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.
On June 22, 2017, the Group filed an Amended Certificate of Incorporation (the "Amendment") with the Secretary of State of the State of Oklahoma, to (i) change its name from "3DIcon Corporation" to "The Coretec Group Inc." and to (ii) effect a 1-for-300 reverse stock split. The Name Change and Reverse Split became effective with the State of Oklahoma on June 28, 2017 and with FINRA on June 29, 2017.
The Group 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. On July 15, 2005, the Group entered into a Sponsored Research Agreement ("SRA") with the University of Oklahoma (the "University" or "OU"), which expired on January 14, 2007, under which they conducted a research project entitled "Investigation of 3-Dimensional Display Technologies". On February 23, 2007, they entered into an SRA with the University, which expired on March 31, 2010, under which they conducted a research project entitled "3-Dimensional Display Development". The development to date has resulted in multiple new technologies, two working laboratory prototypes (Lab Proto 1 and Lab Proto 2), and eight provisional patents; five of the eight provisional patents have been combined and converted to five utility patents. Under the SRA, the Group has obtained the exclusive worldwide marketing rights to these 3D display technologies.
The Company's business model is to identify and commercialize disruptive technologies in silicon serving advanced technology markets. Sources of disruptive technology are 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.
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:
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.
The Company is developing a lithium-ion battery with a silicon anode under the name of 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 as lithium-ions are absorbed and discharged. During this process, larger silicon particles break down, immediately reducing the charging capacity of the anodes. 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 to reduce silicon breakdown and will allow lithium-ions to travel faster to the necessary silicon atoms, leading to faster charging times.
Endurion is being designed to improve battery cycling stability, enable longer run times, and allow for greater energy density in applications such as electric vehicles, military technologies, mobile devices, and space exploration.
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.
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), and eight provisional patents. Five of the eight provisional patents have been combined and converted to five utility patents. Under the SRA, the Company has obtained the exclusive worldwide marketing rights to these 3D display technologies.
On May 26, 2009, the United States Patent and Trademark Office ("USPTO") approved the patent called "Volumetric Liquid Crystal Display" for rendering a three-dimensional image and converted it to U.S. patent No. 7,537,345. On December 28, 2010, 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").
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:
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 exploitation of mobile electronics, and energy storage systems for backup power and improved efficiency of home and commercial wind and solar systems. Discussions are ongoing with suppliers 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 suppliers will be well positioned to take advantage of the benefits provided by cyclohexasilane (CHS) when combined as a liquid with other solid-based materials. While we believe the use of CHS in Li-ion batteries will provide near term revenue, we also continue to explore revenue opportunities in microelectronics and especially those early adopter markets where advanced microelectronics are being developed in lower volumes and with less price sensitivity.
On January 11, 2022, the Company announced that it had partnered with The University of Adelaide, one of the global top universities in the field of applied glass science and photonics, to develop a glass to be used in the Company's CSpace, a 3D static volumetric display technology. This project will be jointly funded by The University of Adelaide.
On January 25, 2022, the Company named Katie Merx its Vice President of Communications. Merx will have overall responsibility for the Company's global communications, including brand messaging, corporate and financial communications, executive support, and media relations.
On February 24, 2022, the Company announced the hiring of a full time research scientist and opening of a new wet laboratory. The Company plans to use the lab to develop CHS, create silicon quantum dots, and create silicon-anode active materials for lithium-ion batteries. The lab design includes a fume hood and glove box, which is necessary to handle pyrophoric materials such as silane gases and certain hydrides.
On February 28, 2022, the Company filed a full utility patent on its provisional patent for the development of advanced silicon anodes using CHS and other silanes. This patent application covers the use of CHS to produce a wide variety of silicon anodes for use in lithium-ion batteries.
On March 16, 2022 the Company presented at a two-day U.S. conference on accelerating the development of a domestic battery supply chain. Representing the Company was Dr. Michelle Tokarz, Vice President of Partnerships and Innovation. Tokarz spoke about The Company's development of a lithium-ion battery with a silicon anode. The Company is using the unique characteristics of cyclohexasilane and similar molecules to enhance the performance of silicon anodes. The Company's approach is new to the industry and protected by the company's recent application for a full utility patent.
On April 29, 2022 the Company held its Q1 2022 shareholder call and announced its battery development program, Endurion. Endurion is being designed to improve battery cycling stability, enable longer run times, and allow for greater energy density in applications such as electric vehicles, military technologies, mobile devices, and space exploration.
On June 3, 2022 the Company filed a trademark application with the U.S. Patent and Trademark Office for Endurion.
On June 7, 2022 the Company announced its participation and planned attendance in electric vehicles and battery conferences and tradeshows. The Company plans to leverage the EV and battery industries' top technical, business, and networking events to strengthen and expand its relationships, meet potential partners and clients, and grow awareness of the Company's Endurion battery development program.
On June 28, 2022 the Company announced the appointment of cleantech public relations firm FischTank PR to bolster visibility in cleantech, automotive and electric vehicle sectors. FischTank PR will cover the responsibilities of Katie Merx, Vice President of Communications who left the Company in June of 2022.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2022 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2021.
