ITEM
1. FINANCIAL STATEMENTS
FACT,
INC.
INTERIM
FINANCIAL STATEMENTS
(UNAUDITED)
Table
of Contents
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders of Fact, Inc.
Results
of Review of Interim Financial Information
We
have reviewed the condensed balance sheet of Fact, Inc. (the Company) as of April 30, 2021, and the related condensed statements of operations
for the three-month periods ended April 30, 2021 and 2020, and condensed statements of stockholders’ deficit cash flows for the
periods then ended, and the related notes (collectively referred to as the interim financial statements). Based on our reviews, we are
not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity
with accounting principles generally accepted in the United States of America.
We
have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
balance sheet of the Company as of January 31, 2021, and the related statements of income, stockholders’ deficit, and cash flows
for the year then ended (not presented herein); and in our report dated September 21, 2021, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in the accompanying condensed balance sheet as of January 31, 2021, is
fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.
Going
Concern
Note
2 of the Company’s audited financial statements as of January 31, 2021, and for the year then ended discloses that the Company
has not earned sufficient revenues from operations, an accumulated deficit, and recurring losses from operations. Our auditor’s
report on those financial statements includes an explanatory paragraph referring to the matters in Note 2 of those financial statements
and indicating that these matters raised substantial doubt about the Company’s ability to continue as a going concern. As indicated
in Note 2 of the Company’s unaudited interim financial statements as of April 30, 2021, and for the three months then ended, the
Company was still unable to earn sufficient revenues from operations, has an accumulated deficit, and has recurring losses from operations.
The accompanying interim financial information does not include any adjustments that might result from the outcome of this uncertainty.
Basis
for Review Results
These
interim financial statements are the responsibility of the Company’s management. We conducted our review in accordance with the
standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries
of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance
with standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
Spokane,
Washington
|
October
4, 2021
|
|
FACT,
INC.
CONDENSED
BALANCE SHEETS
(UNAUDITED)
|
|
April 30,
|
|
|
January 31,
|
|
|
|
2021
|
|
|
2021
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,563
|
|
|
$
|
9,945
|
|
Prepaid expenses
|
|
|
1,667
|
|
|
|
2,292
|
|
Total Current Assets
|
|
|
4,230
|
|
|
|
12,237
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
4,230
|
|
|
$
|
12,237
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
77,902
|
|
|
$
|
63,665
|
|
Accrued interest
|
|
|
16,412
|
|
|
|
6,200
|
|
Convertible notes payable, net of unamortized discount of $68,108 and $234,972, respectively
|
|
|
291,892
|
|
|
|
125,028
|
|
Derivative liability
|
|
|
290,026
|
|
|
|
469,589
|
|
Total Current Liabilities
|
|
|
676,232
|
|
|
|
664,482
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable non-current, net of unamortized discount of $6,613 and $0, respectively
|
|
|
126,387
|
|
|
|
-
|
|
Total Liabilities
|
|
|
802,619
|
|
|
|
664,482
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit:
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 150,000,000 shares authorized, 55,216,680 and 54,216,680 shares issued and outstanding at April 30, 2021 and January 31, 2021, respectively
|
|
|
55,217
|
|
|
|
54,217
|
|
Additional paid-in capital
|
|
|
1,583,396
|
|
|
|
576,266
|
|
Stock payable
|
|
|
-
|
|
|
|
19,980
|
|
Deferred stock compensation
|
|
|
(675,000
|
)
|
|
|
-
|
|
Accumulated deficit
|
|
|
(1,762,002
|
)
|
|
|
(1,302,708
|
)
|
Total Stockholders’ Deficit
|
|
|
(798,389
|
)
|
|
|
(652,245
|
)
|
Total Liabilities and Stockholders’ Deficit
|
|
$
|
4,230
|
|
|
$
|
12,237
|
|
The
accompanying unaudited notes to the financials should be read in conjunction with these condensed
financial statements.
FACT,
INC.
