UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period endedSeptemberJune 30, 20172018
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number:000-31549
BINGHAM CANYON CORPORATIONPCT LTD
(Exact name of registrant as specified in its charter)
Nevada (State or other jurisdiction of incorporation or organization) | 90-0578516 (I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
(Zip Code) |
(913) 353-4560(843) 390-7900
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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. Yes☑No☐
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). Yes☑No☐The registrant does not have a Web site.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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☐ | Accelerated filer☐ |
Non-accelerated filer☐ | Smaller reporting company |
(Do not check if a 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☐No☑
The number of shares outstanding of the registrant’s common stock as of November 13, 2017August 20, 2018 was 40,379,238.43,459,238.
TABLE OF CONTENTS
Part I – Financial Information | Page | |
Item 1. | Financial Statements | 3 |
Condensed Consolidated Balance Sheets as of June 30, 2018 (Unaudited) and December 31, 2017 | 4 | |
Condensed Consolidated Statements of Operations (Unaudited) | 5 | |
Condensed Consolidated Statements of Cash Flows (Unaudited) | 6 | |
Notes to the Unaudited Condensed Consolidated Financial Statements | 7 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. | Controls and Procedures | |
Part II – Other Information | ||
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 3. | Defaults Upon Senior Securities | |
Item 4. | Mine Safety Disclosures | |
Item 5. | Other Information | |
Item 6. | Exhibits | |
Signatures |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial information set forth below with respect to our statements of operations for the three and ninesix month periods ended SeptemberJune 30, 20172018 and 20162017 is unaudited. This condensed consolidated financial information, in the opinion of management, includes all adjustments consisting of normal recurring entries necessary for the fair presentation of such data. The results of operations for the three and ninesix month periods ended SeptemberJune 30, 20172018 are not necessarily indicative of results to be expected for any subsequent period.
BINGHAM CANYON CORPORATION
PCT LTD
Financial Statements
SeptemberJune 30, 20172018
(Unaudited)
3 |
PCT LTD
BINGHAM CANYON CORPORATION
Condensed Consolidated Balance Sheets
SEPTEMBER 30, 2017 | DECEMBER 31, 2016 | JUNE 30, 2018 | DECEMBER 31, 2017 | |||||||||||||
ASSETS | (Unaudited) | (Unaudited) | ||||||||||||||
CURRENT ASSETS | ||||||||||||||||
Cash | $ | 23,732 | $ | 21,078 | $ | 53 | $ | 7,838 | ||||||||
Accounts receivable, net | 3,000 | 4,018 | 39,911 | 12,637 | ||||||||||||
Inventory | 312,844 | 42,706 | 28,019 | 10,526 | ||||||||||||
Prepaid expenses | 6,704 | 7,152 | 735,934 | 7,210 | ||||||||||||
Deposits | 48,820 | 77,543 | ||||||||||||||
Current portion of deposits | 46,610 | 2,110 | ||||||||||||||
Total current assets | 395,100 | 152,497 | 850,527 | 40,321 | ||||||||||||
FIXED ASSETS | ||||||||||||||||
Equipment, net | 68,569 | 78,250 | ||||||||||||||
Property and Equipment, net of depreciation | 374,208 | 383,254 | ||||||||||||||
OTHER ASSETS | ||||||||||||||||
Intangible assets, net | 4,404,715 | 42,857 | 4,176,195 | 4,325,107 | ||||||||||||
Deposits | 5,403 | 5,250 | ||||||||||||||
Deposits, net of current portion | 5,499 | 5,499 | ||||||||||||||
Total other assets | 4,410,118 | 48,107 | 4,181,694 | 4,330,606 | ||||||||||||
TOTAL ASSETS | $ | 4,873,787 | $ | 278,854 | $ | 5,406,429 | $ | 4,754,181 | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||||||||||
CURRENT LIABILITIES | ||||||||||||||||
Accounts payable | $ | 131,165 | $ | 52,144 | $ | 138,316 | $ | 134,613 | ||||||||
Accrued expenses – related party | 12,461 | 2,486 | 25,781 | 8,656 | ||||||||||||
Accrued expenses | 130,900 | 12,955 | 274,524 | 178,712 | ||||||||||||
Current portion of notes payable, net | 202,532 | 421,217 | ||||||||||||||
Current portion of notes payable – related party | 445,414 | 358,802 | 30,000 | 713,000 | ||||||||||||
Current portion of notes payable, net | 341,822 | — | ||||||||||||||
Current portion of convertible notes payable, net | 65,202 | — | ||||||||||||||
Total current liabilities | 1,061,762 | 426,387 | 736,355 | 1,456,198 | ||||||||||||
LONG TERM LIABILITIES | ||||||||||||||||
Notes payable – related party | 275,000 | — | ||||||||||||||
Notes payable, net | — | 129,451 | ||||||||||||||
Notes payable, net of current portion | 245,317 | — | ||||||||||||||
Notes payable – related party, net of current portion | 727,350 | — | ||||||||||||||
Convertibles notes payable, net of current portion | 380,698 | — | ||||||||||||||
TOTAL LIABILITIES | 1,336,762 | 555,838 | 2,089,720 | 1,456,198 | ||||||||||||
STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||
Common stock, $0.001 par value; 100,000,000 authorized; 40,001,572 and 37,117,572 issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 40,002 | 37,118 | ||||||||||||||
STOCKHOLDER’S EQUITY (DEFICIT) | ||||||||||||||||
Preferred stock, $0.001 par value; 10,000,000 authorized; nil issued and outstanding at June 30, 2018 and December 31, 2017 | — | — | ||||||||||||||
Common stock, $0.001 par value; 300,000,000 authorized; 43,459,238 and 41,179,238 issued and outstanding at June 30, 2018 and December 31, 2017, respectively | 43,460 | 41,180 | ||||||||||||||
Additional paid-in-capital | 9,187,012 | 3,708,882 | 11,217,130 | 10,001,323 | ||||||||||||
Accumulated deficit | (5,689,989 | ) | (4,022,984 | ) | (7,943,881 | ) | (6,744,520 | ) | ||||||||
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | 3,537,025 | (276,984 | ) | 3,316,709 | 3,297,983 | |||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 4,873,787 | $ | 278,854 | $ | 5,406,429 | $ | 4,754,181 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4 |
PCT LTD
BINGHAM CANYON CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
REVENUES | ||||||||||||||||
Revenue | $ | 58,123 | $ | 4,750 | $ | 80,352 | $ | 83,811 | ||||||||
Cost of Goods sold | 22,682 | 7,183 | 42,019 | 37,789 | ||||||||||||
Gross profit | 35,441 | (2,433 | ) | 38,333 | 46,022 | |||||||||||
OPERATING EXPENSES | ||||||||||||||||
General and administrative | 389,376 | 186,816 | 1,346,955 | 517,711 | ||||||||||||
Research and development | 32,490 | 13,326 | 102,402 | 90,330 | ||||||||||||
Depreciation and amortization | 92,457 | 2,124 | 205,881 | 15,683 | ||||||||||||
Total operating expenses | 514,323 | 202,266 | 1,655,238 | 623,724 | ||||||||||||
Net loss before other expenses | (478,882 | ) | (204,699 | ) | (1,616,905 | ) | (577,702 | ) | ||||||||
OTHER EXPENSES | ||||||||||||||||
Interest expense | (21,654 | ) | (22,226 | ) | (50,100 | ) | (37,321 | ) | ||||||||
Loss on settlement convertible debt | — | — | — | (48,872 | ) | |||||||||||
Total other expenses | (21,654 | ) | (22,226 | ) | (50,100 | ) | (86,193 | ) | ||||||||
Loss from operations before Income taxes | (500,536 | ) | (226,925 | ) | (1,667,005 | ) | (663,895 | ) | ||||||||
Income taxes | — | — | — | — | ||||||||||||
NET LOSS | $ | (500,536 | ) | $ | (226,925 | ) | $ | (1,667,005 | ) | $ | (663,895 | ) | ||||
Basic and diluted net loss per share | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.04 | ) | $ | (0.04 | ) | ||||
Basic and diluted weighted average shares outstanding | 39,981,485 | 23,319,196 | 39,041,968 | 18,473,821 |
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
REVENUES | ||||||||||||||||
Product and Licensing | $ | 50,572 | $ | 10,872 | $ | 73,213 | $ | 22,229 | ||||||||
Equipment leases | 19,500 | — | 39,000 | — | ||||||||||||
Total Revenue | 70,072 | 10,872 | 112,213 | 22,229 | ||||||||||||
OPERATING EXPENSES | ||||||||||||||||
General and administrative | 613,569 | 327,514 | 1,058,794 | 957,579 | ||||||||||||
Research and development | — | 56,710 | — | 69,912 | ||||||||||||
Cost of product, licensing and equipment | 4,756 | 8,108 | 20,474 | 19,337 | ||||||||||||
Depreciation and amortization | 80,162 | 87,080 | 166,858 | 113,424 | ||||||||||||
Loss from operations | 698,487 | 479,412 | 1,246,126 | 1,160,252 | ||||||||||||
Net loss before other expenses | (628,415 | ) | (468,540 | ) | (1,133,913 | ) | (1,138,023 | ) | ||||||||
OTHER EXPENSES | ||||||||||||||||
Interest expense | (39,644 | ) | (16,575 | ) | (65,448 | ) | (28,446 | ) | ||||||||
Total other expenses | (39,644 | ) | (16,575 | ) | (65,448 | ) | (28,446 | ) | ||||||||
Net loss before income taxes | (668,059 | ) | (485,115 | ) | (1,199,361 | ) | (1,166,469 | ) | ||||||||
Income taxes | — | — | — | — | ||||||||||||
NET LOSS | $ | (668,059 | ) | $ | (485,115 | ) | $ | (1,199,361 | ) | $ | (1,166,469 | ) | ||||
Basic and diluted net loss per share | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.03 | ) | ||||
Basic and diluted weighted average shares outstanding | 43,407,809 | 39,758,385 | 42,541,614 | 38,561,158 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5 |
BINGHAM CANYON CORPORATIONPCT LTD
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the nine months ended September 30, | For the six months ended June 30, | |||||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
Cash Flows from Operating Activities | ||||||||||||||||
Net loss | $ | (1,667,005 | ) | $ | (663,895 | ) | $ | (1,199,361 | ) | $ | (1,166,469 | ) | ||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation and amortization | 214,006 | 15,684 | 166,858 | 119,519 | ||||||||||||
Amortization of debt discount | 10,906 | 6,540 | 15,470 | 7,270 | ||||||||||||
Common stock issued for services | — | 20,000 | 295,904 | — | ||||||||||||
Stock-based compensation | 415,964 | 14,697 | — | 401,910 | ||||||||||||
Expenses paid on behalf of company | 14,722 | 10,000 | — | 4,610 | ||||||||||||
Loss on settlement | — | 48,872 | — | — | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | 1,018 | (12,299 | ) | (27,274 | ) | (1,790 | ) | |||||||||
Inventory | (270,138 | ) | (14,344 | ) | (17,493 | ) | (183,867 | ) | ||||||||
Prepaid expenses | 448 | 5,208 | 3,371 | 2,379 | ||||||||||||
Other assets | (44,500 | ) | — | |||||||||||||
Deposits | 28,570 | (78,091 | ) | — | 77,390 | |||||||||||
Accounts payable and accrued liabilities | 196,966 | 79,257 | 99,515 | 82,265 | ||||||||||||
Accounts payable and accrued liabilities related party | 9,975 | 9,138 | 17,125 | 6,291 | ||||||||||||
Deferred revenue | — | (1,398 | ) | |||||||||||||
Deferred Revenue | — | — | ||||||||||||||
Net cash used in operating activities | (1,044,568 | ) | (560,631 | ) | (690,385 | ) | (650,492 | ) | ||||||||
Cash Flows from Investing Activities | ||||||||||||||||
Purchase of fixed assets | (2,709 | ) | (5,837 | ) | (3,900 | ) | (2,113 | ) | ||||||||
Purchase of intangible assets | (158,424 | ) | — | (5,000 | ) | (150,000 | ) | |||||||||
Net cash used in investing activities | (161,133 | ) | (5,837 | ) | (8,900 | ) | (152,113 | ) | ||||||||
Cash Flows from Financing Activities | ||||||||||||||||
Proceeds from notes payable – related parties | 410,500 | 381,500 | 54,000 | 100,000 | ||||||||||||
Proceeds from notes payable | 225,000 | 128,421 | 287,500 | 150,000 | ||||||||||||
Proceeds from advances | — | 18,807 | ||||||||||||||
Proceeds from convertible notes payable | 265,000 | — | ||||||||||||||
Repayment of notes payable | (20,000 | ) | — | |||||||||||||
Repayment of notes payable – related parties | (63,610 | ) | (66,500 | ) | (10,000 | ) | (35,110 | ) | ||||||||
Repayment of notes payable | (23,535 | ) | — | |||||||||||||
Common stock issued for cash | 660,000 | 120,000 | 115,000 | 567,500 | ||||||||||||
Net cash provided by financing activities | 1,208,355 | 582,228 | 691,500 | 782,390 | ||||||||||||
Net increase in cash | 2,654 | 15,760 | ||||||||||||||
Net decrease in cash | (7,785 | ) | (20,215 | ) | ||||||||||||
Cash and cash equivalents at beginning of period | 21,078 | 42,486 | 7,838 | 21,078 | ||||||||||||
Cash and cash equivalents at end of period | $ | 23,732 | $ | 58,246 | $ | 53 | $ | 863 | ||||||||
Supplemental Cash Flow Information | ||||||||||||||||
Cash paid for interest | $ | 20,028 | $ | 12,161 | $ | 14,750 | $ | 11,280 | ||||||||
Cash paid for Income taxes | $ | — | $ | — | $ | — | $ | — | ||||||||
Non-Cash Investing and Financing Activities | ||||||||||||||||
Common stock issued in conversion of debt | $ | — | $ | 50,000 | ||||||||||||
Debt discount from issuance costs | $ | — | $ | 29,079 | ||||||||||||
Assets and liabilities assumed in share exchange | $ | — | $ | 276,690 | ||||||||||||
Beneficial conversion feature | $ | 75,087 | $ | — | ||||||||||||
Extinguishment of notes payable | $ | 250,000 | $ | — | ||||||||||||
Common stock issued for intellectual property | $ | 4,405,050 | $ | — | $ | — | $ | 4,405,050 | ||||||||
Original issuance discount | $ | 36,464 | $ | — | ||||||||||||
Common stock issued for prepaid expenses | $ | 1,028,000 | $ | — |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6 |
Bingham Canyon CorporationPCT LTD
Notes to the Unaudited
Condensed Consolidated Financial Statements
SEPTEMBERJune 30, 20172018
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited interim condensed consolidated financial statements of Bingham Canyon CorporationPCT LTD (“the Company”) have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of our balance sheet, statements of operations, and cash flows for the periods presented. All such adjustments are of a normal recurring nature. The results of operations for the interim period are not necessarily indicative of the results to be expected for a full year.
