NAPD 10-Q/A
NAPC Defense, Inc. (NAPD)
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
Amendment No. 1
For
the quarterly period ended
For the transition period from __________ to __________
Commission
file number
| (Exact name of registrant as specified in its charter) |
| (State
or Other Jurisdiction of Incorporation or Organization) |
(Primary
Standard Industrial Classification Code Number) |
(IRS Employer Identification No.) |
Craig
Huffman
Chief Executive Officer
| (Address and telephone number of registrant’s principal offices) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate
by check mark whether the registrant (1) has 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer o | Large accelerated filer o | Smaller
reporting company | |
| Emerging
growth company |
|||
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: The Company has common shares issued and outstanding as of December 16, 2021.
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EXPLANATORY NOTE
No other changes have been made to the Form 10-Q. This Amendment No. 1 to the Form 10-Q speaks as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Form 10-Q.
| Treasure & Shipwreck Recovery, Inc. |
| QUARTERLY REPORT ON FORM 10-Q |
| Table of Contents |
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying interim financial statements of Treasure & Shipwreck Recovery, Inc., formerly Beliss Corp. (“the Company”, “we”, “us” or “our”), have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.
The interim financial statements are condensed and should be read in conjunction with the Company’s latest annual financial statements. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying financial statements do not include all the information and notes required by GAAP for complete financial statement presentation.
In the opinion of management, the financial statements contain all material adjustments, consisting only of normal adjustments considered necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods presented.
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Treasure & Shipwreck Recovery, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of October 31, 2021 and April 30, 2021
| October 31, 2021 (Unaudited) | April 30, 2021 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Total current assets | ||||||||
| Fixed Assets | ||||||||
| Fixed assets, net of depreciation | ||||||||
| Total fixed assets | ||||||||
| Other Assets | ||||||||
| Trademark | ||||||||
| Security deposit | ||||||||
| Total other assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Customer deposits | ||||||||
| Convertible notes payable, net of discounts | ||||||||
| Short term loans | ||||||||
| Related party convertible loan | ||||||||
| Total current liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies (Note 8) | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, $ par value; shares authorized, shares issued and outstanding at October 31, 2021 and April 30, 2021 | - | - | ||||||
| Common stock, par value $; shares authorized, and shares issued and outstanding at October 31, 2021 and April 30, 2021, respectively | ||||||||
| Common stock to be issued | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See accompanying notes, which are an integral part of these unaudited condensed consolidated financial statements
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Treasure & Shipwreck Recovery, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and six months ended October 31, 2021 and 2020
(Unaudited)
| Three months ended October 31, 2021 (Unaudited) | Three months ended October 31, 2020 (Unaudited) | Six months ended October 31, 2021 (Unaudited) | Six months ended October 31, 2020 (Unaudited) | |||||||||||||
| REVENUES | $ | $ | $ | $ | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Consulting and accounting | ||||||||||||||||
| Labor | - | - | ||||||||||||||
| Legal Fees | - | - | ||||||||||||||
| Professional fees | ||||||||||||||||
| Boat expenses | ||||||||||||||||
| Research and Development | - | - | ||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Depreciation | ||||||||||||||||
| TOTAL OPERATING EXPENSES | ||||||||||||||||
| NET LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Interest expense | ( | ) | - | ( | ) | - | ||||||||||
| Other income | - | - | ||||||||||||||
| NET LOSS BEFORE INCOME TAX | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income tax | - | - | - | - | ||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS PER SHARE: BASIC AND DILUTED | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED | ||||||||||||||||
See accompanying notes, which are an integral part of these unaudited condensed consolidated financial statements
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Treasure & Shipwreck Recovery, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES TO STOCKHOLDERS’ EQUITY
Three and six months ended October 31, 2021 and 2020
(Unaudited)
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Common Stock to be Issued | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||
| Balance, April 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Issuance of preferred shares | - | - | - | |||||||||||||||||||||||||||||
| Stock compensation | - | - | - | - | ||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance, July 31, 2020 | ( | ) | ||||||||||||||||||||||||||||||
| Stock compensation | - | - | - | - | ||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance, October 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Common Stock to be Issued | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||
| Balance, April 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Common stock issued for financing fees | - | - | - | |||||||||||||||||||||||||||||
| Stock compensation | - | ( | ) | - | - | |||||||||||||||||||||||||||
| Warrants issued with debt | - | - | - | - | ||||||||||||||||||||||||||||
| Warrants issued for services | - | - | - | - | ||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance, July 31, 2021 | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance, October 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
See accompanying notes, which are an integral part of these unaudited condensed consolidated financial statements
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Treasure & Shipwreck Recovery, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended October 31, 2021 and 2020
| Six months ended October 31, 2021 (Unaudited) | Six months ended October 31, 2020 (Unaudited) | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Warrants issued for services | - | |||||||
| Amortization of debt discount | - | |||||||
| Stock compensation | - | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Security deposits | ( | ) | - | |||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| CASH FLOWS USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceed from convertible notes payable | - | |||||||
| Proceed from sales of preferred stock | - | |||||||
| CASH FLOWS PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET INCREASE (DECREASE) IN CASH | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest expense | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| NON-CASH OPERATING AND FINANCING ACTIVITIES: | ||||||||
| Warrants issued with debt | $ | $ | ||||||
See accompanying notes, which are an integral part of these unaudited condensed consolidated financial statements
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Treasure & Shipwreck Recovery, Inc.