CONDENSED
STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
Three months ended
|
|
|
|
April 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Advertising and marketing
|
|
$
|
134,000
|
|
|
$
|
-
|
|
General and administrative
|
|
|
264,911
|
|
|
|
3,647
|
|
Professional fees
|
|
|
61,353
|
|
|
|
-
|
|
Total Operating Expenses
|
|
|
460,264
|
|
|
|
3,647
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(460,264
|
)
|
|
|
(3,647
|
)
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(178,593
|
)
|
|
|
-
|
|
Change in fair value of derivative liability
|
|
|
179,563
|
|
|
|
-
|
|
Net Other Income
|
|
|
970
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Loss Before Provision for Income Taxes
|
|
|
(459,294
|
)
|
|
|
(3,647
|
)
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(459,294
|
)
|
|
$
|
(3,647
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per common share: basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: basic and diluted
|
|
|
54,686,680
|
|
|
|
69,566,680
|
|
The
accompanying unaudited notes to the financials should be read in conjunction with these condensed
financial statements.
FACT,
INC.
CONDENSED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED)
For
the Three Months Ended April 30, 2021
|
|
Common
stock
|
|
|
Additional
Paid-in
|
|
|
Stock
|
|
|
Deferred
Stock
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Payable
|
|
|
Compensation
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- January 31 2021
|
|
|
54,216,680
|
|
|
$
|
54,217
|
|
|
$
|
576,266
|
|
|
$
|
19,980
|
|
|
$
|
-
|
|
|
$
|
(1,302,708
|
)
|
|
$
|
(652,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for cash
|
|
|
100,000
|
|
|
|
100
|
|
|
|
99,900
|
|
|
|
(19,980
|
)
|
|
|
|
|
|
|
-
|
|
|
|
80,020
|
|
Common
stock for service
|
|
|
900,000
|
|
|
|
900
|
|
|
|
899,100
|
|
|
|
-
|
|
|
|
(675,000
|
)
|
|
|
-
|
|
|
|
225,000
|
|
Beneficial
conversion feature
|
|
|
-
|
|
|
|
-
|
|
|
|
8,130
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,130
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(459,294
|
)
|
|
|
(459,294
|
)
|
Balance
- April 30, 2021
|
|
|
55,216,680
|
|
|
$
|
55,217
|
|
|
$
|
1,583,396
|
|
|
$
|
-
|
|
|
$
|
(675,000
|
)
|
|
$
|
(1,762,002
|
)
|
|
$
|
(798,389
|
)
|
For
the Three Months Ended April 30, 2020
|
|
Common
stock
|
|
|
Additional
Paid-in
|
|
|
Stock
|
|
|
Deferred
Stock
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Payable
|
|
|
Compensation
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- January 31 2020
|
|
|
69,566,680
|
|
|
$
|
69,567
|
|
|
$
|
(39,717
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(42,017
|
)
|
|
$
|
(12,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,647
|
)
|
|
|
(3,647
|
)
|
Balance
- April 30, 2020
|
|
|
69,566,680
|
|
|
$
|
69,567
|
|
|
$
|
(39,717
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(45,664
|
)
|
|
$
|
(15,814
|
)
|
The
accompanying unaudited notes to the financials should be read in conjunction with these condensed financial statements.
FACT,
INC.
CONDENSED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Three
Months Ended
|
|
|
|
April
30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(459,294
|
)
|
|
$
|
(3,647
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
expense
|
|
|
-
|
|
|
|
100
|
|
Amortization
of debt discount
|
|
|
168,381
|
|
|
|
-
|
|
Change
in value of derivative liabilities
|
|
|
(179,563
|
)
|
|
|
-
|
|
Stock
based compensation
|
|
|
225,000
|
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
625
|
|
|
|
-
|
|
Accounts
payable and accrued liabilities
|
|
|
7,223
|
|
|
|
-
|
|
Accrued
note payable interest
|
|
|
10,212
|
|
|
|
-
|
|
Accrued
management compensation
|
|
|
7,014
|
|
|
|
-
|
|
Net
cash used in operating activities
|
|
|
(220,402
|
)
|
|
|
(3,547
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds
from loan from related party
|
|
|
-
|
|
|
|
3,650
|
|
Proceeds
from issuance of common stock
|
|
|
80,020
|
|
|
|
-
|
|
Proceed
from issuance of convertible notes
|
|
|
133,000
|
|
|
|
-
|
|
Net
cash provided by Financing Activities
|
|
|
213,020
|
|
|
|
3,650
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash for period
|
|
|
(7,382
|
)
|
|
|
103
|
|
Cash
at beginning of period
|
|
|
9,945
|
|
|
|
46
|
|
Cash
at end of period
|
|
$
|
2,563
|
|
|
$
|
149
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash
paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non
Cash Investing and Financing Activities
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature
|
|
$
|
8,130
|
|
|
$
|
-
|
|
Issuance
of common stock for stock payable
|
|
$
|
19,980
|
|
|
|
$
|
|
The
accompanying unaudited notes to the financials should be read in conjunction with these condensed financial statements.
