PART
I
This
Annual Report on Form 10-K includes the accounts of Fact, Inc., a Nevada corporation. References in this Report to “we”,
“our”, “us” or the “Company” refer to Fact, Inc., unless context dictates otherwise.
FORWARD
LOOKING STATEMENTS
Certain
statements in this report, including information incorporated by reference, are “forward-looking statements” within the meaning
of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private
Securities Litigation Reform Act of 1995, as amended. Forward-looking statements reflect current views about future events and financial
performance based on certain assumptions. They include opinions, forecasts, intentions, plans, goals, projections, guidance, expectations,
beliefs or other statements that are not statements of historical fact. Words such as “will,” “may,” “should,”
“could,” “would,” “expects,” “plans,” “believes,” “anticipates,”
“intends,” “estimates,” “approximates,” “predicts,” “forecasts,” “potential,”
“continue,” or “projects,” or the negative or other variation of such words, and similar expressions may identify
a statement as a forward-looking statement. Any statements that refer to projections of our future financial performance, our anticipated
growth and trends in our businesses, our goals, strategies, focus and plans, and other characterizations of future events or circumstances,
including statements expressing general optimism about future operating results and the development of our products, are forward-looking
statements.
Although
forward-looking statements in this Annual Report on Form 10-K reflect the good faith judgment of our management, such statements can
only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and
uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the
forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation,
those specifically addressed under the heading “Risk Factors” below, as well as those discussed elsewhere in this Annual
Report on Form 10-K. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date
of this Annual Report on Form 10-K. We file reports with the Securities and Exchange Commission (“SEC”). The public can read
and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can
obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the
SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC, including us.
We
undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise
after the date of this Annual Report on Form 10-K. Readers are urged to carefully review and consider the various disclosures made throughout
the entirety of this Annual Report on Form 10-K, which attempt to advise interested parties of the risks and factors that may affect
our businesses, financial condition, results of operations and prospects.
ITEM
1. BUSINESS
Fact,
Inc. (“We” or the “Company” as the context may require) was established under the laws of the State of Nevada
on February 17, 2017 as Tiburon International Trading Corporation (“Tiburon”). Tiburon was established as a development stage
company focusing its business on the distribution of air infiltration valves manufactured in China to markets in Europe and in the Commonwealth
of Independent States (CIS). On October 5, 2020, Kryptos Art Technologies, Inc. (“Kryptos”), an Ontario corporation purchased
50,000,000 shares of the Company’s common stock from Yun Cai, who was the Chief Executive Officer, President, Chief Financial Officer
and Sole Director of Tiburon.
The
Company is winding down operations of the historic Tiburon business, which has largely been curtailed by prior management because of
COVID-19 and lack of capital necessary for expansion of the website and product offerings. Kryptos had been working on a technology designed
to detect and eliminate fraud in the art world. Kryptos has assigned all of its technological know-how in this area to the Company which
we will pursue as our primary business operations.
In
connection this new line of business, we have entered into and are negotiating a series of development and consulting agreements with
software and hardware developers to complete the development of our products. The Company expects to enter into a license agreement to
utilize fraud detection technology in the art area. The Company expects to enter into such license agreement with an award winning forensic
ballistic technology company that revolutionized the Criminal Justice system’s approach to ballistics.
FACT
stands for Forensic Asset Certification Technology. FACT is creating technology to utilize white light interferometry to bring forensic
technology to the art world. FACT takes a non-destructive 3D digital fingerprint of the art using over 100,000 unique images. These scans,
measured at two (2) microns, equal to 1/50th of a human hair, are unable to be reproduced or forged. Scans are compared to
one another by a computer algorithm to verify the paintings or other assets authenticity.
All
data is stored securely on the block-chain for real time collection management. We are currently developing a front-end user interface
as well as modifying existing ballistics firmware for a comprehensive verification, tracking and reporting system. A workable prototype
(the “Prototype”) is expected to be ready during the Company’s second quarter ending July 31, 2022.
We
plan to market to various channels in different capacities including, but not limited to, subscription models, leasing models, and individual
point of sale models. The fees for our different models will range from a flat fee to a percentage of sales fee. We are hopeful the Company
will commence its marketing efforts in the Company’s second quarter ending April 30, 2022, with the hope that the product may launch
by the end of the Company’s second quarter ending July 31, 2022.
Our
products are not yet commercially available and we do not expect them to be commercially available until at least the end of the second
quarter of 2022 if ever. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future,
which may fluctuate significantly from quarter-to-quarter and year-to-year. We anticipate that our expenses will increase substantially
as we:
|
■
|
continue
research and development of our existing product prototypes;
|
|
|
|
|
■
|
seek
to discover and develop additional products with our technology;
|
|
|
|
|
■
|
establish
a commercialization infrastructure and scale up our manufacturing and distribution capabilities to commercialize any of our products;
|
|
|
|
|
■
|
seek
to comply with regulatory standards and laws;
|
|
|
|
|
■
|
maintain,
leverage and expand our intellectual property portfolio;
|
|
|
|
|
■
|
hire
manufacturing, engineering and other personnel to support our products development and future commercialization efforts;
|
|
|
|
|
■
|
add
operational, financial and management information systems and personnel; and
|
|
|
|
|
■
|
incur
additional legal, accounting and other expenses in operating as a public company.
|
JOBS
Act
As
a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an “emerging growth company,”
as defined in the Jumpstart Our Business Startups Act, or the JOBS Act. Section 107 of the JOBS Act provides that an emerging growth
company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended
(or the “Securities Act”), for complying with new or revised accounting standards. Thus, an emerging growth company can delay
the adoption of certain accounting standards until those standards would otherwise apply to private companies.
An
emerging growth company may also take advantage of reduced reporting requirements that are otherwise applicable to public companies.
These provisions include, but are not limited to:
|
■
|
we
may present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis
of Financial Condition and Results of Operations;
|
|
|
|
|
■
|
not
being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended,
or the Sarbanes-Oxley Act;
|
|
|
|
|
■
|
reduced
disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and
|
|
|
|
|
■
|
exemptions
from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute
payments not previously approved.
|
We
may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the date of the first
sale of our common equity securities pursuant to an effective registration statement under the Securities Act, which such fifth anniversary
will occur in 2021. However, if certain events occur prior to the end of such five-year period, including if we become a “large
accelerated filer,” our annual gross revenues exceed $1.0 billion or we issue more than $1.0 billion of non-convertible debt in
any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.
