UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
COMMISSION
FILE NUMBER
(Exact Name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
| Title of each class: | Trading Symbol(s) | Name of each exchange on which registered: | ||
| The (Nasdaq Capital Market) |
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 during the preceding
12 months (or for 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.
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer o | Accelerated filer o | 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 for 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 o
As of December 29, 2023, the issuer had shares of Common Stock outstanding.
1
ADAMAS ONE CORP.
Table of Contents
2
| ADAMAS ONE CORP. |
| CONDENSED BALANCE SHEETS |
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance | ||||||||
| Inventory | ||||||||
| Total Current Assets | ||||||||
| Property and Equipment, net | ||||||||
| Other Assets: | ||||||||
| Goodwill | ||||||||
| Other intangible assets, net | ||||||||
| Right of use assets - operating leases | ||||||||
| Investment | ||||||||
| Other | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current Liabilities: | ||||||||
| Accrued liabilities | $ | $ | ||||||
| Accrued interest | ||||||||
| Payroll and related | ||||||||
| Due to related party - notes payable | ||||||||
| Working capital deficit - asset purchase | ||||||||
| Notes payable and convertible term notes, net | ||||||||
| Current portion of operating lease liability | ||||||||
| Total Current Liabilities | ||||||||
| Long-Term Liabilities: | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 6) | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Common stock, $ par value, shares authorized and shares issued and and shares outstanding at June 30, 2023 and September 30, 2022, respectively | ||||||||
| Treasury stock 350,000 shares, at cost | ( | ) | ||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements.
3
| ADAMAS ONE CORP. |
| CONDENSED STATEMENTS OF OPERATIONS |
| (Unaudited) |
| For The Three Months Ended | For The Nine Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net Revenues | ||||||||||||||||
| Diamond sales | $ | $ | $ | $ | ||||||||||||
| Cost of Revenues | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Employee salaries and related expenses | ||||||||||||||||
| Severance expenses | ||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Expenses | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Other Expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net Loss Per Share | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
| Weighted average number of shares outstanding | ||||||||||||||||
| Loss per share-basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are an integral part of these condensed financial statements.
4
| ADAMAS ONE CORP. |
| CONDENSED STATEMENTS OF STOCKHOLDERS ’ EQUITY (DEFICIT) |
| (Unaudited) |
| Additional | ||||||||||||||||||||||||
| Common Stock | Paid-In | Treasury | Accumulated | |||||||||||||||||||||
| Shares Outstanding | Par Value | Capital | Stock | (Deficit) | Total | |||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Common stock issued to board members | ||||||||||||||||||||||||
| Common stock issued for incentive to lender | ||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Common stock issued to board members | ||||||||||||||||||||||||
| Common stock issued for cash at $4.00 | ||||||||||||||||||||||||
| Common stock issued to employees | ||||||||||||||||||||||||
| Common shares issued from converted interest | ||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Common stock issued to board members | ||||||||||||||||||||||||
| Common stock issued to consultant | ||||||||||||||||||||||||
| Common shares returned from CEO | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
| Common stock issued for conversion of notes and accrued interest | ||||||||||||||||||||||||
| Common stock issued to employees | ||||||||||||||||||||||||
| Common stock issued for IPO, net of costs of $1,892,250 | ||||||||||||||||||||||||
| Warrants issued | - | |||||||||||||||||||||||
| Repurchase stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Common stock issued to employees | ||||||||||||||||||||||||
| Common stock issued for consulting services | ||||||||||||||||||||||||
| Common stock issued for conversion of note and accrued interest | ||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Common stock issued to employees | ||||||||||||||||||||||||
| Common stock issued to board members | ||||||||||||||||||||||||
| Common stock issued for consulting services | ||||||||||||||||||||||||
| Common stock issued for conversion of note and accrued interest | ||||||||||||||||||||||||
| Common stock issued for ownership in strategic entity | ||||||||||||||||||||||||
| Common stock issued for inducement to lenders | ||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
5
| ADAMAS ONE CORP. |
| CONDENSED STATEMENTS OF CASH FLOWS |
| (Unaudited) |
| For The Nine Months Ended | ||||||||
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operations: | ||||||||
| Stock based compensation and expenditures | ||||||||
| Incentive warrants issued | ||||||||
| Stock issued for loan inducement | ||||||||
| Depreciation and amortization | ||||||||
| Allowance for doubtful accounts | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Other current assets | ( | ) | ||||||
| Accrued liabilities | ||||||||
| Investment | (1,917,673 | ) | - | |||||
| Accrued interest | ) | |||||||
| Accrued payroll and related | ( | ) | ||||||
| Severance obligation | ||||||||
| Right of use assets - operating leases, net | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Property and equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| FINANCING ACTIVITIES | ||||||||
| Notes payable proceeds | ||||||||
| Due to related party | ( | ) | ||||||
| Purchase of treasury stock | ( | ) | ||||||
| Cash from stock sale, net of costs of $1,892,250 | ||||||||
| Net cash provided by financing activities | ||||||||
| Net cash increase (decrease) for the period | $ | $ | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of the period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-cash investing and financing activities are as follows: | ||||||||
| Stock for interest | $ | $ | ||||||
| Conversion of debt to equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements.