FACT,
INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles in
the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly,
the unaudited interim financial statements do not include all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
In
the opinion of management, all adjustments consisting of normal recurring entries necessary for a fair statement of the periods presented
for: (a) the financial position; (b) the result of operations; and (c) cash flows, have been made in order to make the unaudited interim
financial statements presented not misleading. The results of operations for such interim periods are not necessarily indicative of operations
for a full year. The accompanying unaudited interim financial statements should be read in conjunction with the financial statements
and related notes included in the Company’s Annual Report on Form 10-K, for the year ended January 31, 2021, as filed with the
SEC on September 24, 2021.
Use
of Estimates
The
preparation of condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Convertible
Financial Instruments
Beneficial
Conversion Feature - The issuance of the convertible debt described in Note 3, below, generated a beneficial conversion feature
(“BCF”), which arises when a debt or equity security is issued with an embedded conversion option that is beneficial to the
investor or in the money at inception because the conversion option has an effective strike price that is less than the market price
of the underlying stock at the commitment date. The Company recognized the BCF by allocating the intrinsic value of the conversion option,
which is the number of shares of common stock available upon conversion multiplied by the difference between the effective conversion
price per share and the fair value of common stock per share on the commitment date, resulting in a discount on the convertible debt
(recorded as a component of additional paid-in capital). The discount is amortized to interest expense over the term of the convertible
debt.
Share-Based
Compensation
ASC
718 “Compensation – Stock Compensation,” prescribes accounting and reporting standards for all share-based payment
transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares,
options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees,
including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values.
That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known
as the requisite service period (usually the vesting period).
Equity-based
payments to non-employees are measured at grant-date fair value of the equity instruments that the Company is obligated to issue when
the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied.
Equity-classified nonemployee share based payment awards are measured at the grant date
During
the three months ended April 30, 2021 and 2020, the Company recognized $225,000 and $0, respectively.
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 three months ended April 30, 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.
|
|
Three Months Ended
|
|
|
|
April 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(Shares)
|
|
|
(Shares)
|
|
Warrants
|
|
|
291,775
|
|
|
|
-
|
|
Convertible Notes
|
|
|
1,383,317
|
|
|
|
-
|
|
Total
|
|
|
1,675,092
|
|
|
|
-
|
|
RECENT
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. The Company
has adopted this standard on February 1, 2021.
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
2 – LIQUIDITY AND GOING CONCERN
The
Company’s financial statements as of April 30, 2021 have been prepared using generally accepted accounting principles in the United
States of America 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. These factors among others raise substantial doubt about the ability of the Company to continue as
a going concern for a reasonable period of time.
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, significant shareholders and other sources 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.
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.
NOTE
3 – 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 incur 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 trading days immediately prior top the conversion date. The price shall be appropriately 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 annum at the discretion of MRVL management to waive any fees.
During
the three months ended April 30, 2021, the Company issued three (3) convertible notes in the total of amount of $133,000. The term of
the notes are 18 months, and annual interest rates are 8% (default rate is 18%). The Conversion price is a fixed $1.00. The Company
recognized a beneficial conversion feature of $8,130.
The
Company determined that the conversion features, in the convertible notes which have variable conversion prices, 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 notes 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.
During
the three months ended April 30, 2021, the Company recorded interest expense of $10,212 and amortization of debt discount of $168,381.
