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TRIB Tribus Enterprises

Filed: 13 Nov 20, 4:20pm

 

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

(Mark One) 

Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
  
 For the quarterly period ended September 30, 2020
  
Transition Report under Section 13 or 15(d) of the Exchange Act
  
 For the Transition Period from ________to __________
  

Commission File Number: 333-197642

Tribus Enterprises, Inc.

 (Exact Name of Registrant as Specified in its Charter)

 

Washington82-1104757
(State of other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification Number)

 

155 Haas Drive 
Englewood, OH45322
(Address of principal executive offices)(Zip Code)

 

Registrant's Phone: (509) 992-4743

 

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No ☒

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

Large accelerated filer ☐Accelerated filer ☐ 
Non-accelerated filer  ☒Smaller reporting company ☒
 Emerging Growth Company ☒

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐  No ☒

 

The number of shares of Common Stock, $0.001 par value, outstanding on November 13, 2020 was 13,545,658 shares.

 

 

 

 TABLE OF CONTENTSPage
 
PART I – FINANCIAL INFORMATION
   
Item 1.Financial Statements 
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operation11
Item 3.Quantitative and Qualitative Disclosures about Market Risk13
Item 4.Controls and Procedures13
 
PART II – OTHER INFORMATION
   
Item 1.Legal Proceedings13
Item 1A.Risk Factors14
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds14
Item 3.Defaults Upon Senior Securities15
Item3A.Off Balance Sheet Arrangements15
Item 4.Submission of Matters to a Vote of Security Holders15
Item 5.Other Information15
Item 6.Exhibits15
   

 

 

ITEM 1. FINANCIAL STATEMENTS

 

 

 

TRIBUS ENTERPRISES, INC.

UNADUITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

September 30, 2020

 

Condensed Consolidated Balance Sheets1
Unaudited Condensed Consolidated Statements of Operations2
Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity3
Unaudited Condensed Consolidated Statements of Cash Flows4
Notes to Unaudited Condensed Consolidated Financial Statements5 - 10

 

 

 

 

 

 

TRIBUS ENTERPRISES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS 

 

  September 30, 2020  March 31, 2020 
  (unaudited)  (audited) 
ASSETS      
Current assets        
Cash $586,936  $150,741 
Inventory, net of inventory valuation of $24,940 and $43,723, respectively (Note 6)  186,284   9,590 
Prepaid expenses     15,511 
Total current assets  773,220   175,842 
         
Deposits  10,240   41,337 
Right of use asset, operating leases  127,571   157,117 
Equipment, net of accumulated depreciation of $423,950 and $389,638, respectively (Note 7)  1,441,045   1,265,559 
         
Total assets $2,352,076  $1,639,855 
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities        
Accounts payable and accrued liabilities $407,450  $415,070 
Interest payable     61,938 
Deferred revenue (Note 5)  9,434   3,814 
Operating lease liability, current (Note 9)  75,721   66,206 
Finance lease, current (Note 11)  147,837   340,303 
Loans payable, current (Note 10)  102,933   339,969 
Total current liabilities  743,375   1,227,300 
         
Operating lease liability, net of current portion (Note 9)  50,220   90,730 
Finance lease, net of current portion (Note 11)  272,951   382,254 
Loans payable, net of current portion (Note 10)  22,375   26,027 
         
Total liabilities  1,088,921   1,726,311 
         
Commitments and contingencies      
         
Stockholders' equity        
Series A convertible preferred stock, $0.001 par; 20,000,000 authorized; 19,999,998 issued and outstanding at June 30, 2020 and March 31, 2020, respectively (Note 8)  20,000   20,000 
Series B convertible preferred stock, $0.001 par; 5,000,000 authorized; 4,649,800 and 3,910,000 issued and outstanding at June 30, 2020 and March 31, 2020, respectively (Note 8)  4,650   3,910 
Common stock, $0.001 par value; 100,000,000 authorized; 13,545,658 and 7,360,858 issued and outstanding at June 30, 2020 and March 31, 2020, respectively (Note 8)  13,546   7,361 
Additional paid in capital  5,457,888   3,600,752 
Accumulated deficit  (4,232,929)  (3,718,479)
Total stockholders' equity  1,263,155   (86,456)
         
Total liabilities and stockholders' equity $2,352,076  $1,639,855 

 

The accompanying notes are an integral part of these consolidated financial statements.