6
ADAMAS ONE CORP. |
| NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) |
| For the Nine Months Ended June 30, 2023 and 2022 |
NOTE 1 – ORGANIZATION AND BUSINESS ACTIVITY
Adamas One Corp. (the “Company”) was incorporated on September 6, 2018, in the state of Nevada for the purpose of acquiring existing technology that would efficiently
and effectively produce lab-grown, environmentally friendly, ethically sourced diamonds. On January 31, 2019, we entered into an Amended
Asset Purchase Agreement with Scio Diamond Technology Corporation, or Scio, which was subsequently amended February 3, 2020, pursuant
to which we acquired substantially all of the assets of Scio, which assets consisted primarily of proprietary diamond growing chemical
reactors, which we refer to as diamond growing machines, patents, and all intellectual property related thereto, for an aggregate of
shares of our common stock and payment to certain lenders of Scio of an aggregate of $
Since acquiring the assets of Scio, we have continued to further develop the technologies acquired from Scio, and we have begun producing diamonds for fine jewelry and diamond material for industrial uses.
NOTE 2 – GOING CONCERN
The accompanying condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We incurred a net loss of $18.5 million and used approximately $6.1 million of cash in operations for the nine months ended June 30, 2023. Further information related to a going concern the Going Concern Uncertainty paragraph in the Report of Independent Registered Public Accounting Firm, also contained in the above referenced financial statements. These conditions raise substantial doubt about our ability to continue as a going concern for the following year.
We will need additional financing to implement our full business plan and to service our ongoing operations. There can be no assurance that we will be able to secure any needed funding, or that if such funding is available, the terms or conditions would be acceptable to us. If we are unable to obtain additional financing when it is needed, we will need to restructure our operations and possibly divest all or a portion of our business. We may seek additional capital through a combination of equity offerings and debt financings. Debt financing, if obtained, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, and could increase our expenses and require that our assets secure such debt. Equity financing, if obtained, could result in dilution to our existing stockholders and/or require such stockholders to waive certain rights and preferences. The accompanying condensed financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustment that might be necessary should we be unable to continue as a going concern.
7
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Presentation
The condensed financial statements included herein have been prepared by us without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with our audited financial statements for the year ended September 30, 2022. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted as permitted by the SEC, although we believe the disclosures that are made are adequate to make the information presented herein not misleading.
The accompanying condensed financial statements reflect, in our opinion, all normal recurring adjustments necessary to present fairly our financial position at June 30, 2023 and the results of our operations and cash flows for the periods presented.
Interim results are subject to seasonal variations, and the results of operations for the nine months ended June 30, 2023, are not necessarily indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the accompanying condensed balance sheets and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made in preparing the financial statements include, but are not limited to, the following: collectability of accounts receivable, the potential impairment of goodwill, valuation of deferred tax assets, carrying value of inventories, useful lives and recovery of equipment and other intangible assets, and valuation of stock-based compensation.
Cash and Cash Equivalents
For purposes of the condensed statements of cash flows, we consider highly liquid financial instruments purchased with a maturity of three months or less at the time of purchase to be cash equivalents.
Accounts Receivable
We follow the allowance method of recognizing uncollectible accounts receivable, which recognizes bad debt expense based on a review of the individual accounts outstanding and our prior history of uncollectible accounts receivable. We extend credit based on an evaluation of each customer’s financial condition, and our receivables are generally unsecured. Accounts receivable are stated net of an allowance for doubtful accounts in the balance sheet. We consider accounts past due if outstanding longer than contractual payment terms. We record an allowance based on consideration of a number of factors, including the length of time trade accounts are past due, our previous loss history, the creditworthiness of individual customers, economic conditions affecting specific customer industries, and economic conditions in general. We charge-off accounts receivable after all reasonable collection efforts have been exhausted. We credit payments subsequently received on such receivables to bad debt expense in the period we receive the payment.
As of June 30, 2023, we had established an allowance
of $
Property and Equipment
We recorded property and equipment purchased at cost. We compute depreciation, after equipment is placed in service, using the straight-line method at rates intended to depreciate the cost of assets over their estimated useful lives, which are generally four to ten years. Upon retirement or sale of property and equipment, we will remove the cost of the disposed assets and related accumulated depreciation from the accounts and any resulting gain or loss is credited or charged to selling, general, and administrative expenses. We charge expenditures for normal repairs and maintenance to expense as incurred. We capitalize additions and expenditures for improving or rebuilding existing assets that extend the useful life. Leasehold improvements made either at the inception of the lease or during the lease term will be amortized over the shorter of their economic lives or the lease term including any renewals that are reasonably assured.
Goodwill
Goodwill
represents the excess of fair value over identifiable tangible and intangible net assets acquired in the Scio business combination. Goodwill
is not amortized, instead goodwill is reviewed for impairment at least annually, or on an interim basis between annual tests when events
or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than it’s carrying value.
