recognized for all other sales of producing properties. There were
capitalized costs of $
Unproved oil and gas properties are assessed annually
to determine whether they have been impaired by the drilling of dry holes on or near the related acreage or other circumstances, which
may indicate a decline in value. When impairment occurs, a loss is recognized. When leases for unproved properties expire, the costs thereof,
net of any related allowance for impairment, is removed from the accounts and charged to expense. During the nine months ended September
30, 2023 and 2022, there was
| 8 |
Costs associated with development wells that are unevaluated
or are waiting on access to transportation or processing facilities are reclassified into developmental wells-in-progress ("WIP").
These costs are not put into a depletable field basis until the wells are fully evaluated or access is gained to transportation and processing
facilities. Costs associated with WIP are included in the cash flows from investing as part of investment in oil and gas properties. At
September 30, 2023 and December 31, 2022,
Depreciation, depletion and amortization of proved
oil and gas properties is calculated using the units-of- production method based on proved reserves and estimated salvage values. During
the nine months ended September 30, 2023 and 2022, the Company recorded
The Company reviews its proved oil and natural gas
properties for impairment whenever events and circumstances indicate that a decline in the recoverability of its carrying value may have
occurred. It estimates the undiscounted future net cash flows of its oil and natural gas properties and compares such undiscounted future
cash flows to the carrying amount of the oil and natural gas properties to determine if the carrying amount is recoverable. If the carrying
amount exceeds the estimated undiscounted future cash flows, the Company will adjust the carrying amount of the oil and natural gas properties
to fair value. During the nine months ended September 30, 2023 and 2022, there was
The Company
applies the fair value method of Financial Accounting Standards Board (“FASB”) ASC 718, “Share Based
Payment”, in accounting for its stock-based compensation. This standard states that compensation cost is measured at the grant
date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. The
Company values stock-based compensation at the market price for the Company’s common stock and other pertinent factors at the
grant date. During the three and nine months ended September 30, 2023 and 2022, the Company recorded $, $,
$ and $
in stock-based compensation expense, respectively. In addition, the Company recorded unearned stock compensation of $
Fair Value of Financial Instruments
The Company adopted ASC 820, “Fair Value Measurements.” ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
| Level 1: | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
| Level 2: | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
| Level 3: | Pricing inputs that are generally unobservable inputs and not corroborated by market data. |
The carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses and accrued expenses approximate their fair value because of the short maturity of those instruments. The Company’s notes payable approximates the fair value of such instruments as the notes bear interest rates that are consistent with current market rates.
The Company evaluates convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC 815, “Derivatives and Hedging”. The result of this accounting treatment is that the fair value of the derivative is marked to market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date.
The following table classifies the Company’s liability measured at fair value on a recurring basis into the fair value hierarchy as of September 30, 2023. There were no fair value instruments as of December 31, 2022:
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Derivative | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Income taxes
Income states are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss, capital loss and tax credit carryforwards. Deferred tax assets and liabilities are measures using enacted tax rates expected to apply to the taxable income in the years in which those temporary differences are expect to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits as a component of general and administrative expenses. The Company’s federal tax return and any state tax returns are not currently under examination.
| 9 |
The Company has adopted ASC 740, “Accounting for Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually from differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company computes loss per common share in accordance with ASC 260, “Earnings Per Share”, which requires dual presentation of basic and diluted earnings per share. Basic income or loss per common share is computed by dividing net income or loss by the weighted average number of common shares outstanding during the period. Diluted income or loss per common share is computed by dividing net income or loss by the weighted average number of common shares outstanding, plus the issuance of common shares, if dilutive, that could result from the exercise of outstanding stock options and warrants.
Concentration of credit risks
The Company maintains accounts with financial institutions. All cash in checking accounts is non-interest bearing and is fully secured by the Federal Deposit Insurance Corporation (FDIC). At times, cash balances may exceed the maximum coverage provided by the FDIC on insured depositor accounts. The Company believes it mitigates its risk by depositing its cash and cash equivalents with major financial institutions.
Recently issued accounting pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 – GOING CONCERN
The Company’s financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities and commitments in the normal course of business for the foreseeable future. The Company has just begun generating revenue and does not yet have sufficient revenue to cover its operating expenses. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon generating profitable operations in the future and/or to obtain the necessary financing to meet the Company’s obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with increased revenue and private placement loans or institutional investors. While the Company believes that it will be successful in obtaining the necessary financing and generating revenue to fund the Company’s operations, meet regulatory requirements and achieve commercial goals, there are no assurances that such additional funding will be achieved and that the Company will succeed in its future operations.
The financial statements of the Company do not include any adjustments that may result from the outcome of these uncertainties.
NOTE 4 – COMMITMENTS AND CONTINGENCIES
During the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with ASC 450, Contingencies. The Company evaluates its exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. As of September 30, 2023 and December 31, 2022, the Company is not aware of any contingent liabilities related to potential litigation that should be reflected in the financial statements.