  

 

TRIBUS ENTERPRISES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

  Three months ended September 30,  Six months ended September 30, 
  2020  2019  2020  2019 
Revenue $5,345  $  $12,799  $ 
Cost of goods sold  7,907      85,475    
Gross margin  (2,562)     (72,676)   
                 
Operating expenses                
Employee costs  83,224   32,436   129,751   90,881 
Professional fees  19,396   58,088   30,394   118,108 
General and administrative  45,648   54,829   82,133   143,403 
Facilities  28,518   25,911   53,196   44,929 
Research and development        12,781   9,765 
Depreciation expense  24,564   123,682   104,551   189,410 
Total operating expenses  201,350   294,946   412,806   596,496 
                 
Net loss from operations  (203,912)  (294,946)  (485,482)  (596,496)
                 
Other income (expense)                
Other income/(expense), net  (103,694)  12,300   42,749   21,628 
Gain/(loss) on sale of equipment  110,980      (34,147)  (1,752)
Interest expense  (1,541)  (62,109)  (37,570)  (123,533)
Total other income (expense)  5,745   (49,809)  (28,968)  (103,657)
                 
Income tax            
Net and comprehensive loss $(198,167) $(344,755) $(514,450) $(700,153)
                 
Net loss per share, basic and diluted $(0.01) $(0.05) $(0.04) $(0.10)
                 
Weighted average shares outstanding, basic and diluted  13,545,658   7,263,119   12,596,775   7,224,421 

 

The accompanying notes are an integral part of these consolidated financial statements.

  

 

 

TRIBUS ENTERPRISES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

 

  Series A Convertible Preferred Stock  Series B Preferred Stock  Common Stock  Additional Paid  Accumulated    
  Shares  Amount  Shares  Amount  Shares  Amount  In Capital  Deficit  Total 
                                     
Balance, March 31, 2019  19,999,998  $20,000   1,365,625  $1,366   7,184,858  $7,185  $1,818,694  $(1,407,042) $440,203 
Series B preferred stock issued for cash        311,875   312         249,188      249,500 
Common stock issued for cash              4,000   4   996      1,000 
Net loss, three months ended June 30, 2019                       (355,398)  (355,398)
Balance, June 30, 2019  19,999,998   20,000   1,677,500   1,678   7,188,858   7,189   2,068,878   (1,762,440)  335,305 
                                     
Series B preferred stock issued for cash        375,000   375         299,625      300,000 
Common stock issued for cash              88,000   88   21,912      22,000 
Shareholder cash contribution                          3,040       3,040 
Shareholder forgiveness of wages payable                          73,738       73,738 
Net loss, three months ended September 30, 2019                       (344,755)  (344,755)
Balance, September 30, 2019  19,999,998  $20,000   2,052,500  $2,053   7,276,858  $7,277  $2,467,193  $(2,107,195) $389,328 
                                     
Balance, March 31, 2020  19,999,998   20,000   3,910,000   3,910   7,360,858   7,361   3,600,752   (3,718,479)  (86,456)
Series B preferred stock issued for cash        739,800   740         517,120      517,860 
Common stock issued for cash              6,184,800   6,185   1,540,016      1,546,201 
Shareholder cash contribution                           
Direct Incremental Costs                          (200,000)      (200,000)
Net loss, three months ended June 30, 2020                       (316,283)  (316,283)
Balance, June 30, 2020  19,999,998   20,000   4,649,800   4,650   13,545,658   13,546   5,457,888   (4,034,762)  1,461,322 
                                     
Series B preferred stock issued for cash                           
Common stock issued for cash                           
Shareholder cash contribution                           
Direct Incremental Costs                                  
Net loss, three months ended September 30, 2020                       (198,167)  (198,167)
Balance, September 30, 2020  19,999,998  $20,000   4,649,800  $4,650   13,545,658  $13,546  $5,457,888  $(4,232,929) $1,263,155 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

TRIBUS ENTERPRISES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

  Six months ended September 30, 
  2020  2019 
Cash flows from operating activities        
Net loss $(514,450) $(700,153)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation  146,447   208,507 
Inventory Allowance  24,940    
Gain/(loss) on sale of equipment  34,561   1,751 
Changes in operating assets and liabilities:        
Prepaid expenses  15,511   18,500 
Deposits  31,097    
Accounts payable and accrued liabilities  (7,620)  122,453 
Interest payable  (61,938)  63,034 
Deferred rent  1,247   (2,448)
Deferred revenue  4,373   19,252 
Inventory  (201,634)  (59,380)
Sub lease security deposit  3,200    
Net cash used in operating activities  (524,266)  (328,484)
         
Cash flows from investing activities        
Purchase of equipment  (416,347)  (428)
Sale of equipment  370,000    
Net cash provided by (used in) investing activities  (46,347)  (428)
         
Cash flows from financing activities        
Repayments of capital leases  (436,029)  (32,676)
Payments on operating lease liability  (30,995)  (19,540)
Repayments of loans payable  (401,332)  (126,339)
Proceeds from CARES Act Loan  14,304    
Shareholder Contribution  (3,200)  3,040 
Proceeds from sale of common stock  1,546,200   23,000 
Proceeds from the sale of series B preferred stock  517,860   549,500 
Payments of direct incremental costs associated with the sale of stock  (200,000)   
Net cash provided by financing activities  1,006,808   396,985 
         
