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 endedSeptember 30, 20182019
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number:000-31549
PCT LTD
(Exact name of registrant as specified in its charter)
Nevada | 90-0578516 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
4235 Commerce Street Little River, South Carolina | 29566 |
(Address of principal executive offices) |
(Zip Code) |
(843) 390-7900
(Registrant’s telephone number, including area code)
Indicate by check markmark 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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Act:
Large accelerated filer☐ Non-accelerated filer☑ | Accelerated filer☐ |
Smaller reporting | |
company☑ Emerging growth company☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period 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☑
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
None | N/A | N/A |
The number of shares outstanding of the registrant’s common stockstock as of November 19, 2018April 10, 2020 was 44,459,238,527,813,393 which does not include 4,039,707427,186,607 shares of common stock reserved against default ondefault/conversion of convertible debt.
TABLE OF CONTENTS
Part I – Financial Information | Page | |
Item 1. | ||
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 financial information set forth below with respect to our statements of operations for the three and nine month periods ended September 30, 20182019 and 20172018 is unaudited. This 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 nine month periods ended September 30, 2019 and 2018 are not necessarily indicative of results to be expected for any subsequent period.
PCT LTD
Financial Statements
September 30, 2018
(Unaudited)
3 |
PCT LTD
Condensed Consolidated Balance Sheets
SEPTEMBER 30, 2018 | DECEMBER 31, 2017 | |||||||
ASSETS | (Unaudited) | |||||||
CURRENT ASSETS | ||||||||
Cash | $ | 8,062 | $ | 7,838 | ||||
Accounts receivable, net | 27,385 | 12,637 | ||||||
Inventory | 34,535 | 10,526 | ||||||
Prepaid expenses | 487,751 | 7,210 | ||||||
Current portion of deposits | 57,110 | 2,110 | ||||||
Total current assets | 614,843 | 40,321 | ||||||
FIXED ASSETS | ||||||||
Property and Equipment, net | 362,195 | 383,254 | ||||||
OTHER ASSETS | ||||||||
Intangible assets, net | 4,102,323 | 4,325,107 | ||||||
Deposits, net of current portion | 5,499 | 5,499 | ||||||
Total other assets | 4,107,822 | 4,330,606 | ||||||
TOTAL ASSETS | $ | 5,084,860 | $ | 4,754,181 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 181,751 | $ | 134,613 | ||||
Accrued expenses – related party | 34,958 | 8,656 | ||||||
Accrued expenses | 310,389 | 178,712 | ||||||
Deferred revenue | 25,000 | — | ||||||
Current portion of notes payable | 204,000 | 421,217 | ||||||
Current portion of notes payable – related party | 80,000 | 713,000 | ||||||
Current portion of convertible notes payable, net | 151,754 | — | ||||||
Total current liabilities | 987,852 | 1,456,198 | ||||||
LONG TERM LIABILITIES | ||||||||
Notes payable, net of current portion | 248,247 | — | ||||||
Notes payable – related party, net of current portion | 730,577 | — | ||||||
Convertibles notes payable, net of current portion | 386,570 | — | ||||||
TOTAL LIABILITIES | 2,353,246 | 1,456,198 | ||||||
STOCKHOLDER’S EQUITY | ||||||||
Preferred stock, $0.001 par value; 10,000,000 authorized; nil issued and outstanding at September 30, 2018 and December 31, 2017 | — | — | ||||||
Common stock, $0.001 par value; 300,000,000 authorized; 44,459,238 and 41,179,238 issued and outstanding at September 30, 2018 and December 31, 2017, respectively | 44,460 | 41,180 | ||||||
Additional paid-in-capital | 11,571,130 | 10,001,323 | ||||||
Accumulated deficit | (8,883,976 | ) | (6,744,520 | ) | ||||
TOTAL STOCKHOLDERS’ EQUITY | 2,731,614 | 3,297,983 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 5,084,860 | $ | 4,754,181 |
September 30, 2019 | December 31, 2018 | |||||||
ASSETS | (Unaudited) | |||||||
CURRENT ASSETS | ||||||||
Cash | $ | 6,669 | $ | 4,893 | ||||
Accounts receivable | 103,872 | 49,140 | ||||||
Inventory | 4,803 | 7,105 | ||||||
Prepaid expenses | 44,980 | 218,494 | ||||||
Other current assets | 2,110 | 2,110 | ||||||
Total current assets | 162,434 | 281,742 | ||||||
Property and equipment, net | 446,346 | 499,972 | ||||||
OTHER ASSETS | ||||||||
Intangible assets, net | 3,782,652 | 4,059,775 | ||||||
Operating lease right-of-use asset | 7,878 | — | ||||||
Deposits | 5,499 | 5,499 | ||||||
Total other assets | 3,796,029 | 4,065,274 | ||||||
TOTAL ASSETS | $ | 4,404,809 | $ | 4,846,988 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 359,817 | $ | 350,593 | ||||
Accrued expenses – related parties | 72,137 | 54,033 | ||||||
Accrued expenses | 670,872 | 362,436 | ||||||
Operating lease liability | 9,125 | — | ||||||
Current portion of notes payable – related parties, net | 834,886 | 93,000 | ||||||
Current portion of notes payable, net | 278,100 | 399,664 | ||||||
Current portion of convertible notes payable, net | 1,334,040 | 161,280 | ||||||
Derivative liability | 5,538,198 | 322,976 | ||||||
Preferred series A stock liability | — | 144,352 | ||||||
Total current liabilities | 9,097,175 | 1,888,334 | ||||||
LONG-TERM LIABILITIES | ||||||||
Notes payable – related parties, net of current portion and discounts | — | 733,826 | ||||||
Notes payable, net of current portion and discounts | — | 126,707 | ||||||
Convertible notes payable, net of current portion and discounts | — | 392,534 | ||||||
TOTAL LIABILITIES | 9,097,175 | 3,141,401 | ||||||
MEZZANINE EQUITY | ||||||||
Preferred stock series A, $0.001 par value; 1,000,000 authorized; 500,000 and nil issued and outstanding at September 30, 2019 and December 31, 2018, respectively | 60,398 | — | ||||||
Preferred stock series B, $0.001 par value; 1,000,000 authorized; 1,000,000 and nil issued and outstanding at September 30, 2019 and December 31, 2018, respectively | 155,000 | — | ||||||
TOTAL MEZZANINE EQUITY | 215,398 | — | ||||||
STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Preferred stock series C, $0.001 par value; 5,500,000 authorized; nil issued and outstanding at September 30, 2019 and December 31, 2018 | — | — | ||||||
Common stock, $0.001 par value; 1,000,000,000 authorized; 262,360,042 and 44,559,238 issued and outstanding at September 30, 2019 and December 31, 2018, respectively | 262,361 | 44,560 | ||||||
Additional paid-in-capital | 14,971,340 | 11,588,030 | ||||||
Accumulated deficit | (20,141,465 | ) | (9,927,003 | ) | ||||
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | (4,907,764 | ) | 1,705,587 | |||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 4,404,809 | $ | 4,846,988 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4 |
PCT LTD
Condensed Consolidated Statements of Operations
(Unaudited)
For the three months ended September 30, | For the nine months ended September 30, | For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||
REVENUES | ||||||||||||||||||||||||||||||||
Product | $ | 13,624 | $ | 58,123 | $ | 86,837 | $ | 80,352 | $ | 110,739 | $ | 13,624 | $ | 209,578 | $ | 86,837 | ||||||||||||||||
Licensing | 8,000 | — | 8,000 | — | 29,500 | 8,000 | 108,000 | 8,000 | ||||||||||||||||||||||||
Equipment leases | 19,500 | — | 58,500 | — | 79,794 | 19,500 | 217,274 | 58,500 | ||||||||||||||||||||||||
Total Revenue | 41,124 | 58,123 | 153,337 | 80,352 | 220,033 | 41,124 | 534,852 | 153,337 | ||||||||||||||||||||||||
OPERATING EXPENSES | ||||||||||||||||||||||||||||||||
General and administrative | 827,168 | 389,376 | 1,885,962 | 1,346,955 | 468,897 | 827,168 | 1,554,992 | 1,885,962 | ||||||||||||||||||||||||
Research and development | — | 32,490 | — | 102,402 | ||||||||||||||||||||||||||||
Cost of product, licensing and equipment | 39,216 | 22,682 | 59,690 | 42,019 | ||||||||||||||||||||||||||||
Cost of product, licensing and equipment leases | 51,483 | 39,216 | 148,214 | 59,690 | ||||||||||||||||||||||||||||
Depreciation and amortization | 84,070 | 92,457 | 250,928 | 205,881 | 84,467 | 84,070 | 253,568 | 250,928 | ||||||||||||||||||||||||
Total operating expenses | 950,454 | 537,005 | 2,196,580 | 1,697,257 | 604,847 | 950,454 | 1,956,774 | 2,196,580 | ||||||||||||||||||||||||
Net loss before other expenses | (909,330 | ) | (478,882 | ) | (2,043,243 | ) | �� | (1,616,905 | ) | (384,814 | ) | (909,330 | ) | (1,421,922 | ) | (2,043,243 | ) | |||||||||||||||
OTHER INCOME (EXPENSES) | ||||||||||||||||||||||||||||||||
Loss on change in fair value of derivative liability | (4,169,978 | ) | — | (7,121,619 | ) | — | ||||||||||||||||||||||||||
Gain (loss) on change in fair value of preferred series A stock liability | — | — | 72,473 | — | ||||||||||||||||||||||||||||
Gain on sale of intangible assets | — | — | 52,498 | — | ||||||||||||||||||||||||||||
Gain on sale of equipment | 16,185 | — | 16,185 | — | — | 16,185 | — | 16,185 | ||||||||||||||||||||||||
Gain (Loss) on settlement of debt | 16,706 | (67,703 | ) | — | ||||||||||||||||||||||||||||
Interest expense | (46,950 | ) | (21,654 | ) | (112,398 | ) | (50,100 | ) | (1,225,906 | ) | (46,950 | ) | (1,728,189 | ) | (112,398 | ) | ||||||||||||||||
Total other expenses | (30,765 | ) | (21,654 | ) | (96,213 | ) | (50,100 | ) | ||||||||||||||||||||||||
Total other income (expenses) | (5,379,178 | ) | (30,765 | ) | (8,792,540 | ) | (96,213 | ) | ||||||||||||||||||||||||
Loss from operations before Income taxes | (940,095 | ) | (500,536 | ) | (2,139,456 | ) | (1,667,005 | ) | (5,763,992 | ) | (940,095 | ) | (10,214,462 | ) | (2,139,456 | ) | ||||||||||||||||
Income taxes | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
NET LOSS | $ | (940,095 | ) | $ | (500,536 | ) | $ | (2,139,456 | ) | $ | (1,667,005 | ) | $ | (5,763,992 | ) | $ | (940,095 | ) | $ | (10,214,462 | ) | $ | (2,139,456 | ) | ||||||||
Basic and diluted net loss per share | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.05 | ) | $ | (0.04 | ) | $ | (0.03 | ) | $ | (0.02 | ) | $ | (0.10 | ) | $ | (0.05 | ) | ||||||||
Basic and diluted weighted average shares outstanding | 44,448,368 | 39,981,485 | 43,184,183 | 39,041,968 | 206,524,228 | 44,448,368 | 102,223,061 | 43,184,183 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5 |
PCT LTD
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the nine months ended September 30, | ||||||||
2018 | 2017 | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss | $ | (2,139,456 | ) | $ | (1,667,005 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 250,928 | 214,006 | ||||||
Amortization of debt discount | 30,518 | 10,906 | ||||||
Common stock issued for services | 903,946 | — | ||||||
Stock-based compensation | — | 415,964 | ||||||
Gain on sale of equipment | (16,185 | ) | — | |||||
Expenses paid on behalf of company | — | 14,722 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (14,748 | ) | 1,018 | |||||
Inventory | (24,009 | ) | (270,138 | ) | ||||
Prepaid expenses | (1,487 | ) | 448 | |||||
Deposits | (55,000 | ) | 28,570 | |||||
Accrued expenses related party | 26,302 | 9,975 | ||||||
Accounts payable and accrued liabilities | 178,815 | 196,966 | ||||||
Deferred revenue | 25,000 | — | ||||||
Net cash provided by (used in) operating activities | (835,376 | ) | (1,044,568 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Proceeds from sale of equipment | 22,500 | — | ||||||
Purchase of fixed assets (equipment) | (3,900 | ) | (2,709 | ) | ||||
Purchase of intangible assets | (9,500 | ) | (158,424 | ) | ||||
Net cash provided by (used in) investing activities | 9,100 | (161,133 | ) | |||||
Cash Flows from Financing Activities | ||||||||
Proceeds from notes payable – related parties | 109,000 | 410,500 | ||||||
Proceeds from notes payable | 287,500 | 225,000 | ||||||
Proceeds from convertible notes payable | 350,000 | — | ||||||
Repayment of notes payable | (20,000 | ) | (23,535 | ) | ||||
Repayment of notes payable – related parties | (15,000 | ) | (63,610 | ) | ||||
Proceeds from issuance of common stock | 115,000 | 660,000 | ||||||
Net cash provided by financing activities | 826,500 | 1,208,355 | ||||||
Net change in cash | 224 | 2,654 | ||||||
Cash and cash equivalents at beginning of period | 7,838 | 21,078 | ||||||
Cash and cash equivalents at end of period | $ | 8,062 | $ | 23,732 | ||||
Supplemental Cash Flow Information | ||||||||
Cash paid for interest | $ | 20,060 | $ | 20,028 | ||||
Cash paid for Income taxes | $ | — | $ | — | ||||
Non-Cash Investing and Financing Activities | ||||||||
Beneficial conversion feature | $ | 75,087 | $ | — | ||||
Extinguishment of notes payable | $ | 250,000 | $ | — | ||||
Common stock issued for intellectual property | $ | — | $ | 4,405,050 | ||||
Debt discount from issuance costs (original issuance discount) | $ | 42,464 | $ | — | ||||
Common stock issued for prepaid expenses | $ | 1,383,000 | $ | — |
For the nine months ended September 30, | ||||||||
2019 | 2018 | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss | $ | (10,214,462 | ) | $ | (2,139,456 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 253,568 | 250,928 | ||||||
Amortization of debt discount | 735,582 | 30,518 | ||||||
Amortization of operating lease right-of-use asset | 35,452 | — | ||||||
Common stock issued and issuable for services | 151,391 | 903,946 | ||||||
Loss on change in fair value of derivative liability | 7,121,619 | — | ||||||
Gain on change in fair value of preferred series A stock liability | (72,473 | ) | — | |||||
Series B preferred stock issued for services | 155,000 | — | ||||||
Loss on settlement of debt | 67,703 | — | ||||||
Gain on sale of intangible assets | (52,498 | ) | — | |||||
Gain on sale of equipment | — | (16,185 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (137,092 | ) | (14,748 | ) | ||||
Inventory | 21,707 | (24,009 | ) | |||||
Prepaid expenses | 173,514 | (1,487 | ) | |||||