NOTE
4 – 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 April 30, 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 three months ended April 30, 2021, the estimated fair values of the liabilities measured on a recurring basis are as follows:
|
|
|
Three Months Ended
|
|
|
|
|
April 30,
|
|
|
|
|
2021
|
|
Expected term
|
|
|
0.05
- 0.76 years
|
|
Expected average volatility
|
|
|
181
- 231
|
%
|
Expected dividend yield
|
|
|
-
|
|
Risk-free interest rate
|
|
|
0.01
- 0.05
|
%
|
The
following table summarizes the changes in the derivative liabilities during the three months ended April 30, 2021:
Fair Value Measurements Using Significant Observable Inputs (Level 3)
|
|
|
|
|
|
|
Balance - January 31, 2021
|
|
$
|
469,589
|
|
Loss on change in fair value of the derivative
|
|
|
(179,563
|
)
|
Balance – April 30, 2021
|
|
$
|
290,026
|
|
NOTE
5 – 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 April 30, 2021 was $0. 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 three months ended April 30, 2021 follows:
|
|
Warrants Outstanding
|
|
|
|
Number of
|
|
|
Weighted
Average
|
|
|
Weighted Average Remaining
Contractual life
|
|
|
|
warrants
|
|
|
Exercise Price
|
|
|
(in years)
|
|
Outstanding, January 31, 2021
|
|
|
291,775
|
|
|
$
|
1.10
|
|
|
|
4.80
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Reset feature
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, April 30, 2021
|
|
|
291,775
|
|
|
$
|
1.10
|
|
|
|
4.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, April 30, 2021
|
|
|
291,775
|
|
|
$
|
1.10
|
|
|
|
4.56
|
|
NOTE
6 – STOCKHOLDERS’ EQUITY
The
Company has 150,000,000 shares of common stock authorized with a par value of $0.001 per share.
During
the three months ended April 30, 2021, the Company issued common stock as follows:
|
●
|
100,000
shares at price of $1.00 per share, for cash and stock payable.
|
|
|
|
|
●
|
900,000
shares value at $1.00 per share, for services to be provided over a 1 year term. As of April 30, 2021, the Company recorded as part
of equity, deferred stock compensation of $675,000.
|
As
of April 30, 2021 and January 31, 2021, the Company had 55,216,680 and 54,216,680 shares of common stock issued and outstanding, respectively.
NOTE
7 – 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.
During
the three months ended April 30, 2021, Rutherglen Value Enhancements Inc (“Rutherglen”) invested $113,000 for convertible
notes. Rutherglen is owned and managed by Brian McWilliams, a former employee and investor in FACT, Inc.
For
the three months ended April 30, 2021, the Company’s accrued salary of $7,014, to a member of the Board of Directors.
In
the 4th quarter of 2020, Kryptos Art Technologies, Inc, a majority shareholder in FACT, Inc, entered into a contract
with SRAX on behalf of Fact, Inc. The contract was signed by Brian McWilliams who was CEO of FACT, Inc at the time and the owner of Kryptos
Art Technologies. SRAX is an operating system and investor relations platform that allows you to track the buying and selling of your
publicly traded stock to give you insights across marketing channels. It allows you to target investors and present shareholders to increase
your capital. The cost of the platform was $900,000 which was payable in FACT, Inc stock. The system became functional in March of 2021
and shall remain in place until March 2022. FACT, Inc plans to approach SRAX in March of 2022 to negotiate a reduced fee or credit for
the platform fees for 2022-2023.
NOTE
8 - SUBSEQUENT EVENTS
The
Company has evaluated subsequent events from April 30, 2021 through the date these financial statements were issued and determined the
following events require disclosure:
|
●
|
The
Company will issue 20,000 shares to each of its four (4) directors on December 31, 2021 for a total of 80,000 shares.
|
|
|
|
|
●
|
The
Directors have agreed to defer their payments until FACT, Inc can raise adequate funds to make such payments.