Cash, beginning of period  150,741   33,970 
Net change in cash  436,195   68,073 
Cash, end of period $586,936  $102,043 
         
Supplemental cash flow information        
Cash paid for interest $99,508  $60,499 
Cash paid for income taxes $  $ 
         
Supplemental disclosure of non-cash financing activities        
Capital leases entered into for purchase of equipment $265,980  $ 
Loan entered into for purchase of equipment $146,340  $564,398 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

TRIBUS ENTERPRISES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements 

September 30, 2020

 

NOTE 1 – NATURE OF OPERATIONS AND ORGANIZATION

 

The Company was incorporated in the State of Washington on March 29, 2017 for the purpose of developing, designing, manufacturing and distributing hand tools. Upon incorporation, the Company entered into a share exchange agreement with Tribus Innovations, LLC (“Tribus Innovations”) and acquired all of the outstanding ownership interests of Tribus Innovations. Tribus Innovations was formed on December 1, 2015. The transaction was accounted for as a reverse merger and these financial statements present the historical financial information of Tribus Innovations from its inception and include the financial information of the Company from the completion of the share exchange agreement on March 29, 2017.

 

Tribus Enterprises, Inc. has invented and patented a new technology that changes the way technicians do their jobs. The Company’s line of wrenches literally cuts the time some jobs take from three to four hours to mere minutes. The Company has completed the design and research and development of four lines of wrenches. After a redesign which improved the strength of the wrenches, production of three of the four lines started in April 2020. While the Company has realized minimal sales to date the initial reactions from customers and market influencers from those sales have been extremely positive. The Company is now ready to increase both marketing and production efforts.

 

NOTE 2 – UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

The accompanying unaudited condensed consolidated interim financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for the periods ended September 30, 2020 and for all periods presented herein, have been made.

 

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s March 31, 2020 audited financial statements. The results of operations for the periods ended September 30, 2020 are not necessarily indicative of the operating results for the full year. These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Tribus Innovations LLC. All intercompany balances and transactions are eliminated on consolidation.

 

The preparation of consolidated 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 and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that (1) recorded transactions are valid; (2) all valid transactions are recorded and (3) transactions are recorded in the period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the company for the respective periods being presented.

 

NOTE 3 – GOING CONCERN

 

The Company's financial statements are prepared using accounting principles generally accepted 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. However, the Company does not have significant cash or other current assets, nor does it have an established source of revenues sufficient to cover its operating costs which raises substantial doubt regarding the Company’s ability to continue as a going concern. Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading, or seeking protection from creditors pursuant to laws or regulations. Accordingly, assets and liabilities are recorded on the basis that the entity will be able to realize its assets and discharge its liabilities in the normal course of business.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully execute its plans and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.  During the next year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with research and development. The Company may experience a cash shortfall and be required to raise additional capital. Historically, it has mostly relied upon internally generated funds and funds from the sale of shares of stock to finance its operations and growth. Management may raise additional capital through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.

 

 

 

TRIBUS ENTERPRISES, INC.

Notes to Unaudited Consolidated Condensed Financial Statements 

September 30, 2020

 

NOTE 4 – REVENUE RECOGNITION

 

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, for revenue recognition. Adoption of ASC 606 did not have a significant impact on our financial statements. Revenue is recognized upon transfer of control of promised products to customers in an amount that reflects the consideration expected to be received in exchange for those products. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

 

The Company offers a limited lifetime warranty for manufacturing defects only on product sold. Due to sales recently occurring, the Company is unable to reasonably estimate future costs that will be incurred under its lifetime warranty program on revenue recognized as of September 30, 2020. However, the Company anticipates the amounts associated with revenues recognized as of September 30, 2020 to be immaterial to the financial statements.

 

The Company recognized revenues of $5,345 and $0 during the three months ended September 30, 2020 and 2019, respectively and $12,799 and $0 during the six months ended September 30, 2020 and 2019, respectively.

 

NOTE 5 - DEFERRED REVENUE

 

Deferred revenue represents revenues collected but not earned as of September 30, 2020. This is primarily composed of rent or sales revenue received in advance of goods or services being delivered. The balance of deferred revenue was $9,434 and $3,814 as of September 30, 2020 and March 31, 2020, respectively.

 

NOTE 6 - INVENTORY

 

The Company recognizes the cost of inventory through cost of goods sold as product is shipped to customers on an average cost basis  . The value of inventory is carried at the lower of cost or market of raw materials purchased to manufacture the finished goods, direct labor associated with manufacturing and certain overhead related to the manufacturing facility. As of September 30, 2020, the Company’s finished goods inventory balance was $36,131. This balance is recorded net of inventory valuation of $24,940 in order to bring the value of finished goods inventory to the lower of cost or market. In addition, the Company had $106,847 in work in process inventory, $20,474 in raw material inventory, $43,604 in tooling inventory and $4,168 in packaging inventory as of September 30, 2020. The March 31, 2020 inventory balance of $9,590 was all raw materials.

