10-Q 1 crtg20230630_10q.htm FORM 10-Q crtg20230630_10q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2023

 

OR

 

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

COMMISSION FILE NUMBER 000-54697

 

THE CORETEC GROUP INC. 

(Exact Name of small business issuer as specified in its charter)

 

Oklahoma

73-1479206

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

600 S. Wagner Rd., Ann Arbor, MI 48103

(Address of principal executive offices) (Zip Code)

 

 

(866) 916-0833

 
 

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange on Which

Registered

None

 

None

 

None

 

Indicate by check mark whether the registrant (1) has filed 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. ☒ Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b- 2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

     

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐

 

As of August 11, 2023, the issuer had 284,104,032 outstanding shares of Common Stock.

 

 

 

 

 

TABLE OF CONTENTS

 

   

Page 

 

PART I – Financial Information

 

Item 1.

Financial Statements.

F-1

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

3

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

13

Item 4.

Controls and Procedures.

13

 

PART II – Other Information

 

Item 1.

Legal Proceedings.

14

Item 1A.

Risk Factors.

14

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

14

Item 3.

Defaults Upon Senior Securities.

14

Item 4.

Mine Safety Disclosure.

14

Item 5.

Other Information.

14

Item 6.

Exhibits.

15

SIGNATURES

16

 

2

 
 

PART I

 

Item 1.

Financial Statements.

 

 

 

THE CORETEC GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

   

June 30, 2023

   

December 31, 2022

 

Assets

               
Current assets:                

Cash

  $ 1,449,993     $ 2,356,348  

Prepaid expenses

    31,479       114,201  

Total current assets

    1,481,472       2,470,549  
                 

Property and equipment, net

    110,090       73,462  
                 
Other assets:                

Intangibles, net

    865,660       906,975  

Goodwill

    166,000       166,000  

Deposits-other

    4,550       4,550  

Total other assets

    1,036,210       1,077,525  

Total Assets

  $ 2,627,772     $ 3,621,536  
                 

Liabilities and Stockholders' Equity

               
Current liabilities:                

Notes payable

  $ -     $ 61,398  

Accounts payable and accrued expenses

    314,436       316,992  

Total current liabilities

    314,436       378,390  
                 

Long term debt, net

    1,447,358       1,414,826  

Total Liabilities

    1,761,794       1,793,216  
                 
Stockholders' equity:                

Preferred stock, Series A convertible, $0.0002 par value, 500,000 shares authorized; 345,000 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

    69       69  

Common stock $0.0002 par value, 1,500,000,000 shares authorized; 283,175,872 and 268,871,202 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

    56,633       53,772  

Additional paid-in capital

    18,136,268       18,119,792  

Accumulated deficit

    (17,326,992 )     (16,345,313 )

Total Stockholders' Equity

    865,978       1,828,320  

Total Liabilities and Stockholders' Equity

  $ 2,627,772     $ 3,621,536  

 

 

See notes to unaudited condensed consolidated financial statements

 

F-1

 

 

 

THE CORETEC GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2023

   

2022

   

2023

   

2022

 

Income:

                               

Revenue

  $ -     $ -     $ -     $ -  
                                 

Expenses:

                               

Research and development

    121,445       121,862       233,348       320,356  

General and administrative

    305,796       438,136       652,990       871,458  

Interest

    52,849       47,451       106,929       95,442  

Total expenses

    480,090       607,449       993,267       1,287,256  
                                 

Other income

    5,795       480       11,588       946  
                                 

Net loss

    (474,295 )     (606,969 )     (981,679 )     (1,286,310 )
Loss per share:                                

Basic and diluted

  $ (0.002 )   $ (0.002 )   $ (0.004 )   $ (0.005 )
                                 

Weighted average shares outstanding, basic and diluted

    275,885,045       255,422,376       272,378,123       255,905,052  

 

 

See notes to unaudited condensed consolidated financial statements

 

F-2

 

 

 

THE CORETEC GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2023 and SIX MONTHS ENDED JUNE 30, 2022

(unaudited)

 

   

Series A Preferred Stock

   

Common Stock

   

Additional

                 
           

Par

           

Par

   

Paid-In

   

Accumulated

         
   

Shares

   

Value

   

Shares

   

Value

   

Capital

   

Deficit

   

Total

 
                                                         

Balance December 31, 2022

    345,000     $ 69       268,871,202     $ 53,772     $ 18,119,792     $ (16,345,313 )   $ 1,828,320  

Net loss for the period

    -       -       -       -       -       (507,384 )     (507,384 )

Balance March 31, 2023

    345,000     $ 69       268,871,202     $ 53,772     $ 18,119,792     $ (16,852,697 )   $ 1,320,936  
                                                         

Common stock issued for liabilities

    -       -       1,804,670       361       17,726       -       18,087  

Warrants exercised

    -       -       12,500,000       2,500       (1,250 )     -       1,250  

Net loss for the period

    -       -       -       -       -       (474,295 )     (474,295 )

Balance June 30, 2023

    345,000     $ 69       283,175,872     $ 56,633     $ 18,136,268     $ (17,326,992 )   $ 865,978  
                                                         

Balance December 31, 2021

    345,000     $ 69       254,055,581     $ 50,809     $ 17,295,262     $ (13,481,989 )   $ 3,864,151  

Options issued for compensation and services

    -       -       -       -       70,973       -       70,973  

Common stock issued for liabilities

    -       -       660,210       132       17,166       -       17,298  

Exchange of stock options for common stock

    -       -       900,000       180       (180 )     -       -  

Net loss for the period

    -       -       -       -       -       (679,341 )     (679,341 )

Balance March 31, 2022

    345,000     $ 69       255,615,791     $ 51,121     $ 17,383,221     $ (14,161,330 )   $ 3,273,081  
                                                         

Common stock issued for liabilities

    -       -       867,782       174       20,393       -       20,567  

Options issued for compensation and services

    -       -       -       -       18,723       -       18,723  

Net loss for the period

    -       -       -       -       -       (606,969 )     (606,969 )

Balance June 30, 2022

    345,000     $ 69       256,483,573     $ 51,295     $ 17,422,337     $ (14,768,299 )   $ 2,705,402  

 

 

See notes to unaudited condensed consolidated financial statements

 

F-3

 

 

 

THE CORETEC GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

   

Six Months Ended June 30,

 
                 
   

2023

   

2022

 

Cash Flows from Operating Activities

               

Net loss

  $ (981,679 )   $ (1,286,310 )

Adjustments to reconcile net loss to net cash used in operating activities:

         

Depreciation

    4,746       2,223  

Amortization - intangibles

    41,315       41,315  

Amortization - debt discount

    32,532       29,349  

Options issued for services

    -       89,696  
Change in:                

Prepaid expenses

    82,722       62,021  

Deposits

    -       11,793  

Accounts payable and accrued liabilities

    15,531       173,981  
                 

Net cash used in operating activities

    (804,833 )     (875,932 )
                 

Cash Flows from Investing Activities

               

Purchases of equipment

    (41,374 )     (73,282 )
                 

Cash Flows from Financing Activities

               

Payments on notes payable

    (61,398 )     -  

Proceeds from exercised warrants

    1,250       -  

Net cash used in financing activities

    (60,148 )     -  
                 

Net change in cash

    (906,355 )     (949,214 )

