NAPD 10-Q/A
NAPC Defense, Inc. (NAPD)
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For
the quarterly period ended
For the transition period from __________ to __________
Commission
file number
Formerly Beliss Corp. |
| (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 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 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 September 19, 2022.
1
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 |
2
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.
3
| Treasure & Shipwreck Recovery, Inc. |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
| As of July 31, 2022 and April 30, 2022 |
| July 31, 2022 (Unaudited) | April 30, 2022 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Total current assets | ||||||||
| Fixed Assets | ||||||||
| Fixed assets, net of depreciation | ||||||||
| Total fixed assets | ||||||||
| Other Assets | ||||||||
| Security deposit | ||||||||
| Total other assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| 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’ Deficit | ||||||||
| Preferred stock, $ par value; shares authorized, shares issued and outstanding. | ||||||||
| Common stock, par value $; shares authorized, and shares issued at July 31, 2022 and April 30, 2022, respectively | ||||||||
| Common stock to be issued | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
See accompanying notes, which are an integral part of these unaudited condensed consolidated financial statements
4
| Treasure & Shipwreck Recovery, Inc. |
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
| Three months ended July 31, 2022 and 2021 |
| (Unaudited) |
| Three months ended July 31, 2022 (Unaudited) | Three months ended July 31, 2021 (Unaudited) | |||||||
| REVENUES | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross profit | ||||||||
| OPERATING EXPENSES | ||||||||
| Boat expenses | ||||||||
| Professional fees | ||||||||
| Consulting and accounting | ||||||||
| General and administrative expenses | ||||||||
| Research and Development | ||||||||
| Legal Fees | ||||||||
| Labor | ||||||||
| Depreciation | ||||||||
| TOTAL OPERATING EXPENSES | ||||||||
| NET LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| OTHER EXPENSES | ||||||||
| Interest expense | ||||||||
| NET LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ||||
| Provision for income taxes | ||||||||
| 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
5
| Treasure & Shipwreck Recovery, Inc. |
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES TO STOCKHOLDERS’ DEFICIT |
| Three months ended July 31, 2022 and 2021 |
| (Unaudited) |
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Common Stock to be Issued | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders’ Deficit | |||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Common Stock to be Issued | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders’ Deficit | |||||||||||||||||||||||||
| Balance, April 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Sale of common stock | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, July 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
See accompanying notes, which are an integral part of these unaudited condensed consolidated financial statements
6
| Treasure & Shipwreck Recovery, Inc. |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| Three months ended July 31, 2022 and 2021 |
| Three months ended July 31, 2022 (Unaudited) | Three months ended July 31, 2021 (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 discount | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Security deposits | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ( | ) | ||||||
| CASH FLOWS USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from sale of common stock | ||||||||
| Proceed from sales of convertible notes | ||||||||
| CASH FLOWS PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET CHANGE 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
7
Treasure & Shipwreck Recovery, Inc.
NOTES TO THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
July 31, 2022
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. The Company was originally focused on the development of high impact internet marketing, search engine optimization (“SEO”) software and techniques, and the development of digital properties (collectively “Internet Marketing”).
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 September 19, 2022. 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 July 31, 2022, the Company had net working
capital 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.
8
Treasure & Shipwreck Recovery, Inc.
NOTES TO THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
July 31, 2022
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.
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.
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 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
For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments and short-term debt instruments with original maturities of three months or less to be cash equivalents.
There
were no cash equivalents at July 31, 2022 and April 30, 2022. 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 $
9
Treasure & Shipwreck Recovery, Inc.
NOTES TO THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
July 31, 2022
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.
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.
The Company has adopted the Financial Accounting Standards Board (“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 July 31, 2022 and 2021 were excluded from the dilutive loss per share calculation as they would be antidilutive due to the net loss. As of July 31, 2022 and 2021, there were and 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. They are being depreciated over three to twelve year useful lives.
10
Treasure & Shipwreck Recovery, Inc.
NOTES TO THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
July 31, 2022
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. Identified intangible assets are reviewed for impairment at least annually, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
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 consolidated 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.
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.
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.
11
Treasure & Shipwreck Recovery, Inc.