We
have elected to take advantage of certain of the reduced disclosure obligations regarding executive compensation in this prospectus and,
as long as we continue to qualify as an emerging growth company, we may elect to take advantage of this and other reduced burdens in
future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public
reporting companies in which you hold equity interests.
We
are also a “smaller reporting company,” as defined under SEC Regulation S-K. As such, we also are exempt from the auditor
attestation requirements of Section 404 of the Sarbanes-Oxley Act and also are subject to less extensive disclosure requirements regarding
executive compensation in our periodic reports and proxy statements. We will continue to be deemed a smaller reporting company until
our public float exceeds $75 million on the last day of our second fiscal quarter in the preceding fiscal year.
Recent
Developments
On
December 31, 2020, Kryptos Art Technologies, Inc. (“Kryptos”), an entity controlled by Brian McWilliams, transferred 2,000,000
shares of common stock to Ceres Capital Holdings, LLC (“Ceres”). Ceres is controlled by Patricia Trompeter. Additionally,
on December 31, 2020, Kryptos cancelled 15,750,000 shares of common stock.
On
January 14, 2021, Julie-Myers Wood was appointed as a Director of Fact, Inc. (the “Company”).
On
March 22, 2021, Brian McWilliams resigned as Chief Executive Officer of Fact, Inc. (the “Company”). Mr. McWilliams’s
resignation shall be effective immediately. Mr. McWilliams also resigned as a member of the board of directors of the Company.
On
March 22, 2021, Patricia Trompeter was appointed to fill the vacancy of Chief Executive Officer of the Company. Ms. Trompeter’s
appointment is effective immediately.
ITEM
1A. RISK FACTORS
This
section is not required for smaller reporting companies.
ITEM
1B. UNRESOLVED STAFF COMMENTS
This
section is not required for smaller reporting companies.
ITEM
2. PROPERTIES
The
Company does not own any property.
ITEM
3. LEGAL PROCEEDINGS
The
Company is not a party to any other pending material legal proceeding. To the knowledge of management, no federal, state or local governmental
agency is presently contemplating any proceeding against the Company. To the knowledge of management, no director, executive officer
or affiliate of the Company, any owner of record or beneficially of more than five percent of the Company’s Common Stock is a party
adverse to the Company or has a material interest adverse to the Company in any proceeding.
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable.
PART
II
ITEM
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Holders
As
of September 16, 2021, we had approximately 14 active holders of our common stock. The number of active holders of record was determined
from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various
security brokers, dealers, and registered clearing agencies. Our transfer agent is Action Stock Transfer Corporation.
Dividend
Policy
We
have not declared any dividends to date. We have no present intention of paying any cash dividends on our common stock in the foreseeable
future, as we intend to use earnings, if any, to generate growth. The payment of dividends, if any, in the future, rests within the discretion
of our Board of Directors and will depend, among other things, upon our earnings, capital requirements and our financial condition, as
well as other relevant factors. There are no restrictions in our Certificate of Incorporation or Bylaws that restrict us from declaring
dividends.
Equity
Compensation Plan Information
We
currently do not have any equity compensation plan.
Recent
Sales of Unregistered Securities
On
November 20, 2020, Fact, Inc. a Nevada Corporation (the “Company”) and Oasis Capital, LLC (“Oasis”) entered into
a Securities Purchase Agreement (the “Note Purchase Agreement”) pursuant to which the Company agreed to sell and Oasis agreed
to purchase $730,000 principal amount of convertible promissory notes (the “Note”) for a purchase price of $610,000 which
includes a 20% original issue discount and $10,000 of expenses. On November 20, 2020, Oasis has funded $250,000 (the “First Tranche”)
as of November 19, 2020, and the Company has in turn agreed to issue to Oasis a note in the principal amount of $310,000. Under the Note
Purchase Agreement, the Company will sell Oasis an additional promissory note in the principal amount of $420,000 and issue an additional
note for a purchase price of $350,000 (the “Second Tranche”) upon the Company’s filing of a registration statement
with the Securities and Exchange Commission (the “SEC”), pursuant to the registration rights agreement (the “Registration
Rights Agreement”) entered into by and between the Company. The maturity date for each of the First Tranche and the Second Tranche
is six (6) months from the date on which Oasis funds the respective portion of the Note. The interest rate of the Note is 10% annum.
The Note is convertible into shares of the Company’s common stock, par value $.001 (the “Common Stock”) at the option
of the holder.
In
addition, in connection with the Note Purchase Agreement, the Company issued to Oasis 100,000 shares of Common Stock and a five year
warrant (the “Warrant”) to purchase up to 291,775 shares of Common Stock at a price equal to $1.10 per share.
On
January 19, 2021, the Company issued to MSW PROJECTS LTD 50,000 shares of Common Stock.
On
February 9, 2021, the Company issued to MSW PROJECTS LTD 100,000 shares of Common Stock.
On
March 24, 2021, the Company issued to SAX INC 100,000 shares of Common Stock.
ITEM
6. SELECTED FINANCIAL DATA
This
section is not required for smaller reporting companies.
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The
following discussion and analysis should be read together with our consolidated financial statements and the related notes appearing
elsewhere in this Report. This discussion contains forward-looking statements reflecting our current expectations that involve risks
and uncertainties. See “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated
with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements
as a result of many factors, including those set forth under “Risk Factors” and elsewhere in this Report.
Overview
The
Company was established under the laws of the State of Nevada on February 17, 2017 as Tiburon International Trading Corp. Tiburon was
established as a development stage company focusing its business on the distribution of air infiltration valves manufactured in China
to markets in Europe and in the Commonwealth of Independent States (CIS). On October 5, 2020, Kryptos Art Technologies, Inc. (“Kryptos”),
an Ontario corporation purchased 2,500,000 shares of Tiburon from Yun Cai, who was the Chief Executive Officer, President, Chief Financial
Officer and Sole Director of Tiburon. As a result of this sale, Kryptos became the majority shareholder of Tiburon. The shares owned
by Kryptos represented approximately 71.87% of Tiburon’s outstanding common stock. The purchase price was $232,467. The funds were
funds of Kryptos. Kryptos is controlled by recently-departed Company CEO, Brian McWilliams.
Mr.
