ITEM 1. FINANCIAL STATEMENTS

 

 

---

 

 

TRIBUS ENTERPRISES, INC.

UNADUITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019

 

 

Condensed Consolidated Balance Sheets	1
Unaudited Condensed Consolidated Statements of Operations	2
Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity	3
Unaudited Condensed Consolidated Statements of Cash Flows	4
Notes to Unaudited Condensed Consolidated Financial Statements	5 - 10

 

 

 

---

 

 

 

 

TRIBUS ENTERPRISES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

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

 

 

TRIBUS ENTERPRISES, INC.

CONSOLDIATED STATEMENTS OF OPERATIONS

 

 

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

 

 

TRIBUS ENTERPRISES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

 

 

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

 

 

TRIBUS ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

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

 

 

TRIBUS ENTERPRISES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

December 31, 2019

 

 

 

 

 

 

 

 

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 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. Tribus LLC has made several plastic resin prototypes in 2016.

 

Tribus has produced several wrenches already and is setting up the production line for full production this year.

 

Products

 

Tribus 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 will be 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.

 

Liquidity and Capital Resources

 

As of December 31, 2019, we had $423,674 in cash, total current assets of $909,467 and total current liabilities of $896,223. Current liabilities consisted mainly of $129,274 of accounts payable, a capital lease liability of $301,162, an operating lease liability of $61,886 and current loans payable of $349,670.

 

As of March 31, 2019, we had current assets totaling $455,981 consisting of $33,970 of cash, $402,000 of current deposits and $20,011 of prepaid expenses. Current liabilities totaled $437,680 as of March 31, 2019.

 

Net cash used in operating activities was $873,548 compared to $850,970 for the nine months ended December 31, 2019 and 2018, respectively.

 

Net cash used in investing activities was $3,758 compared to $58,840 the nine months ended December 31, 2019 and 2018 respectively.

 

Net cash provided by financing activities was $1,267,010 and $114,936 for the nine months ended December 31, 2019 and 2018, 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 during the three and nine months ended December 31, 2019 and no revenues during the three and nine months ended December 31, 2018. Total operating expenses were $473,213 during the three months ended December 31, 2019 and $171,785 for the three months ended December 31, 2018. Total operating expenses were $1,069,710 during the nine months ended December 31, 2019 and $535,613 for the nine months ended December 31, 2018. The increase in operating expenses for the three and nine months ended December 31, 2019 when compared to the same periods in 2018 were due to an increase in the company’s operations and preparation in the current year. Net loss for the three months ended December 31, 2019 was $556,258 compared to $204,694 for the same period in 2018. Net loss for the nine months ended December 31, 2019 was $1,256,412 compared to $592,716 for the same period in 2018.

 

 

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 capital 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 3A. OFF BALANCE SHEET ARRANGEMENTS

 

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

 

CONTROLS AND PROCEDURES

 

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 December 31, 2019, 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 December 31, 2019.

 

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

 

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

 

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 assert numerous claims against DMW and Hake arising from their manufacturing relationship. Tribus’s claims against DMW are for breach of contract, unjust enrichment, and promissory estoppel. Tribus’s claims against Hake are for unjust enrichment, fraud, promissory estoppel, conversion, and tortious interference.

 

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

 

 

DMW has filed counterclaims against Tribus in the Tribus Lawsuit. DMW has 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 assert that Tribus stole DMW’s confidential information and trade secrets. Namely, the programming and manufacturing process for the wrenches. DMW also asserts that it was Tribus who breached the contract with DMW. DMW’s counterclaims against Tribus center on Tribus’s 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’s wrenches. DMW’s counterclaims request judgement in excess of $2 million. 

  

To date, the Tribus Lawsuit has seen considerable activity for its nascent stage. It 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’s behalf. Certain miscellaneous pieces of equipment remain to be returned however. Those pieces (or their value), and the monetary portion of Tribus’s claims remain to litigated, as do DMW’s counterclaims against Tribus.

 

Tribus has vigorously prosecuted its claims and defended against DMW’s counterclaims to date. The Company believes there is a good chance that Tribus will prevail on its claims against DMW, and that DMW will not be successful on its claims against Tribus. Given the range and variety of claims against Tribus by DMW however, it is impossible to provide a range of potential loss with any specificity.