Cash, beginning of period

    2,356,348       4,053,327  
                 

Cash, end of period

  $ 1,449,993     $ 3,104,113  
                 

Supplemental Disclosure of Cash flow Information

               

Cash paid during the period for interest

  $ 68,359     $ 65,196  

Non-Cash Financing Activities

               
Stock options exchanged for common stock   $ -     $ 180  

Common stock issued to satisfy liabilities

  $ 18,087     $ 37,865  

 

 

See notes to unaudited condensed consolidated financial statements

 

F-4

 

 

THE CORETEC GROUP INC. 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

Note 1 Business Organization, Nature of Business and Basis of Presentation  

 

Nature of Business

 

The Coretec Group Inc. (the “Group”) (formerly 3DIcon Corporation) (“3DIcon”) was incorporated on August 11, 1995, under the laws of the State of Oklahoma as First Keating Corporation. The articles of incorporation were amended August 1, 2003 to change the name to 3DIcon Corporation. During 2001, First Keating Corporation began to focus on the development of 360-degree holographic technology. From January 1, 2001, 3DIcon’s primary activity has been the raising of capital in order to pursue its goal of becoming a significant participant in the development, commercialization and marketing of next generation 3D display technologies.

 

Coretec Industries, LLC (“Coretec”), is a wholly owned subsidiary of the Group (collectively the “Company”). The Company is currently developing, testing, and providing new and/or improved technologies, products, and service solutions for energy-related industries including, but not limited to oil/gas, renewable energy, and distributed energy industries. Many of these technologies and products also have application for medical, electronic, photonic, display, and lighting markets among others. Early adoption of these technologies and products is anticipated in markets for energy storage (Li-ion batteries), renewable energy (BIPV), and electronics (Asset Monitoring).

 

Reverse Acquisition

 

On May 31, 2016, the Group entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Coretec and four Coretec members (the “Members”), which Members held all outstanding membership interests in Coretec. On September 30, 2016 (the “Closing Date”), the Group closed the transaction contemplated by the Share Exchange Agreement. Pursuant to the Share Exchange Agreement, the Members agreed to sell all their membership interests in Coretec to the Group in exchange for the Group’s issuance of an aggregate 4,760,872 shares of the Group’s Series B Convertible Preferred Stock to the Members (the “Exchange”). Coretec became a wholly owned subsidiary of the Group and the former Members beneficially owned approximately 65% of the Group’s common stock on a fully diluted basis on the Closing Date. Upon the closing of the Share Exchange Agreement, two of the Group’s Directors resigned and three new Directors associated with Coretec were nominated and elected, giving control of the board of directors to former Coretec Members.

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements of the Company have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures made are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company’s year-end audited consolidated financial statements and related footnotes included in the previously filed Form 10-K, and in the opinion of management, reflects all adjustments necessary to present fairly the consolidated financial position of the Company. The consolidated results of operations for interim periods may not be indicative of the results which may be realized for the full year.

 

 

Note 2 Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Group and its wholly owned subsidiary, Coretec. Intercompany transactions and balances have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. Actual results could differ from the estimates and assumptions used.

 

F-5

 

 

Intangibles

 

Intangible assets consist of purchased patents and capitalized website costs. Intangible assets are recorded at the fair value as of the date of acquisition, and intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives.

 

Goodwill

 

Goodwill was acquired with the reverse acquisition. The Company evaluates the carrying value of goodwill on an annual basis and if events occur or circumstances change that would more likely than not reduce the fair value of goodwill below its carrying amount. When assessing whether goodwill is impaired, management considers first a qualitative approach to evaluate whether it is more likely than not the fair value of the goodwill is below its carrying amount; if so, management considers a quantitative approach by analyzing changes in performance and market-based metrics as compared to those used at the time of the initial acquisition. For the periods presented, no impairment charges were recognized.

 

Property and Equipment

 

Property and equipment are recorded at cost. Depreciation is recorded over the estimated useful lives using the straight-line method. Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized.

 

Estimated useful lives of property and equipment are as follows for the major classes of assets:

 

Asset Description

  Estimated

Lives (years)

 

Furniture and fixtures

    7  

Equipment

    7  

 

Impairment of Long-Lived Assets

 

Long-lived assets, such as intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

 

Fair Value of Financial Instruments

 

The following methods and assumptions were used to estimate the fair value of each class of financial instrument held by the Company:

 

Current assets and current liabilities - The carrying value approximates fair value due to the short maturity of these items.

 

Notes payable - The fair value of the Company's notes payable has been estimated by the Company based upon the liability's characteristics, including interest rates, embedded instruments and conversion discounts. The carrying value approximates fair value after taking into consideration the liability’s characteristics.

 

F-6

 

 

Basic and Diluted Loss Per Common Share

 

Basic loss per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock. The following securities are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:

 

   

June 30,

 
   

2023

   

2022

 

Options

    77,158,160       53,158,160  

Warrants

    120,014,000       142,604,000  

Series A convertible preferred stock

    115,000       115,000  

Convertible debt

    45,155,537       39,836,388  

Total potentially dilutive shares

    242,442,697       235,713,548  

 

Research and Development

 

Research and development costs are expensed as incurred.

 

Income Taxes

 

The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in tax laws or rates. The effect on deferred tax assets and liabilities of a change in tax rates will be recognized as income or expense in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

The Company’s tax benefits are fully offset by a valuation allowance due to the uncertainty that the deferred tax assets would be realized. Management considers the likelihood of changes by taxing authorities in its filed income tax returns and recognizes a liability for or discloses potential changes that management believes are more likely than not to occur upon examination by tax authorities. Management has not identified any uncertain tax positions in filed income tax returns that require recognition or disclosure in the accompanying consolidated financial statements.

 

F-7

 

 

 

Note 3 Financing, Going Concern and Managements Plans

 

The Company has committed capital and resources to fund current development plans through March 31, 2024.

 

The Company has realized a cumulative net loss of $17,326,992 for the period from its inception (June 2, 2015) to June 30, 2023.

The company has positive working capital of $1,167,036 as of June 30, 2023; however, it has no revenues.

 

Beyond a year following the issuance of these condensed consolidated financial statements, the Company has insufficient revenue and capital commitments to fund the development of its planned products, pay current operating expenses and debt commitments. These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern for a year following the issuance of these condensed consolidated financial statements.

 

The ability of the Company to continue as a going concern depends on the successful completion of the Company's capital raising efforts to fund the development of its planned products. The Company intends to continue to raise additional capital through debt and equity financings. There is no assurance that these funds will be sufficient to enable the Company to fully complete its development activities or attain profitable operations. If the Company is unable to obtain such additional financing on a timely basis or, notwithstanding any request the Company may make, the Company’s debt holders do not agree to convert their notes into equity or extend the maturity dates of their notes, the Company may have to curtail its development, marketing and promotional activities, which would have a material adverse effect on the Company’s business, financial condition and results of operations, and ultimately the Company could be forced to discontinue its operations and liquidate.