McWilliams was appointed the Company’s Chief Executive Officer on October 5, 2020. On October 8, 2020, Kryptos, as the holder of
approximately 71% of the voting stock of the Company executed a shareholder consent to effect a name change of the Tiburon to Fact, Inc.
Under Mr. McWilliams’ management, the Company wound down operations of the historic Tiburon business, which has largely been curtailed
by prior management because of COVID-19 and lack of capital necessary for expansion of the website and product offerings. Kryptos had
been working on a technology designed to detect and eliminate fraud in the art world. Kryptos has assigned all of its technological know-how
in this area to the Company which we will pursue as our primary business operations. In connection therewith, the Company has entered
into and is negotiating a series of development and consulting agreements with software and hardware developers to complete the development
of our products. The Company expects to enter into a license agreement to utilize fraud detection technology in the art area. The Company
expects to enter into such license agreement with an award winning forensic ballistic technology company that revolutionized the Criminal
Justice system’s approach to ballistics.
On
October 8, 2020, Kryptos, as the holder of approximately 71% of the voting stock of Tiburon, executed a shareholder consent to effect
a name change of Tiburon to Fact, Inc. FACT is a leading innovator of bringing forensic technology to the art world. FACT stands for
Forensic Asset Certification Technology. Using white light interferometry, FACT takes a non-destructive 3D digital fingerprint of the
art using over 100,000 unique images. These scans, measured at two (2) microns, equal to 1/50th of a human hair, are unable
to be reproduced or forged. Scans are compared to one another by a computer algorithm to verify the paintings authenticity.
All
data is stored securely on the block-chain for real time collection management. We are currently developing a front-end user interface
as well as modifying existing ballistics firmware for a comprehensive verification, tracking and reporting system. A workable prototype
(the “Prototype”) is expected to be ready during the Company’s second quarter ending July 31, 2020.
We
plan to market to various channels in different capacities including, but not limited to, subscription models, leasing models, and individual
point of sale models. The fees for our different models will range from a flat fee to a percentage of sales fee. We are hopeful the Company
will commence its marketing efforts in the Company’s first quarter ending April 30, 2022, with the hope that the product may launch
by the end of the Company’s second quarter ending July 31, 2022.
On
March 22, 2021, Mr. McWilliams left the Company and was replaced by Ms. Patricia Trompeter as Chief Executive Officer.
Research
and Development
Research
and development expenses consists of costs incurred while performing research and development activities to discover and develop our
product. This includes conducting studies and trials, manufacturing development efforts and activities. We recognize research and development
expenses as they are incurred. Our research and development expense primarily consist of:
|
■
|
forensic
technology product testing and regulatory-related costs;
|
|
|
|
|
■
|
expenses
incurred under agreements with investigative sites and consultants that conduct our product testing;
|
|
|
|
|
■
|
manufacturing
and testing costs and related supplies and materials;
|
|
|
|
|
■
|
employee-related
expenses, including salaries, benefits, travel and stock-based compensation; and
|
|
|
|
|
■
|
facility
expenses dedicated to research and development.
|
We
typically use our employee, consultant and infrastructure resources across our development programs. We track outsourced development
costs by product or development program, but we do not allocate personnel costs, other internal costs or external consultant costs to
specific product or development programs.
Substantially
all of our research and development expenses to date have been incurred in connection with our product. We expect our research and development
expenses to increase significantly for the foreseeable future as we advance an increased number of our product through development. The
successful development of product is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs required
to complete the remaining development of any product. This is due to the numerous risks and uncertainties associated with the development
of product.
We
do not expect any of our products to be commercially available until the end of the Company’s second quarter ending July 31, 2022.
We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future, which may fluctuate significantly
from quarter-to-quarter and year-to-year. We anticipate that our expenses will increase substantially as we:
|
■
|
continue
research and development, including development of our existing product;
|
|
|
|
|
■
|
seek
to discover and develop additional product;
|
|
|
|
|
■
|
establish
a commercialization infrastructure and scale up our manufacturing and distribution capabilities to commercialize any of our product
for which we may obtain regulatory approval;
|
|
|
|
|
■
|
seek
to comply with regulatory standards and laws;
|
|
|
|
|
■
|
maintain,
leverage and expand our intellectual property portfolio;
|
|
■
|
hire
manufacturing, scientific and other personnel to support our product development and future commercialization efforts;
|
|
|
|
|
■
|
add
operational, financial and management information systems and personnel; and
|
|
|
|
|
■
|
incur
additional legal, accounting and other expenses in operating as a public company.
|
Results
of Operations for years ended January 31, 2021 and 2020
The
following tables set forth certain selected condensed statement of operations data for the periods indicated in dollars. In addition,
we note that the period-to-period comparison may not be indicative of future performance as they relate to the Company’s historic
business.
|
|
Year ended
January 31
|
|
|
Variation
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
4,500
|
|
|
|
|
|
|
|
|
|
Cost of Goods sold
|
|
$
|
-
|
|
|
$
|
2,700
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
$
|
-
|
|
|
$
|
1,800
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
$
|
447,374
|
|
|
$
|
25,585
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
$
|
1,260,691
|
|
|
$
|
23,785
|
|
|
|
|
|
|
|
|
|
Net Loss per common Share
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
Revenues
During
the year ended January 31, 2021, the Company did not generate any revenue compared to $4,500 during the year ended January 31, 2020.
The cost of revenue was $0.
A
workable Prototype is expected to be ready during the Company’s first quarter ending April 30, 2022, with rollout starting by the
end of the Company’s second quarter ending July 31, 2022. Revenue are expected to be generated, although there can be no assurance,
from several key channels as outlined below.
FACT
will be marketed to five (5) main channels with a variety of ancillary packages:
|
(1)
|
Financial
Markets – Art Insurance & Art Secured Lending
|
|
(2)
|
Sales
Markets – Auction Houses, Art Dealers, & Gallery Sales
|
|
(3)
|
Logistics
Markets – Shipping/Transport Companies, Storage facilities, & Ancillary Services
|
|
(4)
|
Collectors
Market – Private Museums, Institutions & Collectors
|
|
(5)
|
Individual
Market – Scans at an select FACT location
|
FACT
is hopeful that it will also have an ancillary channel: Leasing of FACT device and software to clients who want unlimited on demand scans
which can be added on any of the above subscription packages.