 

NOTE 7 – EQUIPMENT

 

Property and equipment are stated at cost. Depreciation is computed using the average cost method over the estimated useful lives of the assets, which range from 3 to 10 years. Leasehold improvements are amortized over the shorter of the useful life of the related assets or the lease term. Expenditures for repairs and maintenance are charged to expense as incurred. For assets sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any related gain or loss is reflected in income for the period.

 

In July, a review of the Company’s useful lives for Machinery and Equipment resulted in a change in estimate that increased the useful lives from five to ten years. This determination was based on industry standards and management’s knowledge of the equipment and historical and future use of the equipment. The change in estimate was made prospectively.   Leased assets included in Machinery and Equipment are all expected to transfer ownership to the Company at the end of the lease, thus depreciation is on useful life rather than the shorter of the lease term or useful life.

 

During the period ending June 30, 2020, one piece of equipment was paid off at a negotiated lower amount than the original finance lease. At June 30, 2020, the difference between the original finance lease obligation and the settled amount was booked as forgiveness of debt. A reclassification entry was made in the period ending September 30, 2020 to reclass the amount forgiven from forgiveness of debt to instead reduce the book value of the asset pursuant to ASC 842-20-40-2.

  

As of September 30, 2020, the Company’s equipment net of accumulated depreciation was $1,441,045 and $1,265,559 as of March 31, 2020.

 

NOTE 8 – CAPITAL STOCK

 

Authorized

 

The Company is authorized to issue up to 20,000,000 shares of $0.001 par value Series A Preferred Stock, 5,000,000 shares of $0.001 par value Series B Preferred Stock and 100,000,000 shares of $0.001 par value Common Stock.

 

 

 

The holders of the Series A Preferred Stock are entitled to 10 votes for each share held. Each share of Series A Preferred Stock is convertible into 10 shares of Common Stock at the discretion of the Company’s directors. In the event that there is a change of control transaction, each share of Series A Preferred Stock is convertible into 10 shares of Common Stock at the option of the holder. The holders of the Series A Preferred Stock are entitled to participate in dividends. Dividends are non-cumulative and are at the discretion of the Company’s directors.

 

The holders of the Series B Preferred Stock are entitled to 4 votes for each share held. Each share of Series B Preferred Stock is convertible into 4 shares of Common Stock at the discretion of the stockholder. The holders of the Series B Preferred Stock are entitled to participate in dividends. Dividends are non-cumulative and are at the discretion of the Company’s directors.

 

Issued

 

During the three months ended September 30, 2020, the Company did not issue any common stock. During the six months ended September 30, 2020, the Company accepted stock subscriptions to issue a total of 6,184,800 shares of common stock at $0.25 per share resulting in total cash proceeds of $1,546,201. Of this amount, 6,148,560 shares of common stock were issued to related parties for total cash proceeds of $1,537,140.

 

During the three months ended September 30, 2020, the Company did not issue any preferred stock. During the six months ended September 30, 2020, the Company issued a total of 739,800 shares of Series B Convertible Preferred Stock for total cash proceeds of $517,860. All was issued to related parties. Additionally, the Company paid approximately $200,000 to a related party as a finders’ fee in conjunction with the sale of equity investments. The finder’s fee is considered a direct incremental cost associated with the sale of the stock and as such is treated as a reduction to the proceeds and, accordingly as an offset to additional paid in capital.

 

 

 

TRIBUS ENTERPRISES, INC.

Notes to Unaudited Consolidated Condensed Financial Statements 

September 30, 2020

 

NOTE 8 – CAPITAL STOCK (CONTINUED)

 

There were 19,999,998; 4,649,800 and 13,545,658 shares of Series A Convertible Preferred Stock, Series B Preferred Stock and Common Stock issued and outstanding as of September 30, 2020.

 

There were 19,999,998, 3,910,000 and 7,360,858 shares of Series A Convertible Preferred Stock, Series B Preferred Stock and Common Stock issued and outstanding as of March 31, 2020.

 

NOTE 9 – OPERATING LEASES

 

On March 23, 2017, the Company entered into a lease agreement for the rent of warehouse space that terminates on April 30, 2022 which was amended on May 20, 2017. Additionally, on March 12, 2019, the Company entered into an additional lease for the rent of warehouse space that terminates on March 31, 2022.

 

On April 1, 2019, the Company recorded a right of use asset and operating lease liability totaling $207,359 using an imputed interest rate of 25% on its operating leases, equal to the approximate weighted average interest rate imputed on the Company’s existing capital leases. During the six months ended September 30, 2020, the Company made total principal payments on operating leases of $30,995. There was a total operating lease liability of $125,940 as of September 30, 2020 of which $75,721 was current and $50,220 was long term.