Other assets | — | (55,000 | ) | |||||
Operating lease liability | (34,205 | ) | — | |||||
Accounts payable | 66,737 | 178,815 | ||||||
Accrued expenses – related party | 18,104 | 26,302 | ||||||
Accrued expenses | 1,113,652 | — | ||||||
Deferred revenue | — | 25,000 | ||||||
Net cash used in operating activities | (596,701 | ) | (835,376 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Proceeds from sale of intangible assets | 111,323 | — | ||||||
Proceeds from the sales of equipment | — | 22,500 | ||||||
Purchase of property and equipment | (2,516 | ) | (3,900 | ) | ||||
Purchase of intangible assets | (5,000 | ) | (9,500 | ) | ||||
Net cash provided by investing activities | 103,807 | 9,100 | ||||||
Cash Flows from Financing Activities | ||||||||
Proceeds from notes payable – related parties | 17,544 | 109,000 | ||||||
Proceeds from notes payable | 138,600 | 287,500 | ||||||
Proceeds from convertible notes payable | 480,750 | 350,000 | ||||||
Proceeds from common stock issued | — | 115,000 | ||||||
Repayment of notes payable – related parties | (20,044 | ) | (15,000 | ) | ||||
Repayment of notes payable | (31,180 | ) | (20,000 | ) | ||||
Repayment of convertible notes payable | (91,000 | ) | — | |||||
Net cash provided by financing activities | 494,670 | 826,500 | ||||||
Net change in cash | 1,776 | 224 | ) | |||||
Cash and cash equivalents at beginning of period | 4,893 | 7,838 | ||||||
Cash and cash equivalents at end of period | $ | 6,669 | $ | 8,062 | ||||
Supplemental Cash Flow Information | ||||||||
Cash paid for interest | $ | 40,914 | $ | 20,060 | ||||
Cash paid for income taxes | $ | — | $ | — | ||||
Non-Cash Investing and Financing Activities: | ||||||||
Debt discounts on notes payable – related parties | $ | — | $ | 20,000 | ||||
Debt discounts on notes payable | $ | 10,204 | $ | 13,464 | ||||
Debt discounts on convertible notes payable | $ | 610,125 | $ | 84,087 | ||||
Modification of notes payable | $ | 20,590 | $ | — | ||||
Common stock issued in conversion of convertible notes payable | $ | 2,644,325 | $ | — | ||||
Accounts receivable netted against notes payable | $ | 28,090 | $ | — | ||||
Initial operating lease right-of-use asset and liability | $ | 43,330 | $ | — | ||||
Default penalty on convertible notes payable | $ | 665,731 | $ | — | ||||
Preferred series A stock reclassification from liability to mezzanine equity | $ | 60,398 | $ | — | ||||
Extinguishment of notes payable | $ | 175,814 | $ | 250,000 | ||||
Common stock issued for prepaid expenses | $ | — | $ | 1,383,000 | ||||
Property plant & equipment transferred to inventory | $ | 19,405 | $ | — |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6 |
PCT LTD
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
Additional | Total Stockholders’ | |||||||||||||||||||
Common Stock | Paid-in | Accumulated | Equity’ | |||||||||||||||||
Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||
Balance – December 31, 2018 | 44,559,238 | $ | 44,560 | $ | 11,588,030 | (9,927,003 | ) | $ | 1,705,587 | |||||||||||
Common stock issued for services | 575,000 | 575 | 98,352 | — | 98,927 | |||||||||||||||
Common stock issued in settlement of debt | 5,383,810 | 5,383 | 800,012 | — | 805,395 | |||||||||||||||
Net loss | — | — | — | (920,323 | ) | (920,323 | ) | |||||||||||||
Balance – March 31, 2019 | 50,518,048 | $ | 50,518 | $ | 12,486,394 | (10,847,326 | ) | $ | 1,689,586 | |||||||||||
Common stock issued for services | — | — | 23,125 | — | 23,125 | |||||||||||||||
Common stock issued in conversion of convertible notes payable | 26,341,913 | 26,342 | 261,034 | — | 287,376 | |||||||||||||||
Net loss | — | — | — | (3,530,147 | ) | (3,530,147 | ) | |||||||||||||
Balance – June 30, 2019 | 76,859,961 | $ | 76,860 | $ | 12,770,553 | (14,377,473 | ) | $ | (1,530,060 | ) | ||||||||||
Common stock issued and issuable for services | 1,000,000 | 1,000 | 28,339 | — | 29,339 | |||||||||||||||
Common stock issued from exercise of warrants | 12,030,881 | 12,031 | 220,803 | — | 232,834 | |||||||||||||||
Common stock issued in conversion of convertible notes payable | 172,469,200 | 172,470 | 1,951,645 | — | 2,124,115 | |||||||||||||||
Net loss | — | — | — | (5,763,992 | ) | (5,763,992 | ) | |||||||||||||
Balance – September 30, 2019 | 262,360,042 | $ | 262,361 | $ | 14,971,340 | (20,141,465 | ) | $ | (4,907,764 | ) |
Additional | Total | |||||||||||||||||||
Common Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||
Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
Balance – December 31, 2017 | 41,179,238 | $ | 41,180 | $ | 10,001,323 | $ | (6,744,520 | ) | $ | 3,297,983 | ||||||||||
Common stock issued for cash | 110,000 | 110 | 54,890 | — | 55,000 | |||||||||||||||
Common stock payable for services | — | — | 43,836 | — | 43,836 | |||||||||||||||
Beneficial conversion feature | — | — | 58,401 | — | 58,401 | |||||||||||||||
Net loss | — | — | — | (531,302 | ) | (531,302 | ) | |||||||||||||
Balance – March 31, 2018 | 41,289,238 | $ | 41,290 | $ | 10,158,450 | $ | (7,275,822 | ) | $ | 2,923,918 | ||||||||||
Common stock issued for cash | 120,000 | 120 | 59,880 | — | 60,000 | |||||||||||||||
Common stock issued for services | 2,050,000 | 2,050 | 982,114 | — | 984,164 | |||||||||||||||
Beneficial conversion feature | — | — | 16,686 | — | 16,686 | |||||||||||||||
Net loss | — | — | — | (668,059 | ) | (668,059 | ) | |||||||||||||
Balance – June 30, 2018 | 43,459,238 | $ | 43,460 | $ | 11,217,130 | $ | (7,943,881 | ) | $ | 3,316,709 | ||||||||||
Common stock issued for services | 1,000,000 | 1,000 | 354,000 | — | 355,000 | |||||||||||||||
Net loss | — | — | — | (940,095 | ) | (940,095 | ) | |||||||||||||
Balance – September 30, 2018 | 44,459,238 | $ | 44,460 | $ | 11,571,130 | $ | (8,883,976 | ) | $ | 2,731,614 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
PCT LTD
Notes to the Unaudited
Condensed Consolidated Financial Statements
SEPTEMBERSeptember 30, 20182019
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited interim condensed consolidated financial statements of PCT LTD (“the Company”(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, stockholders’ equity (deficit), 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 consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 20172018 audited financial statements as reported in its Form 10-K, filed on April 17, 2018.15, 2019.
Nature of Operations
PCT LTD (formerly Bingham Canyon Corporation),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,” “PCT Corp,” or PCT Corp., the wholly-owned operating subsidiary”Paradigm”) to affect the acquisition of Paradigm as a wholly-owned subsidiary. Under the terms of the agreement, the CompanyBingham issued 16,790,625 restricted common shares of CompanyBingham stock to all of the shareholders of Paradigm in exchange for all 22,387,500 outstanding common shares of Paradigm common stock. In addition, the CompanyBingham issued options exercisable into 2,040,000 shares of the Company’sBingham’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, PCT Corp,share exchange agreement, Paradigm, the operating company, is considered the accounting acquirer.
PCT Corp.Paradigm is located in Little River, SC and was formed June 6, 2012 under the name of EUR-ECA, Ltd. On September 11, 2015, its Board of Directors authorized EUR-ECA Ltd.Ltd to file with the Nevada Secretary of State to change its namesname to Paradigm Convergence Technologies Corp. PCT Corp.Paradigm is a technology licensing OEM and sales/leasing company specializing in environmentally-responsibleenvironmentally safe solutions for global sustainability. PCT LTD, the publicThe company and “parent” of PCT Corp. holds 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),patent, intellectual property and/or distribution rights to innovative products and technologies. PCT Corp.Paradigm provides innovative products and technologies for eliminating bacterialbiocidal contamination in healthcare facilities, the agricultural marketfrom water supplies, industrial fluids, hard surfaces, food processing equipment, and in the oil & gas industry. PCT Corp.’smedical devices. Paradigm’s overall strategy is to design, assemble, market sell and/or lease equipment, fluids and proprietary “certifications” of itsnew products and technologies. PCT Corp., utilizestechnologies through the use of equipment leasing, program (“System Service Agreements”), joint ventures, licensing, distributor agreements and partnerships.
Effective on March 23,February 29, 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, PCTParadigm Convergence Technologies Corporation (“Paradigm” or “PCT Corp.”).
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Principles of Consolidations
The accompanying consolidated financial statements include the accounts of PCT LTD (“Parent”) and PCT Corp.its wholly owned subsidiary, Paradigm Convergence Technologies Corporation (“Paradigm” or “Subsidiary”). All intercompany accounts have been eliminated upon consolidation.
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 securitysecurities with original maturities of three months or less. There wasThe cash of $8,062$6,669 and $7,838$4,893 as of September 30, 20182019 and December 31, 2017, respectively.2018, respectively, represents cash on deposit in various bank accounts. There were no cash equivalents as of September 30, 20182019 and December 31, 2017. 2018.
Accounts Receivable
Accounts receivable are recorded at the time product is shipped or services are provided, including any shipping and handling fees. The Company provided 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 September 30, 2018 and December 31, 2017.
Inventory
Inventories 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 for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand, future pricing and market conditions. As of September 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 of $0 at September 30, 2018 and December 31, 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 September 30, 2018 and December 31, 2017 were $65,369 and $46,725, respectively.
Fair Value Measurements
The Company follows ASC 820,“Fair “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:
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
Derivative liabilities and preferred series A stock liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
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Our financial assets orand liabilities that are measuredcarried at fair value measured on a recurring basis as of September 30, 2019, consisted of the following:
Total fair value at September 30, 2019 $ | Quoted prices in active markets (Level 1) $ | Significant other observable inputs (Level 2) $ | Significant unobservable inputs (Level 3) $ | |||||||||||||
Description: | ||||||||||||||||
Derivative liability (1) | 5,538,198 | — | — | 5,538,198 | ||||||||||||
Total | 5,538,198 | — | — | 5,538,198 |
Our financial assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2018, consisted of the following:
Total fair value at December 31, 2018 $ | Quoted prices in active markets (Level 1) $ | Significant other observable inputs (Level 2) $ | Significant unobservable inputs (Level 3) $ | |||||||||||||
Description: | ||||||||||||||||
Preferred series A stock liability (1) | 144,352 | — | — | 144,352 | ||||||||||||
Derivative liability (1) | 322,976 | — | — | 322,976 | ||||||||||||
Total | 467,328 | — | — | 467,328 |
(1) The Company has estimated the fair value of these liabilities using the Binomial Model.
Derivative and Preferred Series A Stock Liabilities
The Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” and all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet. The Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above. As of September 30, 2019, and December 31, 2017.2018, the Company had a $5,538,198 and $322,976 derivative liability, respectively and preferred series A stock liabilities of $0 and $144,352, respectively.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. See Note 7 for additional information.
ValuationAccounts Receivable
Trade accounts receivable are recorded at the time product is shipped or services are provided including any shipping and handling fees. The Company provided allowances for uncollectible accounts receivable equal to the estimated collection losses that will be incurred in collection of all receivables. Accounts receivable is periodically evaluated for collectability bases on past credit history with customers and their current financial condition. The 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 Company provided an allowance for doubtful accounts of $0 at September 30, 2019 and December 31, 2018, respectively.
Inventories
Inventories 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 for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand, future pricing and market conditions. As of September 30, 2019 and December 31, 2018, 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 of $0 and $0 as of September 30, 2019 and December 31, 2018, respectively. The Company has determined that some of the supplies inventory is necessary to be placed into service, after assembly into equipment to be used in product manufacturing and classified as Machinery and Equipment. The balance at September 30, 2019 and December 31, 2018 of such supplies and equipment not yet placed in service amounted to $276,428 and $319,735, respectively.
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.
Impairment 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.fair value. Under similar analysis no impairment was recorded as ofduring the nine months ended September 30, 2018 and December 31, 2017. Impairment tests are conducted on an annual basis or when facts or circumstances indicate a carrying value in excess of fair value, additional impairment changes may be required. 2019.