Each
channel will be priced in a different capacity to reflect the service provided to such channel. Revenues are expected from the following
areas:
|
●
|
Individual
scans - Scans for individuals who want one or two time FACT Scans.
|
|
|
|
|
●
|
Salesman
Package - These are scans that would be purchased by Auction houses, dealers, and gallery owners to verify that the painting is authentic
as well as verification in the shipping/logistics process.
|
|
●
|
Financial
package - Art Insurers and Art Secured Lenders would use FACT to ensure that the painting they are inuring/lending against is not
a forgery. In addition, if the painting is held as collateral, the owner can make sure that the painting returned is authenticated.
|
|
|
|
|
●
|
Logistics
package - Warehouse and Shipping experts who specialize in art would use the FACT system to verify the painting that left point A
is the same that arrived at point B. In addition, FACT’s GPS system provides real time location tracking.
|
|
|
|
|
●
|
Collectors
package - Private museums, Foundations, & Institution Collectors would use the FACT system to authenticate a piece of art that
for example was loaned to a museum for an exhibit.
|
Operation,
General and Administrative Expenses
General
and administrative expenses for the years ended January 31, 2021 and 2020 totaled $447,374 and $25,585, respectively, representing a
1600% increase. The increases are primarily attributed to expenses related to consulting fees and legal fees.
Liquidity
and Capital Resources
Initially,
we anticipate the Company will be funded from investors, through the sale of debt or equity securities.
On
November 20, 2020, Fact, Inc. the Company and Oasis Capital, LLC (“Oasis”) entered into a Securities Purchase Agreement (the
“Note Purchase Agreement”) pursuant to which the Company agreed to sell and Oasis agreed to purchase $730,000 principal amount
of convertible promissory notes (the “Note”) for a purchase price of $610,000 which includes a 20% original issue discount
and $10,000 of expenses. On November 20, 2020, Oasis funded $250,000 (the “First Tranche”) and the Company in turn agreed
to issue to Oasis a note in the principal amount of $310,000. Under the Note Purchase Agreement, the Company will sell Oasis an additional
promissory note in the principal amount of $420,000 and issue an additional note for a purchase price of $350,000 (the “Second
Tranche”) upon the Company’s filing of a registration statement with the Securities and Exchange Commission (the “SEC”),
pursuant to the registration rights agreement (the “Registration Rights Agreement”) entered into by and between the Company.
The maturity date for each of the First Tranche and the Second Tranche is six (6) months from the date on which Oasis funds the respective
portion of the Note. The interest rate of the Note is 10% annum. The Note is convertible into shares of the Company’s common stock,
par value $.001 (the “Common Stock”) at the option of the holder. The “Conversion Price” per share shall be the
lesser of (i) $2.00 per share and (ii) 65% of the lowest traded price of the Common Stock as reported on the Trading Market during the
30 consecutive Trading Day (as defined in the Note Purchase Agreement) period ending and including the Trading Day immediately preceding
the delivery or deemed delivery of the applicable Notice of Conversion.
In
addition, in connection with the Note Purchase Agreement, the Company issued to Oasis 100,000 shares of Common Stock and a five year
warrant (the “Warrant”) to purchase up to 291,775 shares of Common Stock at a price equal to $1.10 per share.
On
November 20, 2020, the Company and Oasis entered into an Equity Purchase Agreement (the “Equity Purchase Agreement”)”),
whereby Oasis has committed to purchase $10,000,000 worth of Common Stock, as requested by the Company (the “Equity Line”).
The Company’s ability to draw upon the Equity Line is subject to the effectiveness of a registration statement with the SEC and
certain other contingencies. The Company entered into the Registration Rights Agreement with Oasis pursuant to the Equity Purchase Agreement..
In
connection with the EPA, the Company issued to Oasis an aggregate amount of 250,000 shares of Common Stock, of which 100,000 shares will
be restricted until Oasis funds at least $1,000,000 under the Equity Line. Purchases made under the EPA will be made at a 15% discount
under market price. Market price under the Equity Purchase Agreement is defined as 85% of the lowest traded price during the five consecutive
trading days following the date Oasis receives the shares.
We
may raise additional funds through the sale of debt and/or equity in the future.
We
anticipate that material expenditures in the next six (6) months will include development costs for the software and the firmware as
well purchases of the hardware. The Company estimates that development of the Prototype should cost approximately $500,000 to $700,000
in upfront software and firmware development costs. The Company also anticipates it will require several pieces of hardware, including,
but not limited to, an interferometer, scanning arms, vans, computers, monitors, and other related items. The Company anticipates costs
of approximately $2,000,000 with associated hard assets. We are in the process of selecting a software development firm to assist us
with the prototype.
While
we are hopeful that the initial capital expenditures will be covered by investor funds (see the description of the Equity Purchase Agreement
above for detailed explanation), ongoing cash flows from operations will fund future expenditures. We anticipate that future expenditures
post product launch by the end of the Company’s second quarter ending July 31, 2022, will include normal expenses from operations,
including, but not limited to, salaries, R&D, PP&E purchases, and marketing expenses. We anticipate there will be ongoing research
and software development as the Company expands into future lines of business such as other collectibles.
Cash
flows from operations are expected to commence at the beginning of the Company’s second fiscal quarter ending July 31, 2022, slowly
increasing at a slight percentage until the end of the Company’s 2022 year end. The Company expects its operations to result in
negative net cash flow throughout the Company’s 2022 end. Towards the end of 2022, the Company expects to increase net cash flow
due to an anticipated increase in the Company’s expected revenue and a decrease in its expected R&D expenditures for the Company’s
fourth quarter of 2022, as compared to the Company’s expected revenue and R&D expenditures, respectively, for the Company’s
first quarter ending April 30, 2022. There can be no assurances that the Company will achieve any revenues in 2022.
Cash
Flows
For
the year ended January 31, 2021, net cash flows used in operating activities were negative as the company entered into contracts to develop
the software and there were no associated revenues. As a startup – the product is in development and therefore the company did
not recognize any revenue during this time.
Off
Balance Sheet Arrangements
As
of the date of this Annual Report, we do not have any off balance sheet arrangements that have or are reasonably likely to have a current
or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors.
Significant
Accounting Policies
For
a discussion of the Company’s significant accounting policies please refer to Note 3 of the Company’s financial statements
included herein.
Revenue
Recognition
We
adopted Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”, and all
related interpretations for recognition of our revenue. Previously we recorded revenue based on ASC Topic 605. Adoption of new accounting
standard did not have any material impact on our reported revenue.