NOTES TO THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
October 31, 2021
Note 1 – ORGANIZATION AND NATURE OF BUSINESS
Treasure & Shipwreck Recovery, Inc. (“TSR” or the “Company”) was incorporated in the State of Nevada on October 24, 2016 as Beliss Corp. The Company changed its name to Treasure & Shipwreck Recovery, Inc. on June 26, 2019.
TSR formed TSR Holdings, Inc., a wholly owned subsidiary, on August 22, 2019, as the Company’s operating vehicle to focus on the recovery of sunken treasure from historic shipwrecks. On April 6, 2020, TSR formed TSR Media Group, Inc. (“TSR Media”), a wholly owned subsidiary, in order to develop various digital media properties. TSR Media is in the process of developing, through an outside app developer, a treasure search and salvage gaming app.
Note 2 – GOING CONCERN
These
consolidated financial statements have been prepared on a going concern basis, which assumes the Company will be able to realize its
assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred net losses
since inception, which raises substantial doubt about the Company’s ability to continue as a going concern. Based on its historical
rate of expenditures, the Company expects to expend its available cash in less than three months from December 16, 2021. Management’s
plans include raising capital through the equity markets to fund operations and, eventually, the generation of revenue through its business.
The Company does not expect to generate any significant revenues for the foreseeable future. At October 31, 2021, the Company had working
capital deficit of $
Failure to raise adequate capital and generate adequate revenues could result in the Company having to curtail or cease operations. The Company’s ability to raise additional capital through the future issuances of the common stock is unknown. Additionally, even if the Company does raise sufficient capital to support its operating expenses and generate adequate revenues, there can be no assurances that the revenue will be sufficient to enable it to develop to a level where it will generate profits and cash flows from operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern; however, the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classifications of the liabilities that might be necessary should the Company be unable to continue as a going concern.
Covid-19 Disclosure
The Company’s operations may be adversely affected by the ongoing outbreak of the coronavirus disease 2019 (“COVID-19”) which was declared a pandemic by the World Health Organization (“WHO”) in March 2020. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact on TSR’s financial position, operations and cash flows.
Additionally, it is possible that the Company may face additional challenges in obtaining financing due to COVID-19’s effects on the general economy and the capital markets. If the Company is not able to obtain financing due to COVID-19, then it is highly likely that it will be forced to cease operations. The impact on smaller companies such as TSR of having to cease operations due to the effects of COVID-19 would likely result in the Company not being able to survive and would cause a complete loss of all capital invested in the Company.
To date, TSR has not suffered any significant setback due to COVID-19 interfering with operations.
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Note 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
This summary of significant accounting policies of TSR is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) and have been consistently applied in the preparation of the consolidated financial statements. The Company’s year-end is April 30. These condensed consolidated financial statements should be read in conjunction with the summary of significant accounting policies and notes to financial statements included in the Company’s Form 10-K annual report for the year ended April 30, 2021. The results of the six months ended October 31, 2021 are not necessarily indicative of the results to be expected for the full fiscal year ending April 30, 2022.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of TSR Holdings, Inc. and TSR Media Group, Inc., which are wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The process of preparing consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Significant estimates for the six month periods ended October 31, 2021 and 2020 include the useful life of property and equipment, valuation allowances against deferred tax assets and fair value of non cash equity transactions.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
There
were no cash equivalents at October 31, 2021 and April 30, 2021. Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation
(“FDIC”) up to $
Research and Development Expenses
Expenditures for research and development are expensed as incurred.
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from contracts with customers. The core principle of ASC 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognizes revenue in accordance with that core principle by applying the following steps: Step 1: Identify the contract(s) with a customer, Step 2: Identify the performance obligations in the contract, Step 3: Determine the transaction price, Step 4: Allocate the transaction price to the performance obligations in the contract and Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. Specifically, Section 606-10-50 requires an entity to provide information about: a. Revenue recognized from contracts with customers, including the disaggregation of revenue into appropriate categories; b. Contract balances, including the opening and closing balances of receivables, contract assets, and contract liabilities; c. Performance obligations, including when the entity typically satisfies its performance obligations and the transaction price that is allocated to the remaining performance obligations in a contract; and d. Significant judgments, and changes in judgments, made in applying the requirements to those contracts.
For the Company’s service contracts, the services provided are considered to be one single performance obligation. Revenue and expenses are recognized as services are rendered. The average period for satisfying the performance obligation is three months. The Company has analyzed all of its contracts and can confirm that all the requirements are considered in these contracts:
1) The contracts with customers were identified;
2) The performance obligation was the creation of a website and the provision of SEO-optimization and other services for this site;
3) The transaction price was determined;
4) The Company has only one performance obligation, so the whole transaction price is related to this performance obligation;
5) The revenue was recognized when the performance obligation had been satisfied.
The Company offers no discounts, rebates, rights of return, or other allowances to clients which would result in the establishment of reserves against service revenue. Additionally, to date, the Company has not incurred incremental costs in obtaining a client contract.
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The Company has adopted FASB ASC 260-10, which provides for the calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common stockholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity.
The potentially dilutive common stock equivalents for the quarters ended October 31, 2021 and 2020 were excluded from the dilutive loss per share calculation as they would be antidilutive due to the net loss. As of October 31, 2021 and 2020, there were approximately 8,074,096 and 16,869 shares of common stock underlying our outstanding convertible notes payable and warrants, respectively.