|
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PRELIMINARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Quarterly Report on Form 10-Q contains forward-looking statements. The reader should understand that several factors govern whether any
forward-looking statement contained herein will be or can be achieved. Any one of those factors could cause actual results to differ
materially from those projected herein. These forward-looking statements include plans and objectives of management for future operations,
including plans and objectives relating to the products and the future economic performance of the Company. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, future business
decisions, and the time and money required to successfully complete development projects, all of which are difficult or impossible to
predict accurately and many of which are beyond the control of the Company. Although the Company believes that the assumptions underlying
the forward-looking statements contained herein are reasonable, any of those assumptions could prove inaccurate and, therefore, there
can be no assurance that the results contemplated in any of the forward-looking statements contained herein will be realized. Based on
actual experience and business development, the Company may alter its marketing, capital expenditure plans or other budgets, which may
in turn affect the Company’s results of operations. In light of the significant uncertainties inherent in the forward-looking statements
included therein, the inclusion of any such statement should not be regarded as a representation by the Company or any other person that
the objectives or plans of the Company will be achieved.
A
complete discussion of these uncertainties are contained in our Annual Financial Statements included in the Form 10-K for the fiscal
year ended January 31, 2021, as filed with the Securities and Exchange Commission on September 24, 2021.
Introduction
Tiburon
International Trading, Corp (“Tiburon”) was established under the laws of the State of Nevada on February 17, 2017. 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 Director of Tiburon. As a result of this sale, Kryptos became the majority shareholder of the 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 Victoria Glynn.
Mr.
McWilliams was appointed Tiburon’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
wound down operations of the historic Tiburon business, which had 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. Using white light
interferometry, FACT takes a non-destructive unique digital fingerprint of the art using over 10,000 unique scans. These scans, measured
at two (2) microns, 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, 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 Company’s first quarter ending April 30, 2022, with the hope that the product may launch
in the Company’s second quarter ending July 31, 2022.
The
following is a discussion of our financial condition, results of operations, financial resources, and working capital. This discussion
and analysis should be read in conjunction with our financial statements contained in this Form 10-Q.
OVERVIEW
The
Company’s sales from continuing operations for the three months ended April 30, 2021 and 2020 were $0 and $0, respectively.
GOING
CONCERN
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company’s
continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis.
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.
Results
of Operations.
Three
months ended April 30, 2021 compared to three months ended April 30, 2020:
The
following summary of our operations should be read in conjunction with our unaudited financial statements for the three months ended
April 30, 2021 and 2020.
|
|
Three months ended
|
|
|
|
|
|
|
April 30,
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Operating expenses
|
|
|
460,264
|
|
|
|
3,647
|
|
|
|
456,617
|
|
Other income
|
|
|
970
|
|
|
|
-
|
|
|
|
970
|
|
Net loss
|
|
$
|
(459,294
|
)
|
|
$
|
(3,647
|
)
|
|
$
|
455,647
|
|
During
the three months ended April 30, 2021 and 2020, we did not have any revenues.
Our
financial statements report a net loss of $459,294 for the three months ended April 30, 2021 compared to a net loss of $3,647 for the
three months ended April 30, 2020.
Our
operating expenses for the three months ended April 30, 2021 were $460,264 compared to $3,647 for the three months ended April 30, 2020.
For the three months ended April 30, 2021, operating expenses consists of professional fees of $61,353, advertising and marketing of
$134,000 and general and administrative expenses of $264,911. General and administrative expenses increased primarily in 2021 due to
the issuance of common shares for services valued at $225,000.
For
the three months ended April 30, 2020, operating expenses consisted of general and administrative expenses of $3,647.
Our
other income for the three months ended April 30, 2021 was $970 compared to $0 for the three months ended April 30, 2020. For the three
months ended April 30, 2021, other income consists of interest expense of $10,212 and amortization debt discount of $168,381, offset
by gain of change in fair value of derivative liability of $179,563.
Liquidity
and Capital Resources
The
following table provides selected financial data about our company as of April 30, 2021 and January 31, 2021.