In February 2021, the Company entered into an agreement
to operate the wells on the Alvey Oil Field. Under this agreement, the Company owes a contingent amount based upon a
| 10 |
NOTE 5 – PROPERTY AND EQUIPMENT
As of September 30, 2023 and December 31, 2022, property and equipment consisted of the following:
| September 30, 2023 | December 31, 2022 | Useful Lives | ||||||||
| Equipment | $ | $ | ||||||||
| Vehicles | ||||||||||
| Well development costs | * | |||||||||
| Less accumulated depreciation | ( |
) | ( |
) | — | |||||
| Property and equipment, net | $ | $ | — | |||||||
| * | Once full production begins, “Well development costs” will be depreciated using the units-of-production method based on barrels of oil produced. As of September 30, 2023, a minimal amount of oil has been produced and work is ongoing to determine how to determine how to get regular production from the field. |
Depreciation expense for the three months ended September
30, 2023 and 2022 was $
NOTE 6 – DEBT
| September 30, 2023 | December 31, 2022 | |||||||
| Note payable | $ | $ | ||||||
| Note payable – related party | ||||||||
| Convertible notes payable | ||||||||
| Convertible notes payable – related party | ||||||||
| Debt discount | ( | ) | ( | ) | ||||
| Less current portion | ||||||||
| Long term portion | $ | $ | ||||||
The following is a schedule of debt maturity and the years in which the debt is scheduled to mature:
| Year | Amount | |||||
| 2023 | ||||||
| 2024 | ||||||
| 2025 | ||||||
| $ | ||||||
Notes payable
In February 2021, the Company purchased certain oil
and gas production equipment in the Alvey Oil Field. The total purchase price was $
At December 31, 2022, the Company had a note
payable to a shareholder for $
At December 31, 2022, the Company had a note payable
to a related party for $
In May 2023, the Company acquired certain
intellectual property rights from KAM Biotechnology. The total acquisition price was $
| 11 |
Convertible notes payable
In 2020, the Company executed a convertible note payable
with a related party for $
During the year ended December 31, 2021, the Company
received $
During the year ended December 31, 2022,
the Company received $
During the year ended December 31, 2022,
the Company converted $
During the first nine months of 2023, the Company
raised a net of another $
During the first nine months of 2023, the
Company converted $
NOTE 7 – DERIVATIVE FINANCIAL INSTRUMENTS
Embedded derivatives
The Company’s convertible promissory notes gave rise to derivative financial instruments. The notes embodied certain terms and conditions that were not clearly and closely related to the host debt agreement in terms of economic risks and characteristics. These terms and features consist of the embedded conversion option.
The following tables summarize the components of the Company’s derivative liabilities and linked common shares as of September 30, 2023 and the amounts that were reflected in income related to derivatives for the period ended:
| September 30, 2023 | ||||||||
| The financings giving rise to derivative financial instruments | Indexed Shares |
Fair Values |
||||||
| Embedded derivatives | $ | |||||||
| Total | $ | |||||||
| 12 |
There were no fair value instruments as of December 31, 2022.
The following table summarizes the effects on the Company’s gain (loss) associated with changes in the fair values of the derivative financial instruments by type of financing for the three and nine months ended September 30, 2023 and 2022:
| For the Three months Ended | ||||||||
| September 30, 2023 | September 30, 2022 | |||||||
| Embedded derivatives | $ | ( | ) | $ | ||||
| Loss on issuance of derivative | ( | ) | ||||||
| Total gain (loss) | $ | ( | ) | $ | ||||
| For the Nine months Ended | ||||||||
| September 30, 2023 | September 30, 2022 | |||||||
| Embedded derivatives | $ | $ | ||||||
| Loss on issuance of derivative | ( | ) | ||||||
| Total gain (loss) | $ | ( | ) | $ | ||||
Current accounting principles that are provided in ASC 815 - Derivatives and Hedging require derivative financial instruments to be classified in liabilities and carried at fair value with changes recorded in income. The Company has selected the Monte Carlo Simulation Model, which approximates the Monte Carlo Simulations, valuation technique to fair value the embedded derivative because it believes that this technique is reflective of all significant assumption types, and ranges of assumption inputs, that market participants would likely consider in transactions involving embedded derivatives. Such assumptions include, among other inputs, interest risk assumptions, credit risk assumptions and redemption behaviors in addition to traditional inputs for option models such as market trading volatility and risk-free rates. The Binomial Lattice Model technique is a level three valuation technique because it requires the development of significant internal assumptions in addition to observable market indicators. For instruments in which the time to expiration has expired, the Company has utilized the intrinsic value as the fair value. The intrinsic value is the difference between the quoted market price on the valuation date and the applicable conversion price.
Significant inputs and results arising from the Monte Carlo Simulation process are as follows for the embedded derivatives that have been bifurcated from the convertible notes and classified in liabilities:
| Inception Date | September 30, 2023 | |||||||
| Quoted market price on valuation date | $ | $ | ||||||
| Effective contractual conversion rates | $ | $ | ||||||
| Contractual term to maturity | ||||||||
| Market volatility: | ||||||||
| Volatility | %- | % | %- | % | ||||
| Risk-adjusted interest rate | % | % | ||||||
The following table reflects the issuances of embedded derivatives and changes in fair value inputs and assumptions related to the embedded derivatives as of September 30, 2023 and December 31, 2022.