Fair Value of Financial Instruments
The carrying amounts of financial assets and liabilities, such as cash, accounts payable, short term loans, and the Company’s related party loan from a shareholder approximate their fair values because of the short maturity of these instruments.
Fixed Assets
Fixed assets are recorded at historical cost. Depreciation is computed on the straight-line method over the estimated useful lives of the respective assets. Gains and losses upon disposition are reflected in the consolidated statements of operations in the period of disposition. Maintenance and repair expenditures are charged to expense as incurred. Currently the Company’s only assets are a diving vessel and a magnetometer which were purchased in fiscal year 2020 and are being depreciated over three to twelve year useful lives.
Impairment of Long-Lived and Intangible Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. The Company periodically evaluates whether events and circumstances have occurred that indicate possible impairment. When impairment indicators exist, the Company uses market quotes, if available, or an estimate of the future undiscounted net cash flows of the related asset or asset group over the remaining life in measuring whether or not the asset values are recoverable. The Company has not recognized impairment on its long-lived assets as of October 31, 2021.
Stock Based Compensation to Employees and Service Providers
The Company recognizes all share-based payments to employees and service providers, including grants of employee stock options, as compensation expense in the financial statements based on their fair values. That expense will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period) or immediately if the share-based payments vest immediately.
Convertible Notes Payable
The Company accounts for convertible notes deemed conventional and conversion options embedded in non-conventional convertible notes which qualify as equity under ASC 815, in accordance with the provisions of ASC 470-20, which provides guidance on accounting for convertible securities with beneficial conversion features. ASC 470-10 addresses classification determination for specific obligations, such as short-term obligations expected to be refinanced on a long-term basis, due-on-demand loan arrangements, callable debt, sales of future revenue, increasing rate debt, debt that includes covenants, revolving credit agreements subject to lock-box arrangements and subjective acceleration clauses. Accordingly, the Company records, as a discount to convertible notes, the intrinsic value of such conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt.
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Customer Deposits
Customer
deposits discloses an amount paid by a customer prior to the Company providing it with goods or services. The Company has an obligation
to provide the goods or services to the customer or to return the money. The Company had $
Income Taxes
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
Recent Accounting Pronouncements
All other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.
Note 4 – FIXED ASSETS
Fixed assets at October 31 and April 30, 2021 are summarized below:
| Fixed Assets | October 31, 2021 | April 30, 2021 | ||||||
| Diving Vessel | $ | $ | ||||||
| Magnetometer | ||||||||
| Accumulated Depreciation | ( | ) | ( | ) | ||||
| Fixed Assets, Net | $ | $ | ||||||
For
the six months periods ended October 31, 2021 and 2020 depreciation expenses were $
TSR Media Group, Inc. entered into an App Company and App Purchase agreement with an individual on February 12, 2020 to purchase a website, www.flavorfullapps.com as well as 50 related recipe and cooking apps. Under the original terms of the agreement TSR agreed to pay the individual 300,000 shares of restricted common stock. The agreement was amended on April 26, 2020 to increase the shares amount paid for the website and apps to 600,000 shares of restricted common stock, reflecting the current market value of TSR’s share price as well as additional consideration for the individual assisting with redoing the website and consulting for new apps. The purchase of the website and associated apps was valued at $102,000 based on fair value of TSR’s shares on the date of the amended purchase agreement. During the year ended April 30, 2021, TSR Media Group, Inc. and the seller of the website and cooking apps entered into a Mutual Release and Settlement Agreement where the seller of the website and the related cooking apps agreed to unwind the original App Company and App Purchase agreement. Under the terms of the agreement, TSR agreed to give back the website and the cooking apps to the seller and the seller agreed to return 500,000 shares of restricted stock to TSR’s control for cancellation and to waive any claim to the 100,000 shares that had not yet been issued. At April 30, 2021, the Company wrote down the remaining balance of the website and cooking apps balance to $0 and recorded an impairment loss of $62,333.
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Note 5 – PURCHASE OF TRADEMARK, GRAPHICS, RELATED MEDIA AND PRODUCT MATERIALS
The Company entered into a Trademark and Usage Purchase Agreement with Galleon Quest, LLC (“GQ”), a privately held limited liability company, on March 5, 2020.
Under the terms of the Trademark and Usage Purchase Agreement, the Company agreed to issue 1,200,000 shares of its restricted common stock to GQ in exchange for the acquisition of a registered trademark and all other developed graphics, including for gaming, web site and all other material for television, multimedia, gaming, food and products such as beverages, and all other issues. In addition, the Company agreed that GQ shall retain the right to ten percent of the gaming rights and five percent of the television media revenue, which shall be for rights of the gaming name rights, as used in all app, online or other gaming as owned by TSR and any television related media. All shares issued by both parties under the agreement have all rights and entitlements as the common stock of every other shareholder of such share class.
The purchase of the trademark and related graphics and materials was valued at $636,000 based on fair value of TSR’s shares on the date of the Trademark and Usage Purchase Agreement.