Working
Capital
|
|
April 30,
|
|
|
January 31,
|
|
|
|
|
|
|
2021
|
|
|
2021
|
|
|
Change
|
|
Cash
|
|
$
|
2,563
|
|
|
$
|
9,945
|
|
|
$
|
(7,382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
$
|
4,230
|
|
|
$
|
12,237
|
|
|
$
|
(8,007
|
)
|
Current Liabilities
|
|
$
|
802,619
|
|
|
$
|
664,482
|
|
|
$
|
138,137
|
|
Working Capital (Deficiency)
|
|
$
|
(798,389
|
)
|
|
$
|
(652,245
|
)
|
|
$
|
(146,144
|
)
|
Stockholders’
deficit was $798,389 as of April 30, 2021 compared to stockholders’ deficit of $652,245 as of January 31, 2021. The increase in
current liabilities is primarily due to an increase of convertible notes offset by a decrease in derivative liability.
Cash
Flows
|
|
Three Months Ended
|
|
|
|
April 30,
|
|
|
|
2021
|
|
|
2020
|
|
Cash used in operating activities
|
|
$
|
(220,402
|
)
|
|
$
|
(3,547
|
)
|
Cash provided by Investing Activities
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash provided by financing activities
|
|
$
|
213,020
|
|
|
$
|
3,650
|
|
Net Change In Cash
|
|
$
|
(7,382
|
)
|
|
$
|
103
|
|
Operating
Activities
We
have not generated positive cash flows from operating activities. For the three months ended April 30, 2021, net cash flows used in operating
activities was $220,402 consisting of a net loss of $459,294, reduced by amortization of debt discount of $168,381, stock-based compensation
of $225,000, net change in working capital of $25,074, and offset by gain of change in fair value of derivative liability of $179,563.
The gain on derivative liability was due to the reduction of the liability primarily from the drop on stock price at April 30, 2021 as
compared to January 31, 2021
For
the three months ended April 30, 2020, net cash flows used in operating activities was $3,547, consisting of a net loss of $3,647, reduced
by depreciation of $100.
Investing
Activities
The
Company did not use any funds for investing activities during the three months ended April 30, 2021 and 2020.
Financing
Activities
For
three months ended April 30, 2021, net cash provided by financing activities was $213,020, consisting of issuance common stock of $80,020
and issuance convertible notes of $133,000.
For
three months ended April 30,2020, net cash provided by financing activities was $3,650, consisting of loan from related party of $3,650.
Critical
Accounting Policies
We
believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies
as “critical” because these specific areas generally require us to make judgments and estimates about matters that are uncertain
at the time we make the estimate, and different estimates—which also would have been reasonable—could have been used, which
would have resulted in different financial results.
Our
management’s discussion and analysis of financial condition and results of operations is based on our condensed financial statements,
which have been prepared in accordance with U.S. GAAP. The preparation of our condensed financial statements requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets
and liabilities. On an ongoing basis, we evaluate our estimates based on historical experience and make various assumptions, which management
believes to be reasonable under the circumstances, which form the basis for judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The
notes to our condensed financial statements contained herein contain a summary of our significant accounting policies. We consider the
following accounting policies critical to the understanding of the results of our operations:
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.
Derivative
financial instruments - 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.
Beneficial
Conversion Feature - The issuance of the convertible debt generated a beneficial conversion feature (“BCF”), which
arises when a debt or equity security is issued with an embedded conversion option that is beneficial to the investor or in the money
at inception because the conversion option has an effective strike price that is less than the market price of the underlying stock at
the commitment date. The Company recognized the BCF by allocating the intrinsic value of the conversion option, which is the number of
shares of common stock available upon conversion multiplied by the difference between the effective conversion price per share and the
fair value of common stock per share on the commitment date, resulting in a discount on the convertible debt (recorded as a component
of additional paid-in capital). The discount is amortized to interest expense over the term of the convertible debt.
Share-Based
Compensation
ASC
718 “Compensation – Stock Compensation,” prescribes accounting and reporting standards for all share-based payment
transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares,
options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees,
including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values.
That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known
as the requisite service period (usually the vesting period).
Equity-based
payments to non-employees are measured at grant-date fair value of the equity instruments that the Company is obligated to issue when
the service has been rendered and any other conditions necessary to earn the right to benefit from the instruments have been satisfied.
Equity-classified nonemployee share based payment awards are measured at the grant date
Off-
Balance Sheet Arrangements
The
Company currently does not have any off-balance sheet arrangements.