 

The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplates the continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the condensed consolidated financial statements do not necessarily purport to represent realizable or settlement values. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

Note 4 Intangibles

 

The following table sets forth patents:

 

   

June 30,

   

December 31,

 

Patents

 

2023

   

2022

 

Gross Carrying Amount

  $ 1,400,000     $ 1,400,000  

Accumulated Amortization

    (541,547 )     (501,433 )
    $ 858,453     $ 898,567  

 

The patents were obtained with the September 30, 2016 reverse acquisition of the 3DIcon Corporation. Amortization expense for the next five fiscal years and thereafter is expected to be approximately $80,000 annually through the year ended December 31, 2034.

 

Intangible assets include $12,007 of capitalized website costs during 2021. Accumulated amortization was $4,800 and $3,600 as of June 30, 2023 and December 31, 2022, respectively. Amortization expense is expected to be recorded at $200 each month through June 30, 2026.

 

F-8

 

 

 

Note 5 Notes Payable 

 

   

June 30,

   

December 31,

 
   

2023

   

2022

 

Notes payable:

               

5.26% Insurance premium finance agreement due June 2023

  $ -     $ 61,398  

Current portion of long term debt

    -       -  

Notes payable - current

  $ -     $ 61,398  
                 

Long term debt:

               

10% Promissory note due March 2024

  $ 1,485,617     $ 1,485,617  
Less:                

Warrants issued

    (27,897 )     (51,755 )

Debt issuance costs

    (10,362 )     (19,036 )

Total long term debt

  $ 1,447,358     $ 1,414,826  

 

10% Promissory note due January 2024, net

 

On October 4, 2019, the Company entered into a Credit Agreement and related Promissory Note with Diversified Alpha Fund of Navigator Global Fund Manager Platform SPC (“DAF”), the Lender. DAF is a segregated portfolio fund of Navigator Global Fund Manager Platform SPC. DAF is managed and controlled by Mollitium Investment Management (Mollitium). Mollitium utilizes Diversified Global Investment Advisors Ltd. (“DGIA”) to act in an advisory role. DGIA maintains an Investment Committee to support the services to Mollitium. Simon Calton serves as part of this five-member investment committee and in accordance with the investment committee’s guidelines, Mr. Calton does not participate in matters or voting that pertain to the Company due to his conflict of interest. Investment advice provided by DGIA to Mollitium are recommendations only and the final decision on actions are the responsibility of Mollitium. Carlton James Global Management, Ltd (CJGM) serves as a distributer of investments by introducing funds available to the market of which DAF is included in CJGM’s group of funds. Compensation to CJGM occurs when investments are made into funds that they introduce. CJGM is part of the Carlton James Group of which Mr. Calton is CEO.

 

The 10% Promissory Note, in a principal amount of $2,500,000, is due on the 15th day of the 4th anniversary of each advance with the first capital payment due on July 15, 2024. The Promissory Note has attached warrants to subscribe for and purchase 3,000,000 shares of common stock at an exercise price of $0.052 per share. Under the terms of the Credit Agreement, DAF will fund the Promissory Note in sixteen (16) tranches in amounts of $125,000 and $175,000 per month beginning in October 2019. The funding of the Promissory Note is at the discretion of DAF and may differ from the planned schedule. As of June 30, 2023, DAF has advanced $2,345,000 with no definitive date or commitment to advance the remaining $155,000. Interest is accrued monthly and paid in advance for the first six months and thereafter interest only payments shall be paid quarterly.

 

On November 16, 2021, the Company countersigned a letter of variation (the Variation) to the credit agreement entered into on October 4, 2019, with DAF. Pursuant to the Variation, the Lender agreed to extend the repayment days for each advance made by Lender under the credit agreement until the fourth anniversary of such advance. DAF has also communicated to the Company that interest only payments are due on a quarterly basis, commencing in January of 2022.

 

On May 12, 2023, the Company countersigned a second letter of variation (the Second Variation) to the credit agreement entered into on October 4, 2019, with DAF. Pursuant to the Second Variation, the Lender agreed to extend the repayment days for each advance made by Lender under the credit agreement by an additional four months. The first principal payment will be due on July 15, 2024 with all other terms and conditions of the credit facility remaining unchanged.

 

Under the terms of the Credit Agreement, DAF has the right to elect to convert all or part of the Promissory Note at a price equal to seventy percent (70%) of the average closing price of the Company’s common stock as reported on the over-the-counter quotation system on the OTC Markets during the fifteen (15) calendar days prior to the loan closing date of October 4, 2019, which calculates to $0.0329 per share.

 

F-9

 

 

Under the terms of the Credit Agreement, warrants to subscribe for and purchase 3,000,000 shares of common stock at an exercise price of $0.052 per share were issued to DAF. The estimated value of the warrants granted monthly, with each advance, is calculated using the Black-Scholes option pricing model. The resulting estimated value of the warrant is used to proportionally allocate the fair value of the debt advance and the fair value of the warrants.

 

There were no warrants issued under the Credit Agreement during the six months ended June 30, 2023 and 2022. The Company amortized $23,858 and $22,514 for prior warrant issue costs during the six months ended June 30, 2023 and 2022, respectively.

 

Additionally, under the terms of the Credit Agreement, the Company agreed to pay a commitment fee of 3% of each advance and reimburse DAF for certain expenses in connection with the preparation, interpretation, performance and enforcement of the Credit Agreement. Those costs are being amortized over the life of the debt. The Company amortized with $8,674 and $6,835 during the six months ended June 30, 2023 and 2022, respectively.

 

Interest payments were made to DAF of $68,359 and $65,196 during the six months ended June 30, 2023 and 2022, respectively.

 

 

Note 6 Common Stock, Preferred Stock, Warrants and Options

 

Common Stock

 

On June 8, 2020, the Board of Directors consented to a share exchange agreement with holders of 21,500,000 options awarded on August 7, 2019. The agreement allows for holders to exchange their options for rule 144 common stock at an exchange rate of 0.6 shares per 1 option. Under the exchange agreement, 9,500,000 options have been exchanged for 5,700,000 shares of common stock as of June 30, 2023 and December 31, 2022.

 

On October 22, 2020, the Board of Directors consented to satisfying accrued liabilities of vendors by issuing common stock from the 2018 Equity Incentive Plan from August 26, 2020 through September 1, 2021. The number of shares issued to satisfy a liability was determined by the average closing price for the fifteen (15) days prior to conversion at a discount rate of 50% to that fifteen (15) day average. On November 10, 2021, the Board of Directors consented to continue this practice through September 1, 2022. As part of this written consent, the Board of Directors included the use of both the 2018 and 2021 Equity Incentive Plans. On October 14, 2022 the Board of Directors further consented to extend this practice through September 1, 2023. The Company issued 1,804,670 shares under this consent for the six months ended June 30, 2023 and 1,527,992 shares for the six months ended June 30, 2022.

 

F-10

 

 

Warrants

 

Warrants to subscribe for and purchase up to 3,000,000 shares of common stock at an exercise price of $0.052 per share were included under the terms of the DAF Credit Agreement. The warrants will be issued in amounts of 150,000 and 210,000 per month during the funding period. In the event that funding advances deviate from the planned schedule then warrants will be issued pro-rata at 1.2 warrants for every $1 of funding. Warrants granted under the terms of the DAF Credit Agreement total 2,814,000 as of June 30, 2023 and December 31, 2022, respectively. The estimated value of the warrants granted monthly, with each advance, is calculated using the Black-Scholes option pricing model. The expected dividend yield is based on the average annual dividend yield as of the grant date. Expected volatility is based on the historical volatility of our stock. The risk-free interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date. The expected life of the warrant is based on historical exercise behavior and expected future experience. The resulting estimated value of the warrant is used to proportionally allocate the fair value of the debt advance and the fair value of the warrants.