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 their estimated useful lives. The Company currently has the right to a U.S. patent (with internationalseveral 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, which 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 and the carrying amount exceeds the fair value of the intangible assets as determined by the projected discounted net future cash flows. The recorded impairment expense ofwas nil for the periods endingnine months ended September 30, 2018 and December 31, 2017. Accumulated amortization was $612,666 and $380,382 as of September 30, 2018 and December 31, 2017, respectively.2019.
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 thea process is completed and the process has been determined to be commercially viable.
Leases
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) ("ASC 842"), which requires lessees to recognize right-of-use ("ROU") assets and related lease liabilities on the balance sheet for all leases greater than one year in duration. We adopted ASC 842 on January 1, 2019 using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach did not require any transition accounting for leases that expired before the earliest comparative period presented. The adoption of this standard resulted in the recording of ROU assets and lease liabilities for our lease agreements with original terms of greater than one year. Upon implementation, the Company recognized an initial operating lease right-of-use asset of $43,330 and operating lease liability of $43,330. Due to the simplistic nature of the Company's leases, no retained earnings adjustment was required. See Note 5 for further details.
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Revenue Recognition
InOn May 2014, the 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 transfer of promised goods or services to customers in an amount that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services.
The Company has the following three revenue streams:
1)product sales (equipment and/or fluid solutions);
2)licensing (contract-based use of the 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 contracts for the provision of the Company’s equipment and service of such, under contract to customers, with renewable terms).
The Company recognizes revenue from the sale of products when the performance obligation is satisfied by transferring control of the product to a customer.
The Company recognizes revenue from the leasing of equipment as the entity provides the equipment and the customer simultaneously receives and consumes the benefits through the use of the equipment. This revenue generating activity would meet the criteria for a performance obligation satisfied over time. As a result, the Company recognizes revenue over time by using the output method, as the Company can measure progress of the performance obligation using the time elapsed under each obligation.
The Company’s licenses provide a right to use and create performance obligations satisfied at a point in time. The Company recognizes revenue from licenses when the performance obligation is satisfied through the transfer of the license. For licenses that include royalties the Company will recognize royalty revenue as the underlying sales or usages occur, as long as this approach does not result in the acceleration of revenue ahead of the entity’s performance.
Reclassifications
Certain prior period amountsThe Company has disclosed disaggregated revenue via revenue stream on the face of the statement of operations. The Company did not have been reclassified to disaggregate revenue into multiple categories to provide additional information regarding revenue to users.any contract assets or liabilities at September 30, 2019.
Basic and Diluted Loss perPer 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. As of September 30, 20182019, there were outstanding common share equivalents (options, warrants, convertible debt and convertible notes payable)preferred series A stock) which amounted to 3,388,261960,689,801 shares of common stock. These common share equivalents were not included in the computation of diluted loss per share as their effect would have been anti-dilutive.
Recent Accounting Pronouncements
The Company has reviewed all other FASB andissued ASU accounting pronouncements and interpretationinterpretations thereof that have effective dates during the period reported and in future periods. The companyCompany has carefully considered the new pronouncementpronouncements that alter the previous GAAP and doesdo not believe thanthat 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 $8,883,976,$20,141,465 and has negative cash flows from operations. As of September 30, 2018,2019, the Company had a working capital deficit of $373,009.$8,934,741. 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 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.
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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 $18,644$18,947 and $12,390$18,644 for the nine months ended September 30, 2019 and 2018, and 2017, respectively.
Property and Equipmentequipment at September 30, 2019 and December 31, 2018 consisted of the following as of September 30, 2018 and December 31, 2017:following:
September 30, 2018 | December 31, 2017 | September 30, 2019 | December 31, 2018 | |||||||||||||
Machinery and leased equipment | $ | 129,076 | $ | 129,076 | $ | 151,719 | $ | 138,209 | ||||||||
Machinery and equipment not yet in service | 275,664 | 278,079 | 321,565 | 369,754 | ||||||||||||
Office equipment and furniture | 20,064 | 20,064 | 20,064 | 20,064 | ||||||||||||
Website | 2,760 | 2,760 | 2,760 | 2,760 | ||||||||||||
Total, property and equipment | 427,564 | 429,979 | ||||||||||||||
Total property and equipment | $ | 496,108 | $ | 530,787 | ||||||||||||
Less: Accumulated Depreciation | (65,369 | ) | (46,725 | ) | (49,762 | ) | (30,815 | ) | ||||||||
Property and Equipment, Net | $ | 362,195 | $ | 383,254 | ||||||||||||
Property and equipment, net | 446,346 | 499,972 |
On July 30, 2019, the Company transferred $17,790 of equipment not yet in service and offset accounts receivable of $23,209 in exchange for $13,939 and the settlement of accounts payable and accrued liabilities of $43,766. As result the Company recorded a gain on the settlement of debt of $16,706.
NOTE 4. INTANGIBLE ASSETS
Amortization is computed using the straight-line method and is recognized over the estimated useful lives of the intangible assets, which rangesrange from 1 to 15 years. Amortization expense was $232,284$234,621 and $201,616$232,284 for the nine months ended September 30, 2019 and 2018, and 2017, respectively.
The components of intangible Intangible assets at September 30, 20182019 and December 31, 2017 were as follows:2018 consisted of the following:
September 30, 2018 | December 31, 2017 | September 30, 2019 | December 31, 2018 | |||||||||||||
Patents | $ | 4,514,989 | $ | 4,505,489 | $ | 4,505,489 | $ | 4,514,989 | ||||||||
Technology rights | 200,000 | 200,000 | 200,000 | 235,500 | ||||||||||||
Intangibles, at Cost | 4,714,989 | 4,705,489 | ||||||||||||||
Less Accumulated Amortization | (612,666 | ) | (380,382 | ) | ||||||||||||
Intangible, at cost | 4,705,489 | 4,750,489 | ||||||||||||||
Less: Accumulated amortization | (922,837 | ) | (690,714 | ) | ||||||||||||
Net Carrying Amount | $ | 4,102,323 | $ | 4,325,107 | $ | 3,782,652 | $ | 4,059,775 |
Estimated Future Amortization Expense:
$ | ||||
For year ending December 31, 2019 | 76,947 | |||
For year ending December 31, 2020 | 303,613 | |||
For year ending December 31, 2021 | 302,003 | |||
For year ending December 31, 2022 | 302,003 | |||
For year ending December 31, 2023 to December 31, 2034 | 2,798,086 | |||
Total | 3,782,652 |
On May 10, 2019, the Company sold intangible assets with a carrying value of $92,502 for $111,323 of cash and the settlement of $33,677 of liabilities owed to the buyer. The Company recorded a gain on sales of intangible assets of $52,498.
NOTE 5. Debt5 – LEASES
In February 2016, the FASB issued ASU No. 2016-02,Leases, which introduced a lessee model that requires the majority of leases to be recognized on the balance sheet. On January 1, 2019, the Company adopted the ASU using the modified retrospective transition approach and elected the transition option to recognize the adjustment in the period of adoption rather than in the earliest period presented. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of approximately $43,330 and $43,330 respectively, as of January 1, 2019. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
The depreciable lives of operating lease assets and leasehold improvements are limited by the expected lease term. The Company's leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The Company used incremental borrowing rates as of January 1, 2019 for operating leases that commenced prior to that date.
The following table summarizessets forth the ROU assets and liabilities as of September 30, 2019:
September 30, 2019 | ||||
Operating lease right-of-use asset | $ | 7,878 | ||
Operating lease liability: | ||||
Current operating lease liability | $ | 9,125 | ||
Noncurrent operating lease liability | — | |||
Total operating lease liability | $ | 9,125 |
Expense related to leases is recorded on a straight-line basis over the lease term, including rent holidays. During the nine months ended September 30, 2019, the Company recognized operating lease expense of $44,447. Operating lease costs are included within selling, administrative and other expenses on the condensed consolidated statements of income.
Cash paid for amounts included in the measurement of operating lease liabilities were $43,200 for the nine months ended September 30, 2019. During the nine months ended September 30, 2019, the Company reduced its ROU liabilities by $34,205 from cash paid.
Our weighted average discount rate is 41% and the weighted average remaining lease term is 2 months. Lease payments over the next five years and thereafter are as follows:
September 30, 2019 | ||||
2019 - remaining | $ | 9,600 | ||
2020 and thereafter | — | |||
Total lease payments | 9,600 | |||
Less: imputed interest | (475 | ) | ||
Total ROU liabilities | $ | 9,125 |
As previously disclosed in our 2018 Form 10-K under the prior guidance of ASC 840, minimum payments under operating lease agreements as of December 31, 2018 were as follows:
December 31, 2018 | ||||||
2019 | $ | 52,950 | ||||
2020 | — | |||||
Total | $ | 52,950 |
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NOTE 6.Notes Payable
The following tables summarize notes payable as of September 30, 20182019 and December 31, 2017:2018:
Type | Amount | Origination Date | Maturity Date | Annual Interest Rate | Balance at 30-Sep-18 |
Balance at 31-Dec-17 | Amount | Origination Date | Maturity Date | Annual Interest Rate | Balance at September 30, 2019 | Balance at December 31, 2018 | ||||||||||||||||||||||||||||
Note Payable(v) *** | $ | 150,000 | 5/18/2016 | 6/1/2019 | 19.00 | % | $ | 150,000 | $ | 150,000 | ||||||||||||||||||||||||||||||
Note Payable *** | $ | 25,000 | 5/8/2017 | 6/30/2018 | 0.00 | % | $ | 27,500 | $ | 27,500 | ||||||||||||||||||||||||||||||
Note Payable | $ | 130,000 | 6/20/2018 | 1/2/2020 | 8.00 | % | $ | 130,000 | $ | 130,000 | ||||||||||||||||||||||||||||||
Note Payable | $ | 126,964 | 6/20/2018 | 8/31/2018 | 6.00 | % | $ | — | $ | 126,964 | ||||||||||||||||||||||||||||||
Note Payable (b) | $ | 26,500 | 6/26/2018 | 10/1/2019 | 10.00 | % | $ | 10,090 | $ | 26,500 | ||||||||||||||||||||||||||||||
Note Payable | $ | 60,000 | 10/30/2018 | 12/30/2018 | 8.00 | % | $ | — | $ | 60,000 | ||||||||||||||||||||||||||||||
Note Payable *** | $ | 8,700 | 11/15/2018 | 6/30/2019 | 10.00 | % | $ | 8,700 | $ | 8,700 | ||||||||||||||||||||||||||||||
Note Payable (c) | $ | 150,000 | 5/18/2016 | 6/1/2019 | 13.00 | % | $ | 150,000 | $ | 150,000 | $ | 52,063 | 4/8/2020 | 4/8/2020 | 41.38 | % | $ | 42,854 | $ | — | ||||||||||||||||||||
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 | $ | 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 (d) | $ | 40,000 | 6/20/2019 | 12/31/2019 | 8.00 | % | $ | 40,000 | $ | — | ||||||||||||||||||||||||||||||
Note Payable (e) | $ | 50,000 | 9/1/2017 | 12/31/2017 | 8.00 | % | $ | — | $ | 50,000 | $ | 6,741 | 6/21/2019 | 4/8/2020 | 41.38 | % | $ | 6,741 | $ | — | ||||||||||||||||||||
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 | $ | — | $ | 90,596 | 9/15/2019 | 3/16/2020 | 8.00 | % | $ | 90,596 | $ | — | ||||||||||||||||||||
Subtotal | $ | 460,964 | $ | 427,500 | $ | 284,420 | $ | 529,664 | ||||||||||||||||||||||||||||||||
Debt Discount | $ | (8,717 | ) | $ | (6,283 | ) | $ | (6,320 | ) | $ | (3,293 | ) | ||||||||||||||||||||||||||||
Balance, net | $ | 452,247 | $ | 421,217 | $ | 278,100 | $ | 526,371 | ||||||||||||||||||||||||||||||||
Less current portion | $ | (204,000 | ) | $ | (421,217 | ) | $ | (278,100 | ) | $ | (399,664 | ) | ||||||||||||||||||||||||||||
Total long-term | $ | 248,247 | $ | — | $ | — | $ | 126,707 | ||||||||||||||||||||||||||||||||
* Indicates a re-classification from a related party to a non-related party note, as of January 1, 2018 | ||||||||||||||||||||||||||||||||||||||||
** Paid off during the period | ||||||||||||||||||||||||||||||||||||||||
*** Currently in default | *** Currently in default |
On January |
b) | On February 1, 2019, the Company modified note by extending the maturity date to October 1, 2019. Further, the Company and the lender agreed that the customer’s minimum monthly royalty payments of $1,500 would be applied to reduce the principal and interest of the note. Total accounts receivable from the noteholder of $28,090 was applied to the note during the nine months ended September 30, 2019. |
c) | On April 8, 2019, the Company entered into a promissory bank loan with a non-related party for $52,063 of which $9,563 was the loan fee or original issue discount resulting in cash proceeds to the Company of $42,500. The note is due on April 8, 2020 and results in an annual percentage rate of 41.38%. |
d) | On June 20, 2019 the Company entered into a promissory note with |
On June |
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.
At September 30, 2018, the Company has not repaid the $66,964 due on August 31, 2018; hence making $66,964 and $60,000, and interest, due immediately.