Nine months Ended September 30, 2023 | Year Ended December 31, 2022 | |||||||
| Balances at beginning of period | $ | $ | ||||||
| Issuances: | ||||||||
| Embedded derivatives | ||||||||
| Conversions | ( | ) | ( | ) | ||||
| Changes in fair value inputs and assumptions reflected in income | ( | ) | ||||||
| Balances at end of period | $ | $ | ||||||
| 13 |
NOTE 8 – RELATED PARTY TRANSACTIONS
At September 30, 2023 and December 31, 2022, the Company
had a convertible note payable for $
At December 31, 2022, the Company had a note payable
of $
For the three and nine months ended September
30, 2023 and 2022 and December 31, 2022, the Company paid various related parties for consulting services in the amounts of $
In September 2023, a related party loaned $
NOTE 9 – PREFERRED STOCK
Series A Convertible Preferred Stock
The Company previously designated 200,000 shares of
Preferred Stock as Series A Convertible Preferred Stock and had issued shares.
Series B Convertible Preferred Stock
The Company previously designated
shares of Preferred Stock as Series B Convertible Preferred Stock and had issued
shares.
Series C Non-Convertible Preferred Stock
The Company previously designated shares of
Preferred Stock as Series C Non-Convertible Preferred Stock and had issued all shares.
| 14 |
Special 2020 Series A Preferred
The Company has one share of preferred stock designated
as Special 2020 Series A Preferred, par value $. The holder for the Special 2020 Series A Preferred shall vote with the holders
of both preferred and common stockholders as a single class. The holder is entitled to 60% of all votes. The one share of Series A is
convertible into shares of common stock at any time and is not entitled to dividends. The Company purchased that one series
A preferred share for $
NOTE 10 – STOCK OPTIONS AND WARRANTS
In
connection with a consulting agreement dated March 7, 2022, the Company issued options at an exercise price of $
As of September 30, 2023 and December 31, 2022, there are options outstanding, of which and are exercisable as of September 30, 2023 and December 31, 2022, respectively. The weighted average remaining term is years and years for the periods ending September 30, 2023 and December 31, 2022, respectively.
Significant inputs and results arising from the Black-Scholes process are as follows for the options:
| Quoted market price on valuation date | $ | |||
| Exercise price | $ | |||
| Range of expected term | Years – Years | |||
| Range of equivalent volatility | % - % | |||
| Range of interest rates | % - % | |||
In
connection with a consulting agreement dated March 1, 2023, the Company initially agreed to pay shares of common stock along with a monthly consulting
fee. This common stock was valued at $,
the date of the agreement, and was amortized equally over the six-month agreement. On July 1, 2023, the Company and consultant decided
to amend the agreement so that the consultant would receive
NOTE 11 – INCOME TAXES
Deferred taxes are provided on a liability method
whereby deferred tax assets are recognized for deductible temporary differences and operating loss, and tax credit carryforwards and deferred
tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts
of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of enactment. The U.S. federal income tax rate of
Income taxes consist of the following components as of:
| September 30, 2023 | September 30, 2022 | |||||||
| Federal income tax benefit attributable to: | ||||||||
| Current Operations | $ | $ | ||||||
| Less: Valuation Allowance | ( | ) | ( | ) | ||||
| Net provision for Federal income taxes | $ | $ | ||||||
The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income from continuing operations for the periods ended September 30, 2023 and December 31, 2022, due to the following:
| September 30, 2023 | December 31, 2022 | |||||||
| Deferred tax asset attributable to: | ||||||||
| Net operating loss carryover | $ | $ | ||||||
| Less: Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax asset | $ | $ | ||||||
| 15 |
At September 30, 2023, the Company had net operating
loss carry forwards of $
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal Income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.
NOTE 12 – SUBSEQUENT EVENTS
The following are subsequent events that the Company considers may be material:
| · | New
convertible debentures were issued to investors between October 1, 2023 to November 14, 2023 totaling $ |
| · | Series “A” Convertible Preferred Stock terms were modified and the following was approved by the Board of Directors in March 2023. The terms of the stock were modified as follows: |
| • |
| • |
| • | As of November 16, 2023, this conversion of common into Series “A” Convertible Preferred Stock has not formerly been filed with the Secretary of State for Wyoming. Once that is completed, the financial statements will reflect this change. |
NOTE 13 – SUPPLEMENTAL OIL AND GAS DISCLOSURES (UNAUDITED)
In accordance with ASC 932, Extractive Activities- Oil and Gas, the Company is required to provide additional information regarding its oil and gas producing activities when those activities are deemed to be significant. According to ASC 932, significance is defined as satisfying one or more of the following criteria: the revenues from oil and gas are 10% or more of total revenues; the operating income (loss) from oil and gas are 10% or more of total income (loss) from operations; the identifiable assets of oil and gas are 10% or more of total assets. In 2023 and 2022, the Company’s oil and gas activities were deemed to be significant since the operating loss from oil and gas is 10% or more of total loss from operations. In addition, there were no oil sales for the nine months ended September 30, 2023 and 2022.