 

On March 2, 2021, the Company entered into the Purchase Agreement with a single institutional investor in a private placement to sell (i) 23,500,000 shares of its common stock, (ii) pre-funded warrants to purchase up to an aggregate of 51,500,000 shares of its common stock, and (iii) warrants to purchase up to an aggregate of 82,500,000 shares of its common stock for gross proceeds of approximately $6,000,000. The combined purchase price for one share of common stock and associated Warrant is $0.08 and for one Pre-Funded Warrant and associated Warrant is $0.0799. The sale of the securities under the Purchase Agreement closed on March 5, 2021. The pre-funded warrants have an exercise price of $0.0001 per share, subject to adjustment as set forth in the pre-funded warrants for stock splits, stock dividends, recapitalizations and similar events. The pre-funded warrants will be exercisable immediately and may be exercised at any time until all of the pre-funded warrants are exercised in full. In addition, the Company agreed to issue to the placement agent (or its designees) warrants to purchase a number of shares equal to 8.0% of the aggregate number of shares and pre-funded warrant shares sold under the Purchase Agreement, or warrants to purchase an aggregate of up to 6,000,000 shares. The placement agent warrants generally will have the same terms as the warrants, except they will have an exercise price of $0.10.

 

Warrants Summary

 

The Company did not issue any new warrants for the six months ended June 30, 2023 and 2022. The following table summarizes the Company’s warrants as of June 30, 2023:

 

                   

Weighted

         
           

Weighted

   

Average

         
           

Average

   

Remaining

   

Aggregate

 
   

Number of

   

Exercise

   

Life

   

Intrinsic

 
   

Warrants

   

Price

   

In Years

   

Value

 
                                 

Outstanding, December 31, 2022

    132,514,000     $ 0.0555       3.63          

Exercised

    (12,500,000 )     0.0001                  

Outstanding, June 30, 2023

    120,014,000     $ 0.0612       3.11     $ 509,850  

 

Options

 

Stock options for employees, directors or consultants, are valued at the date of award, which does not precede the approval date, and compensation cost is recognized in the period the options are vested. The Company recognizes compensation expense for awards subject to graded vesting on a straight-line basis. Stock options generally become exercisable on the date of grant and expire based on the terms of each grant.

 

The estimated fair value of options for common stock granted was determined using the Black-Scholes option pricing model. The expected dividend yield is based on the average annual dividend yield as of the grant date. Expected volatility is based on the historical volatility of our stock. The risk-free interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date. The expected life of the option is based on historical exercise behavior and expected future experience.

 

The Company recognized $0 and $89,696 of stock option expense during the six months ended June 30, 2023 and 2022, respectively.

 

F-11

 

 

Options Summary

 

There was no option activity for the six months ended June 30, 2023. The following table summarizes the Company’s options as of June 30, 2023:

 

                   

Weighted

         
           

Weighted

   

Average

         
           

Average

   

Remaining

   

Aggregate

 
   

Number of

   

Exercise

   

Life

   

Intrinsic

 
   

Options

   

Price

   

In Years

   

Value

 
                                 

Outstanding, December 31, 2022

    77,158,160     $ 0.070                  

Outstanding, June 30, 2023

    77,158,160     $ 0.070       3.22     $ -  
                                 

Exercisable, June 30, 2023

    77,158,160     $ 0.070       3.22     $ -  

 

The following table, based on exercise price, summarizes the Company’s options as of June 30, 2023:

 

               

Weighted

         
       

Outstanding

   

Average

   

Exercisable

 

Exercise

   

Number of

   

Remaining Life

   

Number of

 

Price

   

Options

   

In Years

   

Options

 
                             
$ 0.028       24,000,000       4.29       24,000,000  
$ 0.041       12,500,000       1.10       12,500,000  
$ 0.055       950,000       3.73       950,000  
$ 0.065       1,000,000       2.00       1,000,000  
$ 0.105       38,500,000       3.25       38,500,000  
$ 0.240       208,160       3.72       208,160  

Total

      77,158,160       3.22       77,158,160  

 

 

Note 7 Commitments

 

Litigation, Claims, and Assessments

 

The Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. In the opinion of management, such matters are currently not expected to have a material impact on the Company’s condensed consolidated financial statements. The Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable settlements.

 

North Dakota State University Sponsored Research Agreement

 

The Company entered into a Sponsored Research Agreement (“SRA”) dated August 14, 2015 with North Dakota State University Research Foundation (“NDSU/RF”). With the proposed research for this project, NDSU/RF planned to make prototypical compounds and materials from CHS and CHS derivatives with the potential; 1) to act as efficient photoactive materials for solar cells, 2) to serve in electro active devices for optimization of current and voltage performance, 3) to perform at high levels of efficiency as silicon anodes in lightweight batteries (silicon has more than 11 times the capacity of carbon in the ubiquitous carbon based batteries), and, 4) to be incorporated into specialty inks for printed electronics applications. The research was conducted August 14, 2015 through August 31, 2016. The Company agreed to reimburse NDSU/RF for all costs incurred in performing the research up to a maximum amount of $70,000. On June 7, 2016 the Company and NDSU/RF mutually agreed to amend the SRA. Under the terms of the amendment the term was extended to June 30, 2017 and the consideration was increased by $120,000 to a maximum amount of $190,000.

 

F-12

 

 

As of December 31, 2022, the remaining balance of the SRA to be paid under the terms of the agreement is $93,578. As of December 31, 2022, and pursuant to the SRA, Coretec was in arrears on the payment of that obligation. Accordingly, as of December 31, 2022, Coretec would be considered in default under the SRA because of the unpaid obligations, which could allow NDSU/RF to exercise various options under the SRA, including an option to terminate the SRA if Coretec does not cure the default within 10 business days after receiving written notice by NDSU/RF. Due to Coretec’s belief that certain obligations of NDSU/RF were unsatisfied, Coretec has actively communicated with NDSU/RF in order to determine what obligations are owed and what actions all parties are required to take, and will agree to take, in furtherance of the SRA. In connection with such objective, Coretec has sent NDSU/RF a detailed communication setting forth, among other things, the basis for its belief that (i) the payment obligation was not due to NDSU/RF; and (ii) NDSU/RF does not have the right to enforce a default. Coretec did not attempt communication or receive communication from NDSU/RF during the year six months ended June 30, 2023.

 

As of the date of this report, there have been no legal proceedings initiated in connection with the SRA. However, no assurances can be made that the prior communications between the parties will result in a resolution or that legal proceedings will not be initiated in the future.

 

Real property leases

 

The Company is leasing office and laboratory space in Ann Arbor, Michigan. On May 1, 2022, the Company entered into an annual lease for corporate office space. The annual office rent obligation is $42,000 payable in equal monthly installments.

 

On December 14, 2021, the Company entered into an annual lease of a wet laboratory in the same facility as the Company’s office headquarters for the calendar year of 2022. The Company renewed the wet laboratory lease under the same terms for the calendar year of 2023. The annual rent obligation is $12,600 payable in equal monthly installments.