Basic
and Diluted Income (Loss) Per Share
The
Company computes income (loss) per share in accordance with FASB ASC 260 “Earnings per Share”. Basic loss per share is computed
by dividing net income (loss) available to common shareholders by the weighted average number of outstanding common shares during the
period. Diluted income (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive
loss per share excludes all potential common shares if their effect is anti-dilutive. As of January 31, 2021, there were no potentially
dilutive debt or equity instruments issued or outstanding.
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased with an original maturity of three
months or less to be cash equivalents. The Company’s bank accounts are deposited in insured institutions. The funds are insured
up to $250,000. At January 31, 2021, the Company’s bank deposits did not exceed the insured amounts.
Stock-Based
Compensation
As
of January 31, 2021, the Company has not issued any stock-based payments to its employees.
Stock-based
compensation is accounted for at fair value in accordance with ASC 718, when applicable. To date, the Company has not adopted a stock
option plan and has not granted any stock options.
Use
of Estimates
Preparing
financial statements in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and
outcomes may differ from management’s estimates and assumptions.
Income
Taxes
The
Company follows the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are
recognized for the estimated tax consequences attributable to differences between the financial statement carrying values and their respective
income tax basis (temporary differences). The effect on deferred income tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
COVID-19
The
novel coronavirus (“COVID-19”) was first identified in late 2019. COVID-19 spread rapidly throughout the world and, in March
2020, the World Health Organization (“WHO”) characterized COVID-19 as a pandemic. COVID-19 is a pandemic of respiratory disease
spreading from person-to-person that poses a serious public health risk. It has significantly disrupted supply chains and businesses
around the world. The extent and duration of the COVID-19 impact on our operations and financial position is highly uncertain.
Management
continues to closely monitor and evaluate the impact of the COVID-19 pandemic on the Company’s operations and will take, the necessary
actions to right-size the business in this environment, which is evolving daily. Some potential actions include, but are not limited
to, modified work schedules as well as appropriate adjustments to the operating expenditures and capital spending plans.
The
Company is not able to predict the ultimate impact that COVID -19 will have on its new business; however, if the current economic conditions
continue, the Company will be forced to significantly scale back its business operations and its growth plans, and could ultimately have
a significant negative impact on the Company.
Recently
Issued Accounting Pronouncements
The
Company has no material items to report at this time.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This
section is not required for smaller reporting companies.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
All
financial information required by this Item is attached hereto at the end of this report beginning on page F-1 and is hereby incorporated
by reference.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM
9A. CONTROLS AND PROCEDURES
Management’s
Report on Internal Control over Financial Reporting
The
Company’s management, with the participation of our principal executive officer and our principal financial officer, evaluated
the effectiveness of our disclosure controls and procedures (as that term is defined in Rule 13a-15(e)) as of January 31, 2021, the end
of the period covered by this Annual Report on Form 10-K.
Based
upon that evaluation, our Chief Executive Officer and our Chief Financial Officer (Principal Financial and Accounting Officer) concluded
that, as of January 31, 2021, our internal control over financial reporting was not effective as of the end of the period covered to
ensure that information required to be disclosed in our reports filed with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities
and Exchange Commission’s rules and forms and is accumulated and communicated to the Company’s management, including its
principal executive officer and its principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Disclosure
controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our
reports filed or submitted under the Exchange Act are 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 in our reports filed under the Exchange Act is accumulated and communicated to management,
including our Principal Executive Officer, and our Principal Financial and Accounting Officer, to allow timely decisions regarding required
disclosure.
During
2022, we identified material weaknesses in our internal control over financial reporting, which are disclosed in our annual report on
Form 10-K filed with the SEC.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting that occurred during the last fiscal quarter, (i.e., the year ended
January 31, 2021), that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
ITEM
9B. OTHER INFORMATION
None.
NOTES
TO THE FINANCIAL STATEMENTS
JANUARY
31, 2021 and 2020
NOTE
1 – ORGANIZATION AND BUSINESS
FACT,
Inc (f/k/a Tiburon International Trading, Corp.) was established under the laws of the State of Nevada on February 17, 2017. FACT, Inc
was established as a development stage company focusing its business on the verification and authentication of art, sports memorabilia
and fine art. The Company has adopted January 31 fiscal year end.
Change
of Control
On
October 5, 2020, Kryptos Art Technologies, Inc, (“Kryptos”), an Ontario corporation purchased 2,500,000 shares of Tiburon
from Yun Cai, who was the Chief Executive Officer, President, Chief Financial Officer and Sole Director of Tiburon. As a result of this
sale, Kryptos became the majority shareholder of Tiburon. The shares owned by Kryptos represent approximately 71.87% of Tiburon’s
outstanding common stock. The purchase price was $232,467. The funds were funds of Kryptos. Kryptos is controlled by Brian McWilliams.
Mr.
McWilliams was appointed the Company’s Chief Executive Officer on October 5, 2020. On October 8, 2020, Kryptos, as the holder of
approximately 71% of the voting stock of the Company executed a shareholder consent to effect a name change of the Tiburon to Fact, Inc
(“the Company, “FACT”).
Under
Mr. McWilliams’ management, the Company is winding down operations of the historic Tiburon business, which has largely been curtailed
by prior management because of COVID-19 and lack of capital necessary for expansion of the website and product offerings. Kryptos had
been working on a technology designed to detect and eliminate fraud in the art world. Kryptos has assigned all of its technological know-how
in this area to the Company which we will pursue as our primary business operations. In connection therewith, the Company has entered
into and is negotiating a series of development and consulting agreements with software and hardware developers to complete the development
of our products. The Company expects to enter into a license agreement to utilize fraud detection technology in the art area. The Company
expects to enter into such license agreement with an award winning forensic ballistic technology company that revolutionized the Criminal
Justice system’s approach to ballistics.
Mr.
McWilliams has stepped down as CEO, and asked Patricia Trompeter to step in as CEO for an interim.
FACT
stands for Forensic Asset Certification Technology. Using white light interferometry, FACT takes a non-destructive 3D digital fingerprint
of the art using over 100,000 unique images. These scans, measured at two (2) microns, equal to 1/50th of a human hair, are
unable to be reproduced or forged. Scans are compared to one another by a computer algorithm to verify the paintings authenticity. All
data is stored securely on the block-chain for real time collection management. We are currently developing a front-end user interface
as well as modifying existing ballistics firmware for a comprehensive verification, tracking and reporting system. The company is in
development of a scalable prototype (the “Prototype”) for mass deployment to consumer.