We did not have revenue for the three-month periods ended June 30, 2022 and 2021.
The research and development expenses were approximately $122,000 and $198,000 for the three months ended June 30, 2022 and June 30, 2021, respectively. The approximately $76,000 decrease is related to a decrease of $129,000 of stock option expense which was offset by increases of approximately $25,000 for labor costs and approximately $28,000 for wet laboratory operations.
Our general and administrative expenses were approximately $438,000 for the three months ended June 30, 2022, as compared to $2,517,000 for the three months ended June 30, 2021.
The approximate $2,079,000 expense reduction includes a decrease in stock option expense of approximately $2,194,000 and a decrease in discretionary marketing expenses of $27,000. These reductions were offset by approximate increases of $116,000 for professional fees, an increase in labor and consultant expenses of approximately $9,000, an increase in rent expenses of approximately $7,000, an increase in travel and meal expenses of approximately $6,000, and an aggregate increase of approximately $4,000 for other costs.
Interest expense for the three months ended June 30, 2022 was approximately $47,000 as compared to $73,000 for the three months ended June 30, 2021. The approximately $25,000 net decrease was the result of a reduction in interest charges and amortization costs pursuant to the DAF promissory note terms and conditions.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2022 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2021.
We did not have revenue for the three-month periods ended June 30, 2022 and 2021.
The research and development expenses were $320,000 and $236,000 for the six months ended June 30, 2022 and June 30, 2021, respectively.
The approximate $84,000 increase includes an increase in sponsored research expenses of approximately $126,000, an increase of labor related expenses of approximately $40,000, an increase of wet laboratory operations of approximately $28,000, and an aggregate increase of approximately $8,000 for other costs. These increases were offset by approximately $118,000 of stock option expense.
Our general and administrative expenses were $871,000 for the six months ended June 30, 2022, as compared to $2,860,000 for the six months ended June 30, 2021.
The approximate $1,988,000 expense decrease includes decrease in stock option expense of approximately $2,152,000, a decrease in discretionary marketing expenses of $30,000, and an aggregate decrease of approximately $4,000 for other costs. These cost reductions were offset by increases of approximately $135,000 for professional fees, an increase of in recruiting expenses of approximately $26,000, an increase in travel and meal expenses of approximately $14,000, an increase in consulting expenses of approximately $9,000, an increase in rent expenses of approximately $7,000, and an increase in labor related expenses of approximately $7,000.
Interest expense for the six months ended June 30, 2022 was approximately $95,000 as compared to approximately $131,000 for the six months ended June 30, 2021. The approximately $36,000 net decrease was the result of a reduction in interest charges and amortization costs pursuant to the DAF promissory note terms and conditions.
Financial Condition, Liquidity and Capital Resources
Management remains focused on controlling cash expenses. As a result of the securities purchase agreement and capital raise of $6,000,000 in March of 2021, management believes that the Company has sufficient capital commitments to fund the development of its planned products and to pay operating expenses for a period of more than one year following the issuance of these consolidated financial statements. In addition, the Company will continue to leverage stock-for-services whenever possible.
The operating budget consists of the following expenses:
? General and administrative expenses: salaries, insurance, investor related
expenses, rent, travel, website, etc.
? Hiring and retaining executive officers for technology, operations and
? Professional fees for accounting, audit, and mergers and acquisitions; legal
services for securities and financing; patent research and protection.
? Continued development of CHS and similar silicon technologies.
We had net cash of $3,104,112 at June 30, 2022.
We had positive working capital of $2,732,370 at June 30, 2022.
During the six months ended June 30, 2022, we used $875,933 of cash for operating activities, a net increase of $481,178 or 122% compared to the six months ended June 30, 2021.
The net increase in the use of cash for operating activities was a result of a decrease in the net loss of $1,940,251, a decrease in amortization and depreciation of $24,980, a decrease in expense of options of $2,269,750, a decrease in the change in prepaid expenses of $7,747, an increase in the change in deposits of $24,543, and a decrease in the change in accounts payable and accrued liabilities of $143,495.
During the six months ended June 30, 2022, we used $73,282 of cash for investing activities, a net increase of $61,275 or 510% compared to the six months ended June 30, 2021.
The net increase in the use of cash for investing activities was a result of $73,282 used for equipment during the six months ended June 30, 2022 compared to $0 for the six months ended June 30, 2021. This equipment cash use was offset by $0 used for capitalized website costs compared to $12,007 for the six months ended June 30, 2021
During the six months ended June 30, 2022, there was $0 of net cash provided by financing activities, a decrease of $5,201,271 compared to the six months ended June 30, 2021. The decrease was a result of $4,913,200 in net proceeds of private placement stock issued and $334,651 in net proceeds of debt and warrants issued, offset by $46,580 of payments on notes payable for the six months ended June 30, 2021.
We expect to fund the ongoing operations through the existing cash on hand and financing in place.
Our ability to fund the operations of the Company is highly dependent on the underlying stock price of the Company.
We do not engage in any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.
There has been no change in the significant accounting policies summarized in our Form 10-K for the year ended December 31, 2021, which was filed on March 21, 2022.
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