The following table summarizes notes payable, related parties as of September 30, 20182019 and December 31, 2017:2018:
Type | Amount | Origination Date | Maturity Date | Annual Interest Rate | Balance at 30-Sep-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 | $ | — | ||||||||||
Note Payable, RP (l) | $ | 5,000 | 7/13/2018 | 6/30/2019 | 3.00 | % | $ | — | $ | — | ||||||||||
Note Payable, RP (m) | $ | 50,000 | 7/27/2018 | 11/30/2018 | 8.00 | % | $ | 50,000 | $ | — | ||||||||||
Subtotal | $ | 827,000 | $ | 713,000 | ||||||||||||||||
Debt Discount | $ | (16,423 | ) | $ | — | |||||||||||||||
Balance, net | $ | 810,577 | $ | 713,000 | ||||||||||||||||
Less current portion | $ | (80,000 | ) | $ | (713,000 | ) | ||||||||||||||
Total long-term | $ | 730,577 | $ | — | ||||||||||||||||
* Indicates a note that is collateralized by a patent (Note 4) | ||||||||||||||||||||
** Paid off during the period |
Type | Amount | Origination Date | Maturity Date | Annual Interest Rate | Balance at September 30, 2019 | Balance at December 31, 2018 | ||||||||||||||
Note Payable, RP *** | $ | 30,000 | 4/10/2018 | 1/15/2019 | 3.00 | % | $ | 30,000 | $ | 30,000 | ||||||||||
Note Payable, RP | $ | 380,000 | 6/20/2018 | 1/2/2020 | 8.00 | % | $ | 380,000 | $ | 380,000 | ||||||||||
Note Payable, RP | $ | 350,000 | 6/20/2018 | 1/2/2020 | 5.00 | % | $ | 339,000 | $ | 350,000 | ||||||||||
Note Payable, RP | $ | 17,000 | 6/20/2018 | 1/2/2020 | 5.00 | % | $ | 17,000 | $ | 17,000 | ||||||||||
Note Payable, RP *** | $ | 50,000 | 7/27/2018 | 11/30/2018 | 8.00 | % | $ | 50,000 | $ | 50,000 | ||||||||||
Note Payable, RP | $ | 5,000 | 10/9/2018 | Demand | 0.00 | % | $ | 5,000 | $ | 5,000 | ||||||||||
Note Payable, RP | $ | 5,000 | 10/19/2018 | Demand | 0.00 | % | $ | 5,000 | $ | 5,000 | ||||||||||
Note Payable, RP ** | $ | 3,000 | 10/24/2018 | Demand | 0.00 | % | $ | — | $ | 3,000 | ||||||||||
Note Payable, RP (f)** | $ | 2,544 | 1/3/2019 | 6/30/2019 | 3.00 | % | $ | — | $ | — | ||||||||||
Note Payable, RP (g) | $ | 15,000 | 8/16/2019 | 2/16/2020 | 8.00 | % | $ | 15,000 | — | |||||||||||
Subtotal | $ | 837,500 | $ | 840,000 | ||||||||||||||||
Debt Discount | $ | (2,614 | ) | $ | (13,174 | ) | ||||||||||||||
Balance, net | $ | 8,34,886 | $ | 826,826 | ||||||||||||||||
Less current portion | $ | (834,886 | ) | $ | (93,000 | ) | ||||||||||||||
Total long-term | $ | — | $ | 733,826 | ||||||||||||||||
** Paid off during the period ***Currently in default |
On |
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.
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 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.
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.
On |
The following table summarizes convertible notes payable as of September 30, 20182019 and December 31, 2017:2018:
Type | Amount | Origination Date | Maturity Date | Annual Interest Rate | Balance at 30-Jun-18 |
Balance at 31-Dec-17 | Amount | Origination Date | Maturity Date | Annual Interest Rate | Balance at September 30, 2019 | Balance at December 31, 2018 | ||||||||||||||||||||||||||||
Convertible Note Payable | $ | 450,000 | 3/28/2018 | 3/31/2021 | 8.00 | % | $ | 450,000 | $ | — | $ | 450,000 | 3/28/2018 | 3/31/2021 | 8.00 | % | $ | — | $ | 450,000 | ||||||||||||||||||||
Convertible Note Payable (o) | $ | 68,000 | 6/5/2018 | 6/5/2019 | 12.00 | % | $ | 68,000 | $ | — | ||||||||||||||||||||||||||||||
Convertible Note Payable (p) | $ | 38,000 | 7/25/2018 | 7/25/2019 | 12.00 | % | $ | 38,000 | $ | — | ||||||||||||||||||||||||||||||
Convertible Note Payable ** | $ | 38,000 | 7/30/2018 | 7/25/2019 | 12.00 | % | $ | — | $ | 38,000 | ||||||||||||||||||||||||||||||
Convertible Note Payable ** | $ | 53,000 | 8/29/2018 | 8/27/2019 | 12.00 | % | $ | — | $ | 53,000 | ||||||||||||||||||||||||||||||
Convertible Note Payable (i) * | $ | 50,000 | 12/6/2018 | 12/6/2019 | 5.00 | % | $ | 36,123 | $ | 50,000 | ||||||||||||||||||||||||||||||
Convertible Note Payable (j) * | $ | 65,000 | 12/6/2018 | 12/6/2019 | 5.00 | % | $ | 43,599 | $ | 65,000 | ||||||||||||||||||||||||||||||
Convertible Note Payable(k) *** | $ | 63,000 | 12/12/2018 | 12/5/2019 | 22.00 | % | $ | 42,800 | $ | 63,000 | ||||||||||||||||||||||||||||||
Convertible Note Payable (h) | $ | 539,936 | 1/15/2019 | 1/15/2020 | 8.00 | % | — | — | ||||||||||||||||||||||||||||||||
Convertible Note Payable (l) *** | $ | 33,000 | 1/16/2019 | 1/15/2020 | 22.00 | % | $ | 49,500 | $ | — | ||||||||||||||||||||||||||||||
Convertible Note Payable (m) *** | $ | 100,000 | 1/18/2019 | 1/16/2020 | 8.00 | % | $ | 100,000 | $ | — | ||||||||||||||||||||||||||||||
Convertible Note Payable (n) * | $ | 60,000 | 1/29/2019 | 1/22/2020 | 8.00 | % | $ | 60,000 | $ | — | ||||||||||||||||||||||||||||||
Convertible Note Payable (o) * | $ | 50,000 | 2/1/2019 | 10/22/2019 | 12.00 | % | $ | 50,000 | $ | — | ||||||||||||||||||||||||||||||
Convertible Note Payable (p) * | $ | 60,000 | 2/21/2019 | 2/14/2022 | 0.00 | % | $ | 60,000 | $ | — | ||||||||||||||||||||||||||||||
Convertible Note Payable (q) | $ | 53,000 | 8/27/2018 | 8/27/2019 | 12.00 | % | $ | 53,000 | $ | — | $ | 55,125 | 2/21/2019 | 2/20/2020 | 8.00 | % | $ | 55,125 | $ | — | ||||||||||||||||||||
Convertible Note Payable (r) *** | $ | 53,000 | 2/26/2019 | 2/20/2020 | 22.00 | % | $ | 79,500 | $ | — | ||||||||||||||||||||||||||||||
Convertible Note Payable (s)*** | $ | 75,000 | 3/18/2019 | 12/13/2019 | 12.00 | % | $ | 75,000 | $ | — | ||||||||||||||||||||||||||||||
Convertible Note Payable (t) *** | $ | 38,000 | 5/2/2019 | 4/29/2020 | 22.00 | % | $ | 57,000 | $ | — | ||||||||||||||||||||||||||||||
Convertible Note Payable (u) *** | $ | 26,000 | 9/16/2019 | 9/11/2022 | 0.00 | % | $ | 26,000 | $ | — | ||||||||||||||||||||||||||||||
Convertible Note Payable (v) | $ | 175,814 | 9/27/2019 | 9/25/2020 | 8.00 | % | $ | 175,814 | $ | — | ||||||||||||||||||||||||||||||
Subtotal | $ | 609,000 | $ | — | $ | 1,334,040 | $ | 719,000 | ||||||||||||||||||||||||||||||||
Debt Discount | $ | (70,676 | ) | $ | — | $ | — | $ | (165,186 | ) | ||||||||||||||||||||||||||||||
Balance, net | $ | 538,324 | $ | — | $ | 1,334,040 | $ | 553,814 | ||||||||||||||||||||||||||||||||
Less current portion | $ | (151,754 | ) | $ | — | $ | (1,334,040 | ) | $ | (161,280 | ) | |||||||||||||||||||||||||||||
Total long-term | $ | 386,570 | $ | — | $ | — | $ | 392,534 | ||||||||||||||||||||||||||||||||
* Embedded conversion feature accounted for as a derivative liability ** Paid off during the period | * Embedded conversion feature accounted for as a derivative liability ** Paid off during the period |
On January 15, 2019, the Company executed a new, consolidated convertible note with a non-related party by extinguishing the March 28, 2018 On March 27, 2019, the Company agreed to convert $548,686 of principal ($539,936) and interest ($8,750) of its convertible note payable into 3,597,989 shares of the Company’s common stock. The company recorded a |
17 |
i) | During the |
k) | In the prior year, on December 12, 2018, the Company entered into a convertible promissory with One June 10, 2019, the embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature was $142,265 and resulted in a discount to the note payable of $60,000 and an initial derivative expense of $82,265. On June 19, 2019, the Company defaulted on the note, resulting in a default penalty of $32,650 added to the principal of the note and the remaining discount was accelerated and recognized to interest expense. During the nine months ended September 30, 2019, $74,200 of the convertible note payable was converted into 18,559,816 shares of the Company’s common stock. |
l) | On January 16, 2019, the Company entered into a convertible promissory with a non-related party for $33,000 of which $3,000 was an original issue discount resulting in cash proceeds to the Company of $30,000. The note is due on January 15, 2020 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 12% to On June 19, 2019, the embedded conversion option |
m) | On January 18, 2019, the Company entered into a convertible promissory note with a non-related party for $100,000 of which $5,000 was an original issue discount and $5,000 was paid directly to third parties resulting in cash proceeds to the Company of $90,000. The note is due on January 16, 2020 and bears interest on the unpaid principal balance at a rate of 8% per annum. Stringent pre-payment terms apply (from 10% to 30%, dependent upon the timeframe of repayment during the note’s term) and any part of the note which is not paid when due shall bear interest at the rate of 24% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days On July 17, 2019, the embedded conversion option qualified for derivative |
18 |
On January 29, 2019, the Company entered into a convertible promissory note with a non-related party for $60,000 of which $3,000 was an original issue discount and $8,000 was paid directly to third parties resulting in cash proceeds to the Company of $49,000. The note is due on January 22, 2020 and bears interest on the unpaid principal balance at a rate of 8% per annum. Stringent pre-payment terms apply (from 10% to 30%, dependent upon the timeframe of repayment during the note’s term) and any part of the note which is not paid when due shall bear interest at the rate of 18% per annum from the due date until paid. 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 the lower of 64% of the average 2 lowest trading prices during the 10-trading day period prior to the conversion date or $0.12. On July 28, 2019, the embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature was $640,053 and resulted in a discount to the note payable of $49,000 and an initial derivative expense of $591,053. During the nine months ended September 30, 2019, the Company defaulted on the note, resulting in a default penalty of $214,690 added to the principal of the note. Due to the note being in default, the remaining discount was accelerated and recognized to interest expense. During the nine months ended September 30, 2019, $8,640 of the convertible note payable was converted into 7,500,000 shares of the Company’s common stock. |
o) | On February 1, 2019, the Company entered into a convertible promissory note with a non-related party for $50,000 of which $5,000 was an original issue discount resulting in cash proceeds to the Company of $45,000. The note is due on October 22, 2019 and bears interest on the unpaid principal balance at a rate of 12% per annum and a default interest rate of 24% per annum. The Note may be converted by the Lender at any time after the date of issuance into shares of Company’s common stock at a conversion price equal 50% of the lowest trading price during the 20-trading day period prior to the conversion date. As the closing sales price fell below $0.03, an additional 15% discount was attributed to the conversion price. During the nine months ended September 30, 2019, the Company defaulted on the note, resulting in a default penalty of $104,382 added to the principal of the note. The embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature was $158,142 and resulted in a discount to the note payable of $50,000 and an initial derivative expense of $113,142. Due to the note being in default, the remaining discount was accelerated and recognized to interest expense. During the nine months ended September 30, 2019, $2,196 of the convertible note payable and $953 of accrued interest was converted into 4,999,000 shares of the Company’s common stock. |
p) | On February 21, 2019, the Company entered into a convertible promissory note with a non-related party for $60,000 of which $5,000 was an original issue discount and $8,000 was paid directly to third parties resulting in cash proceeds to the Company of $47,000. The Company also issued a warrant with a term of five years to purchase up to 300,000 shares of common stock of the Company at an exercise price of $0.20 per share and subject to adjustment for dilutive issuances and cashless exercise. The note is due on February 14, 2022 and bears interest on the unpaid principal balance at a rate of 0% per annum. Stringent pre-payment terms apply (from 10% to 40%, dependent upon the timeframe of repayment during the note’s term) and in the event of default an additional 40% of the principal and interest balance shall be owed. The Note may be converted by the Lender at any time after the date of issuance into shares of Company’s common stock at a conversion price equal to the lower of 60% of the lowest trading price during the 20-trading day period prior to the conversion date or $0.12. If at any time the closing sales price falls below $0.01, then an additional 10% discount will be attributed to the conversion price. During the nine months ended September 30, 2019, the Company defaulted on the note, resulting in a default penalty of $40,000 added to the principal of the note. The embedded conversion option and warrant qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $124,796 and the warrant of $51,856 resulted in a discount to the note payable of $60,000 and an initial derivative expense of $129,652. Due to the note being in default, the remaining discount was accelerated and recognized to interest expense. During the nine months ended September 30, 2019, $5,000 of the convertible note payable was converted into 5,555,555 shares of the Company’s common stock. |
q) | On February 21, 2019, the Company entered into a convertible promissory note with a non-related party for $55,125 of which $2,500 was an original issue discount and $2,625 was paid directly to third parties resulting in cash proceeds to the Company of $50,000. The note is due on February 20, 2020 and bears interest on the unpaid principal balance at a rate of 8% per annum. Stringent pre-payment terms apply (from 10% to 30%, dependent upon the timeframe of repayment during the note’s term) and any part of the note which is not paid when due shall bear interest at the rate of 24% per annum from the due date until paid. 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 64% of the average 2 lowest trading prices during the 10-trading day period prior to the conversion date. On August 20, 2019, the embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature was $172,120 and resulted in a discount to the note payable of $50,000 and an initial derivative expense of $122,120. Due to the note being in default, the remaining discount was accelerated and recognized to interest expense. During the nine months ended September 30, 2019, $13,000 of the convertible note payable was converted into 3,054,511 shares of the Company’s common stock. |
19 |
r) | On |
On June 19, 2019, the embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature was $187,924 and resulted in a discount to the note payable of $50,000 and an initial derivative expense of $137,924. Due to the note being in default, the remaining discount was accelerated and recognized to interest expense.