 

The leases require future minimum payments as shown below:

 

Year ending March 31, 
2021  $49,164 
2022   99,725 
2023   4,321 
Total payments   153,210 
Less: imputed interest   (27,270)
      
Operating lease liability, total  $125,940 

  

On May 8, 2019, the Company entered into a sublease agreement whereby it will sublet a portion of its space for a period of twelve months commencing on May 1, 2019. The sublease requires a prorated amount of rent of $1,800 for May 2019 followed by eleven monthly payments of $4,100 through April 2020. On May 28, 2020, a new sublease agreement was entered into for a period of 23 months commencing on June 1, 2020. The sublease requires monthly rental payments of $1,200.

 

On May 11, 2020, the Company entered into a separate sublease agreement whereby it will sublet a portion of its space for a period of 24 months commencing on May 1, 2020. The sublease requires monthly rental payments of $1,875. In addition, a verbal agreement was entered into on a month to month basis for additional space to sublet as needed for a monthly rental payment of $1,510.

 

The Company records sublease payments received as other income in the statement of operations. Sublease income of $17,643 and $21,300 was recognized during the six months ended September 30, 2020 and 2019, respectively. The Company has not been released from its obligations under the master lease and accounts for rental income from subleases on a straight-line basis monthly. As of September 30, 2020, the sublease did not impair the right of use asset recorded as part of the master lease agreement.

 

The subleases provide future income as shown below:

 

Year ending March 31, 
2021   18,450 
2022   36,900 
2023   3,075 
Other income from subleases, total  $58,425 

  

 

 

TRIBUS ENTERPRISES, INC.

Notes to Unaudited Consolidated Condensed Financial Statements

September 30, 2020

 

NOTE 10 – LOANS PAYABLE

 

As of March 31, 2020, the Company had outstanding two separate loan agreements to purchase equipment totaling $407,644, each with no stated interest rate.

 

The first loan was for equipment valued at $270,604 and required $27,990 down with six monthly payments of $5,000 and a balloon payment of $221,910 unless otherwise negotiated prior to maturity. During the three months ended December 31, 2019, the Company renegotiated the note to require monthly payments of $5,000 until paid in full, removing the balloon payment. During the three months ended June 30, 2020 this loan was paid in full.
 
The second loan was for equipment valued at $137,040 and required $5,000 down with 6 monthly payments of $1,000 and a balloon payment of $126,040 unless otherwise negotiated prior to maturity. During the three months ended December 31, 2019, the Company renegotiated the note to require monthly payments of $5,000 until paid in full, removing the balloon payment. During the three months ended June 30, 2020 this loan was paid in full.
 

On April 28, 2020, the Company entered into an agreement to purchase equipment totaling $146,340. The agreement required $29,268 down with six monthly payments of $5,000 and the remaining balance due thereafter. During the six months ending September 30, 2020, the Company made $20,000 in payments and applied an additional $13,500 toward the loan. As of September 30, 2020, there was a total of $83,572 due all of which is current.

 

On June 1, 2019, the Company entered into a loan to borrow $34,222 to purchase a vehicle. As part of the agreement, the Company traded in its existing vehicle for total consideration of $19,464 resulting in a net loss recorded on the asset of $1,751. The loan carries interest at a rate of 6.59% per annum and matures in September 2025. As of September 30, 2020, there was a total of $27,431 due of which $5,057 was current.

 

Total loans outstanding at September 30, 2020 were $125,308 of which $102,933 was current and $22,375 was long term.

 

NOTE 11 – FINANCING LEASES PAYABLE

 

In February 206, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes guidance in ASC 840, Leases, which the Company adopted for the year ended March 31, 2020 under the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application Results and disclosure requirements for reporting periods beginning after March 31, 2019 are presented under Topic 842 while prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s historical accounting under Topic 840.

 

The Company accounts for financing leases in accordance with ASC 842. As of September 30,2020, the Company had two outstanding long-term leases for equipment that grants the Company the option to purchase the underlying asset at lease termination that the Company is reasonably certain to exercise. The Company determined this was a financing lease based on the reasonable certainty the Company will exercise its right to purchase the underlying assets and capitalized the net present value of the lease.

 

The first finance lease is for equipment which totaled $275,950. The leases require total monthly payments of $5,369. As of September 30, 2020, there was a total of $187,916 of future payments due through August 2023 of which $33,108 are financing charges leaving a total principal balance of $154,808. Of the total principal balance due, $50,606 was current and $104,202 was long term as September 30, 2020.

 

The second finance lease is for equipment which totaled $332,475. The lease required a down payment of $66,495 and then lease payments of $11,393.02 starting January 2021. As of September 30, 2020, there was a total of $273,432 of future payments due through December 2022 of which $7,452 are financing charges leaving a total principal balance of $265,980. Of the total principal balance due, $97,231 was current and $168,749   was long term as September 30, 2020.

