Note 1 - Summary of Significant Accounting Policies
|12 Months Ended|
Dec. 31, 2017
|Notes to Financial Statements|
|Significant Accounting Policies [Text Block]||
– Summary of Significant Accounting Policies
Nature of Business
The Coretec Group Inc. (the “Group”) (formerly
“3DIcon”) was incorporated on
August 11, 1995,under the laws of the State of Oklahoma as First Keating Corporation. The articles of incorporation were amended
August 1, 2003to change the name to
2001,First Keating Corporation began to focus on the development of
360-degree holographic technology. From
January 1, 2001,
3DIcon’sprimary activity has been the raising of capital in order to pursue its goal of becoming a significant participant in the development, commercialization and marketing of next generation
Coretec Industries, LLC (“Coretec”), a wholly owned subsidiary of
the Group (collectively the “Company”), was organized on
June 2, 2015in the state of North Dakota. Coretec is currently developing, testing, and providing new and/or improved technologies, products, and service solutions for energy-related industries including, but
notlimited to oil/gas, renewable energy, and distributed energy industries. Many of these technologies and products also have application for medical, electronic, photonic, display, and lighting markets among others. Early adoption of these technologies and products is anticipated in markets for energy storage (Li-ion batteries), renewable energy (BIPV), and electronics (Asset Monitoring).
May 31, 2016,
the Group entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Coretec and
fourCoretec members (the “Members”), which Members held all outstanding membership interests in Coretec. On
September 30, 2016 (the “Closing Date”), the Group closed the transaction contemplated by the Share Exchange Agreement. Pursuant to the Share Exchange Agreement, the Members agreed to sell all their membership interests in Coretec to the Group in exchange for the Group’s issuance of an aggregate
4,760,872shares of the Group’s Series B Convertible Preferred Stock to the Members (the “Exchange”). Coretec became a wholly-owned subsidiary of the Group and the former Members beneficially owned approximately
65%of the Group’s common stock on a fully-diluted basis on the Closing Date. Upon the closing of the Share Exchange Agreement,
twoof the Group’s Directors resigned and
threenew Directors associated with Coretec were nominated and elected, giving control of the board of directors to former Coretec Members. The
65%holders of the Group common stock were unable to sell that stock for a period of
oneyear under the terms of a lock-up agreement reached between the parties. Victor Keen, the largest shareholder of the Group prior to the reverse acquisition, was also a participant in the lock-up agreement.
Authorization of Name Change
February 21, 2017,the Board unanimously approved the proposal to seek stockholder approval and authorization to amend the
3DIconCertificate of Incorporation to change the name of
3DIconto “The Coretec Group Inc.” (the “Name Change”) and thereafter change its trading symbol to a trading symbol resembling the name of the Group following the Name Change. On
February 21, 2017,a majority of the Group’s stockholders adopted resolutions by written consent authorizing the Board to undertake the Name Change. This Name Change became effective
June 28, 2017upon the Group’s filing of the Name Change Amendment with the Secretary of State of the State of Oklahoma.
Authorization of Reverse Stock Split
February 21, 2017 (the “Record Date”), the Board of Directors unanimously approved, and a majority of the
Company’s stockholders, as of the Record Date, approved by written consent pursuant to Section
1073of the Oklahoma Act, to permit the Company’s Board of Directors, in its sole discretion, to effectuate
oneor more consolidations of the issued and outstanding shares of common stock at some future date
nolater than the
firstanniversary of the Record Date, pursuant to which the shares of common stock would be combined and reclassified into
onevalidly issued fully paid and non-assessable share of common stock at a ratio (the “Reverse Split Ratio”) within the range of
50and up to
300(the “Reverse Split Range”), with each stockholder otherwise entitled to receive a fractional share of common stock as a result of the Reverse Stock Split. Effective
June 28, 2017,a Reverse Stock Split pursuant to the maximum stated Reverse Split Ratio, each
300shares of our issued and outstanding common stock was automatically converted into
1share of common stock.
Basis of Presentation
Under accounting principles generally accepted in the United States of America (“U.S. GAAP”), the acquisition is treated as a “reverse acquisition” under the purchase method of accounting (see Note
2). The consolidated statements of operations herein reflect the historical results of Coretec prior to the completion of the reverse acquisition since it was determined to be the accounting acquirer, and do
notinclude the historical results of operations for
3DIconprior to the completion of the acquisition.