NOTES TO THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
July 31, 2022
Note 4 – FIXED ASSETS
Fixed assets at July 31 and April 30, 2022 are summarized below:
| Fixed Assets | July 31, 2022 | April 30, 2022 | ||||||
| Diving Vessel | $ | $ | ||||||
| Magnetometer | ||||||||
| Accumulated Depreciation | ( | ) | ( | ) | ||||
| Fixed Assets, Net | $ | $ | ||||||
Depreciation
expense was $
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. At April 30, 2022, the Company wrote down the balance to $0 and recorded an impairment loss of $636,000.
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 $
On April 20, 2022, the Company entered into a convertible note payable with an individual who is a member of the Company’s Board of Directors. The note payable, with a face value of $50,000, bears interest at 10.0% per annum and is due on July 21, 2022. The convertible note payable is convertible upon default, at the note holder’s option, into the Company’s common shares at a fixed conversation rate of $0.05. 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. This convertible promissory note is currently in default due to non payment of principal and interest.
12
Treasure & Shipwreck Recovery, Inc.
NOTES TO THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
July 31, 2022
Short Term Loans
As
of July 31 and April 30, 2022, the Company had loans totaling $
Convertible Notes Payable
The following table reflects the convertible notes payable as of July 31, 2022 and April 30, 2022:
| Issue Date | Maturity
Date |
July
31, 2022 Principal Balance |
April
30, 2022 Principal Balance |
Rate | Conversion
Price | |||||||||||||
| Convertible notes payable | ||||||||||||||||||
| $ | $ | % | ||||||||||||||||
| % | ||||||||||||||||||
| % | ||||||||||||||||||
| % | ||||||||||||||||||
| % | ||||||||||||||||||
| % | ||||||||||||||||||
| $ | % | |||||||||||||||||
| Face value | ||||||||||||||||||
| Less unamortized discounts | ||||||||||||||||||
| Balance convertible notes payable | $ | $ | ||||||||||||||||
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 quarter ended July 31, 2022 and year ended April 30, 2022, the Company recognized beneficial conversion features totaling $0 and $479,579, 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 $21,114 and $145,409 for the quarters ended July 31, 2022 and 2021, respectively.
13
Treasure & Shipwreck Recovery, Inc.
NOTES TO THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
July 31, 2022
New Convertible Notes Payable Issued During the Three Month Periods Ended July 31, 2022 and 2021
2022
The Company did not enter into any new convertible note payable agreements during the three month period ended July 31, 2022.
2021
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, 2023. 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, 2023. 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, 2023. 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.
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 three month period ended July 31, 2022, the Company issued or was to issue the following shares of restricted common stock:
| - |
shares of restricted common stock issued for cash in the amount of $ |
During the three month period ended July 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. |
14
Treasure & Shipwreck Recovery, Inc.
NOTES TO THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
July 31, 2022
The Company is in the process of canceling the shares issued to an individual from the canceled 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 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 July 31, 2022, the Company had shares of Series A preferred shares outstanding.
Warrants
At April 30, 2022 there were 1,255,667 warrants outstanding with a weighted average exercise price of $0.25, weighted average reaming life of 5 years and an average intrinsic value of $0.11. There were no warrants granted during the three month period ended July 31, 2022. A total of 282,667 warrants expired during the three month period ended ended July 31, 2022. At July 31, 2022, there were 973,000 warrants with a weighted average exercise price of $0.25, weighted average reaming life of 4.75 years, and an average intrinsic value of $0.11.
Note 8 – COMMITMENTS AND CONTINGENCIES
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.
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Treasure & Shipwreck Recovery, Inc.
NOTES TO THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
July 31, 2022
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.
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.
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Treasure & Shipwreck Recovery, Inc.
NOTES TO THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
July 31, 2022
Note 9 – RELATED PARTY TRANSACTIONS
As
of July 31, 2022, 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 September 19, 2022, the date the consolidated financial statements were available to be issued. There are no subsequent events to report.
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ITEM 2. MANAGEMENT’S 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.
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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.
Legal Proceedings
The Company is not a party to any legal proceeding nor is it aware of any pending or threatened litigation against us.
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 September 19, 2022.