Oil and Gas Reserves
There are several factors that need to be considered in estimating quantities of proved crude oil and natural gas reserves. Crude oil and natural gas reserve engineering is a subjective process of estimating underground accumulations of crude oil and natural gas that cannot be precisely measured. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing and production subsequent to the date of the estimate may justify revision of such estimate. Accordingly, reserves estimates are often different from the quantities of crude oil and natural gas that are ultimately recovered.
Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible – from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations – prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.
Existing economic conditions include prices and costs
at which economic productivity from a reservoir is to be determined. The price shall be the average price during the 12-month period prior
to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price
for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.
For the periods ending September 30, 2023 and December 31, 2022, that price would be $
Proved reserves are estimated quantities of oil, gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. The reserve volumes presented are estimates only and should not be construed as being exact quantities.
The Company’s 479-acre oil field is located
in West Texas. Per the Preliminary Reserve Estimate done by an independent geologist, it is estimated to
contain 150 million barrels of oil. The geologist estimates the recovery factor at 30% to 40% of the total reserves. Based on the lower
estimated quantity and lower the recovery factor, the total barrels of recoverable oil for would be around 45 million barrels. The average
price of West Texas Intermediate oil for the nine months ending September 30, 2023 was $
| 16 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our financial statements, including the notes thereto, appearing in this Form 10-Q and are hereby referenced. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this report. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. We believe it is important to communicate our expectations. However, our management disclaims any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.
These forward-looking statements are based on our management’s current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. You should not rely upon these forward-looking statements as predictions of future events because we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify a forward-looking statement by the use of the forward-terminology, including words such as “may”, “will”, “believes”, “anticipates”, “estimates”, “expects”, “continues”, “should”, “seeks”, “intends”, “plans”, and/or words of similar import, or the negative of these words and phrases or other variations of these words and phrases or comparable terminology. These forward-looking statements relate to, among other things: our sales, results of operations and anticipated cash flows; capital expenditures; depreciation and amortization expenses; sales, general and administrative expenses; our ability to maintain and develop relationship with our existing and potential future customers, and, our ability to maintain a level of investment that is required to remain competitive. Many factors could cause our actual results to differ materially from those projected in these forward-looking statements, including, but not limited to: variability of our revenues and financial performance; risks associated with technological changes; the acceptance of our products in the marketplace by existing and potential customers; disruption of operations or increases in expenses due to our involvement with litigation or caused by civil or political unrest or other catastrophic events; general economic conditions, government mandates; and, the continued employment of our key personnel and other risks associated with competition.
GENERAL OVERVIEW
Business Background
CYBER ENVIRO-TECH, INC. is a publicly held Wyoming oil and water filtration technology company that designs water purification solutions for commercial applications and industries
Our principal executive office is located at Cyber Enviro-Tech, Inc., 6991 E. Camelback Road, Suite D-300, Scottsdale, Arizona 85251. Our telephone number is 866 687-6856. Our Internet site is located at: www.cyberenviro.tech. We maintain our statutory registered agent's office at Registered Agents Inc. 30 N Gould St Ste R Sheridan, WY 82801 USA Telephone Number. (307) 200-2803
June 12, 2020, the District Court of Laramie County, Wyoming appointed Benjamin Berry of Synergy Management Group LLC (“Synergy”) as custodian of the Company.
On September 3, 2020, Synergy and Global Environmental Technologies, Inc. (“Global”), entered into a Securities Purchase Agreement, whereby Synergy sold its one share of Special Series A preferred stock and one-half share of Series C preferred stock to Global Environmental Technologies, Inc.
On September 23, 2020, the Company entered into a share exchange agreement with Global Environmental Technologies, Inc., (“Global”) a Wyoming corporation. Per the terms of the agreement, NexGen exchanged thirty-five shares of common stock for one share of Global.
On October 6, 2020, the Company formally changed its name with the State of Wyoming from NexGen Holdings to Cyber Enviro-Tech, Inc.
April 29, 2021, was the Announcement Date for the Company to do a reverse stock split of 1:20 and the Market Effective date was April 30, 2021. The symbol for Cyber Enviro-Tech, Inc. is CETI. All numbers in this 10-Q reflect the reverse split.
| 17 |
DESCRIPTION OF BUSINESS
Cyber Enviro-Tech, Inc is a water science technology company focusing on the remediation of contaminated industrial wastewater with an initial emphasis on the oil & gas industry. We are an emerging growth company with limited revenues and operating history. Our independent auditor has issued an audit opinion which includes a statement expressing substantial doubt as to our ability to continue as a going concern. Our pilot project is an oil field in West Texas. We currently own the mineral rights to a 479- acre, 33-well, located in Callahan County, Texas. These rights were secured from D-Bar Leasing, Inc, formerly owned by Mr. Danny Hyde.