Certain information and footnote disclosures normally included in 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 financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 20162017 audited financial statements as reported in its Form 10-K, filed with the United States Securities and Exchange Commission on April 14, 2017.17, 2018.
Nature of Operations
PCT LTD (formerly Bingham Canyon Corporation), (the “Company,” “PCT Ltd,” or “Bingham”), a Delaware corporation, was formed on August 27, 1986. The Company changed its domicile to Nevada on August 26, 1999.
On August 31, 2016, the Company entered into a Securities Exchange Agreement with Paradigm Convergence Technologies Corporation (“Paradigm”Paradigm,” “PCT Corp,” or PCT Corp., the wholly-owned operating subsidiary”) to effectaffect the acquisition of Paradigm as a wholly-owned subsidiary. Under the terms of the agreement, the Company issued 16,790,625 restricted common shares of Company stock to all of the shareholders of Paradigm in exchange for all 22,387,500 outstanding Paradigm common stock. In addition, the Company issued options exercisable into 2,040,000 shares of the Company’s common stock (with exercise prices ranging between $0.133 and $0.333) in exchange for 2,720,000 outstanding Paradigm stock options (with exercise prices ranging between $0.10 and $0.25). These 2,040,000 options have been adjusted at the same exchange rate of 75% that the outstanding common shares were exchanged. As a result of this reverse recapitalization, Paradigm,PCT Corp, the operating company, is considered the accounting acquirer.
Paradigm,PCT Corp. is located in Little River, SC and was formed June 6, 2012 under the original name of EUR-ECA, Ltd., transitioned On September 11, 2015, its headquarters from Lenexa, KansasBoard of Directors authorized EUR-ECA Ltd. to file with the Nevada Secretary of State to change its office, research and development and production facilities in Little River, South Carolina.names to Paradigm Convergence Technologies Corp. PCT Corp. is a technology licensing, OEM and equipment manufacturingsales/leasing company specializing in environmentally safeenvironmentally-responsible solutions for global sustainability. ParadigmPCT LTD, the public company and “parent” of PCT Corp. holds patent,a United States Patent No. 9,679,170 B2 with a recently granted Canadian Allowance, as well as owning future and pending international patent(s) (response to examiners comments in process), intellectual property and/or distribution rights to innovative products and technologies. ParadigmPCT Corp. provides innovative products and technologies for eliminating biocidalbacterial contamination from water supplies, industrial fluids, hard surfaces, food processing equipmentin healthcare facilities, the agricultural market and medical devices. Paradigm’sin the oil & gas industry. PCT Corp.’s overall strategy is to design, assemble, market, newsell and/or lease equipment, fluids and proprietary “certifications” of its products and technologies through the use oftechnologies. PCT Corp., utilizes equipment leasing program (“System Service Agreements”), joint ventures, licensing, distributor agreements and partnerships.
Effective on March 23, 2018, the Company changed its name from Bingham Canyon Corporation to PCT LTD to more accurately identify the Company’s direction and to develop the complimentary relationship and association with its wholly-owned operating company, PCT Corp.
Principles of Consolidations
The accompanying consolidated financial statements include the accounts of Bingham Canyon CorporationPCT LTD (“Parent”) and its wholly owned operating subsidiary, Paradigm Convergence Technologies Corporation (“Paradigm” or “Subsidiary”).PCT Corp. All intercompany accounts have been eliminated upon consolidation.
7 |
Use of Estimates
The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting periods. Estimates are based on historical experience and on various other market-specific and other relevant assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents are considered to be cash and a highly liquid security with original maturities of three months or less. There was cash of $23,732$53 and $21,078$7,838 as of SeptemberJune 30, 20172018 and December 31, 2016,2017, respectively. There were no cash equivalents as of SeptemberJune 30, 20172018 and December 31, 2016.2017.
Accounts Receivable
Accounts receivable are carriedrecorded at their estimated collectible amounts.the time product is shipped or services are provided, including any shipping and handling fees. The Company providesprovided allowances for uncollectible accounts receivable equal to the estimated collection losses that will be incurred in collection of all receivables. Accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition. That Company’s management determines which accounts are past due and if deemed uncollectible, the Company charges off the receivable in the period the determination is made. Based on management’s evaluation, the allowance for doubtful accounts was $12,000 at SeptemberJune 30, 20172018 and December 31, 2016.2017.
Inventory
TheInventories are stated at the lower of cost or market. Cost is determined by using the first in, first out (FIFO) method. We record the value of our inventory consistsfor estimated obsolescence or unmarketable inventory equal to the difference between the cost of raw materials $88,950inventory and finished goods $223,894 in the combined amount of $312,844 at September 30, 2017. Inventory is valuedestimated market value based upon first-in first-out (“FIFO”) cost, not in excessassumptions about future demand, future pricing and market conditions. As of market.June 30, 2018 and December 31, 2017, the inventory consisted of parts for equipment sold as replacement parts to existing customers or sold to new customers. The Company has recorded a reserve allowance against inventory of nil and nil for the periods ending September$0 at June 30, 20172018 and December 31, 2016,2017.
Property and Equipment
Property and equipment are stated at purchased cost and depreciated utilizing a straight-line method over estimated useful lives ranging from 3 to 7 years after the asset has been placed in service. Upon selling equipment that had been under a lease agreement, the Company discontinues the depreciation on that piece of equipment, as it transfers ownership to another entity. Additions and major improvements that extend the useful lives of property and equipment are capitalized. Maintenance and repairs are charged to operations as incurred. Upon trade-in, sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any related gains or losses are recorded in the results of operations. Accumulated depreciation for period ending June 30, 2018 and December 31, 2017 were $59,671 and $46,725, respectively.
Fair Value Measurements
The Company follows ASC 820,“Fair Value Measurements and Disclosures,” which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last is considered unobservable, is used to measure fair value:
Level 1: | Valuations for assets and liabilities traded in active markets from readily available pricing sources such as quoted prices in active markets for identical assets or liabilities. |
Level 2: | Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. |
Level 3: | Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. |
The carrying values of our financial instruments, including, cash and cash equivalents, accounts receivable, inventory, prepaid expenses, accounts payable and accrued expenses approximate their fair value due to the short maturities of these financial instruments. We do not have other financial assets or liabilities that are measured at fair value on a recurring basis as of SeptemberJune 30, 20172018 and December 31, 2016.2017.
8 |
Valuation of Long-lived Assets
The carrying values of the Company’s long-lived assets are reviewed for impairment annually and whenever events or changes in circumstances indicate that they may not be recoverable. When projections indicate that the carrying value of the long-lived asset is not recoverable, the carrying value is reduced by the estimated excess of the carrying value over the projected undiscounted cash flows. Under similar analysis no impairment was recorded as of SeptemberJune 30, 20172018 and December 31, 2016.2017. Impairment tests are conducted on an annual basis and, should they indicate a carrying value in excess of fair value, additional impairment changes may be required.
Property and Equipment
Property and equipment are stated at purchased cost and depreciated on a straight-line method over estimated useful lives ranging from 5 to 15 years. Upon disposition of property and equipment, related gains and losses are recorded in the results of operations. Accumulated depreciation for period ending September 30, 2017 and December 31, 2016 was $42,869 and $30,479, respectively. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expenses as incurred.
Intangible Assets
Costs to obtain or develop patents are capitalized and amortized over the remaining life of the patents, and technology rights are amortized over estimated useful lives. The Company currently has the right to a U.S. patent (with international patents in process) and proprietary property technology. Patents and technology are amortized from the date the Company acquires or is awarded the patent or technology right, over their estimated useful lives, ofwhich range from 1 to 15 years. An impairment charge is recognized if the carrying amount is not recoverable and the carrying These assets are stated at cost, net of accumulated amortization. An impairment charge is recognized if the carrying amount is not recoverable and the carrying amount exceeds the fair value of the intangible assets as determined by the projected undiscounteddiscounted net future cash flows. The Company recorded impairment expense of nil and nil for the periods ending SeptemberJune 30, 20172018 and December 31, 2016, respectively.2017. Accumulated amortization was $309,198$534,294 and $107,582$380,382 as of SeptemberJune 30, 20172018 and December 31, 2016,2017, respectively.
Research and Development
Research and development costs are recognized as an expense during the period incurred, which is until the conceptual formulation, design, and testing of the process is completed and the process has been determined to be commercially viable.
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement exists, services have been provided or goods delivered,In May 2014, the price to the buyer is fixed or determinable and collectability is reasonably assured. FASB issued ASU No. 2014-09,Revenue from Contracts with Customer (Topic 606). The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principal is that a company should recognize revenue to depict the saletransfer of products is recorded atpromised goods or services to customers in an amount that reflect the timeconsideration to which the entity expects to be entitled in exchange for those goods or services.
The Company has structured its revenue as: 1) product (sales or equipment and/or fluid solutions); 2) licensing (contract-based use of shipmentthe Company’s US EPA Product Registration, returning revenue in licensing fees and/or royalties from minimum or actual fluid sales); and 3) equipment leases (under systems service agreements, usually 3-year contract for the provision of the Company’s equipment and service of such, under contract to the customers.customers, with renewable terms). Revenue from contracts to license technology to others is immediately recognized since it is a non-refundable deposit.