On |
The embedded conversion option and warrant qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $139,196 and the warrant of $25,401 resulted in a discount to the note payable of $75,000 and an initial derivative expense of $99,847. Due to the note being in default, the remaining discount was accelerated and recognized to interest expense. During the nine months ended September 30, 2019, $27,804 of the convertible note payable and $5,287 of accrued interest was converted into 11,490,000 shares of the Company’s common stock
t) | On May 2, 2019, the Company entered into a convertible promissory with |
On June 19, 2019, the embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature was $135,455 and resulted in a discount to the note payable of $35,000 and an initial derivative expense of $100,455. Due to the note being in default, the remaining discount was accelerated and recognized to interest expense.
u) | On September 16, 2019, the Company entered into a convertible promissory note with a non-related party for $26,000 of which $6,000 was an original issue discount resulting in cash proceeds to the Company of $20,000. The note is due on September 11, 2022 and bears interest on the unpaid principal balance at a rate of 0% per annum and a default interest rate of 0% per annum. The Company also issued a warrant with a term of five years to purchase up to 300,000 shares of common stock of the Company at an exercise price of $0.10 per share and subject to adjustment for dilutive issuances and cashless exercise. The Note may be converted by the Lender at any time after the date of issuance into shares of Company’s common stock at a conversion price equal 60% of the lowest trading price during the 20-trading day period prior to the conversion date. As the closing sales price fell below $0.01, an additional 10% discount was attributed to the conversion price. |
The embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature was $58,453 and warrants $2,768 resulted in a discount to the note payable of $20,000 and an initial derivative expense of $41,221. Due to the note being in default, the remaining discount was accelerated and recognized to interest expense.
v) | During the nine months ended September 30, 2019, the $150,000 note and $25,814 of accrued interest was repaid by a cosigner to the loan. On September 25, 2019, the Company entered into a convertible promissory note with the non-related party for $175,814 in consideration for repaying the note. The note is due on September 25, 2020 and bears interest on the unpaid principal balance at a rate of 8% per annum and a default interest rate of 8% per annum. The Note will be repaid in cash or by conversion to common shares at a mutually acceptable rate not less than the market price of the Company’s common stock. |
NOTE 6. RELATED PARTY TRANSACTIONS7 – DERIVATIVE AND PREFERRED SERIES A STOCK LIABILITIES
The embedded conversion option of (1) the convertible debentures described in Note 6; (2) preferred series A stock liability; (3) warrants; contain conversion features that qualify for embedded derivative classification. The fair value of the liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments.
Upon the issuance of the convertible notes payable described in Note 6, the Company concluded that it only has sufficient shares to satisfy the conversion of some but not all of the outstanding convertible notes, warrants and options. The Company elected to reclassify contracts from equity with the earliest inception date first. As a result, none of the Company’s previously outstanding convertible instruments qualified for derivative reclassification, however, any convertible securities issued after the election, including the warrants described in Note 10, qualified for derivative classification. The Company reassesses the classification of the instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities.
September 30, 2019 | December 31, 2018 | |||||||
Balance at the beginning of period | $ | 322,976 | $ | — | ||||
Original discount limited to proceeds of notes | 540,750 | 100,000 | ||||||
Fair value of derivative liabilities in excess of notes proceeds received | 1,653,887 | 247,033 | ||||||
Settlement of derivative instruments | (2,447,147 | ) | — | |||||
Change in fair value of embedded conversion option | 5,467,732 | (24,057 | ) | |||||
Balance at the end of the period | $ | 5,538,198 | $ | 322,976 |
The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option and warrant liabilities as their fair values were determined by using the Binomial Model based on various assumptions.
Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:
Expected Volatility | Risk-free Interest Rate | Expected Dividend Yield | Expected Life (in years) | |||||||
At issuance | 128-394% | 1.60-2.51% | 0 | % | 0.49-5.00 | |||||
At September 30, 2019 | 225-480% | 1.55-1.91% | 0 | % | 0.06-4.95 |
On December 1, 2018, the Company’s Board of Director authorized an offering for 1,000,000 Preferred Series “A” stock at $0.10 per share and with 100%, regular or cashless exercise at $0.10 per share of common stock warrant coverage. At December 31, 2018, the Company received $60,000 of subscriptions for the issuance of 600,000 shares of Preferred Series “A” stock to three accredited investors who are related parties. On December 1, 2018, the Company issued 600,000 warrants subject to cashless exercise at $0.10 per share for 5 years.
The Company has agreementswas unable to issue the subscriber the preferred shares until the Company filed a Certificate of Designation and the Preferred Series “A” stock had been duly validly authorized. As the Company had not filed the Certificate of Designation, and as the Company could not issue the preferred shares to settle the proceeds received, it was determined the subscriptions were settleable in cash. As a result, the Company classified the subscriptions received as a liability in accordance with related partiesASC 480 Distinguishing Liabilities from Equity. The fair value of the liability of the preferred series A stock at December 31, 2018 was $144,352.
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On March 29, 2019, the Company executed a settlement agreement that included the settlement of 100,000 of the Series A Preferred Shares and 100,000 of the warrants subscribed for consultingas part of the December 1, 2018 offering. The Company agreed to issue 164,000 shares of its common stock as payment in full $25,000 owed to the subscriber for services notesrendered; the Company agreed to accept conversion and exercise of the purchased 100,000 Preferred Series A shares into 100,000 shares of the Company’s common stock and the Company shall accept the cashless conversion of 100,000 warrant into 34,400 shares of the Company’s restricted common stock; and, as inducement for and consideration for the settlement of the Company’s debt, the Company agrees to grant 500,000 additional shares of the Company’s restricted stock. The Company recorded the fair value of the shares issued of $103,792 and recorded a loss on the settlement of the subscriptions and the amounts payable of $55,830.
On April 12, 2019, the Company filed the Certificate of Designation for the Series A Convertible Preferred Stock. The fair value of the liability of the preferred series A stock on April 12, 2019 was $60,398. On April 12, 2019, the Company adjusted the fair value of the preferred series A stock to $60,398 and reclassified the fair value of the preferred series A stock options. See Notes to Financial Statements numbers 5 and 7.mezzanine equity.
The Company uses Level 3 inputs for its valuation methodology for the preferred series A stock liability as their fair values were determined by using the Binomial Model based on various assumptions.
Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:
Expected Volatility | Risk-free Interest Rate | Expected Dividend Yield | Expected Life (in years) | |||||||
At April 12, 2019 | 170% | 2.36% | 0 | % | 3.00 |
NOTE 7.8 - STOCKHOLDERS’ DEFICIT
Preferred Stock
Series A Preferred Shares
Effective March 23, 2018, the Company amended the articles of incorporation and authorized 10,000,000 shares of preferred stock with a par value of $0.001 per share; of which 1,000,000 shares were designated as Series A Convertible Preferred Stock as of September 30, 2019. The preferred stock may be issued from time to time by the board of directors as shares of one or more classes or series.
On December 1, 2018, the Company’s Board of Director authorized an offering for 1,000,000 Preferred Series “A” stock at $0.10 per share and with 100%, regular or cashless exercise at $0.10 per share of common stock warrant coverage. At December 31, 2018, the Company received $60,000 of subscriptions for the issuance of 600,000 shares of Preferred Series “A” stock to three accredited investors who are related parties. The Company was unable to issue the subscriber the preferred shares until the Company filed a Certificate of Designation and the Preferred Series “A” stock has been duly validly authorized. See Note 7 for liabilities related to the Company’s commitment to issue shares of Series A stock upon the designation.
On April 12, 2019, the Company filed a Certificate of Designation with the Nevada Secretary of State designating 1,000,000 shares of its authorized preferred stock as Series A Convertible Preferred Stock. The principal terms of the Series A Preferred Shares are as follows:
Issue Price
The stated price for the Series A Preferred shall be $0.10 per share.
Redemption
This Company may at any time following the first anniversary date of issuance (the “Redemption Date”), at the option of the Board of Directors, redeem in whole or in part the Shares by paying in cash in exchange for the Shares to be redeemed a price equal to the Original Series A Issue Price ($0.10) (the “Redemption Price”). Any redemption affected pursuant to this provision shall be made on a pro rata basis among the holders of the Shares in proportion to the number of Shares then held by them.
Dividends
None.
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Preference of Liquidation
In the event of any liquidation, dissolution or winding up of the Company, the holders of Shares shall be entitled to receive, prior and in preference to any distribution of any of the assets of this Company to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the sum of (i) $0.10 for each outstanding Share (the “Original Series A Issue Price”) and (ii) an amount equal to 6% of the Original Series A Issue Price for each 12 months that has passed since the date of issuance of any Shares (such amount being referred to herein as the “Premium”).
For purposes of this provision, a liquidation, dissolution or winding up of this Company shall be deemed to be occasioned by, or to include, (A) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation but, excluding any merger effected exclusively for the purpose of changing the domicile of the Company); or (B) a sale of all or substantially all of the assets of the Company; unless the Company’s stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Company’s acquisition or sale or otherwise) hold at least 50% of the voting power of the surviving or acquiring entity.
If upon the occurrence of such liquidation, dissolution or winding up event, the assets and funds thus distributed among the holders of the Shares shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of series of preferred stock that may from time to time come into existence, the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Shares in proportion to the preferential amount each such holder is otherwise entitled to receive.
In any of such liquidation, dissolution or winding up event, if the consideration received by the Company is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows:
A. | Securities not subject to investment letter or other similar restrictions on free marketability (covered by (B) below): |
1) | If traded on a securities exchange (NASDAQ, AMEX, NYSE, etc.), the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty day period ending three (3) days prior to the closing; |
2) | If traded on a quotation system, such as the OTC:QX, OTC:QB or OTC Pink Sheets, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty day period ending three (3) days prior to the closing; and |
3) | If there is no active public market, the value shall be the fair market value thereof, as mutually determined by the Company and the holders of at least a majority of the voting power of all then outstanding shares of Preferred Stock. |
B. | The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder’s status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as mutually determined by the Company and the holders of at least a majority of the voting power of all then outstanding shares of such Preferred Stock. |
Voting
The holder of each Share shall not have any voting rights, except in the case of voting on a change in the preferences of Shares.
Conversion
Each Share shall be convertible into shares of the Company’s Common Stock at a price per share of $0.10 (1 Share converts into 1 share of Common Stock), at the option of the holder thereof, at any time following the date of issuance of such Share and on or prior to the fifth day prior to the Redemption Date, if any, as may have been fixed in any Redemption Notice with respect to the Shares, at the office of this Company or any transfer agent for such stock. Each Share shall automatically be converted into shares of Common Stock on the first day of the thirty-sixth (36th) month following the original issue date of the Shares, at the Conversion Price per share.
The Company was unable to issue the subscribers the preferred shares until the Company filed a Certificate of Designation and the Preferred Series “A” stock had been duly validly authorized. As the Company had not filed the Certificate of Designation, and as the Company could not issue the preferred shares to settle the proceeds received, it was determined the subscriptions were settleable in cash. As a result, the Company classified the subscriptions received as a liability in accordance with ASC 480 Distinguishing Liabilities from Equity. The filing of the Certificate of Designation and issuance of the preferred shares resulted in the reclassification of the Series A Preferred Shares from a liability to temporary equity or “mezzanine” because the preferred shares include the liquidation preferences described above. The fair value of the preferred series A stock on April 12, 2019 was $60,398 and was valued by using the Binomial Model based on various assumptions.
As of September 30, 20182019, there were -0-500,000 shares of Series A Convertible Preferred Stock issued or outstanding.
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Series B Preferred Shares
Effective August 13, 2019, the Company filed a Certificate of Designation with the Nevada Secretary of State thereby designating 1,000,000 shares of its authorized preferred stock as Series B –Preferred Stock. The principal terms of the Series B Preferred Shares are as follows:
Voting Rights
Holders of the Series B Preferred Stock shall be entitled to cast five hundred (500) votes for each share held of the Series B Preferred Stock on all matters presented to the stockholders of the Corporation for stockholder vote which shall vote along with holders of the Corporation’s Common Stock on such matters.
Redemption Rights
The Series B Preferred Stock shall be redeemed by the Corporation upon the successful receipt by the Corporation of at least $1,000,000 in equity capital following the issuance of the Series B Preferred Stock.
Conversion Rights
The Series B Preferred Stock is not convertible into shares of Common Stock of the Corporation.
Protective Provisions
So long as any shares of Series B Preferred Stock are outstanding, this Corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the Holders of the Series B Preferred Stock which is entitled, other than solely by law, to vote with respect to the matter, and which Preferred Stock represents at least a majority of the voting power of the then outstanding shares of such Series B Preferred Stock:
a)sell, convey, or otherwise dispose of or encumber all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly-owned subsidiary corporation) or effect any transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Corporation is disposed of;
b)alter or change the rights, preferences or privileges of the shares of Series B Preferred Stock so as to affect adversely the shares;
c)increase or decrease (other than by redemption or conversion) the total number of authorized shares of preferred stock;
d)authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security (i) having a preference over, or being on a parity with, the Series B Preferred Stock with respect to dividends or upon liquidation, or (ii) having rights similar to any of the rights of the Series B Preferred Stock; or
e)amend the Corporation’s Articles of Incorporation or bylaws
Dividends
None.
Preference of Liquidation
None.