 

Rent expense for the operating leases was $27,300 and $15,773 for the six months ended June 30, 2023 and 2022, respectively.

 

 

Note 8 Subsequent Events 

 

On July 5, 2023, the Company issued 928,160 common shares to a consultant of the Company to satisfy consulting fees of $6,126. The shares were issued from the 2018 and 2021 Equity Incentive Plans.

 

F-13

 

 

 
 

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-Looking Statements

 

The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” “anticipates,” “projects,” “expects,” “may,” “will,” or “should” or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.

 

This Quarterly Report on Form 10-Q includes the accounts of The Coretec Group Inc., an Oklahoma corporation, together with its wholly owned subsidiary, Coretec Industries LLC, a North Dakota limited liability corporation formed in North Dakota (individually referred to as “Coretec”). References in this Report to “we,” “our,” “us” or the “Group” refer to The Coretec Group Inc. and its consolidated subsidiary unless context dictates otherwise. The following discussion and analysis should be read in conjunction with our consolidated financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management. 

 

Plan of Operation

 

Organizational History 

 

On June 22, 2017, the Group filed an Amended Certificate of Incorporation with the Secretary of State of the State of Oklahoma to change its name from “3DIcon Corporation” to “The Coretec Group Inc.”, which became effective on June 29, 2017.

 

The Group, formerly known as 3DIcon Corporation, was incorporated on August 11, 1995, under the laws of the State of Oklahoma. Prior to September 30, 2016, the Group’s primary activity had been the raising of capital in order to pursue its goal of becoming a significant participant in the development, commercialization and marketing of next generation 3D display technologies.

 

On September 30, 2016, Coretec Industries LLC became a wholly owned subsidiary of the Group, and the Group issued an aggregate 15,870 shares of the Group’s Series B Convertible Preferred Stock; those shares were subsequently converted into 30,374,363 shares of common stock. 

 

Overview of the Company.

 

Coretecs Technology. The Coretec Group owns intellectual property and patents related to the production and application of engineered silicon to enable new technologies and to improve the lifespan and performance of a variety of materials in a range of industries. The Company is exploring opportunities to use its silicon discoveries and developments to improve the performance of lithium-ion batteries, solid-state LED lights and semiconductors, among other technologies. It is also exploring ways to use its intellectual property to develop optical plastics to advance development of its CSpace 3D imaging chamber.

 

Endurion. The Company is developing a lithium-ion battery with a silicon-based anode under the name Endurion. The battery industry acknowledges silicon as the next frontier in increasing battery life and utility. To date, battery developers have experienced expansion and contraction problems with silicon anodes including continual formation and degradation of solid-electrolyte-interphase (SEI) material as lithium-ions are absorbed and discharged. During this process, silicon particles can break down, immediately reducing the charging capacity of the anodes. Additionally, the continual formation of SEI material consumes lithium-ions that are then unavailable for charging and can cause negative effects on cycle life. The Company’s battery development program, Endurion, addresses this problem by using silicon-based nanoparticles to mitigate the swelling and pulverization issues that are common in early iterations of silicon anodes. Additionally, Endurion nanoparticles are being engineered with an inherent SEI layer that will allow better conduction of lithium-ions across the SEI layer, thus leading to better cycle life. Using a bottom-up wet chemistry approach, Endurion is being designed to increase energy density in batteries and allow for greater endurance, enhanced performance, and larger capacity in burgeoning applications such as electric vehicles, military technologies, mobile devices, and space exploration.

 

3

 

 

Cyclohexasilane (CHS). Coretec’s underlying technology is focused on the production of a high-value liquid silicon precursor, cyclohexasilane (“CHS”). A key advantage of CHS is that it remains in liquid form at room temperature and does not convert to a gas until heated above 450°F. CHS is superior to other silicon precursor in many ways compared to materials commonly used for manufacturing silicon-based semiconductors and solar cells (monosilane or trichlorosilane), which have much lower boiling points that require more prescriptive handling that results in higher shipping and handling costs. Using CHS offers several potential technical advantages of using CHS versus common silicon precursors. The Company anticipates that CHS will first be used as an alternative to monosilane or trichlorosilane when adding silicon to lithium ion batteries or when used in manufacturing silicon-based semiconductors.

 

The Company also envisions long-term potential in several emerging markets where there are opportunities to convert CHS into nanoparticles and nanowires, for such purposes as:

 

Energy storage

 

Solid-state LED lighting

 

Light sensing spectrometers

 

Printable electronics

 

Building-integrated photovoltaic (BIPV) solar energy

 

Enhancement of CSpace. The Company’s CSpace segment is developing technologies to produce 360-degree volumetric, high-resolution images in a 3D image chamber. The Company is applying its technical expertise and intellectual property in silicon-based materials to advance commercialization prospects for its CSpace technology.

 

A key challenge in the evolution of CSpace® is the development of the material used for the image chamber. The Company is exploring and testing a variety of glass alternatives with a focus primarily in optimizing the weight and cost of a glass medium.

 

Near-Term Revenue Opportunities. Opportunities for near-term revenue continue to be explored in battery and microelectronic markets. Interest in the use of silicon in Li-ion batteries continues to increase driven by the growing demand for electrical vehicles, the growth of mobile electronics, and energy storage systems for backup power in commercial wind and solar systems. Discussions are ongoing with end-users of Li-ion battery anode materials that are seeking next generation materials to further increase performance while improving lifetime, charging time, safety and reliability.

 

We believe these users will be well positioned to benefit from Endurion. While we believe Endurion will provide near term revenue, we also continue to explore revenue opportunities with CHS in microelectronics and especially those early adopter markets where advanced microelectronics are being developed in lower volumes and with less price sensitivity. 

 

Endurion Business

 

The global demand for an improved battery is increasing exponentially. The lithium-ion battery market size is expected to grow from $45 billion in 2022 to $135 billion by 2031; with a compounded annual growth rate of 13% over that time period. The Company’s plan is to develop a Li-ion battery with a silicon-based anode. Research has shown that silicon has a 10X increased capacity of energy storage. So, even incremental amounts of silicon in the traditional graphite matrix could contribute substantially to overall increased anode capacity. The Coretec Group’s unique functionalized silicon nanoparticle anode material with an engineered SEI layer allows greater ability to access the unique material properties of silicon potentially leading to increased energy density, faster charging, and enhanced cycle life. 

 

4

 

 

Endurion Business Model

 

Coretec’s business model for Endurion is to use its expertise in engineering silicon to create modified silicon nanoparticles for the Endurion battery. The Company uses its personnel, laboratory, and physical assets to research and develop Endurion. In addition, the Company will utilize the resources of outside vendors for products and services including outside testing providers, chemical material suppliers, and battery manufacturers.

 

Potential Applications for Endurion Revenue

 

 

Electric vehicles

 

Consumer electronics

 

Stationery and utility-scale energy storage for green energy development – wind and solar

 

Military vehicles, drones, and weapon systems as well as wearable power for soldiers

 

Endurion Competition

 

The global lithium-ion battery market size was valued at USD $45 billion in 2022 and a number of multi-billion dollar companies such as Panasonic and Samsung manufacture Li-ion batteries. Lithium silicon batteries are a subclass of the total Li-ion battery market.  The global adoption of electric vehicles is driving the growth in battery innovation.  A number of private and public companies are attempting to improve lithium-ion batteries by using silicon in the battery anode. To date, a proven solution for a silicon based anode has yet to be commercialized on a large scale.