Reclassifications
Certain prior period amounts have been reclassified to conform to current presentation.
Basic and Diluted Loss per Share
Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per share is computed by dividing net loss by the weighted-average number of common shares and dilutive potential common shares outstanding during the period. The weighted-average numberAs of June 30, 2018 there were outstanding common share equivalents (options and convertible notes payable) which amounted to 1,874,746 shares of common shares outstanding for computing basic EPS was 39,041,968 at September 30, 2017 as compared to 18,473,821 at September 30, 2016, respectively. At September 30, 2017 and September 30, 2016 therestock. These common share equivalents were 1,589,875 and 1,467,250 common stock equivalents from stock options that were excluded fromnot included in the computation of diluted EPS calculationloss per share as their effect iswould have been anti-dilutive.
Recent Accounting Pronouncements
In March, 2016, the FASB issued ASU 2016-09, "Stock Compensation." ASU 2016-09 was issued to simplify the accounting for stock compensation. It focuses on income tax accounting, award classification, estimating forfeitures, and cash flow presentation. For public companies, ASU 2016-09 became effective for annual periods beginning after December 15, 2016 and for interim periods within those annual periods. The Company adopted ASU 2016-09 effective January 1, 2017. ASU 2016-09 has no material effect on the Company’s financial statements.
In January, 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” ASU 2017-01 issues an initial required screen that, if met, eliminates the need for further assessment. Under the new guidance, when substantially all of the fair value of gross assets acquired is concentrated in a single asset, or group of similar assets, the assets acquired would not represent a business.
A public company with a calendar year end and which is a Securities and Exchange Commission (SEC) filer should adopt the amendments in ASU 2017-01 effective January 1, 2018. Early adoption is permitted for interim or annual dates after September 30, 2016. The Company adopted ASU 2017-01 effective January 1, 2017.
In January 2017, the FASB issued ASU 2017-04, “Intangible, Goodwill & Other.” ASU 2017-04 simplifies how all entities assess impairment by implementing a one-step test. As amended, the impairment test will compare the fair value with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds fair value.
A public company which is a Securities and Exchange Commission (SEC) filer should adopt the amendments in ASU 2017-04 for its annual or interim period within its annual period in fiscal years beginning December 31, 2019. Early adoption is permitted for interim or annual dates after January 1, 2017. The Company adopted ASU 2017-04 effective January 1, 2017. ASU 2017-04 has no material effect in the Company’s financial statements.
The Company has reviewed all other FASB issuedand ASU accounting pronouncements and interpretationsinterpretation thereof that have effective dates during the period reported and in future periods. The Companycompany has carefully considered the new pronouncementspronouncement that alter the previous GAAP and do not believe thatthan any new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term.
NOTE 2. GOING CONCERN
The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has limited assets, has incurred losses since inception of $5,689,989$7,943,881 and has negative cash flows from operations. As of SeptemberJune 30, 2017,2018, the Company had a working capital deficit of $666,662.$114,172. The Company has relied on raising debt and equity capital in order to fund its ongoing day-to-day operations and its corporate overhead. The Company will require additional working capital from either cash flow from operations, from debt or equity financing, or from a combination of these sources. These factors raise substantial doubt about the ability of the Company to continue as a going concern.concern for a period of one year from the issuance of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
9 |
NOTE 3. PROPERTY AND EQUIPMENT
Depreciation is computed using the straight-line method and is recognized over the estimated useful lives of the property and equipment, which ranges from 3 to 7 years once placed into service. Depreciation expense does not begin until documentation or equipment placed in service is provided. Machinery and leased equipment is not intended to be sold to the customer at the end of the lease term. Depreciation expense was $12,946 and $8,289 for the six months and $7,294 and $4,239 for the three months ended June 30, 2018 and 2017, respectively.
Property and Equipment consistconsisted of the following as of SeptemberJune 30, 20172018 and December 31, 2016:2017:
September 30, 2017 | December 31, 2016 | |||||||
Machinery and equipment | $ | 94,931 | $ | 92,673 | ||||
Office equipment and furniture | 14,107 | 13,656 | ||||||
Leasehold improvements | 2,400 | 2,400 | ||||||
Property and Equipment, at Cost | 111,438 | 108,729 | ||||||
Less: Accumulated Depreciation | (42,869 | ) | (30,479 | ) | ||||
Property and Equipment, Net | $ | 68,569 | $ | 78,250 |
Depreciation expense was $12,390 for the nine months ended September 30, 2017, of which $8,126 is included in cost of goods sold and $4,264 is included in operating expenses. Depreciation expense was $10,662 for the nine months ended September 30, 2016 of which nil is included in cost of goods sold and $10,662 is included in operating expenses.
June 30, 2018 | December 31, 2017 | |||||||
Machinery and leased equipment | $ | 129,076 | $ | 129,076 | ||||
Machinery and equipment not yet in service | 281,979 | 278,079 | ||||||
Office equipment and furniture | 20,064 | 20,064 | ||||||
Website | 2,760 | 2,760 | ||||||
Total, property and equipment | 433,879 | 429,979 | ||||||
Less: Accumulated Depreciation | (59,671 | ) | (46,725 | ) | ||||
Property and Equipment, Net | $ | 374,208 | $ | 383,254 |
NOTE 4. INTANGIBLE ASSETS
On March 10, 2017,Amortization is computed using the Company entered into a three-year Efficacy Test Data License Agreementstraight-line method and Efficacy Test Data Assignment Agreement (the “Agreement”) with a third party for $25,000. Underis recognized over the Agreement,estimated useful lives of the Company can use certain Efficacy Test Dataintangible assets, which ranges from 1 to 15 years. Amortization expense was $153,912 and purchases the rights to other Efficacy Test Data to be added to its EPA Registration number 83241-4. The Company paid $25,000$111,230 for the use of certain Efficacy Test Datasix months ended June 30, 2018 and purchase of other Efficacy Test Data. The $25,000 was paid on April 28, 2017.2017, respectively.
On March 13,The components of intangible assets at June 30, 2018 and December 31, 2017 the Company entered into a Registration Transfer Agreement (“Transfer Agreement”) and a Data License and Assignment Agreement (“Data Agreement”) with a third party. Pursuant to the Transfer Agreement, the Company received United States Environmental Protection Agency’s (“EPA”) Registration number 82341-4 for Excelyte® VET for a one-time fee of $125,000. The Company agreed to pay $75,000 at the time of executing the agreement and remaining $50,000 within 30 days. The $50,000 was paid on April 7, 2017.were as follows:
June 30, 2018 | December 31, 2017 | |||||||
Patents | $ | 4,510,489 | $ | 4,505,489 | ||||
Technology rights | 200,000 | 200,000 | ||||||
Intangibles, at Cost | 4,710,489 | 4,705,489 | ||||||
Less Accumulated Amortization | (534,294 | ) | (380,382 | ) | ||||
Net Carrying Amount | $ | 4,176,195 | $ | 4,325,107 |
On April 6, 2017, the Company acquired intangible assets by issuing 2,250,000 shares of common stock at a deemed value of $1.96 per share ($4,405,050) to Annihilyzer Inc. in order to close on the amended agreement dated April 6, 2017. Pursuant to the terms of the Agreement, as amended, the Company acquired an Annihilyzer patent and all associated intellectual property. In addition, Paradigm granted Annihilyzer Inc, a three-year license and sub-registration under Paradigm’s EPA Product Registration #82341-4. Annihilyzer, Inc. had no activity under this sub-registration agreement as of September 30, 2017.
10 |
The components of intangible assets at September 30, 2017 and December 31, 2016 were as follows:
September 30, 2017 | December 31, 2016 | |||||||
Patents | $ | 4,513,913 | $ | 100,439 | ||||
Technology rights | 200,000 | 50,000 | ||||||
Intangibles, at Cost | 4,713,913 | 150,439 | ||||||
Less Accumulated Amortization | (309,198 | ) | (107,582 | ) | ||||
Net Carrying Amount | $ | 4,404,715 | $ | 42,857 |
Amortization expense was $201,616 and $5,022 for the nine months ended September 30, 2017 and, 2016, respectively.
NOTE 5. NOTES PAYABLEDebt
The following tables summarizetable summarizes notes payable as of SeptemberJune 30, 20172018 and December 31, 2016:2017:
September 30, 2017 | December 31, 2016 | |||||||
Notes payable, related parties | $ | 720,414 | $ | 358,802 | ||||
Notes payable | 351,465 | 150,000 | ||||||
Subtotal | 1,071,879 | 508,802 | ||||||
Less debt discount | (9,643 | ) | (20,549 | ) | ||||
Subtotal, net | 1,062,236 | 488,253 | ||||||
Less current portion | (787,236 | ) | (358,802 | ) | ||||
Net Long-Term Liabilities, net | $ | 275,000 | $ | 129,451 |
Type | Amount | Origination Date | Maturity Date | Annual Interest Rate | Balance at 30-Jun-18 |
Balance at 31-Dec-17 | ||||||||||||||
Note Payable (c) | $ | 150,000 | 5/18/2016 | 6/1/2019 | 13.00% | $ | 150,000 | $ | 150,000 | |||||||||||
Note Payable (f) * | $ | 50,000 | 10/18/2016 | 8/18/2017 | 5.00% | $ | — | $ | 50,000 | |||||||||||
Note Payable (f) * | $ | 25,000 | 4/12/2017 | 10/12/2017 | 5.00% | $ | — | $ | 25,000 | |||||||||||
Note Payable (b) | $ | 25,000 | 5/8/2017 | 6/30/2018 | 0.00% | $ | 27,500 | $ | 25,000 | |||||||||||
Note Payable (f) * | $ | 25,000 | 7/25/2017 | 9/25/2017 | 5.00% | $ | — | $ | 25,000 | |||||||||||
Note Payable (e) | $ | 50,000 | 9/1/2017 | 12/31/2017 | 8.00% | $ | — | $ | 50,000 | |||||||||||
Note Payable (e) | $ | 25,000 | 9/27/2017 | 12/31/2017 | 8.00% | $ | — | $ | 25,000 | |||||||||||
Note Payable (e) | $ | 37,500 | 10/11/2017 | 10/11/2018 | 8.00% | $ | — | $ | 37,500 | |||||||||||
Note Payable (f) * | $ | 20,000 | 10/24/2017 | 4/24/2018 | 5.00% | $ | — | $ | 20,000 | |||||||||||
Note Payable ** | $ | 56,000 | 12/1/2017 | 1/10/2018 | 8.00% | $ | — | $ | 20,000 | |||||||||||
Note Payable (a) | $ | 150,000 | 1/5/2018 | 4/3/2018 | 8.00% | $ | — | $ | — | |||||||||||
Note Payable (e) | $ | 12,500 | 2/16/2018 | 4/15/2018 | 8.00% | $ | — | $ | — | |||||||||||
Note Payable (a) | $ | 250,000 | 2/27/2018 | 4/30/2018 | 8.00% | $ | — | $ | — | |||||||||||
Note Payable (e) | $ | 130,000 | 6/20/2018 | 1/2/2020 | 8.00% | $ | 130,000 | $ | — | |||||||||||
Note Payable (f) * | $ | 126,964 | 6/20/2018 | 1/2/2020 | 6.00% | $ | 126,964 | $ | — | |||||||||||
Note Payable (d) | $ | 26,500 | 6/26/2018 | 7/31/2018 | 10.00% | $ | 26,500 | $ | — | |||||||||||
Subtotal | $ | 460,964 | ||||||||||||||||||
Debt Discount | $ | (13,115 | ) | |||||||||||||||||
Balance, net | $ | 447,849 | ||||||||||||||||||
Less current portion | $ | (202,532 | ) | |||||||||||||||||
Total long-term | $ | 245,317 | ||||||||||||||||||
* Indicates a re-classification from a related party to a non-related party note, as of January 1, 2018 | ||||||||||||||||||||
** Paid off during the period |
Original | Issuance | Maturity | Interest | Balance | Balance | |||||||||||||||||||
Type | Amount | Date | Date | Rate | 09/30/2017 | 12/31/2016 | ||||||||||||||||||
Notes Payable, Related Party | $ | 25,000 | 12/10/15 | 06/10/16 | 5.00 | % | $ | — | $ | 8,000 | ||||||||||||||
Notes Payable, Related Party | 7,500 | 03/11/16 | 09/11/16 | 5.00 | % | — | 7,500 | |||||||||||||||||