’s assets and liabilities were consolidated with the assets and liabilities of Coretec as of the
September 30, 2016consummation of the acquisition and are included in the consolidated balance sheet as of
December 31, 2016.The number of shares issued and outstanding and additional paid-in capital of the Company have been retroactively adjusted to reflect the equivalent number of shares issued by the Group in the Share Exchange Agreement, while Coretec’s historical members’ deficit is being carried forward as the Group’s accumulated deficit. All costs attributable to the reverse merger were expensed.
Principles of Consolidation
The consolidated balance sheet
s as of
December 31, 2017and
2016include the accounts of the Group and its wholly owned subsidiary, Coretec. The consolidated statements of operations and cash flows for the year ended
December 31, 2017include the accounts of the Group and Coretec for the entire year. The consolidated statements of operations and cash flows for the year ended
December 31, 2016include the accounts of Coretec for the entire year and the accounts of the Group from
September 30, 2016,the acquisition date, to
December 31, 2016.Intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. Actual results could differ from the estimates and assumptions used.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is recorded over the estimated useful lives using the straight-line method. Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized.
Estimated useful lives of property and equipment are as follows for the major classes of assets:
Intangible assets consist primarily of acquired patents. The
$1,400,000of intangible assets in conjunction with the reverse acquisition discussed in Note
2.Intangible assets with finite lives are amortized on a straight-line basis over their useful lives.
Goodwill was acquired with the reverse
acquisition discussed in Note
2.The Company evaluates the carrying value of goodwill on an annual basis and between annual evaluations if events occur or circumstances change that would more likely than
notreduce the fair value of goodwill below its carrying amount. When assessing whether goodwill is impaired, management considers
firsta qualitative approach to evaluate whether it is more likely than
notthe fair value of the goodwill is below its carrying amount; if so, management considers a quantitative approach by analyzing changes in performance and market based metrics as compared to those used at the time of the initial acquisition. For the periods presented,
impairment charges were recognized.
Long-lived assets, such as property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
notbe recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the
firstcompares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is
notrecoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and
thirdparty independent appraisals, as considered necessary.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instrument held by the
Current assets and current liabilities
- The carrying value approximates fair value due to the short maturity of these items.
- The fair value of the Company's notes payable has been estimated by the Company based upon the liability's characteristics, including interest rate. The carrying value approximates fair value.
Basic and Diluted Loss Per Common Share
Basic loss per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock.
The following securities are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:
Note - Share information for the periods has been retroactively adjusted to reflect the
June 28, 2017
300reverse split of the Company's common stock.
Research and Development
Research and development costs are expensed as incurred. Research and development costs amounted to approximately $
$301,000for the years ended
December 31, 2017and
Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in tax laws or rates. The effect on deferred tax assets and liabilities of a change in tax rates will be recognized as income or expense in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.
Prior to the reverse acquisition, Coretec elected to be taxed as a Partnership for federal and state income tax purposes. Under this election substantially all of the profits, losses, credits and deductions of Coretec were passed through to the individual members. Therefore, prior to the reverse acquisition,
noprovision or liability for income taxes has been included in these consolidated financial statements.
Prior to the reverse acquisition,
’s tax benefits were fully offset by a valuation allowance due to the uncertainty that the deferred tax assets would be realized. Management considers the likelihood of changes by taxing authorities in its filed income tax returns and recognizes a liability for or discloses potential changes that management believes are more likely than
notto occur upon examination by tax authorities. Management has
notidentified any uncertain tax positions in filed income tax returns that require recognition or disclosure in the accompanying consolidated financial statements.
Recent Accounting Pronouncements
The following is a summary of recent accounting pronouncements that are relevant to the
January 2016,the FASB issued
Financial Instruments – Overall (Subtopic(“ASU
10): Recognition and Measurement of Financial Assets and Financial Liabilities
01addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments, specifically equity investments and financial instruments measured at amortized cost. ASU
01is effective for public companies for annual and interim periods beginning after
December 15, 2017.ASU
notexpected to have a material impact on the Company’s financial statements.
August 2016,the FASB issued
Statement of Cash Flows (Topic(“ASU
230): Classification of Certain Cash Receipts and Cash Payments
eighttargeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU
15is effective for public companies for interim and annual periods beginning after
December 15, 2017,with early adoption permitted. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. ASU
notexpected to have a material impact on the Company’s cash flows.
February 2016,the FASB issued accounting standards update (ASU)
Leases (Topicintended to increase transparency and comparability among companies by requiring most leases to be included on the balance sheet and by expanding disclosure requirements. This is effective for public business entities for fiscal years beginning after
December 15, 2018,including interim periods within those fiscal years. Early application is permitted for all public business entities and all nonpublic business entities upon issuance. The Company is currently evaluating the impact that this new guidance
mayhave on its consolidated results of operations, cash flows, financial position and disclosures.