The goodwill that arose from the Scio asset purchase agreement was independently valued at $
8
Impairment of Long-Lived Assets
We continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell. No impairment expense was recognized for the nine months ended June 30, 2023 and 2022.
Revenue Recognition
We generate revenue from the sale of diamonds that have been produced or purchased. We recognize revenue according to Accounting Standards Codification 606 – Revenue from Contracts with Customers (“ASC 606”). When the customer obtains control over the promised goods or services, we record revenue in the amount of consideration that we can expect to receive in exchange for those goods. We apply the following five-step model to determine revenue recognition:
| ● | identification of a contract with a customer; |
|
|
● | identification of the performance obligations in the contact; |
| ● | determination of the transaction price; |
| ● | allocation of the transaction price to the separate performance obligations; and |
| ● | recognition of revenue when performance obligations are satisfied. |
We only apply the five-step model when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. Our contracts contain a single performance obligation (delivery of diamonds), and the entire transaction price is allocated to the single performance obligation. We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Accordingly, we recognize revenue when the customer obtains control of our product, which typically occurs upon delivery of the product. Currently, our credit terms are payment is due within 120 days.
Disaggregated Revenue Information
We have no disaggregated revenue to report for the nine months ended June 30, 2023 or 2022. We continue to have one primary wholesale customer.
Advertising Costs
We plan to expense advertising costs as they are incurred. We have incurred no advertising costs to date.
Inventories
We state inventories at the lower of cost or net realizable value in the following manners. We determine cost using the average cost method on all inventory generated by our manufacturing operations upon our transition from research and development in our manufacturing facility to the full production of our products for sale. We also purchase lab-grown diamonds from a vendor who cuts and polishes the majority of our manufactured diamonds as the vendor has access to other lab-grown diamonds that may supplement the inventory needed by the Company or which may be unique in nature which may appeal to our customers or be used in design of our proprietary jewelry line which is under development. We carry the value of these purchased diamonds at the lower of cost or net realizable value. Included in inventory is work in process which states the average cost method of these items at their state of completion at the condensed balance sheet date. At June 30, 2023, our inventory consisted of finished precious stones in various carat sizes, shapes, and colors that we produced or purchased and work in process. At September 30, 2022, our inventory consisted primarily of finished precious stones in various carat sizes, shapes, and colors which we produced and work in process.
We
account for stock-based compensation at estimated fair value on the date of grant. There were 1,658,500 shares of common stock granted
to 11 employees for their service to the Company during the nine months ended June 30, 2023. Each employee’s shares were fully
vested upon issuance and expensed in full during the nine months ended June 30, 2023. These shares were valued between $4.00 and $.80
per share an approximate average of $3.50 per share, or an aggregate of $
9
In
addition, the Company issued
There were shares granted for employees valued on average at $3.44 per share for which $5.7 million was fully expensed during the nine months ended June 30, 2023.
The price per share was based upon sales of our common stock near the date of grant. The grants are fully vested and are recognized upon the date of grant.
Concentrations of Credit Risk
Accounts at banks are insured by the Federal Deposit Insurance Corporation, or the FDIC, up to $250,000. As of June 30, 2023, our bank account balance exceeded the federally insured limit. We mitigate this exposure by using a high credit financial institution. We have one wholesale customer, representing substantially all our accounts receivable.
Income Taxes
We account for income taxes under the asset and liability method in accordance with Accounting Standards Codification 740 - Income Taxes, or ASC 740. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable amounts in years in which those temporary differences are expected to be recovered or settled. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. We reflect changes in recognition or measurement in the period in which the change in judgment occurs. We currently have substantial net operating loss carryforwards. We have recorded a valuation allowance equal to the net deferred tax assets due to the uncertainty of the ultimate realization of the deferred tax assets.
Contingencies
Certain conditions may exist as of the date the condensed financial statements are issued that may result in a loss to us but will only be resolved when one or more future events occur or fail to occur. We assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to potential unasserted claims that may result in legal proceedings against us, we evaluate the perceived merits of any claims and the perceived merits of the amount of relief sought or expected to be sought therein and determine if any loss is likely.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability is reasonably estimated, the estimated liability would be accrued in our condensed financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of range of possible loss if determinable and material, would be disclosed. There were no known loss contingencies identified as of June 30, 2023. (See NOTE 6 below for additional information)
We calculate basic loss per share using the weighted average number of shares of common stock outstanding during each reporting period. Diluted loss per share includes potentially dilutive financial instruments, such as convertible term notes and related interest. We excluded and shares from the weighted average diluted common shares outstanding for June 30, 2023 and 2022, respectively, because their inclusion would have been antidilutive. These shares are what would have been issued if the convertible debt, plus accrued interest had converted for each of the nine months ended June 30, 2023 and 2022.