Notes Payable, Related Party(6) | 50,000 | 10/18/16 | 12/31/17 | 5.00 | % | 50,000 | 50,000 | |||||||||||||||||
Notes Payable, Related Party(7) | 293,302 | 01/01/17 | 01/01/18 | 3.50 | % | 249,802 | 293,302 | |||||||||||||||||
Notes Payable, Related Party(6) | 25,000 | 04/12/17 | 12/31/17 | 5.00 | % | 25,000 | — | |||||||||||||||||
Notes Payable, Related Party(8) | 25,000 | 04/27/17 | 04/27/18 | 3.00 | % | 25,000 | — | |||||||||||||||||
Notes Payable, Related Party(9) | 15,000 | 05/15/17 | 05/15/18 | 5.00 | % | 15,000 | — | |||||||||||||||||
Notes Payable, Related Party(8) | 10,000 | 06/12/17 | 06/12/18 | 3.00 | % | 10,000 | — | |||||||||||||||||
Notes Payable, Related Party(8) | 112 | 07/01/17 | 06/30/18 | 3.00 | % | 112 | — | |||||||||||||||||
Notes Payable, Related Party(8) | 5,500 | 07/03/17 | 06/30/18 | 3.00 | % | 5,500 | — | |||||||||||||||||
Notes Payable, Related Party(8) | 2,000 | 07/05/17 | 06/30/18 | 3.00 | % | 2,000 | — | |||||||||||||||||
Notes Payable, Related Party(8) | 3,000 | 07/06/17 | 06/30/18 | 3.00 | % | 3,000 | — | |||||||||||||||||
Notes Payable, Related Party(8) | 2,500 | 07/10/17 | 06/30/18 | 3.00 | % | 2,500 | — | |||||||||||||||||
Notes Payable, Related Party(8) | 2,500 | 07/12/17 | 06/30/18 | 3.00 | % | 2,500 | — | |||||||||||||||||
Notes Payable, Related Party(8) | 25,000 | 07/13/17 | 06/30/18 | 3.00 | % | 25,000 | — | |||||||||||||||||
Notes Payable, Related Party(6) | 25,000 | 07/25/17 | 09/25/17 | 5.00 | % | 25,000 | — | |||||||||||||||||
Notes Payable, Related Party(8) | 5,000 | 08/14/17 | 06/30/18 | 3.00 | % | 5,000 | — | |||||||||||||||||
Notes Payable, Related Party(10) | 275,000 | 09/27/17 | 10/01/18 | 7.50 | % | 275,000 | — | |||||||||||||||||
Notes Payable(1) | 150,000 | 05/18/16 | 06/01/18 | 13.00 | % | 150,000 | 150,000 | |||||||||||||||||
Notes Payable(2) | 25,000 | 05/08/17 | 10/10/17 | 0.00 | % | 25,000 | — | |||||||||||||||||
Notes Payable(3) | 125,000 | 05/15/17 | 08/31/17 | 10.00 | % | 101,465 | — | |||||||||||||||||
Notes Payable(4) | 50,000 | 09/01/17 | 12/31/17 | 8.00 | % | 50,000 | — | |||||||||||||||||
Notes Payable(5) | 25,000 | 09/27/17 | 12/31/17 | 8.00 | % | 25,000 | — | |||||||||||||||||
Subtotal | 1,071,879 | 508,802 | ||||||||||||||||||||||
Debt Discount | (9,643 | ) | (20,549 | ) | ||||||||||||||||||||
Total Notes Payable, Net | $ | 1,062,236 | $ | 488,253 |
(a) | On January 5, 2018, the Company entered into a promissory note with an unrelated party for $150,000. The note is due April 3, 2018, is unsecured and bears an interest rate of 8.0% per annum. Effective February 27, 2018 the Company extinguished its January 5, 2018 promissory note of $150,000 with an unrelated party and consolidated this amount into a new promissory note for $250,000 (an additional $100,000 received). The note is due on April 30, 2018, is unsecured and bears an interest rate of 8.0% per annum. On March 28, 2018 the Company extinguished its February 27, 2018 promissory note of $250,000 with an unrelated party and consolidated this amount into a convertible note for $450,000 (receiving $100,000 in the first quarter of 2018 and the remaining $100,000 in the second quarter of 2018). See under convertible notes table below for additional details of the convertible note. |
(b) | On May 29, 2018, the Company entered into a Guarantee Agreement with a non-related party. The Company owed an unrelated party $27,500 that was due on October 10, 2017. In consideration for increasing the principal amount of the loan to $30,000 and a personal guarantee by the Company’s CEO, the lender agreed to extend the maturity date of the loan to June 30, 2018. The Company evaluated the modification pursuant to ASC 470-60 Troubled Debt Restructuring by Debtors, and ASC 470-50 Modification and Extinguishment. The Company concluded that the Company is experiencing financial difficulty and that a concession was not granted. As the creditors have not granted a concession the guidance contained in ASC 470-60 does not apply. As the original and new debt instruments are not considered substantially different, extinguishment accounting does not apply, and the Company accounted for the revised note as a debt modification. The carrying amount of the payable was not adjusted and the effects of the changes are reflected in future periods by computing the constant effective interest rate and applying it to the carrying amount of the payable each period until maturity. |
(c) | On June 1, 2018, the Company signed an agreement to extend its $150,000 note dated May 18, 2016 for one year, for a total extension fee of $7,500 ($6,000 broker fee and $1,500 lender fee). The Company paid one-half of the total fee ($3,750), recorded as interest expense. The remainder of the extension fee, ($3,750), is past due and upon payment to the non-related note-holder, the loan shall be extended through June 1, 2019. The terms of the note remain the same, with interest set at 13.0%. |
(d) | On June 26, 2018, the Company entered into a promissory note with an unrelated party for $26,500. The note is due July 31, 2018, is unsecured and bears an interest rate of 10% per annum. |
(e) | On June 20, 2018, the Company had the following notes, to a non-related party, outstanding: |
On June 20, 2018, the Company issued a new note that consolidated into one the notes above as well as any outstanding interest owed. The new note has a principal of $130,000, bears interest at 8% per annum and is due on January 2, 2020. As the debt is being exchanged with the lender, the Company evaluated the modification pursuant to ASC 470-60Troubled Debt Restructuring by Debtors, and ASC 470-50Modification and Extinguishment. | ||
The indicators of financial difficulty contained in ASC 470-60 were reviewed and it was concluded that the Company is experiencing financial difficulty. The Company then determined that a concession was granted. As the creditors have granted a concession the troubled debt restructuring model contained in ASC 470-60 was applied. The carrying amount of the payable was not adjusted and the effects of the changes are reflected in future periods by computing the constant effective interest rate and applying it to the carrying amount of the payable each period until maturity. |
(f) | On June 20, 2018, the Company had the following notes, to a non-related party, outstanding: |
On June 20, 2018, the Company issued a new note that consolidated into one note the notes above as well as any outstanding interest owed. The new note has a principal of $126,964, bears interest at 6% per annum. The Company must repay $66,964 of the note on August 31, 2018, and the remaining $60,000 on January 2, 2020. If the Company fails to make the $66,664 on August 31, 2018 the entire amount owed under the original notes becomes due immediately. As the debt is being exchanged with the lender, the Company evaluated the modification pursuant to ASC 470-60 Troubled Debt Restructuring by Debtors, and ASC 470-50 Modification and Extinguishment. | ||
The indicators of financial difficulty contained in ASC 470-60 were reviewed and it was concluded that the Company is experiencing financial difficulty as there is significant doubt that the Company is a going concern and that there is no assurance that the Company will have sufficient cash flows to service the debt through its maturity. The Company then proceeded to assess whether the creditors granted a concession. The Company determined that a concession was granted as the effective borrowing rate on the restructured debt is lower than the effective borrowing rate of the old debt. As the creditors have granted a concession the troubled debt restructuring model contained in ASC 470-60 was applied. The carrying amount of the payable was not adjusted and the effects of the changes are reflected in future periods by computing the constant effective interest rate and applying it to the carrying amount of the payable each period until maturity. |
11 |
Notes PayableThe following table summarizes notes payable, related parties as of June 30, 2018 and December 31, 2017:
Type | Amount | Origination Date | Maturity Date | Annual Interest Rate | Balance at 30-Jun-18 |
Balance at 31-Dec-17 | ||||||||||||||
Note Payable, RP (j) | $ | 25,000 | 4/27/2017 | 4/27/2018 | 3.00% | $ | — | $ | 17,500 | |||||||||||
Note Payable, RP (k) | $ | 15,000 | 5/15/2017 | 5/15/2018 | 5.00% | $ | — | $ | 15,000 | |||||||||||
Note Payable, RP (j) | $ | 10,000 | 6/12/2017 | 6/12/2018 | 3.00% | $ | — | $ | 10,000 | |||||||||||
Note Payable, RP (j) | $ | 5,500 | 7/3/2017 | 6/30/2018 | 3.00% | $ | — | $ | 5,500 | |||||||||||
Note Payable, RP ** | $ | 2,000 | 7/5/2017 | 6/30/2018 | 3.00% | $ | — | $ | 2,000 | |||||||||||
Note Payable, RP ** | $ | 3,000 | 7/6/2017 | 6/30/2018 | 3.00% | $ | — | $ | 3,000 | |||||||||||
Note Payable, RP ** | $ | 2,500 | 7/10/2017 | 6/30/2018 | 3.00% | $ | — | $ | 2,500 | |||||||||||
Note Payable, RP ** | $ | 2,500 | 7/12/2017 | 6/30/2018 | 3.00% | $ | — | $ | 2,500 | |||||||||||
Note Payable, RP (j) | $ | 25,000 | 7/13/2017 | 6/30/2018 | 3.00% | $ | — | $ | 25,000 | |||||||||||
Note Payable, RP (j) | $ | 5,000 | 8/14/2017 | 6/30/2018 | 3.00% | $ | — | $ | 5,000 | |||||||||||
Note Payable, RP (i) * | $ | 275,000 | 9/27/2017 | 10/1/2018 | 7.50% | $ | — | $ | 275,000 | |||||||||||
Note Payable, RP (j) | $ | 250,000 | 11/15/2017 | 12/15/2018 | 1.00% | $ | — | $ | 250,000 | |||||||||||
Note Payable, RP (i) | $ | 100,000 | 11/15/2017 | 10/1/2018 | 7.50% | $ | — | $ | 100,000 | |||||||||||
Note Payable, RP (g) | $ | 30,000 | 4/10/2018 | 1/15/2019 | 3.00% | $ | 30,000 | $ | — | |||||||||||
Note Payable, RP (h) (j) | $ | 24,000 | 5/31/2018 | 6/30/2019 | 3.00% | $ | — | $ | — | |||||||||||
Note Payable, RP (i) * | $ | 380,000 | 6/20/2018 | 1/2/2020 | 8.00% | $ | 380,000 | $ | — | |||||||||||
Note Payable, RP (j) | $ | 350,000 | 6/20/2018 | 1/2/2020 | 5.00% | $ | 350,000 | $ | — | |||||||||||
Note Payable, RP (k) | $ | 17,000 | 6/20/2018 | 1/2/2020 | 5.00% | $ | 17,000 | $ | — | |||||||||||
Subtotal | $ | 777,000 | ||||||||||||||||||
Debt Discount | $ | (19,650 | ) | |||||||||||||||||
Balance, net | $ | 757,350 | ||||||||||||||||||
Less current portion | $ | (30,000 | ) | |||||||||||||||||
Total long-term | $ | 727,350 | ||||||||||||||||||
* Indicates a note that is collateralized by a patent (Note 4) | ||||||||||||||||||||
** Paid off during the period |
On May 18, 2016, the Company entered into a loan agreement for $150,000 with an unrelated individual.(g) On April 10, 2018 the Company entered into a promissory note with an entity owned by the CEO of the Company for $30,000. The note is due January 15, 2019, is unsecured and bears an interest rate of 3.0% per annum. (h) On May 31, 2018 the Company entered into a promissory note with the Chairman and CEO of the Company for $24,000. The note is due June 30, 2019, is unsecured and bears an interest rate of 3.0% per annum (i) On June 20, 2018, the Company had the following notes to an employee and Director of the Company outstanding: On June 20, 2018, the Company issued a new note that consolidated into one note the notes above as well as any outstanding interest owed. The new note has a principal of $380,000, bears interest at 8% per annum and is due on January 2, 2020. As the debt is being exchanged with the lender, the Company evaluated the modification pursuant to ASC 470-60 Troubled Debt Restructuring by Debtors, and ASC 470-50 Modification and Extinguishment. The indicators of financial difficulty contained in ASC 470-60 were reviewed and it was concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor granted a concession the troubled debt restructuring model contained in ASC 470-60 was applied. The carrying amount of the payable was not adjusted and the effects of the changes are reflected in future periods by computing the constant effective interest rate and applying it to the carrying amount of the payable each period until maturity.