Note 6 – NOTES PAYABLE
Related Party Convertible Loan
An
officer of the Company has provided a loan to TSR under a convertible promissory note. This convertible promissory note is unsecured,
non-interest bearing, and is convertible into common shares of the Company stock at $2.75 per share and due on demand. The balance due
to the officer was $
Short Term Loans
As
of October 31, 2021 and April 30, 2021, the Company had loans totaling $
Convertible Notes Payable
The following table reflects the convertible notes payable as of October 31, 2021 and April 30, 2021:
| Issue Date | Maturity Date | October 31, 2021 Principal Balance | April 30, 2021 Principal Balance | Rate | Conversion Price | |||||||||||||||
| Convertible notes payable | ||||||||||||||||||||
| $ | $ | % | ||||||||||||||||||
| % | ||||||||||||||||||||
| - | % | |||||||||||||||||||
| - | % | |||||||||||||||||||
| - | % | |||||||||||||||||||
| Face value | $ | $ | 275,000 | |||||||||||||||||
| Less unamortized discounts | ||||||||||||||||||||
| Balance convertible notes payable | $ | $ | ||||||||||||||||||
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The convertible notes payable are convertible into a fixed number of shares and with no down round protection features. The Company accounted for the beneficial conversion features based on the intrinsic value at the date of issuance. During the six months ended October 31, 2021 and year ended April 30, 2021, the Company recognized beneficial conversion features totaling $400,000 and $250,000, respectively. The discount from the beneficial conversion features are being amortized through charges to interest expense over the term of the convertible notes payable. The Company recorded interest expense related to the amortization of debt discounts of $318,630 and $0 for the six months ended October 31, 2021 and the year ended April 30, 2021, respectively.
New Convertible Notes Payable Issued During the Six Month Periods Ended October 31, 2021 and 2020
On May 5, 2021, the Company entered into a convertible note payable with a corporation. The note payable, with a face value of $150,000, including a $15,000 original issue discount, bears interest at 10.0% per annum and is due on May 5, 2022. The convertible note payable is convertible, at the holder’s option, into the Company’s common shares at a fixed conversation rate of $0.10. The conversion of the note into shares of the Company’s common stock is potentially highly dilutive to current shareholders. If the note holder elects to sell the shares that it has acquired as a result of converting the note into shares of common stock, then any such sales may result in a significant decrease in the market price of the Company’s shares.
On May 7, 2021, the Company entered into a convertible note payable with a corporation. The note payable, with a face value of $100,000, including a $10,000 original issue discount, bears interest at 10.0% per annum and is due on May 7, 2022. The convertible note payable is convertible, at the holder’s option, into the Company’s common shares at a fixed conversation rate of $0.10. The conversion of the note into shares of the Company’s common stock is potentially highly dilutive to current shareholders. If the note holder elects to sell the shares that it has acquired as a result of converting the note into shares of common stock, then any such sales may result in a significant decrease in the market price of the Company’s shares.
On May 19, 2021, the Company entered into a convertible note payable with a corporation. The note payable, with a face value of $150,000, including a $15,000 original issue discount, bears interest at 10.0% per annum and is due on May 19, 2022. The convertible note payable is convertible, at the holder’s option, into the Company’s common shares at a fixed conversation rate of $0.10. The conversion of the note into shares of the Company’s common stock is potentially highly dilutive to current shareholders. If the note holder elects to sell the shares that it has acquired as a result of converting the note into shares of common stock, then any such sales may result in a significant decrease in the market price of the Company’s shares.
The Company did not enter into any new convertible note payable agreements during the six month period ended October 31, 2020.
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Note 7 – STOCKHOLDERS’ DEFICIT
Common Stock
The Company is authorized to issue shares of common stock, $ par value per share.
Common Stock Issuances
During the six month period ended October 31, 2021, the Company issued the following shares of restricted common stock:
| - |
shares for financing fees totaling $ |
| - | shares as stock compensation valued at $133,000. The Company determined the fair value of the shares issued using the stock price on date of grant or issuance. Compensation expense is recognized as the services are provided to the Company. |
During the six month period ended October 31, 2020, the Company issued the following shares of restricted common stock:
| - | None. |
The Company is in the process of cancelling the shares issued to an individual from the cancelled Southern Amusement transaction. All such shares are held in escrow for cancellation under the Company’s Counsel and President.
Series A Preferred Stock
On May 1, 2020, the Company’s Board authorized the creation of Series A preferred shares. The Series A preferred shares will pay a quarterly payment based upon gaming revenue sharing, which all 100 Series A preferred shares will receive twenty percent of TSR’s portion of the game revenue from its game app., which equates to thirteen percent of total game gross revenues. Each Series A preferred share was priced at $4,000 with a minimum purchase of three Series A preferred shares and are only eligible to be purchased by accredited investors. Each Series A preferred share will receive one hundredth of twenty percent of TSR game net as revenue sharing. Each Series A preferred share will continue to exist, unless the game app. is sold to another entity, at which time the Series A preferred shareholders will receive their same percentage of the game sales proceeds price, if or when such occurs. The Series A preferred shares are not convertible into common shares and are subject to all other restrictions on securities as set forth.
At October 31, 2021 the Company had shares of Series A preferred shares issued and outstanding.
Warrants
During the six month periods ended October 31, 2021 and 2020, the Company issued and warrants, respectively.
The following table shows the warrants outstanding at October 31, 2021:
| Number of | Weighted Average | Weighted Average Remaining | Average Intrinsic | |||||||||||||
| Warrants | Exercise Price | Life (Years) | Value | |||||||||||||
| Outstanding, April 30, 2021 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Forfeited or expired | - | - | - | - | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Outstanding, October 31, 2021 | ||||||||||||||||
| Exercisable, October 31, 2021 | ||||||||||||||||
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During the six month period ended October 31, 2021, the Company issued 599,000 common stock warrants to multiple lenders under the terms of a convertible note payable agreement. The warrants vested 100% at the time that they were issued, have an exercise price of $0.25 per share and expire July 31, 2026. The warrants granted were fair valued at $170,025 using the Black-Scholes option pricing model with the following variables: annual dividend yield 0%; expected life of 5 years; risk fee rate of return 0.86%; and expected volatility of 500%.