We
plan to market to various channels in different capacities including, but not limited to, subscription models, leasing models, and individual
point of sale models. The fees for our different models will range from a flat fee to a percentage of sales fee. The Company will commence
its marketing efforts in the Company’s first fiscal quarter following completion of the Prototype, with the hope that the product
may launch the quarter thereafter.
Our
products are not yet commercially available and we do not expect them to be commercially available until at least the end of the second
quarter ending July 31, 2022, if ever. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable
future, which may fluctuate significantly from quarter-to-quarter and year-to-year. We anticipate that our expenses will increase substantially
as we:
COVID-19
The
novel coronavirus (“COVID-19”) was first identified in late 2019. COVID-19 spread rapidly throughout the world and, in March
2020, the World Health Organization (“WHO”) characterized COVID-19 as a pandemic. COVID-19 is a pandemic of respiratory disease
spreading from person-to-person that poses a serious public health risk. It has significantly disrupted supply chains and businesses
around the world. The extent and duration of the COVID-19 impact on our operations and financial position is highly uncertain.
Management
continues to closely monitor and evaluate the impact of the COVID-19 pandemic on the Company’s operations and will take, the necessary
actions to right-size the business in this environment, which is evolving daily. Some potential actions include, but are not limited
to, modified work schedules as well as appropriate adjustments to the operating expenditures and capital spending plans.
The
Company is not able to predict the ultimate impact that COVID -19 will have on its new business; however, if the current economic conditions
continue, the Company will be forced to significantly scale back its business operations and its growth plans, and could ultimately have
a significant negative impact on the Company.
NOTE
2 – LIQUIDITY AND GOING CONCERN
The
Company’s financial statements as of January 31, 2021, been prepared using generally accepted accounting principles in the United
States of America (“GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its
operating costs and allow it to continue as a going concern. As of January 31, 2021, the Company has reoccurring losses from operations
and an accumulated deficit of $1,302,708 and has earned no revenues under current operations. These factors among others raise substantial
doubt about the ability of the company to continue as a going concern.
In
order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan
is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its
minimal operating expenses and seeking third party equity and/or debt financing. However, management cannot provide any assurances that
the Company will be successful in accomplishing any of its plans. These financial statements do not include any adjustments related to
the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company
be unable to continue as a going concern.
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
Company represents its financial statements were prepared in accordance with GAAP and the rules of the Securities and Exchange Commission
and that, in the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation
of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations
are historical and not necessarily indicative of the results to be expected for any future period.
Use
of estimates
The
preparation of financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the reported
amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates
and judgments are based on historical information, information that is currently available to the Company, and on various other assumptions
that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.
Cash
and cash equivalents
Cash
and cash equivalents consist of cash and short-term investments with original maturities of less than three months. Cash equivalents
are placed with high credit quality financial institutions and are primarily in money market funds. As of January 31, 2021, and 2020,
the Company had $9,945 and $46 in cash and no cash equivalents, respectively.
Convertible
Financial Instruments
The
Company bifurcates conversion options from their host instruments and accounts for them as free-standing derivative financial instruments
if certain criteria are met. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument
that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under otherwise applicable
generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument
with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when
the host instrument is deemed to be conventional, as that term is described under applicable GAAP.
When
the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, discounts are recorded
for the intrinsic value of conversion options embedded in the instruments based upon the differences between the fair value of the underlying
common stock at the commitment date of the transaction and the effective conversion price embedded in the instrument.
Common
stock purchase warrants and derivative financial instruments - Common stock purchase warrants and other derivative financial
instruments are classified as equity if the contracts (1) require physical settlement or net-share settlement, or (2) give the Company
a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). Contracts which (1) require
net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control
of the Company), (2) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share
settlement), or (3) that contain reset provisions that do not qualify for the scope exception are classified as liabilities. The Company
assesses classification of its common stock purchase warrants and derivatives at each reporting date to determine whether a change in
classification between equity and liabilities is required.
Revenue
Recognition
Revenues
are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration
that the Company expects to receive in exchange for those goods or services. The Company applies the following five steps in order to
determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
|
●
|
identify
the contract with a customer;
|
|
●
|
identify
the performance obligations in the contract;
|
|
●
|
determine
the transaction price;
|
|
●
|
allocate
the transaction price to performance obligations in the contract; and
|
|
●
|
recognize
revenue as the performance obligation is satisfied.
|
During
years ended January 31, 2021, and 2020, the following customers represented more than 10% of the company’s sales:
Customer
|
|
Year ended January 31, 2021
|
|
|
Year ended January 31, 2020
|
|
Customer A
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
4,500
|
|
|
|
100
|
%
|
Total concentration
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
4,500
|
|
|
|
100
|
%
|
Share-Based
Compensation
Employees
- The Company accounts for share-based compensation under the fair value method which requires all such compensation to employees,
including the grant of employee stock options, to be calculated based on its fair value at the measurement date (generally the grant
date), and recognized in the statement of operations over the requisite service period.
Nonemployees
- During June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”)
to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees.
The Company elected to adopt ASU 2018-07 early. Under the requirements of ASU 2018-07, the Company accounts for share-based compensation
to non-employees under the fair value method which requires all such compensation to be calculated based on the fair value at the measurement
date (generally the grant date), and recognized in the statement of operations over the requisite service period.
Income
Taxes
The
asset and liability method is used in the Company’s accounting for income taxes. Under this method, deferred tax assets and liabilities
are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted
tax rates and laws that are expected to be in effect when the differences are expected to reverse.
Deferred
tax assets and liabilities are determined based on the temporary differences between the financial statement carrying amounts and the
tax bases of assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse.
In estimating future tax consequences, all expected future events are considered other than enactment of changes in the tax law or rates.
The
Company adopted ASC 740 “Income Taxes,” which addresses the determination of whether tax benefits claimed or expected
to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit
from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position
should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate
settlement. ASC 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim
periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits.
The
determination of recording or releasing tax valuation allowance is made, in part, pursuant to an assessment performed by management regarding
the likelihood that the Company will generate future taxable income against which benefits of its deferred tax assets may or may not
be realized.
Long-Lived
Assets
Long-lived
assets are evaluated for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets
may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison
of the undiscounted future cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its
estimated fair value.