(j) | On June 20, 2018, the Company had the following notes to the Chairman and CEO of the Company outstanding: |
On May 8, 2017, the Company entered into a 2-month term promissory note with an unrelated party for $25,000 to be used in operations. The note was extended on July 8, 2017 to a new due date of October 10, 2017. The note is secured by 50,000 shares of common stock as collateral and guarantees interest in the amount of $5,000 at the time of repayment. As of September 30, 2017, the note has a remaining balance of $25,000(2).
On May 15, 2017, the Company entered into a 45-day promissory note with an unrelated party for $125,000 to be used in operations. The note was extended on August 1, 2017 to a new due date of August 31, 2017. The note is secured personally by the President of the Company and bears an interest rate of 10% per annum. The Company made payments on the note in the amount of $25,000 during the period ended September 30, 2017. The payments represented $23,535 of principal and $1,465 of interest. As of September 30, 2017, the note is in default and has a remaining balance of $101,465(3).
From
On June 20, 2018, the Company issued a new note that consolidated into one note the notes above as well as any outstanding interest owed. The new note has a principal of $350,000, bears interest at 5% per annum and | ||
The Company concluded that the Company is experiencing financial difficulty and that a concession was not granted. As the creditor has not granted a concession, the guidance contained in ASC 470-60 was applied. The Company accounted for the new note as a debt modification. The carrying amount of the payable was not adjusted and a new effective interest rate was determined on the modification date that equates the revised cash flows to the carrying amount of the original debt. |
(k) | On June 20, 2018, the Company had a $15,000 note to the CEO of the Company’s spouse outstanding. On June 20, 2018, the Company issued a new note that consolidated the note above as well as any outstanding interest owed. The new note has a principal of $17,000, bears interest at 5% per annum and is due on January 2, 2020. The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment. |
The Company concluded that the Company is experiencing financial difficulty and that a concession was not granted. As the creditor has not granted a concession, the guidance contained in ASC 470-60 was applied. The Company accounted for the new note as a debt modification. The carrying amount of the payable was not adjusted and a new effective interest rate was determined on the modification date that equates the revised cash flows to the carrying amount of the original debt. |
12 |
The following table summarizes convertible notes payable as of June 30, 2018 and December 31, 2017. As of September 30, 2017 the note has a remaining balance of $50,000.(4)On September 27, 2017, the Company entered into a promissory note with this same unrelated party for $25,000 to be used in operations. This note is unsecured and bears an interest rate of 8%. The note is due December 31, 2017. As of September 30, 2017 the note has a remaining balance of $25,000(5).
Notes Payable – Related Parties2017:
From October 18, 2016 to July 25, 2017, the Company entered into three promissory notes with a related party for a total of $100,000 to be used in operations. These notes are unsecured and bear an interest rate of 5% per annum. As of September 30, 2017, the notes have a total remaining balance of $100,000(6).
Type | Amount | Origination Date | Maturity Date | Annual Interest Rate | Balance at 30-Jun-18 |
Balance at 31-Dec-17 | ||||||||||||||
Convertible Note Payable (l) | $ | 450,000 | 3/28/2018 | 3/31/2021 | 8.00% | $ | 450,000 | $ | — | |||||||||||
Convertible Note Payable (m) | $ | 68,000 | 6/5/2018 | 6/5/2019 | 12.00% | $ | 68,000 | $ | — | |||||||||||
Subtotal | $ | 518,000 | ||||||||||||||||||
Debt Discount | $ | (72,100 | ) | |||||||||||||||||
Balance, net | $ | 445,900 | ||||||||||||||||||
Less current portion | $ | (65,202 | ) | |||||||||||||||||
Total long-term | $ | 380,698 |
On January 1, 2017, the Company consolidated its outstanding promissory notes with the Company’s President and CEO, into one promissory note totaling $293,302. The note is unsecured and bears an interest rate of 3.5% and is due January 1, 2018. As of September 30, 2017 the note has a remaining balance of $249,802(7).From April 27, 2017 to August 14, 2017 the Company entered into ten promissory notes with the Company’s president, a related party, for a total of $80,612 to be used in operations. The notes are unsecured and bear an interest rate of 3% per annum and are due 9-12 months from issuance. As of September 30, 2017, these notes have a total remaining balance of $80,612(8).
(l) | On March 28, 2018 the Company extinguished its February 27, 2018 promissory note of $250,000 with an unrelated party and consolidated this amount into a convertible note for $450,000 (receiving $100,000 in the first quarter of 2018 and the remaining $100,000 in the second quarter of 2018). The note is due on March 31, 2021 and is convertible into common stock at a conversion price of $0.4285 and bears interest of 8.0% per annum. This note also contains an anti-dilution clause, which becomes effective in the event the Company 60,000,000 issued shares of its stock. Due to the fact that the trading price of the Company’s common stock was greater than the stated conversion rate of this note on the date of issuance, a total discount of $78,087 for the beneficial conversion was recorded against the note and will be amortized against interest expense through the life of the note. As of June 30, 2018, interest expense of $5,785 was recorded as part of the amortization of the beneficial conversion feature of this note. As of June 30, 2018, the note had a principal balance of $450,000. |
On May 15, 2017, the Company entered into a one-year term promissory note with a related party for $15,000 to be used in operations. The note is unsecured and bears interest at a rate of 5% per annum. As of September 30, 2017, the note has a remaining balance of $15,000(9).
From June 13, 2017 to August 31, 2017, the Company entered into three short-term promissory notes with a related party for a total of $275,000 to be used in operations. The notes were unsecured and had an interest rate of 3-7.5% per annum and are due 1-3 months from issuance. On September 27, 2017, these notes were consolidated with the same related party into one promissory note in the amount of $275,000. The note is secured by the Company’s June 13, 2017 patent (US Patent #9,679,170 B2 “Material Tracking System”), is due October 1, 2018, and bears an interest rate of 7.5%. As of September 30, 2017, the note has a remaining balance of $275,000(10).
(m) | On June 5, 2018, the Company entered into a convertible promissory with an unrelated party for $68,000. The note is due on June 5, 2019 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 12% to 17% to 22% to 27% to 32% to 37%, dependent upon the timeframe of repayment during the note’s term) and any part of the notice which is not paid when due shall bear interest at the rate of 22.0% per annum from the due date until paid. The Company must, at all times, reserve six times that number of shares that would be issuable upon full conversion of the note, with an initial reserved share amount of 1,592,506 shares. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company’s common stock at a conversion price equal to 61% of the average 3 lowest trading prices during the 15 trading day period prior to the conversion date. Due to this provision, the Company considered whether the embedded conversion option qualifies for derivative accounting under ASC 815-15 Derivatives and Hedging. As the note isn’t convertible until 180 days following issuance, no derivative liability was recognized as of June 30, 2018 |
NOTE 6. RELATED PARTY TRANSACTIONS
The Company has agreements with related parties for consulting services, notes payable commitments and contingencies and stock options. See Notes to Financial Statements numbers 5 7, 8, and 9.7.
NOTE 7. STOCKHOLDERS’ DEFICIT
CommonPreferred Stock
TheEffective March 23, 2018, the Company has 100,000,000amended the articles of incorporation and authorized 10,000,000 shares of commonpreferred stock authorized with a par value of $0.001 per share. As of SeptemberJune 30, 20172018 there were -0- shares of preferred stock issued.
Common Stock
Effective March 23, 2018, the Company amended the articles of incorporation and increased the authorized shares of common stock with a par value of $0.001 per share from 100,000,000 to 300,000,000. As of June 30, 2018 and December 31, 20162017 there were 40,001,57243,459,238 and 37,117,57241,179,238 shares of common stock issued respectively.
On January 6, 2017,2, 2018, the Company sold 110,000 shares of common stock for $55,000.
On March 15, 2018, the Company entered into a 12-month service agreement, expiring on March 15, 2019, for strategic planning, financing, capital formation, up-listing and expansion of the Company’s shareholder base. Per the terms of the agreement, the consulting company received a non-refundable $5,000 initial fee, will receive $2,500 per month beginning in April 2018, and was issued 2,000,000 fully vested non-forfeitable shares of restricted common stock, valued at $1,000,000 ($0.50 per shares). The 2,000,000 common shares of the Company’s stock were issued on June 12, 2018. As of June 30, 2018 the Company recorded the fair value of the common shares of $1,000,000 in common stock and additional paid in capital and has recorded $293,151 for the consulting expense related to the portion of the 12-month service agreement that has been completed.
On April 10, 2018 the Company issued 25,000120,000 shares of common stock at $1.00$0.50 per share to an unrelated partyemployee and Director of the Company for cash proceeds of $25,000.
From January 26, 2017 through March 13, 2017, the Company issued a combined total of 400,000 shares of common stock at $1.00 per share to a related party for cash proceeds of $400,000.
On April 6, 2017, the Company acquired intangible assets by issuing 2,250,000 shares of common stock at a deemed value of $1.96 per share ($4,405,050) to Annihilyzer Inc. in order to close on the amended agreement dated April 6, 2017. Also see Note 4.
On April 12, 2017, the Company issued 100,000 shares of common stock at $1.00 per share to a related party for cash proceeds of $100,000.
On April 14, 2017, the Company issued 5,000 shares of common stock at $1.00 per share to an unrelated party for cash proceeds of $5,000.$60,000.
On June 16, 2017,12, 2018, the Company entered into a 6-month service agreement, expiring on December 12, 2018, for business development and the development of financial reports. Per the terms of the agreement, the consulting company was issued 20,00050,000 shares of restricted stock on June 29, 2018. As of June 30, 2018 the Company recorded the fair value of the common shares of $28,000 in common stock at $1.25 per shareand additional paid in capital and has recorded $2,754 for the consulting expense related to an unrelated party for cash proceedsthe portion of $25,000.the 12-month service agreement that has been completed.
On June 27, 2017, the Company issued 10,000 shares of common stock at $1.25 per share to a related party for cash proceeds of $12,500.
On July 13, 2017, the Company issued 12,000 shares of common stock at $1.25 per share to an unrelated party for cash proceeds of $15,000
On July 13, 2017, the Company issued 12,000 shares of common stock at $1.25 per share to an unrelated party for cash proceeds of $15,000.
On July 27, 2017, the Company issued 30,000 shares of common stock at $1.25 per share to an unrelated party for cash proceeds of $37,500.
On August 9, 2017, the Company issued 20,000 shares of common stock at $1.25 per share to an unrelated party for cash proceed of $25,000.
Stock Options
On January 1, 2017 the Company issued 30,000 stock options to a related party with an exercise price of $2.00 per share. The options vest on January 1, 2018. The Company used the Black-Scholes methodology to value the stock-based compensation expense for options. Compensation expense is recognized on a straight-line basis over the vesting period. As of September 30, 2017, the Company recognized $42,165 in compensation expense, leaving $14,055 in compensation expense to be recognized through December 31, 2017.
On January 26, 2017, the Company issued 200,000 stock options to a related party with an exercise price of $2.00 per share. The options vested immediately. The Company used the Black-Scholes methodology to value the stock-based compensation expense for options. As of September 30, 2017, the Company recognized $373,800 in compensation expense, leaving $0 to be recognized in remaining compensation expense.