The FASB has issued ASU
Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in FASB ASC
605- Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. On
July 9, 2015,the FASB deferred the effective date of ASU
09from annual periods beginning after
December 15, 2016to annual periods beginning after
December 15, 2017.This ASU should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The adoption of this standard is
notexpected to have a material impact on the Company’s consolidated financial position and results of operations.
January 2017,the FASB issued ASU
Business Combinations (Topic. This ASU provides a screen to determine when a set is
805): Clarifying the Definition of a Business
nota business. The screen requires that when substantially all of the fair value of gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is
nota business. The amendments in this ASU are effective beginning after
December 15, 2017,including interim periods within those periods and should be applied prospectively. The Company does
notanticipate that the adoption of this standard will have a material impact on its consolidated financial position and results of operations.
January 2017,the FASB issued ASU
Intangibles – Goodwill and Other (Topic. This ASU simplifies the subsequent measurement of goodwill by eliminating Step
350): Simplifying the Test for Goodwill Impairment
2from the goodwill test. Under Step
2,an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and labilities following the procedure that would be required in determining the fair value of assets acquires and labilities assumed in a business combination. Instead, an entity should perform its annual, or intern, goodwill impairment test by comparing the fair value of a reporting unity with its carrying amount. The amendments in this ASU are effective beginning after
December 15, 2019,however early adoption is permitted beginning
January 1, 2017and should be applied on a prospective basis. The Company does
notanticipate that the adoption of this standard will have a material impact on its consolidated financial position and results of operations.
Company has realized a cumulative net loss of
$2,593,337for the period from inception (
June 2, 2015)to
December 31, 2017,negative working capital of
norevenues. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a year following the issuance of these consolidated financial statements. The Company has insufficient revenue and capital commitments to fund the development of its planned products and to pay operating expenses.
The ability of the
Company to continue as a going concern depends on the successful completion of the Company's capital raising efforts to fund the development of its planned products. The Company intends to continue to raise additional capital through debt and equity financings. There is
noassurance that these funds will be sufficient to enable the Company to fully complete its development activities or attain profitable operations. If the Company is unable to obtain such additional financing on a timely basis or, notwithstanding any request the Company
maymake, the Company’s debt holders do
notagree to convert their notes into equity or extend the maturity dates of their notes, the Company
mayhave to curtail its development, marketing and promotional activities, which would have a material adverse effect on the Company’s business, financial condition and results of operations, and ultimately the Company could be forced to discontinue its operations and liquidate.
The accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplates the continuation of the
Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the consolidated financial statements do
notnecessarily purport to represent realizable or settlement values. The consolidated financial statements do
notinclude any adjustments that might result from the outcome of this uncertainty.
Under the terms of the Golden State Equity Investors, Inc (“Golden State”)
4.75%Convertible Debenture due on
2017,subsequently extended to
June 30, 2018,Golden State is obligated to submit conversion notices in an amount such that Golden State receives
1%of the outstanding shares of the Company every calendar quarter for a period of
oneyear. In connection with each conversion, Golden State is expected to simultaneously exercise a percentage of warrants equal to the percentage of the principal being converted. The warrants are exercisable at
$114,450per share. The number of warrants exercisable is subject to certain beneficial ownership limitations contained in the
4.75%Convertible Debenture (“the Beneficial Ownership Limitations”). The Beneficial Ownership Limitations prevent Golden State from converting on the
4.75%Convertible Debenture or exercising warrants if such conversion or exercise would cause Golden State’s holdings to exceed
9.99%of the Company’s issued and outstanding common stock. Subject to the Beneficial Ownership Limitations and provided that Golden State is able to sell the shares under Rule
144,Golden State is required to convert
4.75%Convertible Debenture and exercise
2.86warrants per month. Based upon the current stock price, the issued and outstanding shares as of
December 31, 2017and ignoring the impact of the Beneficial Ownership Limitations, the Company
mayreceive up to
$327,000per month in funding for the duration of the debenture from Golden State as a result of warrant exercises. Due to the number of authorized common shares available in the year ended
December 31, 2016and the Beneficial Ownership Limitations, Golden State provided only
$29,700in funding in the year ended
December 31, 2016and -
0- in the year ended
December 31, 2017.
The entire disclosure for all significant accounting policies of the reporting entity.
Reference 1: http://www.xbrl.org/2003/role/presentationRef