Property
and Equipment
Property
and equipment is recorded at cost reduced by accumulated depreciation and impairment, if any. Depreciation expense is recognized over
the assets’ estimated useful lives. Major additions and improvements are capitalized as additions to the property and equipment
accounts, while replacements, maintenance and repairs that do not improve or extend the life of the respective assets, are expensed as
incurred. Estimated useful lives are periodically reviewed and, when appropriate, changes are made prospectively. When certain events
or changes in operating conditions occur, asset lives may be adjusted and an impairment assessment may be performed on the recoverability
of the carrying amounts.
Fair
Value Measurements
The
Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring
basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement.
The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining
fair value. The three tiers are defined as follows:
|
●
|
Level
1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets;
|
|
|
|
|
●
|
Level
2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace
for identical or similar assets and liabilities; and
|
|
|
|
|
●
|
Level
3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions.
|
The
Company’s financial instruments, including cash, prepaid expense, accounts payable, note payable, due to related parties and accrued
liabilities, are carried at historical cost. At January 31, 2021 and 2020, the carrying amounts of these instruments approximated their
fair values because of the short-term nature of these instruments. See note 5 for the fair value of these derivative liabilities. This
valuation technique involves management’s estimates and judgment based on unobservable inputs and is classified in level 3.
Basic
and Diluted Net Loss Per Common Share
Basic
earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted-average number
of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available to
common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number
of additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued.
For
the years ended January 31, 2021, and 2020, the following common stock equivalents were excluded from the computation of diluted net
loss per share as the result of the computation was anti-dilutive.
|
|
Year Ended
|
|
|
|
January 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(Shares)
|
|
|
(Shares)
|
|
Warrants
|
|
|
291,775
|
|
|
|
-
|
|
Convertible Notes
|
|
|
518,588
|
|
|
|
|
|
Stock payable
|
|
|
20,000
|
|
|
|
-
|
|
Total
|
|
|
830,363
|
|
|
|
-
|
|
Recently
Issued Accounting Pronouncements
In
August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with “Conversion and Other Options”
and ASC subtopic 815-40 “Hedging—Contracts in Entity’s Own Equity”. The standard reduced the number of accounting
models for convertible debt instruments and convertible preferred stock. Convertible instruments that continue to be subject to separation
models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition
of a derivative, and that do not qualify for a scope exception from derivative accounting; and, (2) convertible debt instruments issued
with substantial premiums for which the premiums are recorded as paid-in capital. The amendments in this update are effective for fiscal
years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier
than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently assessing
the impact of the adoption of this standard on its financial statements.
The
Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will
have a material impact on its financial statements.
NOTE
4 – CONVERTIBLE NOTES
On
November 19, 2020, the Company entered a Securities Purchase Agreement (“SPA”) and Equity Purchase Agreement (“EPA”)
with a third party. Pursuant to SPA, the Company issued a convertible note payable up to $730,000, bearing 10% annual interest and cash
consideration up to $600,000 with maturity date of six months for each tranche payment. The note shall be convertible at the lesser of
(i) $2.00 per share and (ii) 65% of the lowest traded price of the common stock as reported on the trading market during the 30 consecutive
trading period. During the year ended January 31, 2021, the first tranche of $310,000 was issued. The Oasis note is currently past due
as of issuance and we anticipate that there will be penalties associated with this. We expected to incure interest penalties which are
to be determined.
On
January 8, 2021, the Company entered into a promissory note with MRVL Island Ventures LLC in the amount of $50,000. This note is payable
on January 31st, 2022. The Conversion price in effect of any conversion day shall be equal lowest price in effect of 75% of
the lowers VWAP during the 15 days tradingdays immediately prior top the conversion date. The price shall be appropropriately adjusted
for stock splits, dividends, stock combination, reclassification or any similar transaction that proportionately increase or decrease
the stock during this period. The interest rate is 8% per year which is payable in cash or kind payable on the maturity date. Late fees
are assessed at 16% per nanum at the discretion of MRVL management to waive any fees.
The
Company determined that the conversion features, in the convertible notes, met the definition of a liability in accordance with ASC Topic
No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock and therefore bifurcated the embedded conversion options
once the notes become convertible and accounted for it as a derivative liability. The fair value of the conversion feature was recorded
as a debt discount and amortized to interest expense over the term of the note.
The
Company valued the conversion feature using the Black-Scholes Merton pricing model. The fair value of the derivative liability for all
the note that became convertible during the year ended January 31, 2021 amounted to $498,301, and $145,915 of the value assigned to the
derivative liability was recognized as a debt discount to the notes while the balance of $352,386 was recognized as a “day 1”
derivative loss.
NOTE
5 – DERIVATIVE LIABILITIES
The
Company analyzed the conversion option for derivative accounting consideration under ASC 815, Derivatives and Hedging, and hedging, and
determined that the instrument should be classified as a liability since the conversion option becomes effective at issuance resulting
in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The Company
accounts for warrants as a derivative liability due to there being no explicit limit to the number of shares to be delivered upon settlement
of all conversion options.
ASC
815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in
the fair market value as other income or expense item.
The
Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes Merton pricing model
to calculate the fair value as of January 31, 2021. The Black-Scholes Merton model requires six basic data inputs: the exercise or strike
price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future,
and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of
each convertible note is estimated using the Black-Scholes Merton valuation model.
For
the years ended January 31, 2021, and 2020, the estimated fair values of the liabilities measured on a recurring basis are as follows:
|
|
|
Year Ended
|
|
|
|
Year Ended
|
|
|
|
|
January 31,
|
|
|
|
January 31,
|
|
|
|
|
2021
|
|
|
|
2020
|
|
Expected term
|
|
|
0.30 – 1.06 years
|
|
|
|
-
|
|
Expected average volatility
|
|
|
251% - 1,217
|
%
|
|
|
-
|
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
Risk-free interest rate
|
|
|
0.06% - 0.45
|
%
|
|
|
-
|
|
The
exercise price of the warrants is $1.10.