Upon designation, the Company issued 500,000 shares of the Series B preferred stock issued.to each of its CEO and President (1,000,000 shares in total) pursuant to their employment agreements. As the Series B Preferred Shares represent share-based payments that are not classified as liabilities but that could require the employer to redeem the equity instruments for cash or other assets the Company classified the initial redemption amount of the shares of $155,000 as temporary equity or “mezzanine”.
As of September 30, 2019, there were 1,000,000 shares of Series B Preferred Stock issued or outstanding.
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Series C Preferred Shares
Pursuant to the September 18, 2019 majority consent of stockholders in lieu of an annual meeting (including the consent of the Series A Convertible Preferred Stockholders), the Registrant filed a Certificate of Designation with the Nevada Secretary of State designating 5,500,000 shares of its authorized preferred stock as Series C Convertible Preferred Stock. The Registrant is awaiting the file stamped Certificate of Designation from the Nevada Secretary of State. The rights and preferences of such preferred stock are as follows:
The number of shares constituting the Series C Convertible Preferred Stock shall be 5,500,000. Such number of shares may be increased or decreased by resolution of the Board; provided, that no decrease shall reduce the number of shares of Series C Convertible Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Series C Convertible Preferred Stock.
Conversion Rights
Each Share shall be convertible into shares of the Company’s Common Stock at a price per share of $0.01 (1 Share converts into 100 shares of Common Stock) (the “Conversion Price”), at the option of the holder thereof, at any time following the date of issuance of such Share and on or prior to the fifth (5th) day prior to a redemption Date, if any, as may have been fixed in any redemption notice with respect to the Shares, at the office of this Company or any transfer agent for such stock.
Voting Rights
The holder of each Share shall not have any voting rights, except in the case of voting on a change in the preferences of Shares.
Protective Provisions
So long as any Shares are outstanding, this Company shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of Shares which is entitled, other than solely by law, to vote with respect to the matter, and which Shares represents at least a majority of the voting power of the then outstanding Shares:
a) | sell, convey, or otherwise dispose of or encumber all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly-owned subsidiary corporation) or effect any transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of; |
b) | alter or change the rights, preferences or privileges of the Shares so as to affect adversely the Shares; |
c) | increase or decrease (other than by redemption or conversion) the total number of authorized shares of preferred stock; |
d) | authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security (i) having a preference over, or being on a parity with, the Shares with respect to upon liquidation, or (ii) having rights similar to any of the rights of the Preferred Stock; or |
e) | amend the Company’s Articles of Incorporation or bylaws. |
Other Rights
There are no other rights, privileges, or preferences attendant or relating to in any way the Shares, including by way of illustration but not limitation, those concerning dividend, ranking, other conversion, other redemption, participation, or anti-dilution rights or preferences.
At September 30, 2019, there were no Series C Preferred Shares outstanding.
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 300,000,000.300,000,000 shares. Effective October 4, 2019, 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 300,000,000 to 1,000,000,000 shares. The number of shares outstanding of the registrant’s common stock as of September 30, 2019 was 262,360,042.
On January 1, 2019, the Company entered into a four-year employment agreement with F. Jody Read in his role as Chief Executive Officer. The terms of the contract call for an annual salary of $90,000 for the first year, effective March 1, 2019 and increasing to $120,000 once the Company’s revenue exceeds monthly expenses, then incrementally over time and with certain operational results, up to $200,000/year. The salary may be paid, at the employee’s discretion, either in cash or in common stock. A $1,000 per month allowance will be granted to the executive for housing near the Company’s South Carolina facility. The employment agreement awards the CEO 1,500,000 restricted shares of the Company’s restricted stock, which shall vest in the following manner: 375,000 shares on March 1, 2019, 375,000 shares on March 1, 2020; 375,000 shares on March 1, 2021 and the final 375,000 shares on March 1, 2022. On January 1, 2019 the fair value of the restricted stock award totaled $240,000 which will be expensed over vesting period. As of September 30, 20182019, 375,000 shares were issued and December 31, 2017 there were 44,459,238the Company had recognized $102,391 of expense.
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On January 28, 2019, the Company agreed to convert $131,327 of principal and 41,179,238interest of the notes payable described in Note 6(a) into 987,421 shares of the Company’s common stock.
On March 25, 2019, the Company issued 200,000 shares of common stock to two employees of the Company as compensation in lieu of commission on sales of the Company’s products. The Company recorded the fair value of the common shares of $34,000 in consulting expense.
On March 29, 2019, the Company executed a settlement agreement with a contractual consultant, UCAP Partners, LLC for the settlement of $25,000 owed to the contractor for the provision of services as related to the March 15, 2018 agreement between UCAP and us. The settlement terms include acknowledgement that the Company owes UCAP $25,000 as payment for said services; that UCAP purchased and fully paid for Series A Preferred Stock and Warrants from the Company on December 3, 2018 (100,000 Preferred Series A Shares and 100,000 warrants to purchase common shares at $0.10/share); the settlement is outlined as follows: the Company shall issue 164,000 shares of its common stock as payment in full for the services rendered on the consulting contract; the Company shall accept UCAP’s conversion and exercise of the purchased 100,000 Preferred Series A shares into 100,000 shares of the Company’s common stock and the Company shall accept the cashless conversion of UCAP’s 100,000 warrant into 34,400 shares of the Company’s restricted common stock; and, as inducement for and consideration for the settlement of the Company’s debt to UCAP, the Company agrees to grant 500,000 additional shares of the Company’s restricted stock. As a result of this transaction, 3,597,989 shares of Company’s common stock were issued respectively.and a $55,830 loss on settlement of debt was recognized.
During the nine months ended September 30, 2019, the Company issued a total of 76,154,631 shares of the Company’s common stock upon the conversion of $44,723 of principal ($42,223) and interest ($2,500) pursuant to the convertible note payable described in Note 6(i).
During the nine months ended September 30, 2019, the Company issued a total of 66,290,000 shares of the Company’s common stock upon the conversion of $64,558 of principal ($58,058) and interest ($6,500) pursuant to the convertible note payable described in Note 6(j).
During the nine months ended September 30, 2019, the Company issued a total of 18,559,816 shares of the Company’s common stock upon the conversion of $74,200 of the convertible note payable pursuant to the convertible note payable described in Note 6(k).
During the nine months ended September 30, 2019, the Company issued a total of 5,207,600 shares of the Company’s common stock upon the conversion of $4,508 of the convertible note payable and $179 of accrued interest pursuant to the convertible note payable described in Note 6(m).
During the nine months ended September 30, 2019, the Company issued a total of 7,500,000 shares of the Company’s common stock upon the conversion of $8,640 of principal pursuant to the convertible note payable described in Note 6(n).
During the nine months ended September 30, 2019, the Company issued a total of 4,999,000 shares of the Company’s common stock upon the conversion of $2,196 of principal and $953 of interest pursuant to the convertible note payable described in Note 6(o).
During the nine months ended September 30, 2019, the Company issued a total of 5,555,555 shares of the Company’s common stock upon the conversion of $5,000 of principal pursuant to the convertible note payable described in Note 6(p).
During the nine months ended September 30, 2019, the Company issued a total of 3,054,511 shares of the Company’s common stock upon the conversion of $13,000 of principal pursuant to the convertible note payable described in Note 6(q).
During the nine months ended September 30, 2019, the Company issued a total of 11,490,000 shares of the Company’s common stock upon the conversion of $27,804 of the convertible note payable and $5,287 of accrued interest pursuant to the convertible note payable described in Note 6(s).
On January 2, 2018,August 16, 2019, the Company sold 110,000issued 5,989,500 shares of common stock upon the cashless exercise of 6,000,000 warrants.
On September 24, 2019, the Company issued 6,041,381 shares of common stock upon the cashless exercise of 6,057,143 warrants.
On August 1, 2019, the Company entered into a consulting agreement for $55,000.investor relations services through September 30, 2019. The agreement called for 1,000,000 restricted shares of common stock to be issued to the consultant. As of September 30, 2019, the Company recorded $15,000 in additional paid-in capital for the consulting expense related to the consulting services provided, due to the fact that the 1,000,000 common shares were issued subsequently on March 11, 2020.
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NOTE 9 – STOCK OPTIONS
The Company did not grant any stock options during the year ended December 31, 2018 or the nine months ended September 30, 2019.
Below is a table summarizing the options issued and outstanding as of September 30, 2019:
Number of warrants | Weighted average exercise price $ | |||||||||
Balance, December 31, 2018 | 2,287,500 | 0.34 | ||||||||
Granted | — | — | ||||||||
Expired | (1,905,000 | ) | 0.16 | |||||||
Settled | — | — | ||||||||
Balance, September 30, 2019 | 382,500 | 1.24 |
As at September 30, 2019, the following share stock options were outstanding:
Date | Number | Number | Exercise | Weighted Average Remaining Contractual | Expiration | Proceeds to Company if | ||||||||||||||||||||
Issued | Outstanding | Exercisable | Price $ | Life (Years) | Date | Exercised | ||||||||||||||||||||
01/01/2016 | 75,000 | 75,000 | 0.33 | 0.25 | 12/31/2019 | 25,000 | ||||||||||||||||||||
01/01/2016 | 90,000 | 90,000 | 0.33 | 0.25 | 12/31/2019 | 30,000 | ||||||||||||||||||||
09/15/2016 | 10,000 | 10,000 | 1.00 | 0.25 | 12/31/2019 | 10,000 | ||||||||||||||||||||
10/01/2016 | 7,500 | 7,500 | 1.00 | 0.25 | 12/31/2019 | 7,500 | ||||||||||||||||||||
01/26/2017 | 200,000 | 200,000 | 2.00 | 2.33 | 01/26/2022 | 400,000 | ||||||||||||||||||||
382,500 | 382,500 | $ | 472,500 |
The weighted average exercise prices are $1.24 for the options outstanding and exercisable, respectively. The intrinsic value of stock options outstanding at September 30, 2019 was $Nil.
NOTE 10 – WARRANTS
As described in Note 6, from February 14 through September 11, 2019, the Company issued 487,500 warrants subject to an exercise price of $0.20 per share for 5 years and 300,000 warrants subject to an exercise price of $0.10 per share for 5 years. If the Company issues any common stock or common stock equivalents at an effective price per share less than the warrant’s exercise price the exercise price of the warrants will be reduced to the lower price. In addition, the number of common shares issuable upon conversion of the warrants is increased so that the number of shares issuable multiplied by the exercise price equals the aggregate exercise price of the warrants immediately prior to the exercise reduction. During period, convertible notes were exercised at a price less than the original exercise price of these warrants, resulting in an adjustment to the number of warrants and exercise price.
The Company concluded that it only has sufficient shares to satisfy the conversion of some but not all of the outstanding convertible instruments. The initial fair value of the warrants issued during the period was calculated using the Binomial Model as described in Note 7.
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The following table summarizes the continuity of share purchase warrants:
Number of warrants | Weighted average exercise price $ | |||||||
Balance, December 31, 2018 | 650,000 | 0.09233 | ||||||
Adjustment to warrants outstanding | 431,007,738 | 0.00041 | ||||||
Granted | 787,500 | 0.00131 | ||||||
Settled | (12,130,881 | ) | 0.00117 | |||||
Balance, September 30, 2019 | 420,314,357 | 0.00053 |
As at September 30, 2019, the following share purchase warrants were outstanding:
Date | Number | Number | Exercise | Weighted Average Remaining Contractual | Expiration | Proceeds to Company if | ||||||||||||||||||||
Issued | Outstanding | Exercisable | Price $ | Life (Years) | Date | Exercised | ||||||||||||||||||||
11/28/2018 | 142,857,143 | * | 142,857,143 | * | 0.00035 | * | 2.16 | 11/28/2021 | $ | 50,000 | ||||||||||||||||
12/3/2018 | 500,000 | 500,000 | 0.10 | 4.18 | 12/3/2023 | 50,000 | ||||||||||||||||||||
2/14/2019 | 159,397,690 | * | 159,397,690 | * | 0.00035 | * | 4.38 | 2/14/2024 | 55,789 | |||||||||||||||||
3/13/2019 | 107,142,857 | * | 107,142,857 | * | 0.00035 | * | 4.45 | 3/13/2024 | 37,500 | |||||||||||||||||
9/11/2019 | 10,416,667 | * | 10,416,667 | * | 0.00288 | * | 4.95 | 9/11/2024 | 30,000 | |||||||||||||||||
420,314,357 | 420,314,357 | $ | 223,289 |
*The number of warrants outstanding and exercisable is variable based on adjustments to the exercise price of the warrant due to dilutive issuances.
The intrinsic value of warrants outstanding at September 30, 2019 was $2,513,523.
NOTE 11 – RELATED PARTY TRANSACTIONS
The Company has agreements with related parties for consulting services, accrued rent, accrued interest, notes payable and stock options. See Notes to Financial Statements numbers 6, 9, 8 and 12 for more details.
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NOTE 12 – COMMITMENTS AND CONTINGENCIES
Consulting Agreements –
On January 1, 2018, the Company entered into a contract for consulting services with a Florida-based agricultural advocacy group. The agreement included a $5,000 initial engagement fee and $1,250 per month through January 1, 2019.
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-listingup listing and expansion of the Company’s shareholder base. Per the terms of the agreement, theThe consulting company received a $5,000 non-refundable $5,000 initial fee will receiveand the agreement included $2,500 per month beginning in April 2018,through March 14, 2019 and was issuedreceived 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 September 30, 2018 the Company recorded the fair value of therestricted common shares of $1,000,000 in common stock and additional paid in capital and has recorded $545,205 for the consulting expense related to the portion of the 12-month service agreement that has been completed.stock.
On April 10, 2018 the Company issued 120,000 shares of common stock at $0.50 per share to an employee and Director of the Company for cash proceeds of $60,000.
On June 12,July 2, 2018, the Company entered into a 6-month service contract for investor relations services through January 2, 2019. The agreement expiring on December 12, 2018,called 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. As of September 30, 2018 the Company recorded the fair value of the common shares of $28,000 in common stock and additional paid in capital and has recorded $16,831 for the consulting expense related to the portion of the 12-month service agreement that has been completed.