Recently Issued Accounting Pronouncement
Adopted
In February 2016, the FASB issued Accounting Standards Update (“ASC”) 2016-02, Leases (Topic 842). The update improves financial reporting about leasing transactions by requiring a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by lease terms of more than 12 months. We adopted ASU 2016-02 in the nine months ended June 30, 2023. We completed the process of aggregating and evaluating lease arrangements and implementing new processes during the nine months ended June 30, 2023. As a result of evaluating the impact of adoption of the ASC on our condensed financial statements we recognized a right-of-use asset and lease liability on our condensed balance sheet for our real estate operating leases. At October 1, 2022 we recognized a right of use asset of $1.4 million, and a lease liability of $1.4 million.
NOTE 4 – INVENTORIES
As of June
30, 2023 and September 30, 2022, the inventory balances were composed of finished products and work in process carried at the value of
the costs associated with the manufacturing of the goods. As of June 30, 2023, finished products and work in process were $
10
NOTE 5 – PROPERTY AND EQUIPMENT
Property
and equipment are listed net of the related accumulated depreciation as of June 30, 2023 and September 30, 2022. As of June 30, 2023.
The Company has a deposit on equipment on order in the amount of $
Depreciation
expense for the nine months ended June 30, 2023 and 2022 totaled $
| June 30, 2023 | September 30, 2022 | |||||||
| Property and equipment- in use | $ | $ | ||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Net property and equipment- in use | ||||||||
| Property and equipment- in process | ||||||||
| Total property and equipment, net | $ | $ | ||||||
NOTE 6 – COMMITMENTS AND CONTINGENCIES
Indemnifications
During the normal course of business, we make certain indemnities and commitments under which we may be required to make payments in relation to certain transactions. These may include (i) indemnities to vendors and service providers pertaining to claims based on negligence or willful misconduct; and (ii) indemnities involving the representations and warranties in certain contracts. In addition, under our bylaws we are committed to our directors and officers for providing for payments upon the occurrence of certain prescribed events. The majority of these indemnities and commitments do not provide for any limitation on the maximum potential for future payments that we could be obligated to make. We have not incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the estimated fair value of these agreements is minimal. Accordingly, we had no liabilities recorded for these agreements as of June 30, 2023 and September 30, 2022.
Leases
We are obligated under a triple-net operating lease for our 6,475 square foot manufacturing facility located in Greenville, South Carolina, which is classified as an operating lease. The terms of the lease require a payment of approximately $10,000 per month, which includes an estimate for utilities, taxes, and repairs. This lease expired in August 2023 and was subsequently renewed in August 2023 and has a new expiration date of August 2028.
We believe this facility will be adequate to meet our current needs based on the property and equipment currently owned. However, our business plan will require additional space, and we will be making plans to expand our building footprint at possible new or additional locations to accommodate additional manufacturing equipment. As part of the initial expansion discussed above, we have entered into a lease for 23,485 square feet of additional manufacturing space in Greenville, South Carolina, expiring in July 2036. In addition, we have a lease for 3,414 square feet of office space in Scottsdale, Arizona, expiring in September 2024. The office is to facilitate the administration and marketing of expanding the manufacturing aspect of our Company as well as to administer increased management anticipated in areas of human resources, finance, accounting, and financial analysis as well as sales and marketing to manage the growth in the production output as a result of the second facility in Greenville, South Carolina. We intend to pay for these improvements using a combination of working capital, new debt financing, and equity offerings.
The
weighted average remaining lease term and weighted average discount rate for operating leases were 3.8 years and
The future minimum lease payment required under our leases as of June 30, 2023 are as follows:
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total undiscounted cash flows | ||||
| Less: present value discount ( | ( | ) | ||
| Total lease liabilities | $ |
Employment Agreements
We have entered into five separate employment agreements that provide for stock to be issued annually in varying amounts through fiscal 2025. The price per share to be included in employee stock compensation expense will be based upon the fair market value of the stock on the date of grant. The grants are fully vested, pending the service requirement of continued employment.
We also have salary commitments contained in our various employment agreements through fiscal year 2025.
After 2025, one salary continues to increase at 9% per year from its approximately $280,000 2025 base salary.
11
Additional Compensation
In addition to the above stock commitments, we have agreed to provide certain executive officers with compensation paid in diamonds. These commitments amount to issuing 9.5 carats of diamonds per month through September 2024 and 2.5 carats of diamonds per month through October 2025. For the nine months ended June 30, 2023 and 2022 this obligation has been accrued at a valuation of $1,000 per carat, which is based on management’s estimate of the market value of the diamonds.
Litigation
During December 2022, we became a party to a class action filing previously between Scio and a class action investor. We have retained outside counsel specifically for this matter and are working with other defendants named in this matter to increase our chance of prevailing. On February 17, 2023 the Company filed a motion to dismiss the class action in concert with Scio which filed a separate motion to dismiss this class action. Our approach will continue to seek a dismissal on all items related to this legal action. We believe the case is without merit and will defend our position vigorously. Based on the Company’s assessment of a favorable decision by the court no liability has been recorded on our condensed balance sheet at June 30, 2023.