 

There are additional considerations involving the Tribus Lawsuit. First, DMW has filed a motion with the court to stay that lawsuit and compel arbitration. Tribus has opposed that motion and we are awaiting a decision from the court. Second, Hake has filed bankruptcy in the United States Bankruptcy Court for the Southern District of Ohio, which will necessitate the dismissal of Tribus’s claims against Hake personally. Tribus does not intend to pursue a judgement or claim against Hake in the bankruptcy matter, given the low likelihood of collection and the cost of such pursuit.

 

On September 14, 2019, the United States Bankruptcy Court for the Southern District of Ohio issued an order denying Nathan Hake a discharge in bankruptcy, and his bankruptcy proceedings have now concluded. As a result, Tribus is entitled to continue pursuing its claims against Hake personally in the Tribus Lawsuit.

 

On December 11, 2019, the trial court denied DMW’s motion to stay the Tribus Lawsuit and compel arbitration. The deadline to appeal that decision has now passed, and was not appealed. In addition, the trial court granted Tribus’s motion to consolidate the Tribus Lawsuit and the Trost Lawsuit. Consequently, the Tribus Lawsuit and the Trost Lawsuit are now proceeding as a single lawsuit.

 

On December 16, 2019, counsel for DMW filed a motion to withdraw as counsel from both the Tribus Lawsuit and the Trost Lawsuit, citing lack of payment by DMW and a separate, unrelated conflict. On January 23, 2020, the trial court granted that motion to withdraw, leaving DMW and Hake without counsel of record in either lawsuit.

 

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 has 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 seeks damages in excess of $2 million.

 

The crux of DMW’s claims in the Trost Lawsuit mirror its counterclaims in the Tribus Lawsuit. In essence, DMW maintains that Tribus and Trost conspired to steal the programming and manufacturing information for Tribus’s 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 Trost Lawsuit has seen considerable activity to date as well. In addition to substantial motion practice, DMW has filed a motion for temporary restraining order and preliminary injunction, seeking to prevent Trost from doing any business with Tribus. The motion for temporary restraining order and preliminary injunction was referred to a magistrate for decision. In Ohio, a judge can refer a matter to a magistrate for decision, but a magistrate’s decision is not effective until it is adopted by the judge. Following a magistrate’s decision, any party is permitted to file objections to that decision with the judge, and the judge must then perform an independent review of the record of proceedings before the magistrate before deciding whether to adopt or reject the magistrate’s decision.

 

An evidentiary hearing was held on DMW’s motion on May 13, 2019, and June 26, 2019. On August 6, 2019, the magistrate issued a decision in favor of DMW, which was later amended in another magistrate’s decision dated August 27, 2019. Trost has filed objections to the magistrate’s. If adopted by the judge, the magistrate’s decision would prohibit Trost from performing any work for Tribus. Trost filed objections to the magistrate’s decision, and the judge has not adopted or rejected the magistrate’s decision. Until such action is taken by the judge, the magistrate’s decision is not effective.

 

Here too, the Company believes there is a good chance that DMW will not be successful on its claims against Trost, nor on its motion for preliminary injunction. The Company is confident that, ultimately, it will be determined that the manufacturing and programming information that form the core of DMW’s claims against both Tribus and Trost is not in fact confidential information or trade secrets belonging to DMW.

 

ITEM 1A. RISK FACTORS

 

There has been no material changes in the risk factors set forth in the Company’s Form 10K for the period ended March 31, 2019 filed July 19, 2019.

 

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

 

During the nine months ended December 31, 2019, the Company accepted stock subscriptions to issue a total of 136,000 shares of common stock at $0.25 per share resulting in total cash proceeds of $34,000.

 

During the nine months ended December 31, 2019, the Company issued a total of 2,544,375 shares of Series B Convertible Preferred Stock for total cash proceeds of $1,664,000.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

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
31.1	Certification 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.
31.2	Certification 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.
32.1	Certification 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.
101.INS**	XBRL Instance
101.SCH**	XBRL Taxonomy Extension Schema
101.CAL**	XBRL Taxonomy Extension Calculation
101.DEF**	XBRL Taxonomy Extension Definition
101.LAB**	XBRL Taxonomy Extension Labels
101.PRE**	XBRL Taxonomy Extension Presentation

 

(b) REPORTS ON FORM 8-K

 

None.

 

 

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: February 14, 2020.

 

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

 

16