On October 2, 2018 the Company’s Board of Directors authorized the issuance of 1,000,000 restricted shares of common stock to Life Sciences Journeys, Inc., for six months of services outlined in the July 2, 2018 services agreement. The 1,000,000 restricted shares of common stock werebe issued to Life Sciences Journeys, Inc. The shares were issued on October 9, 2018. The Company has placed a stop transfer order on the shares, has disputeddiscussed the benefits of services ofprovided by Life Sciences Journeys and is currently in negotiationrescinded its stop transfer, allowing the contract to cancel the shares. As of September 30, 2018 the Company recorded the fair value of the common shares of $355,000 in common stock and additional paid in capital and has recorded $355,000 for the consulting services.
Stock Options
Below is a table summarizing the options issued and outstanding as of September 30, 2018:
Date | Number | Number | Exercise | Weighted Average Remaining Contractual | Expiration | Intrinsic Value September 30, | ||||||||||||||||||||
Issued | Outstanding | Exercisable | Price $ | Life (Years) | Date | 2018 | ||||||||||||||||||||
05/21/2014 | 1,875,000 | 1,875,000 | 0.13 | 0.64 | 05/20/2019 | $ | 553,125 | |||||||||||||||||||
01/01/2016 | 90,000 | 90,000 | 0.33 | 1.25 | 12/31/2019 | 8,550 | ||||||||||||||||||||
01/01/2016 | 75,000 | 75,000 | 0.33 | 1.25 | 12/31/2019 | 7,125 | ||||||||||||||||||||
09/15/2016 | 10,000 | 10,000 | 1.00 | 1.25 | 12/31/2019 | — | ||||||||||||||||||||
10/01/2016 | 7,500 | 7,500 | 1.00 | 1.25 | 12/31/2019 | — | ||||||||||||||||||||
01/01/2017 | 30,000 | 30,000 | 2.00 | 0.25 | 01/01/2019 | — | ||||||||||||||||||||
01/26/2017 | 200,000 | 200,000 | 2.00 | 3.33 | 01/26/2022 | — | ||||||||||||||||||||
2,287,500 | 2,287,500 | $ | 568,800 |
The weighted average exercise prices is $0.34 for the options outstanding and exercisable.
NOTE 8. COMMITMENTS AND CONTINGENCIEScontinue through its end.
On November 21, 2016,28, 2018, the Company signedre-engaged the services of a leaseprior contractor for approximately 12,000 square feetfinance assistance related to obtaining a line of office, research &credit based on the Company’s equipment and/or contracts, through November 27, 2019. If the Company obtains a line of credit based on the Company’s equipment and/or contracts the Company will incur a fee of 4% of financings from $1,000,000 to $5,000,000, 3% of financings from $5,000,001 to $10,000,000, and 0.25% of financings over $10,000,000.
On December 3, 2018, the Company engaged a consultant for services related to business development warehouse,in the healthcare market. The contract is in place through June 3, 2019 and production spacethe consultant received 100,000 restricted shares of the Company’s common stock for the services.
On August 1, 2019, the Company entered into a consulting agreement for investor relations services through September 30, 2019. Pursuant to the agreement the Company issued 1,000,000 restricted shares of common stock with a fair value of $15,000. As described in Little River, South Carolina.Note 13, on October 1, 2019 the Company entered into a second agreement with the consultant for the provision of investor relations services through March 31, 2020. The lease wasagreement called for a cash payment of $25,000 and 12,000,000 0restricted shares of common stock to be issued to the consultant. The Company issued the 12,000,000 common shares to the consultant on March 16, 2020.
In addition to contracts for service, the Company also regularly uses the professional services of securities attorneys, a US EPA specialist, professional accountants and other public-company specialists.
Employment Agreements –
On September 1, 2017, the Company entered into a five-year employment agreement with Marion E. Paris, Jr. to be the Vice President for Business Development and Director of Intellectual Properties for Paradigm. Under the terms of the employment agreement, Mr. Paris is to be paid an annual base salary of $90,000 and other benefits, including four weeks paid vacation.
On January 1, 2019, the Company entered into a four-year employment agreement with F. Jody Read in his role as Chief Executive Officer. The terms of the contract call for an annual salary of $90,000 for the first year, effective DecemberMarch 1, 20162019 and increasing to $120,000 once the Company’s revenue exceeds monthly expenses, then incrementally over time and with certain operation results, up to $200,000/year. The salary may be paid, at a rate of $4,800the employee’s discretion, either in cash or in common stock. A $1,000 per month allowance will be granted to the executive for housing near the Company’s South Carolina facility. The employment agreement awards the CEO 1,500,000 restricted shares of the Company’s restricted stock, which shall vest in the following manner: 375,000 shares on March 1, 2019, 375,000 shares on March 1, 2020, 375,000 shares on March 1, 2021 and the final 375,000 shares on March 1, 2022. On August 12, 2019, the Company amended the Employment Contract with F. Jody Read, CEO, whereby 500,000 Preferred Series B shares were issued to Read. All other terms of the January 1, 2019 employment agreement remain in effect.
On August 12, 2019, the Company entered into a four-year employment agreement with Gary, J. Grieco, its President, whereby Mr. Grieco will continue to receive $24,000 per year for services to Company as its President and whereby 500,000 Preferred Series B shares were issued to Grieco. The employment agreement begins on August 12, 2019, is automatically renewable for two years unless terminated earlier as per the terms of the agreement.
Other Obligations and Commitments–
On April 12, 2018, the Company entered into a Purchase agreement with a third party to purchase its exclusive rights to US EPA Product Registration No. 83241-1 for a period of three years.fixed fee. The Company paid $5,000 on execution of the agreement and has ancontinued to make periodic installment payments for the purchase of this Registration.
On March 27, 2019, the Company entered into a letter of intent (the “LOI”) with Magnolia Columbia Limited (“Magnolia”), a Canadian company traded on the TSXV under the symbol “MCO”. Pursuant to the terms of the LOI, the parties agreed to negotiate and enter into a definitive agreement on or before April 27, 2019. As of April 28, 2019, we had not entered into a definitive agreement with Magnolia or agreed to any extensions of the LOI, therefore the LOI terminated.
On July 12, 2019, the Company entered into a binding Letter of Intent (“LOI”) to negotiate in good faith a transaction with 2705908 Ontario Inc. for a definitive loan and option agreement to include the acquisition of at least 51% control of the Company, in addition to the other terms and commitments. On July 30, 2019, the LOI due diligence and negotiations were slated to terminate, but both parties agreed to extend the lease for two periodsterm of three years each. The optionthe LOI through August 19, 2019. On August 19, 2019 the Company and 2705908 Ontario Inc. allowed the LOI 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.expire.
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NOTE 9.13. SUBSEQUENT EVENTS
On October 9, 20181, 2019, the Company entered into a consulting agreement for investor relations services through March 31, 2020. The agreement called for a cash payment of $25,000 and 12,000,000 restricted shares of common stock to be issued to the consultant. The Company issued the 12,000,000 common shares to the consultant on March 16, 2020.
On October 3, 2019, the Company entered into a promissory note with a then employee and Director of the Company,non-related party for $5,000.$50,000. The note is due on April 3, 2020 and bears interest at a rate of 12%. On October 9, 2020, the Company had repaid $12,599 of the loan. On March 8, 2020, the Company agreed to settle the remaining $39,054 of principal and accrued interest outstanding on the note through the issuance of 39,000 Shares of Series A Preferred Stock and the payment of $54.
On October 4, 2019, F. Jody Read stepped down from his position as Chief Executive Officer of the Registrant due to increased workload in the Registrant’s wholly-owned operating subsidiary. Mr. Read remains as a director and Chief Operating Officer of the Registrant. Concurrent with Mr. Read stepping down from the position of Chief Executive Officer, the Registrant appointed Mr. Gary J. Grieco to act as President and Chief Executive Officer of the Registrant.
On October 7, 2019, the Company entered into a convertible promissory with a non-related party for $53,000 of which $3,000 was an original issue discount resulting in cash proceeds to the Company of $50,000. The note is due on October 7, 2020 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note’s term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be re-paid as soon as possible,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 lowest trading price during the 15-trading day period prior to the conversion date.
On October 8, 2019, the Company issued 6,399,302 shares of common stock upon the cashless exercise of 6,424,286 warrants.
On October 22, 2019, the Company issued 6,498,105 shares of common stock upon the cashless exercise of 6,528,571 warrants.
On October 29, 2019, the Company entered into a convertible promissory with a non-related party for $50,000 of which $3,000 was an original issue discount resulting in cash proceeds to the Company of $47,000. The note is considereddue on October 29, 2020 and bears interest on the unpaid principal balance at a short-termrate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note’s term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. 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 lowest trading price during the 15-trading day period prior to the conversion date.
On November 12, 2019, the Company entered into a promissory note with a non-related party for $17,500. The note is due November 12, 2020, is unsecured and bears an interest rate of 0.0%8% per annum.
On October 19, 2018December 12, 2019, the Company entered into another promissory notea loan with a then employee and Directornon-related party for $12,250 of which $2,250 was the loan fee or original issue discount resulting in cash proceeds to the Company for $5,000.of $10,000. The note is to be re-paidrepaid through 12 monthly payments ending on May 12, 2020.
On December 19, 2019, the Company sold future receivables of $83,400 in consideration for $58,200. The advance is to be repaid through $3,208 weekly payments. In connection with the advance, the Company granted the lender a security interest in all accounts, equipment, intangibles and inventory.
On December 20, 2019, the Company sold future receivables of $148,362 in consideration for $100,000. The advance is to be repaid through $2,958 weekly payments.
On December 31, 2019, the Company sold future receivables of $87,540 in consideration for $60,000. The advance is to be repaid through $3,651 weekly payments. The Company paid $3,625 of finance fees and includes default fees of up to $2,500 and a default rate of interest of 9%. In connection with the advance, the Company granted the lender a security interest in all accounts, equipment, intangibles and inventory. As of the date of filing the Company had only received advances of $15,575.
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On January 1, 2020, the Company entered into a four-year employment agreement with Gary, J. Grieco, its President and CEO, whereby Mr. Grieco will receive $48,000 per year commencing April 1, 2020, and receive 15,000,000 shares of the Company’s common stock for services to the Company as soonits President and CEO. In addition, once monthly revenue exceeds monthly expenses the salary will be increased and Mr. Grieco will be issued an additional 10,000,000 shares of the Company’s common stock. The employment agreement begins on January 1, 2020, and is automatically renewable for two years unless terminated earlier as possible,per the terms of the agreement.
On February 11, 2020, the Company received a $1,500 advance from the President of the Company and a $2,000 advance from a Director of the Company. The advances are unsecured, non-interest bearing and due on demand.
On February 18, 2020, the Company sold future receivables of $32,978 in consideration for $22,000. The advance is consideredto be repaid through daily payments of $660. The Company paid $794 of finance fees and the agreement includes default fees of up to $15,000. In connection with the advance, the Company granted the lender a short-termsecurity interest in all accounts, equipment, intangibles and inventory.
On February 18, 2020, the Company received an additional tranche of $8,888 pursuant to the convertible note described in Note 6(i). The additional tranche consisted of a $888 original issue discount resulting in cash proceeds to the Company of $8,000.
On February 28, 2020, the Company entered into a promissory note with a non-related party for $20,000. The note is due May 28, 2020, is unsecured and bears an interest rate of 0.0%8% per annum.
On October 23, 2018March 2, 2020, the Company entered into a convertible promissory note with the then CEO and Chairmana non-related party for $45,000 of which $3,000 was an original issue discount resulting in cash proceeds to the Company for $2,000.of $42,000. The note is to be re-paid as soon as possible, is considered a short-term note, is unsecureddue on March 2, 2021 and bears an interest on the unpaid principal balance at a rate of 0.0%12% per annum. Subsequently,Stringent pre-payment terms apply (from 15% to 40%, dependent upon the $2,000timeframe of repayment during the note’s term) and any part of the note waswhich is not paid in full on October 31, 2018, leaving a remaining balancewhen due shall bear interest at the rate of $0 owed22% per annum from the due date until paid. The Note may be converted by the Company.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 lowest trading price during the 15-trading day period prior to the conversion date.
On March 5, 2020, the Company received an additional tranche of $30,000 pursuant to the convertible note described in Note 6(i). The additional tranche consisted of a $3,000 original issue discount resulting in cash proceeds to the Company of $27,000.
On March 9, 2020, the Company entered into an agreement to settle the $175,814 convertible note payable described in Note 6(v) and $5,279 of interest accrued on the note through the issuance of 181,000 Shares of Series A Preferred Stock and the payment of $93.
As of April 6, 2020, the Company sold 270,000 Series C Convertible Preferred Shares for $270,000.
From October 24, 20181, 2019 through March 25, 2020, the Company issued a total of 265,453,351 shares of common stock upon the conversion of $286,043 of principal, $20,306 of interest and of fees pursuant to the convertible notes payable described in Note 6.
On April 1, 2020, the Company entered into a promissory note withsettlement agreement to settle the then CEO$60,000 and Chairman of$26,000 convertible notes described in Notes 6(p) and (u). The Company agreed to pay $100,000 to settle the principal and accrued interest and penalties relating to the two convertible notes.
On April 1, 2020, the Company for $3,000. The note is to be re-paid as soon as possible, is considered a short-term note, is unsecured and bears an interest rateissued 4,623,093 shares of 0.0% per annum.
On October 30, 2018common stock upon the Company entered into a promissory note with an unrelated party, for $60,000. The note is due on December 30, 2018, is considered a short-term note, is unsecured and bears an interest ratecashless exercise of 8.0% per annum.
On November 8, 2018 the Company’s Board of Directors accepted the resignation of Gary Grieco as the Company’s CEO and appointed F. Jody Read as its CEO. Gary Grieco remains as the Chairman of the Board of Directors and the Corporation’s President. F. Jody Read now fulfills the roles of CEO and COO of the Company and remains a Director.