GENERAL OVERVIEW
Form and year of organization;
Cyber Enviro-Tech, Inc., also referred to as “CETI” and the “Company”, was founded in the State of Wyoming as Biolectronics, Corp. in April 1986.
Bankruptcy, receivership;
The company has never filed Bankruptcy or been involved in any receiverships or similar proceedings.
Material reclassification;
Cyber Enviro-Tech, Inc - CURRENT.
NexGen Holdings Corp - Until April 30, 2021
WindPower Innovations, Inc. until January 2014
Educational Services International, Inc. until November 2009
Bio-Life Systems, Inc. until November 2001
Biolectronics, Corp. to April 1992
Electronic Biotek, Inc. April 1986
Business of the Cyber Enviro-Tech, Inc.;
Cyber Enviro-Tech, Inc is a water science technology company focusing on the remediation of contaminated industrial wastewater with an initial emphasis on the oil & gas industry. We do this by integrating technologies to include cyber, aerospace, satellite, industrial and AI engineering telemetry. Our water filtration, waste water and alternative energy systems will have neural sensors, controls and networks - all connected to a cellular device.
There are 26 oil wells on our Pilot Oil Field and, when funds become available, the Company will change over the old pumper jack systems to CETI’s current system.
The Company is reviewing its next project where CETI would complete its field water filtration system and put the system into use on the Pilot Oil field in Callahan County. At this time CETI, has not put its water filtration system into place at any location nor has it entered into any contracts with operators to put the water filtration system into the field.
During the second quarter of 2023, the Company expanded its focus in two main areas: overseas application of its water filtration systems in oil and gas as well as the meat packing industry. It has hired consultants and/or formed arrangements with a variety of consultants and partners in both industries. Our focus for the current fiscal year will be on further developing these relationships as well as oil production on 479-acre Pilot Oil Field in Callahan County, Texas.
The Companies industrial wastewater filtration technology will provide the following benefits to its customers including;
| • | Creative online monitoring to ensure and maintain water quality remotely in real time. |
| 18 |
| • | Utilizing the leading water filtration processes and technologies to make water usage and consumption safer, more efficient and less expensive. |
| • | Combined technologies that should produce a water filtration system that can treat water related contamination. |
| • | Through high volume water purification technologies, we can recycle contaminated water for reuse to address the depleting consumable supply of water. |
Sales Strategy – CETI’s B2B Sales Strategy will include partnering with individuals and companies who have many years of experience and developed relationships within their respective aforementioned targeted verticals. Prior knowledge of those specific industry issues, water filtration needs, history and relationships developed over many years will enable them to shorten the sales cycle for our water filtration system. As of October 14, 2023, the Company is in discussion with various individuals and has formed consulting arrangements with experts the oil industry, meat packing industry and acquired licenses from KAM Biotechnology to be used in both industries. In all cases, these contacts will be valuable in pursuing the Company’s B2B Sales Strategy.
Market Demand and Size - CETI’s water filtration system can be modified to address many of the water contamination issue that exists anywhere in the world. The markets envisioned for the CETI Water system when funds permit would be both domestic (U.S.) and global.
Results of Operations for the Three months Ending September 30, 2023 and 2022
| 2023 | 2022 | $ | % | |||||||||||||
| Revenue: | ||||||||||||||||
| Sales | $ | 13,897 | $ | 58,067 | $ | (44,170 | ) | (76 | %) | |||||||
| Cost of Goods Sold | (3,709 | ) | (14,813 | ) | 11,105 | (75 | %) | |||||||||
| Gross Margin | 10,188 | 43,254 | (33,066 | ) | (76 | %) | ||||||||||
| Operating Expenses: | ||||||||||||||||
| Professional Fees | 19,931 | 27,752 | (7,821 | ) | (28 | %) | ||||||||||
| General and administrative | 130,552 | 24,189 | 106,363 | 440 | % | |||||||||||
| Consulting | 597,566 | 65,202 | 532,364 | 816 | % | |||||||||||
| Total operating expenses | 748,049 | 117,144 | 630,906 | 658 | % | |||||||||||
| Loss from operations | (737,861 | ) | (73,890 | ) | (663,971 | ) | 899 | % | ||||||||
| Other Income (Expense): | ||||||||||||||||
| Change in fair value of derivative | 35,172 | — | 35,172 | 100 | % | |||||||||||
| Loss on issuance of derivative | (13,513 | ) | — | (13,513 | ) | (100 | %) | |||||||||
| Amortization of intangible asset | (31,604 | ) | — | (31,604 | ) | (100 | %) | |||||||||
| Gain on extinguishment of debt | 49,248 | — | 49,248 | 100 | % | |||||||||||
| Change in fair value of contingent liability | (600 | ) | — | (600 | ) | (100 | %) | |||||||||
| Interest expense | (146,870 | ) | (162,287 | ) | 15,417 | 10 | % | |||||||||
| Total Other Expense | (108,167 | ) | (162,287 | ) | (54,120 | ) | 33 | % | ||||||||
| Net Income (Loss) | $ | (846,028 | ) | $ | (236,177 | ) | $ | (609,851 | ) | 258 | % | |||||
| 19 |
General and Administrative Expenses. General and administrative expenses for the three months ended September 30, 2023 were up by 440% vs 2022 largely due to an increase in travel expenses associated with developing customers and raising money.