In applying the Black-Scholes methodology to the options granted through September 30, 2017, the fair value of our stock-based awards was estimated using the following assumptions ranging from:
Below is a table summarizing the options issued and outstanding as of SeptemberJune 30, 2017:2018:
Date | Date | Number | Number | Exercise | Weighted Average Remaining Contractual | Expiration | Proceeds to Company if | Date | Number | Number | Exercise | Weighted Average Remaining Contractual | Expiration | Proceeds to Company if | ||||||||||||||||||||||||||||||||||||||
Issued | Issued | Outstanding | Exercisable | Price $ | Life (Years) | Date | Exercised | Issued | Outstanding | Exercisable | Price $ | Life (Years) | Date | Exercised | ||||||||||||||||||||||||||||||||||||||
05/21/2014 | 1,875,000 | 1,875,000 | 0.13 | 1.64 | 05/20/2019 | $ | 250,000 | 05/21/2014 | 1,875,000 | 1,875,000 | 0.13 | 0.89 | 05/20/2019 | $ | 250,000 | |||||||||||||||||||||||||||||||||||||
01/01/2016 | 90,000 | 90,000 | 0.33 | 2.25 | 12/31/2019 | 30,000 | 01/01/2016 | 90,000 | 90,000 | 0.33 | 1.50 | 12/31/2019 | 30,000 | |||||||||||||||||||||||||||||||||||||||
01/01/2016 | 75,000 | 75,000 | 0.33 | 2.25 | 12/31/2019 | 25,000 | 01/01/2016 | 75,000 | 75,000 | 0.33 | 1.50 | 12/31/2019 | 25,000 | |||||||||||||||||||||||||||||||||||||||
09/15/2016 | 10,000 | 10,000 | 1.00 | 2.25 | 12/31/2019 | 10,000 | 09/15/2016 | 10,000 | 10,000 | 1.00 | 1.50 | 12/31/2019 | 10,000 | |||||||||||||||||||||||||||||||||||||||
10/01/2016 | 7,500 | 7,500 | 1.00 | 2.25 | 12/31/2019 | 7,500 | 10/01/2016 | 7,500 | 7,500 | 1.00 | 1.50 | 12/31/2019 | 7,500 | |||||||||||||||||||||||||||||||||||||||
01/01/2017 | 30,000 | — | 2.00 | 1.25 | 01/01/2019 | 60,000 | 01/01/2017 | 30,000 | 30,000 | 2.00 | 0.51 | 01/01/2019 | 60,000 | |||||||||||||||||||||||||||||||||||||||
01/26/2017 | 200,000 | 200,000 | 2.00 | 4.33 | 01/26/2022 | 400,000 | 01/26/2017 | 200,000 | 200,000 | 2.00 | 3.58 | 01/26/2022 | 400,000 | |||||||||||||||||||||||||||||||||||||||
2,287,500 | 2,257,500 | $ | 782,500 | 2,287,500 | 2,287,500 | $ | 782,500 |
The weighted average exercise prices areis $0.34 and $0.32 for the options outstanding and exercisable, respectively.exercisable.
NOTE 8. COMMITMENTS AND CONTINGENCIES
On November 21, 2016, the Company signed a lease for approximately 12,000 square feet of office, research & development, warehouse, and production space in Little River, South Carolina. The lease was effective December 1, 2016 at a rate of $4,800 per month for a period of three years. The Company has an option to extend the lease for two periods of three years each. The option to extend the first three-year period is at a rate of $5,100 per month. The option to extend the second three-year period is at a rate of $5,400 per month.
On September 1, 2017, the Company entered into a five-year employment agreement with Marion E. Paris, Jr. to be the president of the Annihilyzer Division of Paradigm. Mr. Paris is a director of the Company and Paradigm. Under the terms of the employment agreement, Mr. Paris is to be paid an annual base salary of $90,000 and other benefits associated with an executive officer, including four weeks paid vacation. In addition, the Company agreed to pay Mr. Paris a signing bonus of $40,000 ($20,000 on or before November 1, 2017, with an additional $20,000 on January 1, 2018). As of September 30, 2017, the Company has paid $7,500 in salary to Mr. Paris and had not paid the initial $20,000 of the signing bonus which is due on or before November 1, 2017.
On August 1, 2017 the Company terminated its month-to-month lease for office space in Lenexa, Kansas and transitioned its headquarter to its Little River, South Carolina facility.
NOTE 9 - PAYROLL LIABILITIES
The Company has past due federal and state payroll liabilities for unpaid payroll taxes, penalties and interest for the second and third quarters of 2017. As of September 30, 2017, the past due balance, excluding penalties, interest, and fees, totaled $116,946. The Company anticipates paying these liabilities before December 31, 2017, or negotiating a payment plan with the IRS and various States for payment over time.
NOTE 10.9. SUBSEQUENT EVENTS
On October 11, 2017,July 13, 2018, the Company entered into a one-yearshort-term promissory note with a non-related partythe Chairman and CEO of the Company, for $37,500$5,000 to be used in operations. ThisThe note is unsecured, is due on June 30, 2019, and bears an interest rate of 8%. The note is due October 11, 2018.3% per annum.
On October 24, 2017,July 25, 2018, the Company entered into a convertible promissory with an unrelated party for $38,000. The note is due on July 25, 2019 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 12% to 17% to 22% to 27% to 32% to 37%, dependent upon the timeframe of repayment during the note’s term) and any part of the notice which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The conversion rights of the note do not apply until 180 days for the note’s inception and a notice of conversion must occur. The Company must, at all times, reserve six times that number of shares that would be issuable upon full conversion of the note, with an initial reserved share amount of 1,038,251 shares.
On July 27, 2018, the Company entered into a short-term promissory note with a related partyan employee and Director of the Company, for $20,000$50,000 to be used in operations. ThisThe note is unsecured, incorporates the purchase of a piece of SurvivaLyte® equipment at cost and grants a three-year (from installation of equipment), non-exclusive US EPA sub-registration for markets (with specific exceptions) in a specific geographical location with a per gallon royalty feature as added benefits, is due on November 15, 2018, and bears an interest rate of 5%. The note is due on April 24, 2018.8% per annum.
On October 25, 2017, the Company issued 40,000 shares of common stock at $0.75 per share to an unrelated party for cash proceeds of $30,000.
On October 24, 2017 and October 27, 2017 the Company revised the share price relating to shares of common stock sold during the period from September 1, 2016 through October 30, 2017 down to $0.75 per share. As a result of the revised share price, the Company issued an additional 337,666 shares of common stock to fifteen investors, including 191,667 shares to related parties.
FORWARD LOOKING STATEMENTS
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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 and objectives of management for future operations; any statements concerning proposed new services or developments; 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. 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 we make in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K, Current Reports on Form 8-K and other reports we file under the Exchange Act.
Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:
• | our ability to efficiently manage and repay our debt obligations; |
• | our inability to raise additional financing for working capital; |
• | our ability to generate sufficient revenue in our targeted markets to support operations; |
• | significant dilution resulting from our financing activities; |
• | actions and initiatives taken by both current and potential competitors; |
• | supply chain disruptions for components used in our products; |
• | manufacturers inability to deliver components or products on time; |
• | our ability to diversify our operations; |
• | the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require management to make estimates about matters that are inherently uncertain; |
• | adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations; |
• | changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which we operate; |
• | deterioration in general or global economic, market and political conditions; |
• | inability to efficiently manage our operations; |
• | inability to achieve future operating results; |
• | the unavailability of funds for capital expenditures; |
• | our ability to recruit, hire and retain key employees; |
• | the inability of management to effectively implement our strategies and business plans; and |
• | the other risks and uncertainties detailed in this report. |
In this Form 10-Q references to “PCT LTD, “Bingham Canyon,” “Bingham,” “the Company,” “we,” “us,” “our” and similar terms refer to PCT LTD (formerly Bingham Canyon CorporationCorporation) and its wholly owned operating subsidiary, Paradigm Convergence Technologies Corporation (“Paradigm,” or “PCT Corp.”).
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Overview
On August 10,31, 2016, BinghamPCT LTD entered into a Securities Exchange Agreement (the “Exchange Agreement”) with Paradigm Convergence Technologies Corporation, a Nevada corporation (“Paradigm”). Pursuant to the terms of the Exchange Agreement, Paradigm became the wholly-owned subsidiary of BinghamPCT LTD after the exchange transaction. BinghamPCT LTD is a holding company, which through Paradigm is engaged in the business of designing, assembling and/or building equipment, acquiring and marketing new products and technologies through licensing and joint ventures.
Bingham is a holding company and Paradigm is the wholly-owned subsidiary of Bingham. Paradigm is a technology company specializing in the development and commercialization of environmentally-safe products and solutions for global sustainability. We hold patent, intellectual property and/or distribution rights to innovative products and technologies; most specifically, our on-site generation and applications systems for Hydrolyte®, GoGreenlyteFirst™, PCT An-O-Lyte™, PCT Cath-O-Lyte™ and Annihilyte™ disinfectant and microbicide fluids and our comprehensive “Green Cleaning” and disinfecting system and program, the Annihilyzer™ System with its patented[1] tracking, monitoring and reporting system. Our overall strategy is to market new products and technologies using direct sales; system and service agreements; fluid sales; equipment sales and leasing; licensing and distributor agreements; and, joint ventures, and partnerships. We intend to also continue our constant pursuit of new technologies (through acquisition or invention) upon which we can build and expand our joint venture and licensing core business. However, Paradigm may not be able to identify suitable license or joint venture opportunities, nor guarantee that any such agreements will be profitable.
BinghamLTD had not recorded revenues for the two fiscal years prior to its acquisition of Paradigm and was dependent upon financing to continue basic operations. Paradigm has recorded revenue since it initiated operations in 2012; however, those revenues have not been sufficient to finance operations. The Company recorded a net loss of $1,667,005$668,059 for the ninethree months ended SeptemberJune 30, 20172018 and $1,199,361 for the six months ended June 30, 2018 and accumulated losses of $5,689,989$7,943,881 from inception through SeptemberJune 30, 2017.2018.
BinghamPCT LTD remains dependent upon additional financing to continue operations. The Company intends to raise additional equity financing through private placements of its common stock and debt financing on an as-needed basis.note payable issuances. We expect that we would issue such stock pursuant to exemptions to the registration requirements provided by and in accordance with, federal and state securities laws. The purchasers and manner of issuance will be determined according to our financial needs, as discussed below, and the available exemptions to the registration requirements of the Securities Act of 1933. We also note that if we issue more shares of our common stock, then our stockholders may experience dilution in the value per share of their common stock.
The expected costs for the next twelve months include:
Management projects these costs to total approximately $1,500,000.$2,500,000. To minimize these costs, the Company intends to maintain its practice of controlling operating overheads with efficient facilities commitments, generally below market salaries and consulting fees, and rigorous prioritization of expenditures.
expenditure requirements. Based on its understanding of the commercial readiness of its products and technologies, the capabilities of its personnel (current and being hired), established business relationships and the general market conditions;conditions, management believes that the Company shouldexpects to be at or close to profitability during fiscalby the end of the fourth quarter of 2018.
Liquidity and Capital Resources
A critical component of our operating plan impacting our continued existence is the ability to obtain additional capital through additional equity and/or debt financing. We do not anticipate generating sufficient positive internal operating cash flow until such time as we can deliver our products to market and generate substantial revenues, which may take the next full year to fully realize, if ever. In the event we cannot obtain the necessary capital to pursue our strategic plan, we may have to significantly curtail our operations. This would materially impact our ability to continue operations.