NOTE 7 – NOTES PAYABLE AND CONVERTIBLE TERM NOTES
From December 15, 2022 through June 30, 2023 the Company converted five notes of $50,000, $150,000, $100,000, $100,000 and $50,000 out of the seven separate investor notes totaling an aggregate of $850,000 which had origination dates ranging from May to September 2019 which contain an interest rate of 7% and mature on the second anniversary date of the respective notes. The notes were converted into 175,712 shares of common stock and 18,935 shares of common stock for accrued interest. The remaining balances outstanding at June 30, 2023, on these convertible term notes was $250,000.
We have a note with a private lender, dated May 14, 2019, with an original principal balance of $100,000 and an original maturity date of September 5, 2019. The note has been re-negotiated on several occasions and has a current maturity date of December 31, 2023. Accrued interest was capped at 46,500 shares of the Company’s common stock which were issued to the private lender on November 29, 2023. The principal balance outstanding on the note at June 30, 2023 and September 30, 2022 was $72,500. The note is unsecured.
On May 18, 2023 we entered into a note with a private lender with an original principal balance of $200,000 and an original maturity date 30 days after the effective date. The note contains an interest rate of 10% which is payable at maturity along with the outstanding principal balance. As an inducement to enter into the note 10,000 shares of the Company’s common stock was issued upon the acceptance of this note by the private lender. The principal balance outstanding on the note at June 30, 2023 was $200,000. This note and accrued interest was paid in full in July 2023.
On June 2, 2023 we entered into a note with a private lender with an original principal balance of $50,000 and an original maturity date 30 days after the effective date. The note contains an interest rate of 15% which is payable at maturity along with the outstanding principal balance. As an inducement to enter into the note 20,000 shares of the Company’s common stock was issued upon the acceptance of this note by the private lender. The principal balance outstanding on the note at June 30, 2023 was $50,000.
On June 6, 2023 we entered into a securities purchase agreement with a lender with an original principal balance of $1,635,000 and an original maturity date 12 months after the effective date. The note contains an interest rate of 8% which is payable according to a schedule of seven monthly amortization payments beginning on December 9, 2023 with final payment and accrued interest due on at maturity along with the outstanding principal balance due on June 9, 2024. The securities purchase agreement contained an original issue discount of $180,300 which is being amortized as interest expense over the turn of the agreement. As an inducement to enter into the note 200,000 shares of the Company’s common stock was issued upon the effective date of this note to the lender. The note also included a 5 year warrant to purchase 100,000 shares of the Company’s common stock at a price of $2.50 per share. The Company determined that the fair value of these warrants at the time the agreement was executed to be $76,403 which is being amortized as interest expense over the term of the agreement. The note does not provide for prepayment or repayment of the principal balance and is required to be repaid according to an agreed upon amortization schedule. The note is convertible in full or part at a rate of $2.00 per share. The note is also convertible in part or in total into common shares of the Company at $2.00 per share. The agreement contains an escrow agreement for 2,752,000 shares of the Company’s common stock to be reserved by the Company’s transfer agent as collateral for the security of the note. The Company has also pledged the majority of its assets as additional security and as part of a security agreement entered into in conjunction with this securities purchase agreement. The principal balance outstanding on the note at June 30, 2023 was $1,635,000.
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NOTE 8 – CAPITAL STOCK
Our authorized capital consists of shares of common stock with a par value of $ per share and shares of preferred stock with a par value of $ per share.
As of June 30, 2023, and 2022, we had no shares of preferred stock issued or outstanding.
As of June 30, 2023, there were shares of common stock issued and shares outstanding. During the nine months ended June 30, 2023, we issued shares of common stock as follows:
shares were sold to investors for $11,025,000, before expenses of the offering in the Company’s IPO;
shares were issued to note holder electing to convert upon IPO valued at $
shares valued at $
shares were issued for $
shares of treasury stock were purchased for $
shares valued at $
shares were issued to consultants for services valued at $
shares were issued for conversion of notes and accrued interest valued at $
shares valued at $
shares valued at $
shares valued at $
shares were issued for conversion of notes and accrued interest valued at $
shares were issued for $ for incentive to lenders.
NOTE 9 – RELATED PARTY
Amounts
due related parties on June 30, 2023 were $0 and amounts due to related parties on September 30, 2022 were $
In addition, we have various employment contracts and additional compensation agreements with members of the executive team, which are discussed in Note 6 – Commitments and Contingencies.
We also have payroll and related liabilities outstanding as of June 30, 2023 and September 30, 2022 that are primarily owed to our principal officers.
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NOTE 10 – INCOME TAXES
We compute income taxes using the asset and liability method in accordance with FASB ASC Topic 740, Income Taxes. Under the asset and liability method, we determine deferred income tax assets and liabilities based on the differences between the financial reporting and tax bases of assets and liabilities and measure them using currently enacted tax rates and laws. We provide a valuation allowance for the amount of deferred tax assets that, based on available evidence, are more likely than not to be realized. Realization of our net operating loss carryforward was not reasonably assured as of June 30, 2023 and September 30, 2022, and we have recorded a related valuation allowance against deferred tax assets in excess of deferred tax liabilities in the accompanying condensed financial statements.