Professional fees. These fees are largely made up of audit and audit-related fees ($14,550 and $20,500 as of September 30, 2023 and 2022 respectively). The decrease in audit/audit-related fees is due to the Company’s audit performed in 2023 for 2022. The audit for 2021/2020 was performed in the second half of 2022 so there were lower accounting fees in the first half of 2022.
Consulting fees. Increased by 816% due significant push in marketing services related introducing the Company to potential clients and revenue sources. Around $418,000 of this amount is non-cash, stock-based compensation.
Other Income (Expense). The Company paid off two loans in the third quarter 2023 and, along with the raise $610,500 and $300,000 by the sale of convertible debentures in third quarter of 2023 and 2022, respectively, largely accounted for the increase in interest expense.
Net Income (Loss). The above changes resulted in net loss of $846,028 in the three months ending September 30, 2023 compared to a net loss of $236,177 in the third quarter of 2022. As noted in “Consulting fees” these large changes were largely due to non-cash, the stock-based compensation paid to a variety of consultants.
Results of Operations for the Nine months Ending September 30, 2023 and 2022
| 2023 | 2022 | $ | % | |||||||||||||
| Revenue: | ||||||||||||||||
| Gross Sales | $ | 13,897 | $ | 58,067 | $ | (44,170 | ) | (76 | %) | |||||||
| Cost of Goods Sold | (3,709 | ) | (14,813 | ) | (11,104 | ) | (76 | %) | ||||||||
| Gross Margin | 10,188 | 43,254 | (33,066 | ) | (76 | %) | ||||||||||
| Operating Expenses: | ||||||||||||||||
| Professional Fees | 85,219 | 49,952 | 35,267 | 71 | % | |||||||||||
| General and administrative | 261,663 | 76,372 | 185,291 | 243 | % | |||||||||||
| Consulting | 1,734,080 | 222,854 | 1,651,227 | 741 | % | |||||||||||
| Total operating expenses | 2,080,962 | 349,178 | 1,871,785 | 536 | % | |||||||||||
| Loss from operations | (2,070,774) | (305,924 | ) | (1,904,851 | ) | (623 | %) | |||||||||
| Other Income (Expense): | ||||||||||||||||
| Change in fair value of derivative | 84,564 | 2,638,153 | (2,553,589 | ) | (97 | %) | ||||||||||
| Loss on issuance of derivative | (100,371) | (149,010 | ) | 48,639 | (33 | %) | ||||||||||
| Loss on sale of asset | (3,600 | ) | — | (3,600 | ) | (100 | %) | |||||||||
| Amortization of intangible assets | (31,604) | — | (31,604) | (100 | %) | |||||||||||
| Gain on extinguishment of debt | 49,248 | 627,591 | (578,343 | ) | 100 | % | ||||||||||
| Change in fair value of contingent liability | 450 | (3,031 | ) | 3,481 | (115 | %) | ||||||||||
| Interest expense | (225,966) | (1,327,891 | ) | 1,101,925 | (83 | %) | ||||||||||
| Total Other Expense | (227,279) | 1,785,812 | (2,013,091 | ) | (113 | %) | ||||||||||
| Net Income (Loss) | $ | (2,298,053) | $ | 1,479,888 | $ | (3,777,941 | ) | (255 | %) | |||||||
General and Administrative Expenses. General and administrative expenses for the year nine months ended September 30, 2023 were up by 741% vs 2022 largely due to an increase in travel expenses associated with developing customers and raising money.
Professional fees. These fees are largely made up of audit and audit-related fees ($71,839 and $39,652 for the nine months ending September 30, 2023 and 2022 respectively). The increase in audit/audit-related fees is due to an increase in fees charged and more audited/reviewed periods for the first nine months of 2023 vs 2022.
Consulting fees. Increased by 243% due significant push in marketing services related introducing the Company to potential clients and revenue sources. $1,305,413 of this amount is non-cash, stock-based compensation.
Other Income (Expense). Much of this is related to the issuance and conversion of convertible debentures used to raise money for the Company’s operations. $2,662,500 and $1,075,000 was raised by the sale of convertible debentures in first nine months of 2023 and 2022, respectively. During the first quarter of 2022, $1,550,000 of these convertible debentures were exchanged for common shares of stock. Since convertible debentures issued before March 31, 2022 did not contain a floor price, estimates were needed to determine the change in fair value of the derivatives, loss on issuance of derivatives as well as gain on extinguishment of debt when the debentures were converted to common shares which resulted in significant variations in income and expenses for accounting purposes. In addition, the change in Interest expense of $1,101,925 was largely due to the change in amortization of debt discount of $1,006,673. Interest expense is comprised of debt issue costs, amortization of debt discount and interest expense.