Note 8 – COMMITMENTS AND CONTINGENCIES
Finder’s Agreement
In April of 2021, TSR entered into an agreement with a corporation that is a registered broker dealer. The term of the agreement is for 120 days. Under the terms of the agreement, the Company agreed to pay a finder’s fee to the broker dealer upon receiving financing from any investor that was introduced by the broker dealer. The finder’s fee will be paid in cash equal to 5% (2% for pre-existing relationships) of the gross proceeds of an equity/convertible debt transaction and/or cash equal to 3% of the gross proceeds of a non convertible debt transaction. The Company also agreed to pay the broker dealer non callable warrants equal to 5% (2% pre existing relationships) warrant coverage of any financing received. The broker dealer will also be entitled to receive a fee of 6% for any licensing, joint venture or merger that results from an introduction made to the Company by the broker dealer. No fees will be paid unless the Company actually receives the financing. If during the twenty four month period following termination of the agreement, any party introduced enters into an agreement to purchase securities from the Company, then the Company will pay the finder’s fee.
Partnering Agreement
In April of 2021, TSR entered into an agreement with a limited liability company and an individual consultant who controls the limited liability company for both services and the rights to treasure that is successfully recovered in a known shipwreck area. The term of the agreement is for a minimum of one year. Under the terms of the agreement TSR and the consultant agreed:
1. That the consultant has rights as a third party to certain known treasure sites controlled through a third party. Such rights exist under such agreement between the consultant and the company owning such rights. The consultant has been working such site area for an extensive period, and has produced finds of artifacts, as well as other scanned, researched, and targeted areas for further search and recovery.
2. The consultant is agreeing to take capital in, as well as contributions of available and as available, boats, crew and equipment, which TSR may have in exchange for a percentage of recovery from such site, which the consultant is entitled to from recoveries made. TSR shall receive that portion set out below for such investment of funds.
3. The consultant, agreed to enter into a partnership for such shipwreck noted above where the consultant will work, in exchange for 25% of the net due to the consultant from finds made, during the time period of this agreement, in exchange for $50,000, payable in monthly amounts starting at the time of the first payment. Each payment of $10,000 shall entitle TSR to 5% of such net proceeds up to the 25% of the net due to the consultant. Such net, means that amount after the State of Florida proceeds, and the amount due to the owner of the shipwreck site. Such amount of investment shall entitle TSR to such share for a period to December 31, 2021. In addition, after a two month term of this agreement, TSR will award the consultant 100,000 common shares of restricted stock, and additional shares upon success at the discretion of TSR.
4. TSR shall also contribute, on a project and availability basis, for such operations, supporting vessels through TSR, to include the RV Bellows, with appropriate crew, and use for project site use, for survey use, etc. to support operations directed by the consultant on site from number 1 above, as well as addressed below. TSR shall have the right to contribute crew, technical, divers or other persons to observe and participate on such ventures.
5. Additional sites which may be identified by the consultant for future joint ventures which have not been explored, within or outside the state of Florida waters, where TSR shall provide capital and other materials, crew and vessels, to be agreed upon by the Parties, but wherein TSR if funding such ventures, shall be entitled to 50% of such finds, sites and artifacts.
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Operations Manager’s Agreement
In October of 2020, TSR entered into an agreement with an individual consultant to be the Company’s operations manager for site selection and operational oversight. The term of the agreement is for a minimum of one year. The services to be rendered, on an as needed basis include selection for sites, and personnel for diving for recovery operations, assistance in the selection of personnel, contractors, and parties for wreck site scanning, search operations, and recovery operations of wreck sites, analysis and review of shipwreck sites, interaction with state and governmental authorities as necessary for wreck site approval and operations, and at the option of TSR participate in and have the right to appear in media productions involving the Company. There are additional terms in the agreement where the Company has agreed to pay to the consultant shares of its restricted common stock for successfully locating treasure.
Trademark and Usage Purchase Agreement Gaming and Media Rights Payments
TSR entered into a Trademark and Usage Purchase Agreement on March 5, 2020, see Note 5 Purchase of Trademark, Graphics, Related Media and Product Materials. Under the terms of the agreement TSR is obligated to pay ten percent of the gaming rights and five percent of television media revenue, which shall be for rights of the gaming name rights, as used in all such app, online or other gaming as owned by TSR and any television related media.