As of June 30, 2023 and September 30, 2022, we had federal income tax net operating loss carryforwards. We are subject to limitations existing under Internal Revenue Code Section 382 (Change of Control) relating to the availability of the operating loss, therefore utilization of a portion of our net operating loss may be limited in future years.
As of June 30, 2023 and September 30, 2022 we had no Internal Revenue Service or state tax examinations. Therefore, all periods since inception are subject to audit.
NOTE 11 – SUBSEQUENT EVENTS
The Company has issued shares if it’s common stock from June 30, 2023 through December 29, 2023 the date at which the latest shareholder report was available to consultants for services, employees for services and for the investment in a strategic entity.
On September 14, 2023 we entered into a note with a lender with an original principal balance of $271,739 of which $250,000 is the amount of actual purchase price plus an original issue discount in the amount of $21,739 and to pay interest on the unpaid principal amount at an interest rate of 8% per annum until paid in full. The maturity date is twelve months from the issue date at which time the principal amount and any accrued and unpaid interest and other fees shall be due and payable. The lender has the right at any time to convert all or any portion of the then outstanding principal balance and interest into shares of common stock of the Company at a conversion price of $2.00 per share.
On September 26, 2023 we entered into a note with a lender with an original principal balance of $50,000 and an original maturity date 30 days after the effective date. The note contains interest at a fixed rate of $5,000 until paid in full. In the event of default the note shall bear interest at 5,000 shares of the Company’s common stock per week until paid in full. As an inducement to enter into the note 25,000 shares of the company’s common stock was issued upon the acceptance of this note by the lender. The lender has been granted a continuing security interest in 200,000 shares of common stock of the Company.
We have analyzed our operations subsequent to the condensed balance sheet and determined that there were no other significant subsequent events or transactions that would require recognition or disclosure in the condensed financial statements for the nine months ended June 30, 2023.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This document contains certain “forward-looking statements”. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies, goals and objectives of management for future operations; any statements concerning proposed new products and services or developments thereof; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.
Forward looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect,” or “anticipate,” or other similar words, or the negative thereof. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the dates they are made. You should, however, consult further disclosures and risk factors we included in the section titled Risk Factors contained herein.
Overview
We are a high-tech, laboratory grown, diamond company that uses our proprietary technology to produce high-quality, single crystal diamonds and diamond materials through a CVD process, which we refer to as our “Diamond Technology”. Lab-grown diamonds have the exact physical, chemical, and optical properties of the best mined diamonds. Lab-grown diamonds are composed of a pure carbon lattice, just like mined diamonds, and are not considered synthetic or simulant diamonds like cubic zirconia and moissanite. Simulants are other chemical compounds that resemble diamonds but do not possess the same hardness, thermal characteristics, band gap energy, and light reflectivity as diamond, whether mined or lab-grown.
We use our Diamond Technology to produce finished diamond gemstones that we intend to sell wholesale and retail for jewelry and rough unfinished diamond materials that we intend to sell wholesale and retail for industrial uses. We are in the initial phases of commercializing diamonds and diamond materials, and our primary mission is the development of a profitable and sustainable commercial production model for the manufacture and sale of diamonds and diamond materials, which are suitable for known, emerging, and anticipated industrial, technology, and consumer applications.
Since acquiring the Scio assets over three years ago, we have focused our efforts on research and development of improvements to the fundamental CVD process. Like most high-tech manufacturers, the philosophy of continuous improvement is at our core. Our development efforts have focused on commercialization of the diamonds and diamond materials we produce, improvements in our white diamond process, improvements in our diamond seed processes, automation in our machine operation, expansion of our capacity with our existing machines, and improvements in our laser cutting procedures. The guiding principle of these efforts is to provide the highest quality diamonds and diamond materials in a consistent and high-yield manner.
We currently have limited available commercial products and have to date sold minimal diamonds or diamond materials to consumers or commercial buyers. Our current operations, until just recently, have been dedicated to the research and development of our Diamond Technology and the exploration of markets that we may exploit in the future. While we are unable to predict the timing of our entry into any market in the future, we will strive to produce on a large scale high-quality finished and raw diamond materials and to pursue related commercial opportunities.
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Results of Operations
| For The Three Months Ended | For The Nine Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net Sales | $ | 290,938 | $ | 617,075 | $ | 1,1,130,994 | $ | 1,101,594 | ||||||||
| Cost of Revenues | 217,844 | 215,976 | 397,842 | 362,576 | ||||||||||||
| Gross Margin | 73,094 | 401,099 | 733,152 | 739,018 | ||||||||||||
| Total Operating Expenses | 4,548,894 | 1,527,638 | 16,861,634 | 6,880,457 | ||||||||||||
| Loss From Operations | (4,475,800 | ) | (1,126,539 | ) | 16,128,482 | ) | (6,141,439 | ) | ||||||||
| Other Expenses | (62,383 | ) | (610,491 | ) | (2,333,561 | ) | (809,805 | ) | ||||||||
| Loss Before Income Taxes | $ | (4,538,183 | ) | $ | (1,737,030 | ) | $ | (18,462,043 | ) | $ | (6,951,244 | ) | ||||
The following table presents summarized financial information taken from our condensed statements of operations for the three and nine months ended June 30, 2023 compared to the same period in 2022.