The
following table summarizes the changes in the derivative liabilities during the years ended January 31, 2021, and 2020:
Fair Value Measurements Using Significant Observable Inputs (Level 3)
|
|
|
|
|
|
Balance - January 31, 2020
|
|
$
|
-
|
|
|
|
|
|
|
Addition of new derivatives recognized as debt discounts
|
|
|
145,915
|
|
Addition of new derivatives recognized as loss on derivatives
|
|
|
352,386
|
|
Gain/Loss on change in fair value of the derivative
|
|
|
(28,712
|
)
|
Balance - January 31, 2021
|
|
$
|
469,589
|
|
The
aggregate (gain) loss on derivatives during the years ended January 31, 2021, and 2020 were as follows.
|
|
Year ended
|
|
|
|
January 31,
|
|
|
|
2021
|
|
|
2020
|
|
Day one loss due to derivative liabilities on convertible notes
|
|
$
|
352,386
|
|
|
$
|
-
|
|
(Gain) loss on change in fair value of the derivative liabilities
|
|
|
(28,712
|
)
|
|
|
-
|
|
|
|
$
|
323,674
|
|
|
$
|
-
|
|
NOTE
6 – WARRANTS
During
the year ended January 31, 2021, 291,775 warrants were granted for a period of five years from issuance, at a price of $1.10 per share.
The intrinsic value at January 31, 2021 was $29,178. The Company values the warrants using the Black Scholes model, with appropriate
assumptions for warrant life, stock value, risk free interest rate, and volatility.
A
summary of activity during the year ended January 31, 2021 follows:
|
|
Warrants Outstanding
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
Weighted Average Remaining Contractual life
|
|
|
|
|
warrants
|
|
|
|
Exercise Price
|
|
|
|
(in years)
|
|
Outstanding, January 31, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Granted
|
|
|
291,775
|
|
|
|
1.10
|
|
|
|
5.00
|
|
Reset feature
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, January 31, 2021
|
|
|
291,775
|
|
|
$
|
1.10
|
|
|
|
4.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, January 31, 2021
|
|
|
291,775
|
|
|
$
|
1.10
|
|
|
|
4.80
|
|
NOTE
7 – STOCKHOLDERS’ EQUITY
The
Company has 150,000,000 shares of common stock authorized with a par value of $0.001 per share.
On
November 13, 2020, the Company filed an amendment to its Articles of Incorporation to effect a 20-for-1stock split of its issued and
outstanding shares of common stock. All per share amounts and number of shares, in the financial statements and related notes have been
retroactively adjusted to reflect the stock split.
During
the year ended January 31, 2021, the Company issued 50,000 shares of common stock at price of $1.00 per share.
On
December 31, 2020, Kryptos Art Technologies, Inc., a company controlled by our former Chief Executive Officer, cancelled 15,750,000 shares
of common stock.
On
November 19, 2021, pursuant to the SPA and EPA agreements, the Company issued 250,000 shares of common stock as commitment shares and
100,000 shares of common stock as inducement shares to one company, respectively. The Company recognized the fair value of $262,500 and
$105,000 at market value of issuance date, respectively.
The
company will issue 80,000 shares total before year end to it’s individual directors, each receiving 20,000 shares.
As
of January 31, 2021, and 2020, the Company had 54,216,680 and 69,566,680 and shares of common stock issued and outstanding.
NOTE
8 – RELATED PARTY TRANSACTIONS
In
support of the Company’s efforts and cash requirements, it may rely on advances from related parties until such time that the Company
can support its operations or attains adequate financing through sales of its equity or traditional debt financing. There is no formal
written commitment for continued support by officers, directors, or shareholders. Amounts represent advances or amounts paid in satisfaction
of liabilities. The advances are considered temporary in nature and have not been formalized by a promissory note.
Rutherglen
Inc is owned and managed by Brian McWilliams, a former employee and investor in FACT, Inc.
The
Company paid Alex Tierney of Lazarus Capital $7,333 per month from September to January 2021 to assist with the project management of
the software as well assist with the financials.
Since
February 17, 2017 (Inception) through January 31, 2020, the Company’s sole officer and director loaned the Company $38,133 to pay
for incorporation costs and operating expenses, $17,670 of this loan were cash deposits to the Company’s bank account.
During
the year ended January 31, 2021, the related party forgave the amount due of $38,133.
As
of January 31, 2021, and 2020, the amount due to related party was $0 and $12,763.
NOTE
9 - INCOME TAXES
The
Company follows ASC 740. Deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts of assets
and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss carry-forwards.
No net provision for refundable Federal income tax has been made in the accompanying statement of loss because no recoverable taxes were
paid previously. Similarly, no deferred tax asset attributable to the net operating loss carry-forward has been recognized, as it is
not deemed likely to be realized.
Deferred
taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts recorded for tax purposes. Significant components of the Company’s deferred tax assets and liabilities
are as follows:
|
|
January 31,
|
|
|
January 31,
|
|
|
|
2021
|
|
|
2020
|
|
Net operating loss carry forward
|
|
$
|
(1,302,708
|
)
|
|
$
|
(42,017
|
)
|
Effective Tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
Deferred tax assets
|
|
|
273,569
|
|
|
|
8,824
|
|
Valuation allowance
|
|
|
(273,569
|
)
|
|
|
(8,824
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
At
January 31, 2021 and 2020, the Company had $1,302,708 and $42,017, respectively of the U.S. net operating losses (the “NOLs”),
which begin to expire beginning in 2036. NOLs generated in tax years prior to July 31, 2018, can be carryforward for twenty years, whereas
NOLs generated after July 31, 2018, can be carryforward indefinitely.
The
Company has not completed its evaluation of NOL utilization limitation under IRC Section 382, change of ownership rules, but believes
that it had a change of ownership that would limit the amount of U.S. NOLs that could be utilized each year based on the “Internal
Revenue Code, as Amended.”
NOTE
10 - SUBSEQUENT EVENTS
The
Company has evaluated subsequent events from January 31, 2021 through the date these financial statements were issued and determined
the following events require disclosure:
|
●
|
The
company received $80,000 cash for issuance of 80,000 shares of common stock at a price of $1.00 per share. On February 9, 2021, the
Company issued 100,000 shares of common stock in conjunction with $80,000 received on February 9, 2021 and stock payable due as of
January 31, 2021.
|
|
●
|
On
February 9, 2021, the Company issued 100,000 shares of common stock to MSW PROJECTS LTD
|
|
●
|
On
March 24, 2021 , the Company issued 900,000 shares of common stock to SRAX INC.
|
|
●
|
The
Company will issue 20,000 shares to each of it’s 4 directors on December 31, 2021 for a total of 80,000 shares.
|