Board of Directors Agreements
In September of 2021, the Company entered into agreements with two individuals to join on the Company’s Board of Directors. Under the Board of Directors Agreements, each of the Directors agreed to serve as an independent outside director of the Company and to serve on the Company’s Board of Directors (the “Board”) and to provide those services required of a director under the Company’s Certificate of Incorporation and Bylaws, as both may be amended from time to time (“Articles and Bylaws”) and under Nevada law, the federal securities laws and other state and federal laws and regulations, as applicable. The Director shall render such advice and consent necessary for the best interests of the Company based upon best business judgment. The term of each of the of Directors agreements is for two years. During the term of this Agreement, the Company will reimburse the Directors for reasonable, business related expenses approved by or as reasonably necessary for the Company, with such approval not to be unreasonably withheld. For his or her services as a Director of the Company, the Director shall receive the option for shares of the Company, to be earned at the value of $2,000 per month for such first two year term, at the lowest of conversion of such amount at $0.10 per share, or if such shares are publicly trading at over $0.50 per share for a period of over 30 trading days during such term, then such price value per share shall be adjusted to $0.25 per share. The Director shall also have the option to purchase such the same amount of shares in the same amount ($2,000 per month) accumulated during such term, and such option shall be able to be exercised within sixty days of the end of each calendar year. Such rights shall be cumulative, and shall pass by will or estate for the period of time served. Additional Compensation shall be awarded on success of the Company. This shall include the following examples, and would be awarded to all directors upon some of these examples of success, would be: 1) Find of “appreciable” treasure” in such amounts as we determine, 2) Value of stock price appreciation and volume on parameters we would set, 3) The deployment and action of a Reg A filing for another amount of actual equity raise, 4) Having a game developed in stages, 5) Success on Reg A funding to take out all loans, etc., 6) Development of new site rights, access, and recoveries, 7) Acquisitions of other business ventures, in treasure salvage or otherwise, 8) Other television, gaming, on line and any other values brought to the Company. Directors shall also be paid at discretion of the Board of Directors for business venture enhancements, including stock and shareholder value, and other amounts.
Note 9 – RELATED PARTY TRANSACTIONS
As
of October 31, 2021, an officer of the Company has provided a loan to TSR under a convertible promissory note. This convertible promissory
note is unsecured, non-interest bearing, and is convertible into common shares of the Company stock at $2.75 per share and due on demand.
The balance due to the officer was $
Note 10 – SUBSEQUENT EVENTS
The Company has evaluated all subsequent events through December 17, 2021, the date the financial statements were available to be issued. There are no subsequent events to report.
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ITEM 2. MANAGEMENTS’ DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking statements
Statements made in this Form 10-Q that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 (the “Act”) and Section 21E of the Securities Exchange Act of 1934. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
Financial information contained in this report and in our financial statements is stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.
Description of Business
Treasure Shipwreck & Recovery, Inc. (“TSR”, “us,” “we,”, the “Company”) is focused, through its wholly owned subsidiary TSR Holdings, Inc., on the exploration and recovery of historic shipwrecks. The Company has acquired various assets including a research vessel and specialized sensing equipment to be utilized to attempt to locate and eventually recover artifacts and treasure from historic shipwrecks, generally from the colonial era. The Company has acquired the intellectual property rights in a purchase agreement for the naming, trademark and use rights of Galleon Quest, from a third party to be used on Games and Apps, and merchandising of products.
COVID-19 Pandemic Threat and Continuity Plan
Due to current events involving the global COVID-19 pandemic, TSR, under the guidance of its President, is reviewing procedures to monitor current events as they relate to our business and to be prepared to respond to any potential threats or issues in order to protect the Company and its assets. We are also in the process of reviewing plans to locate a back office for our corporate records and information at a location to be designated so that in the event that access to the Company’s offices are restricted, the Company is able to continue with its business and operations.
The Company’s operations may be adversely affected by the ongoing outbreak of the coronavirus disease 2019 (COVID-19) which was declared a pandemic by the World Health Organization (“WHO”) in March 2020. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact on the TSR’s financial position, operations and cash flows.
Possible effects may include, but are not limited to, disruption to the Company’s operations, inability of management team members and other key personnel and consultants to provide services or provide services in a timely manner, unavailability of equipment, parts and supplies used in operations, lack of access to maintenance and repair facilities for the Company’s salvage vessel, and a decline in the value of the Company’s assets including its salvage vessel, equipment and its digital properties.
Additionally, it is possible that the Company is not able to obtain financing due to COVID-19’s effects on the general economy and the capital markets. If the Company is not able to obtain financing due to COVID-19 then it is highly likely that it will be forced to cease its operations. The impact of smaller companies such as TSR having to cease operations due to effects of COVID-19 would likely result in the Company not being able to survive and would cause a complete loss of all capital invested in the Company.
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Results of operations
We have incurred recurring losses to date. Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.
We will require additional capital to meet our long term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities. However, there can be no assurances that we will be able to raise additional capital. Based on its historical rate of expenditures, the Company expects to expend its available cash in less than three months from December 16, 2021.
Summary of the Six Months Ended October 31, 2021 Results of Operations Compared to the Six Month Period Ended October 31, 2020 Results of Operations
Revenue
The Company did not generate any revenue during the six month periods ended October 31, 2021 and 2020.
Operating Expenses
Operating expenses were $522,672 during the six month period ended October 31, 2021 versus $375,303 during the six month period ended October 31, 2020, a year-over-year increase of approximately 39%. The Company’s operating expenses increased mainly due to a substantial increase in boat expenses. The Company incurred boat expenses of $235,685 during the six month period ended October 31, 2021 as compared to boat expenses of $34,511 during the same period in 2020, an increase of approximately 582%. Boat expenses increased as a result of the Company expanding its operational footprint and spending significantly more time exploring for shipwrecks and related artifacts and treasure. Professional fees were $75,166 in 2021 versus $70,981 in 2020. Consulting and accounting fees were $72,558 in 2021 and $194,176 in 2020. Consulting fees decreased in 2021 due to fewer consulting services related to corporate business and corporate development activities. In 2021 general and administrative expenses were $63,556 and in 2020 they were $51,370. Research and development expenses were $8,000 in 2021 and $0 in 2020. Legal fees were $24,750 in 2021 and $0 in 2020. Legal fees increased in 2021 due to the engagement of outside legal counsel to assist with an offering filing and legal services related to the Company’s financings. Labor expenses were $35,692 in 2021 and $0 in 2020. Labor expenses increased due to increased activity in the Company’s core treasure salvage operations. Depreciation expenses were $7,265 in 2021 and $24,265 in 2020.