Components of Results of Operations
Net Sales
During the three and nine months ended June 30, 2023, we had net sales of $290,938 and $1,130,994 respectively, compared to $617,075 and $1,101,594 net sales for the three and nine months ended June 30, 2022. We anticipate deriving continuing future revenue from the following business lines:
| ● | Direct Sales of Diamonds: The sale of diamond gemstones direct to the consumer through our website and the sale of industrial grade diamonds direct to industrial manufacturing companies. |
| ● | Wholesale of Diamonds: The sale of diamonds to wholesalers, distributors, and jewelers. |
Cost of Revenues
Cost of revenues includes direct costs (parts, material, and labor), indirect manufacturing costs (manufacturing overhead, depreciation, plant operating lease expense, and rent), shipping, lab services, and logistics costs.
Costs of revenues for the three and nine months ended June 30, 2023, were $217,844 and $397,842 respectively. Costs of revenues for the three and nine months ended June 30, 2022 were $215,976 and $362,576 respectively.
Gross Margin
Gross margin for the three and nine months ended June 30, 2023, was $73,094 and $733,152 respectively with a gross profit margin on diamond sales of 25% and 65% for each of those periods, respectively. Gross margin for the three and nine months ended June 30, 2022, was $401,099 and $739,018, respectively with a gross profit margin on diamond sales of 65% and 67% for each of those periods, respectively.
Research and Development Expense
We conduct research and development activities to enhance existing processes and products and develop new processes and products at our facilities in Greenville, South Carolina, utilizing our personnel and strategic relationships. We expense all costs associated with our research and development efforts through either our cost of goods sold, as they are performed by the same employees who produce our finished product, or through our general and administrative expenses if the product has not been brought to market.
We expect our research and development expenses to increase for the foreseeable future as we continue to invest in research and development activities to achieve our operational and commercial goals.
Operating Expense
Operating expense includes selling, general and administrative expense, employee salaries and related expense and depreciation and amortization expense. Selling, general, and administrative expenses consist primarily of legal and professional, consulting services and all non-personnel-related expenses or depreciation and amortization. Personnel-related expenses consist of salaries, payroll taxes, benefits, and stock-based compensation. Depreciation and amortization expenses are related to the Company’s fixed assets and intangible assets.
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Operating expense for the three and nine months ended June 30, 2023, included in the condensed statements of operations was approximately $4.5 million and $16.9 million, respectively, compared to $1.5 million and $6.9 million in the prior period. These increases in operating expenses for both the three and nine month periods were generally due to the ramping up of its diamond manufacturing operations subsequent to completing its initial public offering in December 2022.
We expect our operating expense to increase for the foreseeable future as we scale headcount and expenses with the growth of our business, build out our manufacturing facilities, refine our production processes, drive for productivity improvements, acquire new and retain existing customers, and incur additional costs as a result of being a public company.
Other Expenses
Interest Expense
Interest expense consists of interest paid and accrued on our notes payable, promissory notes and the amortization of debt issue costs.
Interest expense was $62,383 and $2,333,561 for the three and nine months ended June 30, 2023, respectively, compared to $610,491 and $809,805 for the three and nine month periods of the prior year. This increase in interest expense was due primarily to the warrants issued for notes converted and partly to higher net borrowings and outstanding indebtedness for the nine months ended June 30, 2023, versus the nine months ended June 30, 2022. The Company had lower interest expense as a result of significantly lower borrowings during the three month period ended June 30, 2023 compared with the three month period in the prior year.
Net Loss
Primarily as a result of the above factors we had a net loss of $4.5 million and $18.5 million compared to a net loss of $1.7 million and $7.0 million for the three and nine months ended June 30, 2023, and June 30, 2022, respectively.
Liquidity and Capital Resources
As of June 30, 2023, we had $0.7 million of cash and cash equivalents, an increase of $0.6 million from September 30, 2022. Changes in cash flows are summarized as follows:
Operating Activities
For the nine months ended June 30, 2023, net cash used in operating activities totaled approximately $6.1 million. This was primarily the result of net loss of approximately $18.5 million, increases to our period end accounts receivable of $0.5 million, an increase in our inventories of $1.1 million, a decrease in accrued payroll and related of $0.7 million along with an offset by the benefit of non-cash expenses for employee stock compensation of $9.7 million and warrants issued for conversion of $2.0 million.
For the nine months ended June 30, 2022, net cash used in operating activities totaled approximately $1.6 million. This was primarily the result of net loss of approximately $7.0 million offset by the benefit of non-cash expenses for employee stock compensation of $4.8 million.
Investing Activities
During the nine months ended June 30, 2023, we used $1.5 million for investing activities related to purchase of property and equipment. During the nine months ended June 30, 2022, we used no cash for investing activities.