SUMMARY OF BALANCE SHEET | June 30, 2018 | December 31, 2017 | ||||||
Cash and cash equivalents | $ | 53 | $ | 7,838 | ||||
Total current assets | 850,527 | 40,321 | ||||||
Total assets | 5,406,429 | 4,754,181 | ||||||
Total liabilities | 2,089,720 | 1,456,198 | ||||||
Accumulated deficit | (7,943,881 | ) | (6,744,520 | ) | ||||
Total stockholders’ equity | $ | 3,316,709 | $ | 3,297,983 |
SUMMARY OF BALANCE SHEET | Period ended September 30, 2017 | Year ended December 31, 2016 | ||||||
Cash and cash equivalents | $ | 23,732 | $ | 21,078 | ||||
Total current assets | 395,100 | 152,497 | ||||||
Total assets | 4,873,787 | 278,854 | ||||||
Total liabilities | 1,336,762 | 555,838 | ||||||
Accumulated deficit | (5,689,989 | ) | (4,022,984 | ) | ||||
Total stockholders’ equity (deficit) | $ | 3,537,025 | $ | (276,984 | ) |
At SeptemberJune 30, 2017,2018, the Company recorded a net loss of $1,667,005$1,199,361 and a working capital deficit of $666,662.$114,172. We have generated minimalrecorded a relatively small amount of revenues from operations since inception and we have not established an ongoing source of revenue sufficient to cover our operating costs. During 2017the years ended 2018 and 20162017 we have primarily relied primarily upon advances and loans from relatedstockholders and third parties to fund our operations. The Company has relied on raising debt and equity capital in order to fund its ongoing day-to-day operations and its corporate overhead. We had $23,732$53 in cash at SeptemberJune 30, 2017,2018, compared to $21,078$ 7,838 in cash at December 31, 2016.2017. We had total liabilities of $1,336,762$2,089,720 at SeptemberJune 30, 20172018 compared to $555,838$1,456,198 at December 31, 2016.
The increase in current assets was primarily the result of an increase in inventory, as a result of gearing up to produce equipment; both for parts and finished machines.
The increase in total liabilities was primarily the result of an increase in debt used for operations and the unusual and non-recurring expenses associated with securing the right to use the EPA production registration (EPA Registration #82341-4 “Excelyte® VET” label) for a period of time.2017.
Our current cash flow is not sufficient to meet our monthly expenses of approximately $125,000$210,000 and to fund future research and development. We intend to rely on additional debt financing, loans from existing stockholders and private placements of common stock for additional funding;funding in addition to the increasing our recognized revenue from the leasing and/or sale of products; however, there is no assurance that additional funding will be available. Although weWe do not yet have material commitments for future capital expenditures,expenditures. However, we cannot assure you that we will be able to obtain short-term financing, or that sources of such financing, if any, will continue to be available, and if available, that they will be on favorable terms.
During the next 12 months we anticipate incurring additional costs related to the filing of Exchange Act reports. We believe we will be able to meet these costs through funds provided by management, significant stockholders and/or third parties. We may also rely on the issuance of our common stock in lieu of cash to convert debt or pay for expenses.
Commitments and Obligations
During the year,At June 30, 2018 the Company operated under two leases for office space: one located in Lenexa, Kansasrecorded notes payable and convertible notes payable totaling approximately $1,651,099 (net of debt discount) compared to notes payable totaling $1,134,217 (net of debt discount) at December 31, 2017. These notes payable represent cash advances received and expenses paid from third parties and related parties. All of the secondnotes payable carry interest from 0% to 13% and are due ranging from on demand to March 21, 2021.
The Company headquarters and operations is located in Little River, South Carolina. The office space lease cost totaled $6,300 per month. The Company terminated its lease in Lenexa, Kansas effective June 30, 2017. For the three months ended September 30, 2017, the Company operated under one lease for its facility in Little River, South Carolina at a cost oflease amounts to $4,800 per month.
Results of Operations
SUMMARY OF OPERATIONS | Three month period ended September 30, | Nine month period ended September 30, | ||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues, net | $ | 58,123 | $ | 4,750 | $ | 80,352 | $ | 83,811 | ||||||||
Cost of sales | (22,682 | ) | (7,183 | ) | (42,019 | ) | (37,789 | ) | ||||||||
Gross Profit | 35,441 | (2,433 | ) | 38,333 | 46,022 | |||||||||||
Total operating expenses | (514,323 | ) | (202,266 | ) | (1,655,238 | ) | (623,724 | ) | ||||||||
Total other expense | (21,654 | ) | (22,226 | ) | (50,100 | ) | (86,193 | ) | ||||||||
Income tax provision | — | — | — | — | ||||||||||||
Net loss | $ | (500,536 | ) | $ | (226,925 | ) | $ | (1,667,005 | ) | $ | (663,895 | ) | ||||
Net earnings (loss) per share both (basic) and diluted | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.04 | ) | $ | (0.04 | ) |
Revenues increasedmonth, expires on November 30, 2019 and includes an option to $58,123renew for the three months ended September 30, 2017 compared to $4,750 for the three months ended September 30, 2016. Revenues decreased to $80,352 for the nine months ended September 30, 2017 compared to $83,811 for the nine months ended September 30, 2016. The revenue increase for the three months ended September 30, 2017 was due to machinery sales. The revenue decreased for the nine months ended September 30, 2017 due to a decrease in the sale of fluids.
Cost of sales increased to $22,682 for the three months ended September 30, 2017 compared to $7,183 for the three months ended September 30, 2016. Cost of sales increased to $42,019 for the nine months ended September 30, 2017 compared to $37,789 for the nine months ended September 30, 2016. The cost of sales increases for both periods was due to the volume and types of sales for the periods; purchasing inventory for the production of equipment for sale is more expensive than utilizing existing equipment to produce fluid solutions to sell.
Total operating expenses increased to $514,323 for the three months ended September 30, 2017 compared to $202,266 for the three months ended September 30, 2016. Total operating expenses increased to $1,655,238 for the nine months ended September 30, 2017 compared to $623,724 for the nine months ended September 30, 2016. The total operating expense increases for both periods were due to stock option expenses and hiring new employees.
General and administrative expenses increased to $389,376 for the three months ended September 30, 2017 compared to $186,816 for the three months ended September 30, 2016. General and administrative expenses increased to $1,346,955 for the nine months ended September 30, 2017 compared to $517,711 for the nine months ended September 30, 2016. General and administrative expense increases for both periods were due to stock option expenses and hiring new employees. General and administrative expenses are anticipated to stabilize at current levels, with no significant increases untiltwo additional production staff and other ancillary general staff are required to facilitate building more equipment and in supporting sales.
Research and development expenses increased to $32,490 for the three months ended September 30, 2017 compared to $13,326 for the three months ended September 30, 2016. Research and development expenses increased to $102,402 for the nine months ended September 30, 2017 compared to $90,330 for the nine months ended September 30, 2016. Research and development expenses increased for both periods due to field testing required for EPA certification and market/industry requirements.
Depreciation and amortization expenses increased to $92,427 for the three months ended September 30, 2017 compared to $2,124 for the three months ended September 30, 2016. Depreciation and amortization expenses increased to $205,881 for the nine months ended September 30, 2017 compared to $15,683 for the nine months ended September 30, 2016. Depreciation and amortization expenses increased for both periods due to fixed asset and intangible asset acquisitions during thosethree-year periods.
Total interest expense increased to $21,654 for the three months ended September 30, 2017 compared to $22,226 for the three months ended September 30, 2016. Total interest expense increased to $50,100 for the nine months ended September 30, 2017 compared to $37,321 for the nine months ended September 30, 2016. The change in interest expense during both periods is due directly to the borrowings for continued operations during the periods.
The Company incurred a loss on convertible debt in the amount of $48,872 during the second quarter of 2016. This expense was associated with the election by two holders of convertible debentures to convert the debentures solely to common stock.
Net loss from operations and after income taxes increased to $500,536 for the three months ended September 30, 2017 compared to $226,925 for the three months ended September 30, 2016. Net loss from operations and after income taxes increased to $1,667,005 for the nine months ended September 30, 2017 compared to $663,895 for the nine months ended September 30, 2016. Net loss from operations and after income taxes increased for both periods primarily due to increased general and administrative expenses and depreciation and amortization expenses.
18 |
Results of Operations for the Three Month Periods Ended June 30, 2018 and 2017
SUMMARY OF OPERATIONS | Three-month period ended June 30, | |||||||
(Unaudited) | ||||||||
2018 | 2017 | |||||||
Revenues | $ | 70,072 | $ | 10,872 | ||||
Total operating expenses | $ | 698,487 | 471,304 | |||||
Total other expense | (39,644 | ) | (16,575 | ) | ||||
Net loss | $ | (668,059 | ) | $ | (485,115 | ) | ||
Basic and diluted loss per share | $ | 0.02 | $ | 0.01 |
Revenues increased to $70,072 for the three months ended June 30, 2018 (the “2018 second quarter”) compared to $10,872 for the three months ended June 30, 2017 (the “2017 second quarter”). The revenue increase for the period was due to the increase in steady revenue from fluid sales (including monthly minimum royalties), parts sales, license fees and the additional revenue from recurring leased-equipment income.
Total operating expenses increased to $698,487 during the 2018 second quarter compared to $479,412 during the 2017 second quarter. The increase during the second quarter of 2018 was primarily due to an increase in personnel, salaries, an increase in audit fees, accounting and commercial market development as well as purchases of components and other increased operating necessities. The cost of product during this period decreased due to the significantly less expense associated with producing fluids for sale and/or royalties from the sale of fluids in comparison to the production of equipment. A large portion of this period’s revenue was realized from the sale of fluids and from recurring revenue from equipment placed into service in 2017.
General and administrative expenses increased to $613,569 for the 2018 second quarter compared to $327,514 during the 2017 second quarter. The increase during the second quarter of 2018 was primarily due to an increase in personnel, salaries, insurance, and other overhead expense.
Research and development expenses decreased to $nil for the 2018 second quarter compared to $56,710 during the 2017 second quarter. The decrease in research and development expense during the second quarter of 2018 was primarily due to the Company developing most of its technologies around the Hydrolyte® technology in the prior periods.
Depreciation and amortization expenses decreased to $80,162 during the 2018 second quarter compared to $87,080 during the 2017 second quarter. The decrease was primarily due to a slight decrease in the value of certain intangible assets and the amortization associated with the decrease.
Total interest expenses increased to $39,644 during the 2018 second quarter compared to $16,575 during the 2017 second quarter. Total interest expense increased during the 2018 second quarter due to a greater number and value of loans in effect during the period.
As a result of the changes described above, net loss increased to $668,059 during the 2018 second quarter compared to $485,115 during the 2017 second quarter.
Results of Operations for the Six Month Periods Ended June 30, 2018 and 2017
SUMMARY OF OPERATIONS | Six-month period ended June 30, | |||||||
(Unaudited) | ||||||||
2018 | 2017 | |||||||
Revenues | $ | 112,213 | $ | 22,229 | ||||
Total operating expenses | $ | 1,246,126 | (1,160,252 | ) | ||||
Total other expense | (65,448 | ) | (28,446 | ) | ||||
Net loss | $ | (1,199,361 | ) | $ | (1,166,469 | ) | ||
Basic and diluted loss per share | $ | 0.03 | $ | 0.03 |
Revenues increased to $112,231 for the six months ended June 30, 2018 compared to $22,229 for the six months ended June 30, 2017. The revenue increase for the period was due to the increase in steady revenue from fluid sales (including monthly minimum royalties), parts sales, license fees and the additional revenue from leasing equipment under contract and the recurring leased-equipment income.
Total operating expenses increased to $1,246,126 during the six months ended June 30, 2018 compared to $1,160,252 during the six month period ended June 30, 2017. The increase for the period was primarily due to an increase in personnel, salaries, an increase in audit fees, accounting and commercial market development as well as purchases of components and other increased operating necessities. The cost of product during this period decreased due to the significantly less expense associated with producing fluids for sale and/or royalties from the sale of fluids in comparison to the production of equipment. A large portion of the period’s revenues during this period were from the sale of fluids and from recurring revenue from equipment placed into service in 2017.
General and administrative expenses increased to $1,058,794 during the six months ended June 30, 2018 compared to $957,579 during the six month period ended June 30, 2017. The increase during the period was primarily due to an increase in personnel, salaries, insurance, and other overhead expense.
Research and development expenses decreased to $nil for the six months ended June 30, 2018 compared to $69,912 during the six month period ended June 30, 2017. The decrease in research and development expense during the period was primarily due to the Company developing most of its technologies around the Annihilyzer® and Hydrolyte® systems in the prior periods.