Other Income (Expenses)
Interest expense was $352,380 during the six month period ended October 31, 2021. There was no interest expense during the same period in 2020. The interest expense in 2021 was a result of the amortization of the interest relating to the beneficial conversion features of several convertible promissory notes. Other income was $0 during the six month period ended October 31, 2021 and $82,500 during the six month period ended October 31, 2020.
Net Loss
For the six month period ended October 31, 2021 the Company incurred net losses of $875,052 versus net losses of $292,803 for the six month period ended October 31, 2020.
Summary of the Three Months Ended October 31, 2021 Results of Operations Compared to the Three Month Period Ended October 31, 2020 Results of Operations
Revenue
The Company did not generate any revenue during the three month periods ended October 31, 2021 and 2020.
Operating Expenses
Operating expenses were $204,233 during the three month period ended October 31, 2021 versus $174,573 during the three month period ended October 31, 2020, a year-over-year increase of approximately 17%. The Company’s operating expenses increased mainly due to a substantial increase in boat expenses. The Company incurred boat expenses of $118,064 during the three month period ended October 31, 2021 as compared to boat expenses of $14,249 during the same period in 2020, an increase of approximately 728%. Boat expenses increased as a result of the Company expanding its operational footprint and spending significantly more time exploring for shipwrecks and related artifacts and treasure. Professional fees were $17,077 in 2021 versus $17,112 in 2020. Consulting and accounting fees were $22,150 in 2021 and $95,926 in 2020. Consulting fees decreased in 2021 due to fewer consulting services related to corporate business and corporate development activities. In 2021 general and administrative expenses were $21,222 and in 2020 they were $35,153. Research and development expenses were $8,000 in 2021 and $0 in 2020. Legal fees were $10,000 in 2021 and $0 in 2020. Legal fees increased in 2021 due to the engagement of outside legal counsel to assist with an offering filing and legal services related to the Company’s financings. Labor expenses were $4,087 in 2021 and $0 in 2020. Labor expenses increased due to increased activity in the Company’s core treasure salvage operations. Depreciation expenses were $3,633 in 2021 and $12,133 in 2020.
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Other Income (Expenses)
Interest expense was $180,710 during the three month period ended October 31, 2021. There was no interest expense during the same period in 2020. Other income was $0 during the three month period ended October 31, 2021 and $82,500 during the three month period ended October 31, 2020.
Net Loss
For the three month period ended October 31, 2021 the Company incurred net losses of $384,943 versus net losses of $92,073 for the three month period ended October 31, 2020.
Liquidity and capital resources
As at October 31, 2021, our total assets were $724,395.
As at October 31, 2021, our current liabilities were $462,733 and Stockholders’ equity was $261,662.
As of October 31, 2021 we had a net working capital deficit of $414,246.
Cash flows from operating activities
For the six month period ended October 31, 2021 net cash flows used in operating activities was $549,274.
For the six month period ended October 31, 2020 net cash flows used in operating activities was $191,038.
Cash flows from investing activities
There were no cash flows from investing activities for the six month period ended October 31, 2021 and 2020.
Cash flows from financing activities
For the six month period ended October 31, 2021 cash flows provided by financing activities were $360,000.
For the six month period ended October 31, 2020 cash flows provided by financing activities were $202,455.
Future Financings
We will continue to rely on equity sales of the Company’s common shares in order to continue to fund business operations. Issuances of additional shares will result in dilution to existing shareholders. There is no assurance that the Company will achieve any additional sales of equity securities or arrange for debt or other financing to fund planned operations. Future financing activities involving the sale of common stock under subscription agreements or entering into convertible promissory note agreements may cause substantial dilution to current shareholders. The Company has retained counsel and an outside sponsoring brokerage in September, 2021, for the preparation of a Reg-A for a financial raise which terms have not been set as of yet.
Liquidity and Capital Resources and Cash Requirements
As of the date of this report, the current funds available to the Company will not be sufficient to continue maintaining a reporting status. At October 31, 2021, the Company had a working capital deficit of $414,246. The Company is in immediate need of further working capital and is seeking options, with respect to financing, in the form of debt, equity or a combination thereof. Based on its historical rate of expenditures, the Company expects to expend its available cash in less than six months from December 15, 2021.
The Company may not be able to continue as a going concern. The report of our independent auditors for the years ended April 30, 2021 and 2020 raises substantial doubt as to our ability to continue as a going concern. If the Company is not able to continue as a going concern, it is highly likely that all capital invested in the Company will be lost.
Management believes that current trends toward lower capital investment in start-up companies pose the most significant challenge to the Company’s success over the next year and in future years. Additionally, the Company will have to meet all the financial disclosure and reporting requirements associated with being a publicly reporting company. The Company’s management will have to spend additional time on policies and procedures to make sure it is compliant with various regulatory requirements, especially that of Section 404 of the Sarbanes-Oxley Act of 2002. This additional corporate governance time required of management could limit the amount of time management has to implement its business plan and impede the speed of its operations.