Net Income (Loss). The above changes resulted in net loss of $2,298,053 in the first nine months of 2023 compared to a net income of $1,479,888 in 2022. As noted in “Other Income (Expense)” these large changes were largely due to accounting for derivatives due to the issuance of convertible debentures and March 31, 2022 conversion into common stock as noted above.
| 20 |
Liquidity and Capital Resources
As of September 30, 2023, the Company had total assets of $4,886,135 including current assets of $765,864. We also have current liabilities of $617,333 which consist of accounts payable of $122,214 and short-term loans payable of $338,245 which is the payable due on the Alvey Oil Field leasehold improvements. We also have $2,168,991 of long-term liabilities consisting of $1,980,500 of convertible notes payable. We believe our ability to achieve commercial success and continued growth will be dependent upon our continued access to capital either through sale of additional convertible debentures, sale of our equity or cash generated from operations. We will attempt to obtain additional capital through private investors; however, we have no agreements or understandings with third parties at this time in regards to investing additional monies.
S-1 Registration Statement Effective January 2023
The Company filed an S-1 Registration statement in 2022 and it became effective in January 2023. This gives the Company the right to sell 10 million shares of common stock at $0.40 per share and allowed almost seven million shares of stock from debentures converted in 2022 to become free trading shares. As of August 14, 2023, none of the 10 million shares of common stock have been sold.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a "smaller reporting company," as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
Item 4. Controls and Procedures.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. The term "internal control over financial reporting" is defined as a process designed by, or under the supervision of, an issuer's principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| (1) | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer; and |
| (2) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer. |
Under the supervision of our chief executive officer, being our principal executive officer, and our chief financial officer, being our principal financial officer and principal accounting officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022 using the criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, our management concluded our internal control over financial reporting were not effective at September 30, 2023.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a more than remote possibility that a misstatement of our company's annual or interim financial statements could occur. In its assessment of the effectiveness of our internal control over financial reporting as of September 30, 2023, we determined that there were control deficiencies that constituted material weaknesses which are indicative of many small companies with small staff, such as:
| (1) |
inadequate segregation of duties and effective risk assessment; and
| |
| (2) | insufficient written policies and procedures for documenting all transactions with vendors. | |
Our management is currently evaluating remediation plans for the above deficiencies. During the period covered by this quarterly report on Form 10-Q, we have been able to remediate some of the weaknesses described above. However, we plan to take steps to enhance and improve the design of our internal control over financial reporting.
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PART II—OTHER INFORMATION
Instruction. The report shall contain the item numbers and captions of all applicable items of Part II, but the text of such items may be omitted provided the responses clearly indicate the coverage of the item. Any item which is inapplicable or to which the answer is negative may be omitted and no reference thereto need be made in the report. If substantially the same information has been previously reported by the registrant, an additional report of the information on this form need not be made. The term “previously reported” is defined
in Rule 12b-2 (17 CFR 240. 12b-2). A separate response need not be presented in Part II where information called for is already disclosed in the financial information provided in Part I and is incorporated by reference into Part II of the report by means of a statement to that effect in Part II which specifically identifies the incorporated information.
Item 1. Legal Proceedings.
We are not a party to any legal proceedings, nor are we aware of any threatened litigation whatsoever.
Item 1A. Risk Factors.
As a "Smaller Reporting Company," as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
|
Date of Transaction |
Transaction type (e.g. new issuance, cancellation, shares returned to treasury) | Number of Shares Issued (or cancelled) | Class of Securities | Value of shares issued ($/per share) at Issuance | Individual/ Entity Shares were issued to (entities must have individual with voting / investment control disclosed). | Reason for share issuance (e.g. for cash or debt conversion) -OR- Nature of Services Provided | Restricted or Unrestricted as of this filing. | |||||||||||||||
| 2/24/2021 | New | 123,457 | Common | 0.097 | Lester Black | Cash | Restricted | |||||||||||||||
| 3/18/2021 | New | 14,286 | Common | 0.350 | Frank Kigenyi | Cash | Restricted | |||||||||||||||
| 3/20/2021 | New | 14,286 | Common | 0.350 | Ramonte Parea Hackman | Cash | Restricted | |||||||||||||||
| 3/22/2021 | New | 28,572 | Common | 0.350 | Lenora Rodriguez | Cash | Restricted | |||||||||||||||
| 3/25/2021 | New | 14,286 | Common | 0.350 | Ernest Bevans | Cash | Restricted | |||||||||||||||
| 4/5/2021 | New | 14,286 | Common | 0.350 | Vanessa DeMattei | Cash | Restricted | |||||||||||||||