 

The Company’s wet chemistry approach is innovative and ground breaking.  The Endurion technology will produce an anode for lithium-ion batteries with an artificial SEI layer on silicon nanoparticles. The competitive advantage of Endurion is realizing the immense benefits of silicon in lithium-ion batteries and achieving:

 

 

Greater energy density

 

Faster charging

 

Improved cycle life

 

Cyclohexasilane Business

 

The Company’s business model is to identify and commercialize disruptive technologies requiring silicon that serve advanced technology markets. Sources of disruptive technology are often licensed technology created by major universities, institutes, national laboratories and other research centers. Where technology does not already exist, the Company intends to sponsor and jointly develop research with its customers, as well continue its research in the Company’s lab.

 

Coretec is developing, testing, and providing new and/or improved technologies and resulting product solutions for energy-related industries including, but not limited to energy storage, renewable energy, energy conservation, and distributed energy industries. Many of these technologies and resulting product solutions can also be applied to the broader markets of anti-counterfeit packaging, medical devices, electronics, photonics, and displays. The initial technologies and product solutions are based on new innovations in:

 

 

Cyclohexasilane (Si6H12)

 

Silicon quantum dots (Si QDs)

 

“Stacked” polysilane ((R2Si)n)

 

Doped alloy variants of the various silicon innovations

 

Future, high-refractive-index siloxane polymers (HRISP)

 

Early adoption of these technologies and resulting product solutions is anticipated in markets for energy storage (lithium-ion batteries), solid-state lighting (LEDs), solar energy and printable electronics.

 

Coretec’s management leverages years of expertise and experience in equipment and services for the energy storage industry, procuring and managing investments and financial services, and in R&D and commercialization of material and chemical technologies.

 

5

 

 

CHS Business Model

 

Coretec’s business model includes monitoring the ever-growing catalogue of new technologies and valuable IP for licensing opportunities that could lead to incremental improvements and/or additional features in resulting products or lead to next generation products for use by energy-related industries and is created and held within universities and other parties that may lack financial resources and/or interest to further develop and commercialize them.

 

Additionally, where needs exist, but new technologies and resulting products are not currently available, the Company aims to conduct research-and-development (“R&D”) activities through sponsored projects performed at major universities, institutes, national laboratories and other research centers. Coretec will leverage existing, world-class expertise, experience, and laboratory facilities in these non-profit entities for R&D, testing, and proof-of-concept studies up to and including studies at the device level that may be required to create commercialization opportunities.

 

Following these proof-of-concept studies, commercialization opportunities (e.g., manufacturing, marketing, sales) created for its technologies and IP will include, but are not limited to:

 

 

Joint ventures or other business collaborations with Coretec’s joint development partners who can manufacture, market and sell new or improved products (based upon Coretec’s technologies and IP) into existing or new supply chains

   

 

 

Manufacturing, marketing and selling its own products

   

 

 

Creating exit strategies such as:

 

 

o

The sale of one or more technologies and related IP to the private sector

   

 

 

o

The licensing of and/or sublicensing of one or more technologies and related IP to the private sector

   

 

 

o

Other business transactions, such as mergers, acquisitions and spinoffs

 

CHS Research & Development

 

Coretec’s priorities for R&D and commercialization are customer- and market-driven and guided by the needs and specifications of the energy-related industries served. Identified customer- and market-driven opportunities include:

 

 

Novel silicon-based materials that facilitate “greener” more eco-friendly energy production, including: 

 

 

o

Lower-cost, longer-life, higher-capacity battery energy storage systems, such as lithium-ion batteries (LiBs), for use in transportation and distributed power-generation systems

   

 

 

o

More aesthetically appealing, lower cost building-integrated photovoltaics (BIPV)

   

 

 

o

Flexible and/or printable electronics for use in monitoring the condition of distributed or remote assets, e.g., wind power and embedded, wireless sensors to detect corrosion and other changes in pipelines. 

 

 

Novel silicon-based materials that facilitate “greener” more energy efficient products, such as the encapsulation of high-brightness LEDs to improve light extraction, and solar cells to improve full-spectrum light collection

   

 

 

Novel silicon-based materials that facilitate more efficient and eco-friendly exploration and monitoring of distributed energy industries, including imaging materials for visualizing oil and gas exploration and distribution data using volumetric 3D displays

   

 

 

Novel silicon-based materials that prevent illegal imitation or reproduction of a product or service used within energy-related industries, including trusted-supply products (anti-counterfeit packaging) for supply chain assurance, currency, identity documents, lottery tickets, etc.

 

6

 

 

Future CHS Revenue

 

In the future, the Company anticipates revenue from one or more business transactions, such as:

 

 

The sale of Coretec novel silicon-based materials that improve or otherwise enhance the performance of such products as lithium-ion batteries, electronics, solar cells, and displays and/or other optical-based devices

   

 

 

A share of the revenue from the sale of jointly developed product(s) and/or from one or more joint ventures with strategic partners

   

 

 

The sale or licensing of technologies and associated intellectual property to joint development partners or other companies

 

CHS Competition

 

Based on market research and competitive analysis, the Company believes its CHS technology is unique and provides an advantage in that should allow for 1) high-yield, low-cost production using readily available raw materials, 2) storage, transport and use as a liquid at room temperature 3) processing of the liquid into fibers, particles, and films that, when heated, form silicon, and 4) the creation of doped silicon by doping CHS at an atomic level. Competing silanes provided by numerous manufacturers exist as a gas at room temperature, making them explosive. This results in greater costs for storage, handling, transportation and use. The closest competitor to Coretec’s CHS is cyclopentasilane which exists as a gas at room temperature. Cyclopentasilane has proven costly and difficult to manufacture. Other competitors exist for specific applications. For example, graphene and carbon nanotubes are potential competitors in printable electronics. However, they are only now emerging and require a purification process that is proving costly.    

 

Coretec’s business and commercialization model is based in part upon establishing joint development partnerships with companies that are commercially successful and financially sound as well as deeply embedded in the supply chains for the aforementioned energy-related products. For example, Coretec is developing a strategic partnership with a domestic supplier of silicon-based materials that will facilitate further development and scale-up of cyclohexasilane (Si6H12) plus chemical derivatives and other materials based on CHS. This strategic partnership will enable Coretec to supply large quantities of these novel silicon materials to those companies interested in producing prototype batteries, electronics, and photovoltaic/solar cells for testing and commercial evaluation. Coretec will continue to seek other such strategic partnerships within the private sector.

 

Volumetric 3D Display Business

 

The Company owns the rights to a patented volumetric 3D display technology that was developed by and with the University of Oklahoma (the “University”) under a Sponsored Research Agreement (“SRA”). The development to date has resulted in multiple technologies, two working laboratory prototypes (Lab Proto 1 and Lab Proto 2). Under the SRA, the Company has obtained the exclusive worldwide marketing rights to these 3D display technologies. On December 28, 2010, the United States Patent and Trademark Office (“USPTO”) approved the patent called “Light Surface Display for Rendering a Three-Dimensional Image,” and issued the United States Patent No. 7,858,913. On August 21, 2012, the USPTO approved a continuation patent called “3D Volumetric Display” and issued the US Patent No. 8,247,755. These patents describe the foundation of what is called CSpace® technology (“CSpace”). 