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.
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Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
ITEM 4. CONTROLS AND PROCEDURES
Management’s Responsibility for Controls and Procedures
The Company’s management is responsible for establishing and maintaining adequate internal control over the Company’s financial reporting. The Company’s controls over financial reporting are designed under the supervision of the Company’s President and Principal Financial Officer to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our President and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, as of October 31, 2021. Based on this evaluation, management concluded that our financial disclosure controls and procedures were not effective so as to timely record, process, summarize and report financial information required to be included on our Securities and Exchange Commission (“SEC”) reports due to the Company’s limited internal resources and lack of ability to have multiple levels of transaction review. However, as a result of our evaluation and review process, management believes that the financial statements and other information presented herewith are materially correct.
Internal Control Over Financial Reporting
As of October 31, 2021, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our internal control over financial reporting, as defined in Rules 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 and based on the criteria for effective internal control described in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (as revised). Based on our evaluation, management concluded that our internal control over financial reporting was not effective so as to timely record, process, summarize and report financial information required to be included on our Securities and Exchange Commission (“SEC”) reports due to the Company’s limited internal resources and lack of ability to have multiple levels of transaction review. However, as a result of our evaluation and review process, management believes that the financial statements and other information presented herewith are materially correct.
The management including its Principal Executive Officer/Principal Financial Officer, does not expect that its disclosure controls and procedures, or its internal controls over financial reporting will prevent all error and all fraud. A control system no matter how well conceived and operated, can provide only reasonable not absolute assurance that the objectives of the control system are met. Further, the design of the control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs.
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Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
The Company has limited resources and as a result, a material weakness in financial reporting currently exists, because of our limited resources and personnel, including those described below.
| * | The Company has an insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis. |
| * | We have not achieved the optimal level of segregation of duties relative to key financial reporting functions. |
| * | We do not have an audit committee or an independent audit committee financial expert. While not being legally obligated to have an audit committee or independent audit committee financial expert, it is Management’s view that to have an audit committee, comprised of independent board members, and an independent audit committee financial expert is an important entity-level control over the Company’s financial statements. As of October 1, 2021, two outside directors were appointed who shall serve as an audit committee going forward for future filings. |
A material weakness is a deficiency (within the meaning of the PCAOB auditing standard 5 or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has determined that a material weakness exists due to a lack of segregation of duties, resulting from the Company’s limited resources and personnel.
Remediation Efforts to Address Deficiencies in Internal Control Over Financial Reporting
As a result of these findings, management, upon obtaining sufficient capital and operations, intends to take practical, cost-effective steps in implementing internal controls, including the possible remedial measures set forth below. As of October 31, 2021, we did not have sufficient capital and/or operations to implement any of the remedial measures described below.
| * | Assessing the current duties of existing personnel and consultants, assigning additional duties to existing personnel and consultants, and, in a cost effective manner, potentially hiring additional personnel to assist with the preparation of the Company’s financial statements to allow for proper segregation of duties, as well as additional resources for control documentation. |
| * | Assessing the duties of the existing officers of the Company and, in a cost effective manner, possibly promote or hire additional personnel to diversify duties and responsibilities of such executive officers. |
| * | Board to review and make recommendations to shareholders concerning the composition of the Board of Directors, with particular focus on issues of independence. The Board of Directors will consider nominating an audit committee and audit committee financial expert, which may or may not consist of independent members. |
| * | Interviewing and potentially hiring outside consultants that are experts in designing internal controls over financial reporting based on criteria established in Internal Control Integrated Framework issued by Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (as revised). |
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.
(b) Change in Internal Control Over Financial Reporting
The Company has not made any change in our internal control over financial reporting during the six month period ended October 31, 2021.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not aware of any pending or threatened litigation against us.
On November 9, 2019, the Company filed a declaratory action in the Sixth Judicial Circuit Court for Pinellas County, Florida for the purpose of obtaining a judicial declaratory judgment as to the Company’s status under the Securities laws as to whether the Company has ever been a “Shell” Company under the Securities Laws. Pursuant to Chapter 86 of the Florida Statutes the Court will render a decision whether the Company had ever met the definition of being a shell company under Rule 405 of the Securities Act, so that all shareholders would be able to utilize Rule 144, and otherwise be able to enjoy complete ownership and sale of such shares. Such matter has been abandoned because no further shell accusation has been raised by any outside agency or firm.
ITEM 1A. RISK FACTORS
Not required.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company issued the following shares of restricted common stock during the six months ended October 31, 2021:
| - | 800,000 shares total financing fees for six convertible promissory notes with an approximate value of $201,500 based on the price of the Company’s stock on the date of the issuance of the shares; and |
| - | 350,000 compensatory shares to six separate parties with an approximate value of $133,000 based on the price of the Company’s stock on the date of the issuance of the shares. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following exhibits are included as part of this report by reference:
| 31.1 | Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a). |
| 32.1 | Certifications pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. |
| 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| Treasure & Shipwreck Recovery, Inc. | ||
| Date: December 27, 2021 | By: | /s/ Craig Huffman |
Craig Huffman President, Chief Financial Officer and Principal Accounting Officer (Principal Executive Officer and Principal Accounting Officer) | ||
| Date: December 27, 2021 | By: | /s/ Frederick Conte |
Frederick Conte Director |
||
| Date: December 27, 2021 | By: | /s/ Patrick Schneider |
Patrick Schneider Director |
||
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