| 5/4/2021 | New | 50,000 | Common | 0.200 | Greg Hebert | Grant fee | Restricted | |||||||||||||||
| 9/27/2021 | New | 144,033 | Common | 0.097 | Lester Black | Cash | Restricted | |||||||||||||||
| 2/25/2022 | New | 3,000,000 | Common | 0.078 | Markham and ML Broughton RT, Markham Broughton | Cash | Restricted | |||||||||||||||
| 2/25/2022 | New | 750,000 | Common | 0.133 | Gary E. Smith Living Trust, Gary Smith | Cash | Restricted | |||||||||||||||
| 12/31/2022 | New | 400,000 | Common | 0.420 | Joe Isaacs, Axiom Group | Services | Restricted | |||||||||||||||
| 12/31/2022 | New | 42,000 | Common | 0.457 | Malcolm Mcquire | Services | Restricted | |||||||||||||||
| 3/24/2023 | New | 300,000 | Common | 0.420 | Joe Isaacs, Axiom Group | Services | Restricted | |||||||||||||||
| 4/3/2023 | New | 3,000,000 | Common | 0.001 | Joe Isaacs | Services | Unrestricted | |||||||||||||||
| 5/23/2023 | New | 250,000 | Common | 0.42 | Joe Isaacs | Services | Restricted | |||||||||||||||
| 5/23/2023 | New | 250,000 | Common | 0.38 | Frank Straw | Services | Restricted | |||||||||||||||
| 5/23/2023 | New | 250,000 | Common | 0.31 | Markus Miller | Services | Restricted | |||||||||||||||
| 5/23/2023 | New | 200,000 | Common | 0.38 | Bruce Moore | Services | Restricted | |||||||||||||||
| 5/23/2023 | New | 1,000,000 | Common | 0.38 | US Affiliated Inc, Karen Crow | Services | Restricted | |||||||||||||||
| 7/21/2023 | New | 15,000 | Common | 0.35 | Benjamin Berry | Contingent Liability Paid | Restricted | |||||||||||||||
| 22 |
Securities authorized for issuance under equity compensation plans
The Company has not reserved any securities for issuance under equity compensation plans for any officers, directors or any beneficial owners.
In connection with a consulting agreement dated March 7, 2022, the Company issued 200,000 options at an exercise price of $0.58 per share. These options vest one-fourth each six months over a period of two years and have a term of three years. The grant date fair value was $55,966. The Company recorded compensation expense in the amount of $5,636, $5,636, $16,725, $12,682 and $18,318 for the three and nine months ended September 30, 2023 and 2022 and for the year ended December 31, 2022 , respectively. As of June 30, 2023 and December 31, 2022, there was $20,922 and $37,648 , respectively, of total unrecognized compensation cost related to non-vested portion of options granted.
As of September 30, 2023 and December 31, 2022, there are 200,000 options for both years of which 100,000 and 50,000 are exercisable as of September 30, 2023 and December 31, 2022, respectively. The weighted average remaining term is 0.56 years and 1.31 years for the periods ending September 30, 2023 and December 31, 2022, respectively.
In connection with a consulting agreement dated March 1, 2023, the Company initially agreed to pay 2,000,000 shares of common stock along with a monthly consulting fee. This common stock was valued at $0.42, the date of the agreement, and was amortized equally over the six-month agreement. On July 1, 2023, the Company and consultant decided to amend the agreement so that the consultant would receive 3,250,000 warrants valued at $0.001 and extend the agreement until June 30, 2024. This resulted in an additional $447,222 in consulting expenses which was equally amortized over the next twelve months resulting in $111,805 of stock compensation being recognized in the 3rd Quarter 2023.
The Company has not reserved any securities for issuance under equity compensation plans for any officers, directors or any beneficial owners. The individual below are consultants and part of their compensation is in stock as follows:
On November 21, 2022 the company entered into a consulting agreement with Axiom Group (Joseph Isaacs, sole Officer and director) for professional services wherein the Company paid Axiom Group (Joseph Isaacs) 950,000 common shares.
On April 25, 2023 the company entered into a consulting agreement with Dr. Markus Miller for professional services wherein the Company paid 1,000,000 common shares.
On May 17, 2023 the company entered into a consulting agreement with Frank Straw for professional services wherein the Company paid 1,000,000 common shares.
The Company has had a working relationship with Bruce Moore for several years. To keep him engaged, the Company gave him 200,000 common shares for professional services.
The Company has had a working relationship with US Affiliated, Inc, owned by Karen Fowler, for the past year. To keep the company engaged, CETI gave US Affiliated, Inc 1,000,000 common shares for professional services.
| 23 |
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
| Incorporated by Reference |
Filed or Furnished | |||||||||
| Exhibit # | Exhibit Description | Form | Date | Number | Herewith | |||||
| 31.1 | Certification of Principal Executive Officer (302) | Filed | ||||||||
| 31.2 | Certification of Principal Financial Officer (302) | Filed | ||||||||
| 32.1 | Certification of Principal Executive and Principal Financial Officers (906) | Furnished* | ||||||||
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | Filed | ||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | Filed | ||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | Filed | ||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | Filed | ||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | Filed | ||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | Filed | ||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | Filed | ||||||||
*This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.
| 24 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Signature | Title | Date | ||
|
/s/ Kim D. Southworth |
Chief Executive Officer |
November 30, 2023 | ||
| Kim D. Southworth | ||||
| /s/ Dan Leboffe | Principal Accounting Officer | |||
| Dan Leboffe | November 30, 2023 |
| 25 |