 

Overview of Volumetric 3D Display Technology

 

CSpace is a patented glasses-free 3D static volumetric display technology that is being designed to produce high-resolution full- color, true 3D images from 3D datasets generated by imaging systems or transformed from raw datasets (e.g., cyber data) that can benefit from visualization in 3D. Coretec CSpace will deliver 800 million voxels in a full color desktop format having a 360 degree viewing angle. The creation of high resolution images in a glass chamber reduces eye and cognitive fatigue that can degrade user comfort, endurance and reliability during decision making.

 

7

 

 

Commercialization Strategy and Target Applications

 

The Company plans to commercialize the CSpace volumetric 3D technology through customer-funded research-and-development contracts and technology licensing agreements for such high-value applications as air-traffic control, design visualization, and medical imaging. The Company plans to develop products for contract engineering and with joint development customers. At this time the Company does not have any commercialized products and does not plan to develop its own products based on the CSpace technology due to the high –value, low-volume nature of the best-fit initial applications for this technology. These applications include but are not limited to the following:

 

Healthcare (diagnostics, surgical planning, training, telemedicine, bio surveillance)

 

 

Cybersecurity data visualization

 

 

Military (operational planning, training, modeling and simulation, battlespace awareness, damage assessment, autonomous piloting)

 

 

Physical security (passenger, luggage & cargo screening)

 

 

Mining, oil & gas exploration

 

 

Meteorological and oceanographic data visualization

 

CSpace Competition

 

Based on market research, we have concluded that the CSpace volumetric technology is unique and advantaged versus other 3D technologies in that it can deliver both 1) a true 360-degree viewing experience for multiple simultaneous users, and 2) high image quality, high reliability and large image size. Rear projection 3D displays such as those from Zecotek, Setred, and EuroLCDs (formerly LC Tech LightSpace) do not provide a 360-degree viewing experience and are typically limited to one or two users. Early proof-of-concept work done on infrared active phosphor displays by 3D Display Laboratories proved to not be scalable due to limited phosphor persistence and vector scanning limitations. While holographic and light-field displays show promise, they do not deliver a true 360-degree viewing experience and cost-effective multiple user systems do not appear feasible due to current and expected pixel density, data bandwidth and compute power limitations.

 

History of 3D Technology Research and Development at the University of Oklahoma

 

Beginning in 2007 the University, under an SRA with the Company, undertook the development of high potential 3D display technologies. It is anticipated that Coretec’s technology will play a key role in the continued development of an image space material for CSpace.

 

8

 

 

Intellectual Property Patents

 

Pending Applications

 

 

“Method of preparing CYCLOSILANE” – applications filed in the United States and internationally, September 27, 2021

 

“Development of Advanced Silicon Anodes Using Cyclohexasilane other Silanes”, PCT application filed, February 22, 2022

 

“Method for Fabricating Silicon Quantum Dots” PCT application filed, August 30, 2022

 

“Cyclohexasilane Derived Silicon-based Ultraviolet Light Emitting Diodes”, application filed in the United States, December 2, 2022

 

“Silicon Anode”, application filed in the United States, May 1, 2023

 

Granted

 

 

“Ultra High-Resolution Volumetric Three-Dimensional Display” - 9,423,682, August 23, 2016

 

“Hloform 3D Projection Display” – 9,477,087, October 25, 2016

 

Licensed

 

 

The following patents are exclusively licensed to the Company from the University of Oklahoma:

 

United States Patents Granted

 

 

“3D Volumetric Display” - 8,247,755, August 21, 2012

 

“3DLight Surface Display” - 8,075,139, December 13, 2011

 

“Light Surface Display for Rendering a Three-Dimensional Image” - 7,858,913, December 28, 2010

 

“Computer System with Digital Micromirror Device” – 8,487,865, July 16, 2014

 

International Patents Granted-Japan

 

 

“Light Surface Display for Rendering a Three-Dimensional Image” - Japanese Patent Number 5,594,718, August 11, 2014

 

9

 

 

Recent Developments. 

 

On January 12, 2023, Douglas Freitag resigned as a member of the Board of Directors of The Company. Mr. Freitag will continue to support and advise the Company in the capacity of senior consultant. Mr. Freitag’s resignation was not as a result of any disagreements with the Company’s board of directors or management, but to allow him for sufficient time to commit to his primary business.

 

On February 22, 2023, the Company issued a press release that provided preliminary results from the project with the University of Adelaide’s Institute for Photonics and Advanced Sensing (IPAS). The research and development showed promising results using tellurite glass. The Company intends on continuing to work with the University of Adelaide for further development of tellurite glass.

 

On May 1, 2023, the Company filed a provisional patent application as part of the Company’s Endurion battery program focused on the development of EV batteries that charge faster and last longer than the current industry standard. The Company’s scientists have developed three distinct and novel methodologies for minimizing pulverization and increasing rate capability by creating an artificial SEI layer around the silicon nanoparticle. Data supports the claims outlined in the patent filing and indicate that Endurion batteries utilizing this proprietary SEI layer are capable of extending the life of silicon-based anodes and enable improved silicon loadings in lithium-ion batteries for more energy density.

 

On May 12, 2023, the Company countersigned a second letter of variation (the Second Variation) to the credit agreement entered into, on October 4, 2019, with DAF. Pursuant to the Second Variation, the Lender agreed to extend the repayment days for each advance made by Lender under the credit agreement by an additional four months.  The first principal payment will be due on July 15, 2024 with all other terms and conditions of the credit facility remaining unchanged.

 

On June 5, 2023, the Company issued 705,882 common shares to a Matthew Hoffman, the Company’s CFO for accounts payable owed from services provided to the Company as consultant. This issuance satisfied consulting fees of $6,000. The shares were issued from the 2018 Equity Incentive Plans.

 

On July 5, 2023, the Company issued 928,160 common shares to a consultant of the Company to satisfy consulting fees of $6,126. The shares were issued from the 2018 and 2021 Equity Incentive Plans.

 

Results of Operations

 

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2023 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2022.

 

Revenue

 

We did not have revenue for the three-month periods ended June 30, 2023 and 2022.

 

Research and Development Expenses

 

The research and development expenses were $121,445 and $121,862 for the three months ended June 30, 2023 and 2022, respectively. These costs represent sponsored research, labor, consulting, battery development costs, software, amortization of patent costs, and intangible legal expenses.

 

The change includes decreases in CHS material spend of approximately $22,000 and a decrease of laboratory materials and supplies of approximately $10,000. These decreases were offset by increases in software costs of approximately $15,000, laboratory outside services of approximately $8,000 and an aggregate increase of approximately $9,000 for labor, consulting, travel and legal costs.

 

General and Administrative Expenses

 

Our general and administrative expenses were $305,796 for the three months ended June 30, 2023, as compared to $438,136 for the three months ended June 30, 2022.  

 

The approximate $132,000 expense reduction includes a decrease in finance and administrative consulting expense of approximately $86,000, a decrease in legal and audit fees related to diligence activities of approximately $111,000, a decrease in stock option expense of approximately $19,000, and a decrease in various expense of approximately $6,000. These decreases were offset by increases in public relations expense of approximately $26,000 and increases in salaries and labor expenses of approximately $64,000.