 

During the period ending June 30, 2020, four pieces of equipment were sold and the balances on the associated finance leases were settled at lowered amounts. In addition, one piece of equipment was paid off at a negotiated lower amount than the original finance lease. At June 30, 2020, the difference between the original finance lease obligations and the settled amounts were booked as forgiveness of debt. For the equipment that was sold a reclassification entry was made in the period ending September 30, 2020 to reclass this amount from forgiveness of debt to gain on sale of asset pursuant to ASC 842-20-40-2. In addition, for the piece of equipment that is still in use by the Company a reclassification entry was made in the period ending September 30, 2020 to reclass the amount forgiven from forgiveness of debt to instead reduce the book value of the asset pursuant to ASC 842-20-40-2.

  

 

 

TRIBUS ENTERPRISES, INC.

Notes to Unaudited Consolidated Condensed Financial Statements

 September 30, 2020

 

NOTE 11 – LEASE FINANCING PAYABLE (CONTINUED)

 

Future annual payments required under the capital lease through termination are as follows:

 

   Principal  Interest  Total 
Year ended March 31,             
2021   53,294   13,099   66,393 
2022   183,058   18,087   201,145 
2023   158,468   8,497   166,965 
2023   25,968   877   26,845 
Total  $420,788  $40,560  $461,348 

 

NOTE 12 – LEGAL PROCEEDINGS

 

During the year ended March 31, 2020, the Company was a party to two separate lawsuits. The company settled each lawsuit on June 19, 2020 that required a cash settlement totaling $140,750 which was included in accounts payable and accrued liabilities as of March 31, 2020. The settlement was paid in full on June 19, 2020.

 

NOTE 13 – SUBSEQUENT EVENTS

 

The Company evaluated all events occurring subsequent to September 30, 2020 and through the date of this filing and determined there were no additional disclosures required.

 

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

FORWARD-LOOKING STATEMENTS

 

This Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included or incorporated by reference in this Form 10-Q which address activities, events or developments which the Company expects or anticipates will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof); finding suitable merger or acquisition candidates; expansion and growth of the Company's business and operations; and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate under the circumstances. However, whether actual results or developments will conform with the Company's expectations and predictions is subject to a number of risks and uncertainties, including general economic, market and business conditions; the business opportunities (or lack thereof) that may be presented to and pursued by. the Company; changes in laws or regulation; and other factors, most of which are beyond the control of the Company.

 

These forward-looking statements can be identified by the use of predictive, future-tense or forward-looking terminology, such as "believes," "anticipates," "expects," "estimates," "plans," "may," "will," or similar terms. These statements appear in a number of places in this Filing and include statements regarding the intent, belief or current expectations of the Company, and its directors or its officers with respect to, among other things: (i) trends affecting the Company's financial condition or results of operations for its limited history; (ii) the Company's business and growth strategies; and, (iii) the Company's financing plans. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Such factors that could adversely affect actual results and performance include, but are not limited to, the Company's limited operating history, potential fluctuations in quarterly operating results and expenses, government regulation, technological change and competition.

 

Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The Company assumes no obligations to update any such forward-looking statements.

 

General Business Development

 

The Company was formed on March 29, 2017 in the State of Washington.

 

Business Strategy

 

Upon incorporation, the Company entered into a share exchange agreement with Tribus Innovations, LLC (“Tribus Innovations”) and acquired all of the outstanding ownership interests of Tribus Innovations. Tribus Innovations was formed on December 1, 2015. The transaction was accounted for as a reverse merger and these financial statements present the historical financial information of Tribus Innovations from its inception and include the financial information of the Company from the completion of the share exchange agreement on March 29, 2017. The Company has realized limited revenues from its planned business activities. The membership interests of Tribus Innovations, LLC were all held by the officers and directors of Tribus Enterprises, Inc. The Company acquired 100% of the membership interests of Tribus Innovations, LLC in exchange for 2,600,000 of our common shares and 19,999,998 of our shares of Class A preferred stock. Tribus Innovations is currently a 100% owned subsidiary of the Company.

 

Tribus Innovations, LLC was formed in December 2015 to develop, manufacture, and market a compelling product line of innovative ratcheting flare nut wrenches which have been issued a Patent under application number: 15/092,056 which was issued on September 17, 2019 under Patent Number 10,414,029. The initial product line uses traditional manufacturing methods of metal forging, subtractive manufacturing (CNC milling), additive manufacturing (3D printing), and plastic injection molding.

 

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Products

 

Tribus Innovations, LLC’s ratcheting flare nut wrench addresses the market in a way that has never been done before; reducing the time it takes to turn inline fasteners.

 

•    Ease of Use – There are no buttons or switches. In order to reverse the tightening direction, simply remove the tool and rotate it 180°.

 

•    Learning Curve – This works the same as a standard open ended wrench but it has the ability to ratchet, saving valuable time. There will be a very short and slight learning curve as the users will simply need to remove the tool off the fastener and line up the open slots to remove the tool completely off the line.