Summary of the Three Months Ended July 31, 2022 Results of Operations Compared to the Three Month Period Ended July 31, 2021 Results of Operations
Revenue
The Company did not generate any revenue during the three month periods ended July 31, 2022 and 2021.
Operating Expenses
Operating expenses were $107,253 during the three month period ended July 31, 2022 versus $318,439 during the three month period ended July 31, 2021, a year-over-year decrease of approximately 66%. The Company incurred boat expenses of $34,465 during the three month period ended July 31, 2022 as compared to boat expenses of $117,621 during the same period in 2021, a decrease of approximately 71%. Professional fees were $20,088 in 2022 versus $58,089 in 2021, a decrease of approximately 65%. Consulting and accounting fees were $23,486 in 2022 and $50,408 in 2021, a decrease of nearly 53%. In 2022 general and administrative expenses were $13,581 and in 2021 they were $42,333, a decrease of approximately 68%. There were no research and development expenses in 2022 and in 2021 there were $20,000 in research and development expenses. Legal fees were $12,000 in 2022 and $14,750 in 2021, a year-over-year decrease of approximately 19%. There were no labor expenses during the three month period ended July 31, 2022 and $11,605 in 2021. Depreciation expenses were $3,633 in 2022 and 2021. Operating expenses decreased in 2022 because the Company had expended significant resources to purchase equipment, gear and related items for its exploration vessel as well as to set up its operations in 2021. Furthermore, the Company is working with a new operations and diving partner that is more cost effective than previous partners.
Other Income (Expenses)
Interest expense was $41,106 during the three month period ended July 31, 2022 and $171,670 during the three month period ended July 31, 2021, a decrease of 76%. During the three month period ended July 31, 2021 the Company entered into three convertible note agreements and during the period ended July 31, 2021 there were no new convertible notes requiring amortization of their beneficial conversion features. The decrease in interest expense in 2022 was a result of the amortization of the interest relating to the beneficial conversion features of several convertible promissory notes having more amortization in 2021 than in 2022.
Net Loss
For the three month period ended July 31, 2022 the Company incurred net losses of $148,359 versus net losses of $490,109 for the three month period ended July 31, 2021, a year-over-year decrease of approximately 70%,
Liquidity and capital resources
As at July 31, 2022, our total assets were $23,526.
As at July 31, 2022, our current liabilities were $992,825 and Stockholders’ deficit was $969,299.
As of July 31, 2022 we had a net working deficit of $988,310.
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Cash flows from operating activities
For the three months ended July 31, 2022 net cash flows used in operating activities was $92,488.
For the three months ended July 31, 2021 net cash flows used in operating activities was $354,674.
Cash flows from investing activities
For the three months ended July 31, 2022 net cash flow used in investing activities was $0.
For the three months ended July 31, 2021 net cash flow used in investing activities was $0.
Cash flows from financing activities
For the three months ended July 31, 2022 we have generated $50,000 in cash flows from financing activities.
For the three months ended July 31, 2021 we have generated $400,000 in cash flows from financing activities.
We qualify as a “smaller reporting company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.
For example, smaller reporting companies are not required to provide a compensation discussion and analysis under Item 402(b) of Regulation S-K or the auditor attestation of internal controls over financial reporting.
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.
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 July 31, 2022, the Company had a working capital deficit of $988,310. 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 three months from September 19, 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, 2022 and 2021 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 July 31, 2022. 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 July 31, 2022, 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.
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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.
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 managements 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. |
A material weakness is a deficiency (within the meaning of the Public Company Accounting Oversight Board (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 July 31, 2022, 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). |
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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 three month period ended July 31, 2022.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not presently involved in any litigation nor is it aware of any pending or threatened litigation against us.
ITEM 1A. RISK FACTORS
Not required.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
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:
| 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: September 26, 2022 | By: | /s/ Craig Huffman |
Craig Huffman President, Chief Financial Officer and Principal Accounting Officer (Principal Executive Officer and Principal Accounting Officer) | ||
| Date: September 26, 2022 | By: | /s/ Patrick Schneider |
Patrick Schieder Director | ||
| Date: September 26, 2022 | By: | /s/ Frederick Conte |
Frederick Conte Director | ||
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