Financing Activities
During the nine months ended June 30, 2023, net cash provided by financing activities was approximately $8.1 million. This was the net effect of $9.1 million we received as net proceeds from our IPO which closed on December 14, 2022 offset by $0.6 million used to reduce related party notes and $1.2 million to acquire treasury stock during the nine months ended June 30, 2023.
During the nine months ended June 30, 2022, net cash provided by financing activities was approximately $1.3 million.
These conditions raise substantial doubt about our ability to continue as a going concern for the ensuing year. Our independent auditors have added an explanatory paragraph in their audit opinion in regard to this uncertainty and can be found in the Company’s Annual Form 10K filing with the Securities and Exchange Commission.
Satisfaction of our Cash Obligations for the Next 12 Months
Our recent IPO which closed on December 14, 2022 gave us gross proceeds of $11.0 million before direct IPO expenses and fees associated with underwriting. These funds along with the ability to obtain additional capital through additional equity and/or debt financing are anticipated to meet our operating needs. We are not currently generating sufficient revenue to meet operating needs. In the event we cannot obtain additional capital to pursue our strategic plan, however, this would materially impact our ability to continue as a going concern.
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Since inception, we have financed cash flow requirements through debt financing and the private issuance of common stock for cash and services along with advances from our CEO as well as our CEO and CFO deferring significant compensation and benefits that were earned under their respective employment contracts. If we continue to experience cash flow deficiencies, we would be required to obtain additional financing to fund operations through private common stock offerings and debt borrowings to the extent necessary to provide working capital. However, there is no assurance we would be able to obtain such financing on commercially reasonable terms, if at all.
We intend to implement and successfully execute our business and marketing strategy, continue to develop, and upgrade technology and products, respond to competitive developments, and attract, retain, and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition, and results of operations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made in preparing the condensed financial statements include the valuation of allowances for doubtful accounts, valuation of deferred tax assets, inventories, useful lives of assets, goodwill, intangible assets, and stock-based compensation. A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended September 30, 2022, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no significant changes to these policies during the nine months ended June 30, 2023. For disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 to the condensed financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2022.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2023. Based on the evaluation of these disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures were not effective. Our controls were ineffective due to the size of the Company and available resources. There are limited personnel to assist with the accounting and financial reporting function, which results in: (i) a lack of segregation of duties and (ii) controls that may not be adequately designed or operating effectively. Despite the existence of material weaknesses, the Company believes the financial information presented herein is materially correct and fairly presents the financial position and operating results of the nine months ended June 30, 2023, and 2022 in accordance with GAAP.
Changes in internal controls
There were no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) promulgated under the Exchange Act, during the quarterly period from April 1, 2023 to June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During December 2022, we became a party to a class action filing previously between Scio and a class action investor. We have retained outside counsel specifically for this matter and are working with other defendants named in this matter to increase our chance of prevailing. On February 17, 2023 the Company filed a motion to dismiss the class action in concert with Scio which filed a separate motion to dismiss this class action. Our approach will continue to seek dismissal on all items related to this legal action. We believe the case is without merit and will defend our position vigorously. Based on the Company’s assessment of a favorable decision by the court no liability has been recorded on our balance sheet at June 30, 2023.
Please reference the Contingencies section of Note 3 of our Financial Statements for additional disclosure.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The authorized capital of the Company is 100,000,000 shares of Common Stock with a par value of $0.001 per share and 10,000,000 shares of Preferred Stock with a $0.001 par value per share.
There were no unregistered sales of the Company’s equity securities during the quarter ended June 30, 2023 that were not previously reported in a Current Report on Form 8-K except as follows:
We issued 2,385,000 shares of our Common Stock for consulting services valued at $2,423,829.
We issued 105,000 shares of our Common Stock for conversion of notes and accrued interest with a total value of $206,440.
We issued 513,500 shares of our Common Stock for employee stock grants with a total value of $1,248,816.
We issued 75,000 shares of our Common Stock for board member services with a total value of $246,150.
We issued 207,792 shares of our Common Stock for ownership in strategic entity with a total value of $163,907,234.
We issued 225,000 shares of our Common Stock as inducement to lenders with a total value of $240,70.
The previously mentioned securities were issued in reliance on the exemptions from registration under the Securities Act in Section 4(a)(2) of the Securities Act and/or Regulation D thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS
| Exhibit No. | Exhibit | |
| 31.1* | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for John G. Grdina. | |
| 31.2* | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Steven Staehr. | |
| 32.1** | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for John G. Grdina. | |
| 32.2** | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Steven Staehr. | |
| 101.INS* | Inline XBRL Instance Document | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| * | Filed Herewith. |
| ** | Furnished Herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ADAMAS ONE CORP.
| December 29, 2023 | By: | /s/ John G. Grdina | ||
| John G. Grdina | ||||
| Chief Executive Officer | ||||
ADAMAS ONE CORP.
| December 29, 2023 | By: | /s/ Steven Staehr | ||
| Steven Staehr | ||||
| Chief Financial Officer |
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