 

•    Heavy Torque application – Due to the design of the pawls that engage into the ratchet, it has at least 4x more contact surfaces than standard ratcheting wrenches. This will translate to much more application of torque.

 

•    Convenience in tight spaces – Pawls have been designed along with corresponding grooves in the ratchet so users can maximize ratchet pitch. It will only take 2°- 4° to get the ratchet to click. This is crucial in tight spaces where there is very little room to swing the ratchet.

 

Tribus Innovations’ ratcheting flare nut wrench is being produced for sale in the hand tool industry. Historically there have been limited designs in the ratcheting flare nut wrench sales market such as; Gear Wrench part number 89100 (UPC 099575891007) and the traditional non-ratcheting flare nut wrench. These designs do not allow for small incremental movement in confined spaces, whereas Tribus Innovations’ version of the ratcheting flare nut wrench breaks new ground in this market.

 

In addition, using the same technology as the ratcheting flare nut wrench and covered under the same patent, Tribus has developed a new tool to add to its tool line. Production began in July 2020 with the first batch of product to be completed and launched the end of September 2020.

 

On March 11, 2020, the World Health Organization characterized COVID-19 as a global pandemic. We are monitoring the situation closely and our response to the COVID-19 pandemic continues to evolve. We have taken measures to mitigate the impact on our business operations and overall financial performance. We are also constantly evaluating and responding to the impact of the pandemic on our supply chain as compared to product demand. In addition, we actively monitor COVID-19-related developments and may take further actions that alter our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, vendors, and stockholders. The effects of these operational modifications will be reflected in current and future reporting periods.

 

Liquidity and Capital Resources

 

As of September 30, 2020, we had $773,220 in total assets and total current liabilities of $743,375. Current assets consisted of $586,936 of cash and $186,284 of inventory. Current liabilities consisted mainly of $407,450 of accounts payable and accrued liabilities, finance lease liabilities of $147,837, operating lease liabilities of $75,721 and current loans payable of $102,933.

  

Net cash used in operating activities was $524,266 compared to $328,484 for the six months ended September 30, 2020 and 2019, respectively.

 

Net cash used in investing activities was $46,347 compared to net cash used of $428 for the six months ended September 30, 2020 and 2019 respectively.

 

Net cash provided by financing activities was $1,006,808   and $396,985 for the six months ended September 30, 2020 and 2019, respectively.

 

Going Concern

 

The future of our company is dependent upon its ability to obtain financing and upon future profitable operations. Management has plans to seek additional capital through a private placement and public offering of its common stock, if necessary. See Note 3 to the financial statements for additional information.

 

Results of Operations

 

We generated limited revenues totally $12,799 during the six months ended September 30, 2020 and no revenues during the six months ended September 30, 2019. Total operating expenses were $201,351 and $294,946 during the three months ended September 30, 2020 and 2019, respectively and $412,807 and $597,496 for the six months ended September 30, 202 and 2019, respectively. The decrease in operating expenses for the three six months ended September 30, 2020 when compared to the same period in 2019 was due to a decrease in professional fees, general and administrative expenses and depreciation. The reduction in depreciation was due to a change in estimate of useful lives as discussed in Note 7. Net loss for the three months ended September 30, 2020 was $198,167 compared to $344,755 for the same period in 2019 and $514,450 for the six months ended September 30,2020 compared to $700,153 for the same period in 2019.

 

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CRITICAL ACCOUNTING POLICIES

 

In Financial Reporting release No. 60, "CAUTIONARY ADVICE REGARDING DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES" ("FRR 60"), the Securities and Exchange Commission suggested that companies provide additional disclosure and commentary on their most critical accounting policies. In FRR 60, the SEC defined the most critical accounting policies as the ones that are most important to the portrayal of a company's financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our most critical accounting policies include: going concern, inventory, revenue recognition and finance leases payable.. The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results we report in our financial statements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company is not exposed to market risk related to interest rates or foreign currencies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “1934 Act”), as of March 31, 2020, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), who concluded, that because of the material weakness in our internal control over financial reporting (“ICFR”) our disclosure controls and procedures were not effective as of March 31, 2020.

 

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 Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’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 our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

While significant work is being done to improve the Company’s internal controls, there have been no significant changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the current quarter that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.   

 

PART II OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

There were two lawsuits in Montgomery County, Ohio involving Tribus. The first was Tribus Enterprises, Inc. v. Dynamic Machine Works, LLC, et al., Montgomery County common Pleas Case No. CV 1393 (“Tribus Lawsuit”). The second was Dynamic Machine Works, LLC v Clark Trost, et al., Montgomery County Common Pleas Case No. 2019 CV 1753 (“Trost Lawsuit”). There was also additional litigation threatened by Dynamic Machine Works, LLC (“DMW”).