 

10

 

Interest Expense

 

Interest expense for the three months ended June 30, 2023 was $52,849 as compared to $47,451 for the three months ended June 30, 2022.  The approximately $5,000 net increase was the result of interest charges and amortization costs pursuant to the DAF promissory note terms and conditions.

 

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2023 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2022.

 

Revenue

 

We did not have revenue for the six-month periods ended June 30, 2023 and 2022.

 

Research and Development Expenses

 

The research and development expenses were $233,348 and $320,356 for the six months ended June 30, 2023 and 2022, respectively. These costs represent sponsored research, stock options, labor, consulting, amortization of patent costs, and intangible legal expenses.

 

The approximate $87,000 decrease includes decreases in sponsored research expense of approximately $126,000, a decrease of stock option expense of approximately $11,000, and a decrease of CHS material expense of approximately $23,000. These decreases were offset by increases in laboratory outside services of approximately $49,000, an increase in software expense of approximately $15,000, and a combined increase in other research and development expenses of approximately $9,000.

 

General and Administrative Expenses

 

Our general and administrative expenses were $652,990 for the six months ended June 30, 2023, as compared to $871,458 for the six months ended June 30, 2022.  

 

The approximate $218,000 expense decrease includes a decrease in marketing and administrative consulting expense of approximately $163,000, a decrease in legal and audit fees related to diligence activities of approximately $132,000, a decrease of stock option expense of approximately $79,000, a decrease in recruiting expense of approximately $26,000, a decrease in news release expense of approximately $12,000, and a combined decrease in other general and administrative expenses of approximately $7,000.

 

These decreases were offset by an increase in salaries and labor expenses of approximately $111,000, an increase in public relations expense of approximately $63,000, an increase in insurance expense of approximately $15,000, and an increase in rent expense of approximately $12,000.

 

Interest Expense

 

Interest expense for the six months ended June 30, 2023 was $106,929 as compared to $95,442 for the six months ended June 30, 2022.  The approximately $11,000 net increase was the result of interest charges and amortization costs pursuant to the DAF promissory note terms and conditions.

 

11

 

 

Financial Condition, Liquidity and Capital Resources

 

The Company has committed capital and resources to fund current development plans through March 31, 2024. Beyond March 31, 2024 the Company has insufficient revenue and capital commitments to fund the development of its planned products and pay current operating expenses beyond a year following the issuance of these condensed consolidated financial statements. These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern for a year following the issuance of these condensed consolidated financial statements.

 

Management is committed to securing revenue and or capital commitments to fund the development of its planned products and to pay operating expenses, to realize the value of its technologies. Management remains focused on controlling cash while advancing its technology platforms and will continue to leverage stock-for-services whenever possible.

 

Our ability to fund the operations of the Company is highly dependent on the underlying stock price of the Company.

 

The operating budget consists of the following expenses:

 

●  Research and development related expenses for Endurion battery development

 

●  Equipment and related infrastructure for battery fabrication and testing

 

●  Intellectual property patent filing via engagement of legal counsel and Chief Technical Officer

 

●  Continued use of public relations consulting firm, marketing outreach to bolster the Company’s message and digital platform

 

●  General and administrative expenses: Chief Executive and Chief Financial officer expenses, salaries, insurance, investor related expenses, rent, travel, website, etc.

 

●  Professional fees for accounting and audit; legal services for securities and financing

 

We had net cash of $1,449,993 at June 30, 2023. 

 

We had positive working capital of $1,167,036 at June 30, 2023.

 

During the six months ended June 30, 2023, we used $804,833 of cash for operating activities, a net decrease of $71,099 or 8% compared to the six months ended June 30, 2022.

 

The net decrease in the use of cash for operating activities was a result of a decrease in the net loss of $304,631, an increase in the amortization and depreciation of $5,706, a decrease in expense of options of $89,696, an increase in prepaid expenses of $20,701, a decrease in deposits of $11,793, and a decrease in accounts payable and accrued liabilities of $158,450.

 

During the six months ended June 30, 2023, we used $41,374 of cash on purchases of equipment for investing activities compared to $73,282 for the six months ended June 30, 2022.

 

During the six months ended June 30, 2023, we used $60,148 of cash for financing activities compared to $0 for the six months ended June 30, 2022. The activity of the six months ended June 30, 2023 including payments notes payable of $61,398 and receipt of $1,250 for exercised warrants.

 

Significant Accounting Policies

 

There has been no change in the significant accounting policies summarized in our Form 10-K for the year ended December 31, 2022, which was filed on March 17, 2023.

 

12

 

 

Item 3.   Quantitative and Qualitative Disclosures About Market Risk.

 

The Company is a smaller reporting company, as defined by Rule 229.10(f)(1) and is not required to provide the information required by this Item.

 

Item 4.   Controls and Procedures.

 

Limitations on Effectiveness of Controls. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2023. The term “disclosure controls and procedures,” as defined in Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

 

Based on our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2023, our disclosure controls and procedures were not effective at a reasonable assurance level as we do not have sufficient resources in our accounting function, which restricts the Company’s ability to gather, analyze and properly review information related to financial reporting in a timely manner. In addition, due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, management will engage financial consultants and perform additional analysis and other procedures to help address this material weakness. Until remediation actions are fully implemented, and the operational effectiveness of related internal controls are validated through testing, the material weaknesses described above will continue to exist. 

 

Notwithstanding the assessment that our disclosure controls and procedures were not effective and that there is a material weakness as identified herein, we believe that our consolidated financial statements contained in this Quarterly Report fairly present our consolidated financial position, results of operations and cash flows for the periods covered thereby in all material respects.

 

Changes in Disclosure Controls and Procedures. There has been no change in our disclosure controls and procedures identified in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during the quarter ended June 30, 2023, that has materially affected, or is reasonably likely to materially affect, our disclosure controls and procedures. 

 

13

 

 

PART II

 

Item 1.   Legal Proceedings.

 

We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

 

Item 1A. Risk Factors.

 

Not Applicable.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.  

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosure.

 

Not Applicable.

 

Item 5. Other Information.

 

None.

 

14

 

 

Item 6. Exhibits.

 

Exhibit
Number

Description of Exhibit

   

31.1*

Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer.

   

31.2*

Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer.

   

32.1*

Section 1350 Certifications of Chief Executive Officer.

   

32.2*

Section 1350 Certifications of Chief Financial Officer.

   

101.INS

Inline XBRL Instance

   

101.SCH

Inline XBRL Taxonomy Extension Schema

   

101.CAL

Inline XBRL Taxonomy Extension Calculation

   

101.DEF

Inline XBRL Taxonomy Extension Definition

   

101.LAB

Inline XBRL Taxonomy Extension Labels

   

101.PRE

Inline XBRL Taxonomy Extension Presentation

   

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

   

*

Filed herewith

 

15

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

THE CORETEC GROUP INC.

   

Date: August 11, 2023

/s/ Matthew J. Kappers

 

Name:  

Matthew J. Kappers

 

Title:

Chief Executive Officer

     
 

/s/ Matthew L. Hoffman

 

Name:

Matthew L. Hoffman

 

Title:

Chief Financial Officer

 

 

16