Depreciation and amortization expenses increased to $166,858 during the six month period ended June 30, 2018 compared to $113,424 during the six month period ended June 30, 2017, The decrease was primarily due to depreciation as a result of placing equipment into service.
Total interest expenses increased to $65,448 during the six month period ended June 30, 2018 compared to $28,446 during the six month period ended June 30, 2017. Total interest expense increased during the 2018 second quarter due to a greater number and value of loans in effect during the period.
As a result of the changes described above, net loss from operations after income taxes increased to $1,199,361 during the six month period ended June 30, 2018 compared to $1,166,469 during the six month period ended June 30, 2017.
19 |
Off-Balance Sheet Arrangements
We have not entered into 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, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.
Critical Accounting Policies
Emerging Growth Company - We qualify as an “emerging growth company” under the recently enacted Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, among other things, we will not be required to:
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We will remain an “emerging growth company” until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion; (ii) the fifth anniversary of our first sale of common equity pursuant to an effective registration statement; (iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed third fiscal quarter; or (iv) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.
Recent Accounting Developments
WeThe Company has reviewed all recentother FASB issued ASU accounting pronouncements issued byand interpretations thereof that have effective dates during the FASB (includingperiod reported and in future periods. The Company has carefully considered the Emerging Issues Task Force),new pronouncements that alter the AICPA,previous GAAP and the SEC and we diddo not believe that any new or are not believed by management tomodified principles will have a material impact on our presentthe Company’s reported financial position or future financial statements.operations in the near term.
20 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated to allow our management to make timely decisions regarding required disclosure. Our Principal Executive OfficerPresident, who serves as our principal executive officer and Principal Financial Officer, Gary Grieco,principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) underand Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended)Act) as of the end of the period covered by this Report.report. The disclosure controls and procedures ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rule and forms; and (ii) accumulated and communicated to our President as appropriate to allow timely decisions regarding required disclosure. Based on thethat evaluation, Mr. Griecoour President concluded that as of June 30, 2018, our disclosure controls and procedures are ineffective in timely alerting him to material information relating to us (including our consolidated subsidiaries) required to be included in our periodic SEC filings. were not effective.
Notwithstanding thethis finding of ineffective disclosure controls and procedures, we concluded that the consolidated financial statements included in this Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.
Changes in Internal Control Over Financial Reporting
Our management is responsible to establish and maintain adequate internal control over financial reporting. Our principal executive officer is responsible to design or supervise a process that provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The policies and procedures include:
For the period ended SeptemberJune 30, 2017,2018, management has relied on the Committee of Sponsoring Organizations of the Treadway Commission (COSO), “Internal Control - Integrated Framework,” to evaluate the effectiveness of our internal control over financial reporting. Based upon that framework, our principal executive officerPresident has determined that our internal controlscontrol over financial reporting for period ended SeptemberJune 30, 2017 and2018, the year ended December 31, 2016, were2017, was not effective.
The material weaknesses relate to the limited number of persons responsible for the recording and reporting of financial information, the lack of separation of financial reporting duties, and the limited size of our management team in general. We are in the process of evaluating methods of improving our internal control over financial reporting, including the possible addition of financial reporting staff and the increased separation of financial reporting responsibility, and intend to implement such steps as are necessary and possible to correct these material weaknesses.
Our management determined that there were no changes made in our internal controls over financial reporting during the thirdsecond quarter of 20172018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
There has been no change in the Company’s internal controls over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
Internal control systems, no matter how well designed and operated, have inherent limitations. Therefore, even a system which is determined to be effective cannot provide absolute assurance that all control issues have been detected or prevented. Our systems of internal controls are designed to provide reasonable assurance with respect to financial statement preparation and presentation.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We may become involved in various routine legal proceedings incidental to our business. To our knowledge as of the date of this Report, there are no material pending legal proceedings to which we are a party or to which any of our property is subject.
ITEM 1A. RISK FACTORS
We are an emerging growtha smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item. However, we detailed significant business risks in Item 1A to our Form 10-K for the year ended December 31, 2016, to which reference is made herein.2017.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On July 13, 2017,April 10, 2018, the Company sold 24,000120,000 shares of common stock at $1.25$0.50 per share to two unrelated partiesan employee and Director of the Company, for cash proceeds of $30,000.$60,000.
On July 27, 2017,June 12, 2018, the Company sold 30,000issued 2,000,000 shares of restricted common stock to a consultant pursuant to a 12-month services agreement dated March 15, 2018.
On June 12, 2018, the Company entered into a 6-month service agreement, expiring on December 12, 2018, for business development and the development of financial reports. Per the terms of the agreement, the consulting company was issued 50,000 shares of restricted stock on June 29, 2018.
The disclosure set forth below under Item 5 (Other Information) pertaining to the Power Up Notes and Power Up Agreements is incorporated by reference into this Item 2. The Power Up Notes described in Item 5 below were issued in reliance upon exemptions from registration pursuant to Section 4(a)(2) under the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. The Power UP Agreements executed in connection therewith contains representations to support our reasonable belief that Power Up had access to information concerning our operations and financial condition, is acquiring the securities for its own account and not with a view to the distribution thereof, and is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act. At the time of their issuance, the Power Up Notes and any shares of common stock at $1.25 per shareissued upon conversion thereof will be deemed to an unrelated partybe restricted securities for cash proceedspurposes of $37,500.
On August 9, 2017, the Company sold 20,000Securities Act and the certificates representing the securities shall bear legends to that effect. We have initially reserved 2,630,757 shares of common stock at $1.25 per share to an unrelated party for cash proceed of $25,000.
Subsequent Issuances After Quarter-End
On October 25, 2017,issuance under the Company issued 40,000 shares of common stock at $0.75 per share to an unrelated party for cash proceeds of $30,000.
On October 24, 2017 and October 27, 2017, the Company revised the share price relating to shares of common stock sold during the period from September 1, 2016 through October 30, 2017 down to $0.75 per share. As a resultterms of the revised share price, the Company issued an additional 337,666 shares of common stock to15 investors, including 191,667 shares to related parties.
Power Up Notes.
All of the above-described issuancesissuances/grants were exempt from registration pursuant to Section 4(a)(2) and/or Regulation D of the Securities Act as transactions not involving a public offering. With respect to each transaction listed above, no general solicitation was made by either the Company or any person acting on its behalf. All such securities issued pursuant to such exemptions are restricted securities as defined in Rule 144(a)(3) promulgated under the Securities Act, appropriate legends have been placed on the documents evidencing the securities, and may not be offered or sold absent registration or pursuant to an exemption there from.therefrom.
Issuer Purchases of Equity Securities
We did not repurchase any of our equity securities during the quarter ended SeptemberJune 30, 2017.2018.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
We have entered into a number of promissory notes, someone of which areis in default as of SeptemberJune 30, 2017,2018, or went into default before the filing of this CurrentQuarterly Report (See Note 56 to the financial statements).
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Power Up Notes
On September 1, 2017,June 5, 2018 and July 25, 2018 (each a “Closing Date”), we completed the Company entered into a five-year employment agreementsale of two Convertible Promissory Notes (the “Power Up Notes”) in the principal amounts of $68,000 and $38,000, respectively, with Marion E. Paris, Jr.interest rates of 12% per annum pursuant to be the president the Annihilyzer Division of Paradigm. Mr. Paris is a director of the Company and Paradigm. Under the terms of two Securities Purchase Agreements between Power Up Lending Group Ltd. (“Power Up”), a Virginia corporation, and us (the “Power Up Agreements”). The Power Up Notes mature on June 5, 2019 and July 25, 2019, respectively (the “Maturity Dates”). We reimbursed Power Up $5,000 for its legal fees and paid Power Up a $1,000 due diligence fee, resulting in net proceeds to us from the employment agreement, Mr. ParisPower Up Notes of $65,000 and $35,000, respectively.
The Power Up Notes may be prepaid in whole or in part, at any time during the period beginning on each Closing Date and ending on the date which is 180 days following the issue date, beginning at 112% of the outstanding principal and accrued interest increasing by 5% for every 30 day period thereafter until the 180th day following the Closing Date. After the expiration of the 180 days following the Closing Date, we may not prepay the Note for any reason.
At any time after 180 days after the date the Power Up Notes are issued, the Power Up Notes are convertible into our common stock, at Power Up’s option, at a 39% discount to the market price, which is defined as 61% of the average of the lowest three (3) closing bid prices for the our common stock during the fifteen (15) trading days prior to the conversion date. The conversion price is subject to proportional adjustment in the event of stock splits, stock dividends, and similar corporate events. Further, if we fail to deliver shares to Power Up upon conversion through willful or deliberate hindrance on our part we shall pay to Power Up $2,000 in cash per day as liquidated damages or, at Power Up’s option, such amount being added to the principal amount of the Power Up Notes.
Power Up has agreed to restrict its ability to convert the Power Up Notes and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. The Power Up Notes are a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation of us. The Power Up Notes also provide for penalties and rescission rights if we do not deliver shares of common stock upon conversion within the required timeframes set forth in the Power Up Agreements. We must, at all times, reserve six times that number of shares that would be paid an annual base salaryissuable upon full conversion of $90,000 and other benefits associatedthe Power Up Notes, with an executive officer, including four weeks paid vacation. In addition,initial reserved share amount of 1,592,506 and 1,038,251 shares, respectively.
The Power Up Notes contain default events which, if triggered and not timely cured (if curable), will result in a default payment equal to 150% the Company agreedamount owed to pay Mr. ParisPower Up and a signing bonusdefault interest at the rate of $40,000 ($20,000 on or before November 1, 2017, with an additional $20,000 on January 1, 2018). As22% per annum.
The above description of September 30, 2017, the Company had paid $7,500 in salary to Mr. Paris. As of September 30, 2017, the Company had not paid the initial $20,000certain material terms of the signing bonus which is due on or before November 1, 2017. The foregoingPower Up Notes and Power Up Agreements are not a complete description of all terms of the employment agreement does not purport to be completefinancing transaction and is qualified in its entirety by reference to the agreement, a copy ofPower Up Notes and Power Up Agreements, which isare attached to this reporthereto as Exhibit 10.5.Exhibits 4.1, 4.2, 10.6 and 10.7, respectively.
ITEM 6. EXHIBITS
Part I Exhibits
Exhibit No. | Description |
3(i) | Amended and Restated Articles of Incorporation, as currently in effect (Incorporated by reference to Exhibit 3.1 of Form 8-K, filed April 13, 2018) |
3(ii) | Amended and Restated Bylaws, as currently in effect (Incorporated by reference to Exhibit 3.2 of Form 8-K, filed April 13, 2018) |
4.1 | Power Up Note dated June 5, 2018 |
4.2 | Second Power Up Note dated July 25, 2018 |
10.1 | Agreement with Annihilyzer, Inc. dated November 29, 2016 (Incorporated by reference to Exhibit 10.1 of Form 8-K, filed April 20, 2017) |
10.2 | Amendment to Agreement with Annihilyzer, Inc. dated April 6, 2017 (Incorporated by reference to Exhibit 10.2 of Form 8-K, filed April 20, 2017) |
10.3 | Read Consolidated Promissory Note dated September 27, 2017 (Incorporated by reference to Exhibit 10.1 of Form 8-K, filed October 4, 2017) |
10.4† | Paris Employment Agreement (Incorporated by reference to Exhibit 10.5 of Form 10-Q, filed November 14, 2017) |
10.5 | Strategic Planning Services Agreement dated March 15, 2018 (Incorporated by reference to Exhibit 10.5 of Form 10-Q, filed May 21, 2018) |
10.6 | Power Up Agreement dated June 5, 2018 |
10.7 | Second Power Up Agreement dated July 25, 2018 |
31.1 | Principal Executive Officer Certification |
31.2 | Principal Financial Officer Certification |
32.1 | Section 1350 Certification |
Part II Exhibits
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Label Linkbase Document |
101.PRE | XBRL Taxonomy Presentation Linkbase Document |
† Indicates management contract or compensatory plan or arrangement.
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.
BINGHAM CANYON CORPORATION | ||
Date: | By: | /s/Gary J. Grieco |
Gary J. Grieco, Principal Executive Officer | ||
President and Director | ||
Principal Financial Officer |
2224