 

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A.            Tribus Lawsuit

 

Tribus filed the Tribus Lawsuit against DMW on April 1, 2019 and filed an amended complaint against DMW and one of its owners, Nathan Hake, on May 15, 2019. Those complaints asserted numerous claims against DMW and Hake arising from their manufacturing relationship. Tribus’ claims against DMW were for breach of contract, unjust enrichment, and promissory estoppel. Tribus’ claims against Hake were for unjust enrichment, fraud, promissory estoppel, conversion, and tortious interference.

 

Tribus’ claim in the Tribus Lawsuit alleged that Hake and DMW misrepresented their expertise and ability in order to obtain the contract to manufacture Tribus’ wrenches. DMW then received $402,000 from Tribus as part of that contract, and ultimately failed to produce any functional wrenches. Tribus’ claims sought the return of the $402,000 paid to DMW, together with any equipment and tooling purchased by Tribus or with Tribus’ funds that continued to be held by DMW or Hake.

 

DMW filed counterclaims against Tribus in the Tribus Lawsuit. DMW sued Tribus for breach of contract, promissory estoppel/detrimental reliance, breach of ND/NCA, theft of trade secrets, tortious interference with prospective and actual business relationships, unjust enrichment, conversion, breach of duty of loyalty or fiduciary duty, unfair competition, deceptive trade practices, and breach of lease agreement.

 

DMW’s claims against Tribus primarily asserted that Tribus stole DMW’s confidential information and trade secrets. Namely, the programming and manufacturing process for the wrenches. DMW also asserted that it was Tribus who breached the contract with DMW. DMW’s counterclaims against Tribus center on Tribus’ decision to terminate its relationship with DMW and enter into an agreement with Clark Trost for the manufacture of the wrenches instead. Trost had been an independent contractor hired by DMW to help DMW manufacture Tribus’ wrenches. DMW’s counterclaims requested judgement in excess of $2 million. 

 

The Tribus Lawsuit was filed primarily to compel the return of nearly $1.2 million in manufacturing equipment purchased or leased by Tribus and being held at DMW’s facility in Englewood, Ohio. That objective was largely accomplished with the return of the vast majority of the equipment on April 24th, 2019, following a motion for temporary restraining order and preliminary injunction filed on Tribus’ behalf.

 

None of the above actions name the officers or directors of Tribus individually.

 

B.            Trost Lawsuit

 

In addition to its counterclaims against Tribus, DMW filed a separate lawsuit against Clark Trost and two companies he owns, Trost Technologies, Inc. and CNC Holsters, LLC (collectively “Trost”). Tribus signed and engagement letter with McNamee & McNamee, PLL agreeing to be responsible for the attorneys’ fees and costs of representing Trost in the Trost Lawsuit as well.

 

DMW’s claims against Trost are for breach of ND/NCA, theft of trade secrets, tortious interference with prospective and actual business relations, unjust enrichment, conversion, breach of duty of loyalty or fiduciary duty, unfair competition, deceptive trade practices, and breach of oral sub-lease agreement. DMW’s complaint in the Trost Lawsuit sought damages in excess of $2 million.

 

The crux of DMW’s claims in the Trost Lawsuit mirrored its counterclaims in the Tribus Lawsuit. In essence, DMW maintains that Tribus and Trost conspired to steal the programming and manufacturing information for Tribus’ wrenches----which DMW claims to be its confidential information and trade secrets----to terminate their relationships with DMW and enter into business together to manufacture the wrenches without DMW.

 

The Company settled each lawsuit on June 19, 2020 that required a cash settlement totaling $140,750 to be paid by Tribus to DMW. In exchange for the cash payment, the Company was able to recover some materials in DMW’s possession and was provided clear rights to utilize the intellectual property developed throughout the prior relationship with DMW. This amount was accrued for during the year ended March 31, 2020.

 

ITEM 1A. RISK FACTORS

 

There have been no material changes in the risk factors set forth in the Company’s Form 10K for the period ended March 31, 2020 filed July 14, 2020.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During the three months ended September 30, 2020, the Company did not issue any common stock. During the six months ended September 30, 2020, the Company accepted stock subscriptions to issue a total of 6,184,800 shares of common stock at $0.25 per share resulting in total cash proceeds of $1,546,201.

 

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During the three months ended September 30, 2020, the Company did not issue any preferred stock. During the six months ended September 30, 2020, the Company issued a total of 739,800 shares of Series B Convertible Preferred Stock for total cash proceeds of $517,860.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 3A. OFF BALANCE SHEET ARRANGEMENTS

 

The Company has not entered into any off balance sheet arrangements.

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

None.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

 

The following documents are included or incorporated by reference as exhibits to this report:

 

Exhibit
Number

Description
31.1Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  

(b)     REPORTS ON FORM 8-K

 

None.

 

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SIGNATURES

 

In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 13, 2020.

 

 Tribus Enterprises, Inc.
 Registrant
  
 By: /s/ Kendall Bertagnole
 

Kendall Bertagnole 

Chief Executive Officer

  

 

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