On November 15, 2018 the Company entered into a promissory note with an unrelated party, for $8,700. The note is due on June 30, 2019, is considered a short-term note, is unsecured and bears an interest rate of 10.0% per annum.
4,640,371 warrants.
FORWARD LOOKINGFORWARD-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, future Quarterly Reports on Form 10-Q, our Annual Report on Form 10-K and Current Reports on Form 8-K and other reports we file under the Exchange Act.8-K.
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 Formform 10-Q references to “PCT LTD, “Bingham Canyon,” “Bingham,”LTD”, “the Company,”Company”, “we,” “us,” “our” and similar terms refer to PCT LTD (formerly Bingham Canyon Corporation) and its wholly owned operating subsidiary, Paradigm Convergence Technologies Corporation (“Paradigm,PCT Corp.” “PCT Corp.”or “Paradigm”).
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Overview
On August 31, 2016, PCT 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 PCT LTD after the exchange transaction. PCT LTD is a holding company, which through Paradigm is engaged in the business of marketing new products and technologies through licensing and joint ventures.
PCT LTD 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 $940,095 for the three months ended September 30, 2018 and $2,139,456$10,214,462 for the nine months ended September 30, 20182019 and accumulated losses of $8,883,976$20,141,465 from inception through September 30, 2018.2019.
PCT LTD remains dependent upon additional financing to continue operations. The Company intends to raise additional financing through private placements of its common stock and note payable issuances. We expect that we would issue such stock pursuant to exemptions to the registration requirements provided by 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 $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 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, management believes that the Company expects to be at or close to profitability by the end of the secondfourth quarter of 2019.2020.
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 | September 30, 2018 | December 31, 2017 | September 30, 2019 | December 31, 2018 | ||||||||||||
Cash and cash equivalents | $ | 8,062 | $ | 7,838 | $ | 6,669 | $ | 4,893 | ||||||||
Total current assets | 614,843 | 40,321 | 162,434 | 281,742 | ||||||||||||
Total assets | 5,084,860 | 4,754,181 | 4,404,809 | 4,846,988 | ||||||||||||
Total liabilities | 2,353,246 | 1,456,198 | 9,097,175 | 3,141,401 | ||||||||||||
Accumulated deficit | (8,883,976 | ) | (6,744,520 | ) | (20,141,465 | ) | (9,927,003 | ) | ||||||||
Total stockholders’ equity | $ | 2,731,614 | $ | 3,297,983 | ||||||||||||
Total stockholders’ equity (deficit) | $ | (4,907,764 | ) | $ | 1,705,587 |
At September 30, 2018,2019, the Company recorded a net loss for the nine month period of $2,139,456$10,214,462 and had a working capital deficit of $373,009.$8,934,741. We have recorded a relatively small amount of revenues from operations, since inception and webut these have not established an ongoing source of revenue sufficientbeen insufficient to cover our operating costs. During the yearsnine months ended 20182019 and 20172018 we have primarily relied upon advances and loans from stockholders 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 $8,062$6,669 in cash at September 30, 2018,2019, compared to $7,838$4,893 in cash at December 31, 2017.2018. We had total liabilities of $2,353,246$9,097,175 at September 30, 20182019 compared to $1,456,198$3,141,401 at December 31, 2017.2018.
Our current cash flow is not sufficient to meet our monthly expenses of approximately $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 stockour securities for additional 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. We do not have material commitments for future capital 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 stocksecurities in lieu of cash to convert debt or pay for expenses.
Commitments and Obligations
At September 30, 20182019, the Company recorded notes payable and convertible notes payable totaling approximately $1,801,148$2,447,026 (net of debt discount) compared to notes payable totaling $1,134,217$1,907,011 (net of debt discount) at December 31, 2017.2018. These notes payable represent cash advances received and expenses paid from third parties and related parties. All of the notes payable carry interest from 0% to 13%25% and are due ranging from on demand to March 21, 2021.February 14, 2022.
The Company headquarters and operations isare located in Little River, South Carolina. The South Carolina lease amounts to $4,800 per month, expires on November 30, 2019 and includes an option to renew for two additional three-year periods. Currently, the Company is 4 months in arrears in paying rent on this facility.
Results of Operations
SUMMARY OF OPERATIONS | Three-month period ended September 30, | |||||||
(Unaudited) | ||||||||
2018 | 2017 | |||||||
Revenues | $ | 41,124 | $ | 58,123 | ||||
Total operating expenses | $ | 950,454 | $ | 537,005 | ||||
Total other expense | $ | (30,765 | ) | $ | (21,654 | ) | ||
Net loss | $ | (940,095 | ) | $ | (500,536 | ) | ||
Basic and diluted loss per share | $ | (0.02 | ) | $ | (0.01 | ) |
Three Months Ended September 30, 2019
SUMMARY OF OPERATIONS | Three months period ended September 30, | |||||||||||
(Unaudited) | ||||||||||||
2019 | 2018 | Increase/(Decrease) | ||||||||||
Revenues | $ | 220,033 | $ | 41,124 | $ | 178,909 | ||||||
Total operating expenses | $ | 604,847 | $ | 950,454 | $ | (345,607 | ) | |||||
Total other expenses | $ | 5,379,178 | $ | 30,765 | $ | 5,348,413 | ||||||
Net loss | $ | 5,763,992 | $ | 940,095 | $ | 4,823,897 | ||||||
Basic and diluted loss per share | $ | (0.03 | ) | $ | (0.02 | ) | $ | 0.01 |
Revenues decreasedincreased to $220,033 for the three months ended September 30, 2019 (the “2019 third quarter”) compared to $41,124 for the three months ended September 30, 2018 (the “2018 third quarter”) compared to $58,123 for the three months ended September 30, 2017 (the “2017 third quarter”). The revenue decreaseincrease for the period was due to the lackincreased volume of an outright sale of large-volume equipment duringfluids sold, the 2018 third quarter, in comparison to the outright sale of a large-volume piece of equipment during the third quarter of 2017. The lack of a one-time sale of equipment during the third quarter of 2018 was somewhat offset by an increase in steadyUS EPA registration (duplicate), licensing revenue from fluidEPA sub registrations, equipment sales (including monthly minimum royalties), parts sales, license fees and the additional revenue from recurring leased-equipment income.
Total operating expenses increaseddecreased to $604,847 during the 2019 third quarter compared to $950,454 during the 2018 third quarter compared to $537,005 during the 2017 third quarter. The increasedecrease during the third quarter of 20182019 was primarily due to an increasea decrease in personnel, salaries and stock-based compensation, 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.compensation.
General and administrative expenses increaseddecreased to $827,168$468,897 for the 20182019 third quarter compared to $389,376$827,168 during the 20172018 third quarter. The increasedecrease during the third quarter of 20182019 was primarily due to an increase in personnel, salaries and stock-based compensation, insurance, and other overhead expense.
Research and development expenses decreased to $nil for the 2018 third quarter compared to $32,490 during the 2017 third quarter. Thea decrease in research and developmentstock-based compensation expense during the third quarter of 2018 was primarily due2019 as compared to the Company having reached its primary standard goals for developing mostthird quarter of its equipment product lines for its markets in the prior periods.2018.
Depreciation and amortization expenses decreasedincreased slightly to $84,467 during the 2019 third quarter compared to $84,070 during the 2018 third quarter compared to $92,457 duringquarter. Depreciation and amortization were comparable between the 2017 third quarter. The decrease was primarily due to a slight decrease in the value of certain intangible assets and the amortization associated with the decrease.two periods.
Total interestother expenses increased to $46,950$5,379,178 for the 2019 third quarter compared to $30,765 during the 2018 third quarter compared to $21,654 during the 2017 third quarter. TotalThe overall increase was a result of an increase in interest expense, increased during the 2018 third quarter due to a greater number and loss on change in fair value of loans in effect during the period.derivatives.
As a result of the changes described above, net loss from operations after income taxes increased to $5,763,992 during the 2019 third quarter compared to $940,095 during the 2018 third quarter compared to $500,536 during the 2017 third quarter.
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Nine Months Ended September 30, 2019
SUMMARY OF OPERATIONS | Nine-month period ended September 30, | Nine months period ended September 30, | ||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
2018 | 2017 | 2019 | 2018 | Increase/(Decrease) | ||||||||||||||||
Revenues | $ | 153,337 | $ | 80,352 | $ | 534,852 | $ | 153,337 | $ | 381,515 | ||||||||||
Total operating expenses | $ | 2,196,580 | $ | 1,697,257 | $ | 1,956,774 | $ | 2,196,580 | $ | (239,806 | ) | |||||||||
Total other expense | $ | (96,213 | ) | $ | (50,100 | ) | ||||||||||||||
Total other expenses | $ | 8,792,540 | $ | 96,213 | $ | 8,696,327 | ||||||||||||||
Net loss | $ | (2,139,456 | ) | $ | (1,167,005 | ) | $ | 10,214,462 | $ | 2,139,456 | $ | 8,075,006 | ||||||||
Basic and diluted loss per share | $ | (0.05 | ) | $ | (0.04 | ) | $ | (0.10 | ) | $ | (0.05 | ) | $ | 0.05 |
Revenues increased to $534,852 for the nine months ended September 30, 2019 compared to $153,337 for the nine months ended September 30, 2018 compared to $80,352 for the nine months ended September 30, 2017.2018. The revenue increase for the period was due to the increase in steadyincreased volume of fluids sold, the sale of a duplicate US EPA Registration, licensing revenue from fluidEPA sub registrations, equipment 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 increaseddecreased to $1,956,774 during the nine months ended September 30, 2019 compared to $2,196,580 during the nine months ended September 30, 2018 compared to $1,697,2572018. The decrease during the nine month period ended September 30, 2017. The increase for the period was primarily due to a decrease in stock-based compensation. This was offset by an increase in personnel, salaries and stock-based compensation,cost of sales as a result of 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.revenues.
General and administrative expenses increaseddecreased to $1,554,992 for the nine months ended September 30, 2019 compared to $1,885,962 during the nine months ended September 30, 2018 compared to $1,346,955 during the nine month period ended September 30, 2017.2018. The increase during the period was primarily due to an increasea decrease in personnel, salaries and stock-based compensation insurance, and other overhead expense.
Research and development expenses decreased to $nil for the nine months ended September 30, 2018 compared to $102,402 during the nine month period ended September 30, 2017. The decrease in research and development expense during the period was primarily due to the Company having reached its base goals for developing most of its equipment and technologies in the prior periods.
Depreciation and amortization expenses increased slightly to $253,568 during the nine months ended September 30, 2019 compared to $250,928 during the nine month periodmonths ended September 30, 20182018. Depreciation and amortization was comparable between the two periods.
Total other expenses increased to $8,792,540 for nine months ended September 30, 2019 compared to $205,881$96,213 during the nine month periodmonths ended September 30, 2017.2018. The overall increase was primarily due to having more equipment depreciating and higher amortization expenses.
Total interest expenses increased to $112,398 during the nine month period ended September 30, 2018 compared to $50,100 during the nine month period ended September 30, 2017. Totala result of an increase in interest expense, increased during the 2018 second quarter due to a greater number and loss on change in fair value of loansderivatives and settlement of debt. This was offset by a gain on the sale of assets and a gain on change in effect during the period.fair value of preferred series A stock liabilities.
As a result of the changes described above, net loss from operations after income taxes increased to $10,214,462 during the nine months ended September 30, 2019 compared to $2,139,456 during the nine month periodmonths ended September 30, 2018 compared to $1,667,005 during the nine month period ended September 30, 2017.2018.
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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 GrowthDerivative and Preferred Series A Stock Liabilities
The Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” and all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet. The Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above. As of September 30, 2019, and December 31, 2018, the Company had a $5,538,198 and $322,976 derivative liability, respectively and preferred series A stock liabilities of $0 and $144,352, respectively.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. See Note 7 for additional information.
Accounts Receivable -
Trade accounts receivable are recorded at the time product is shipped or services are provided including any shipping and handling fees. The Company provided allowances for uncollectible accounts receivable equal to the estimated collection losses that will be incurred in collection of all receivables. Accounts receivable is periodically evaluated for collectability bases on past credit history with customers and their current financial condition. The 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 Company provided an allowance for doubtful accounts of $0 at September 30, 2019 and December 31, 2018, respectively.
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.
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Impairment 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 fair value. Under similar analysis no impairment was recorded during the nine months ended September 30, 2019.
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 their estimated useful lives. The Company currently has the right to several patents and proprietary 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, which range from 1 to 15 years. 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 projected discounted net future cash flows. The recorded impairment expense was nil for the nine months ended September 30, 2019.
Leases
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) ("ASC 842"), which requires lessees to recognize right-of-use ("ROU") assets and related lease liabilities on the balance sheet for all leases greater than one year in duration. We qualifyadopted ASC 842 on January 1, 2019 using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach did not require any transition accounting for leases that expired before the earliest comparative period presented. The adoption of this standard resulted in the recording of ROU assets and lease liabilities for our lease agreements with original terms of greater than one year. Upon implementation, the Company recognized an initial operating lease right-of-use asset of $43,330 and operating lease liability of $43,330. Due to the simplistic nature of the Company's leases, no retained earnings adjustment was required. See Note 5 for further details.
Revenue Recognition
On May 2014, the 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 transfer of promised goods or services to customers in an amount that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services.
The Company has the following three revenue streams:
1)product sales (equipment and/or fluid solutions);
2)licensing (contract-based use of the 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 contracts for the provision of the Company’s equipment and service of such, under contract to customers, with renewable terms).
The Company recognizes revenue from the sale of products when the performance obligation is satisfied by transferring control of the product to a customer.
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The Company recognizes revenue from the leasing of equipment as an “emerging growth company” under the recently enacted Jumpstart Our Business Startups Actentity provides the equipment and the customer simultaneously receives and consumes the benefits through the use of 2012 (the “JOBS Act”).the equipment. This revenue generating activity would meet the criteria for a performance obligation satisfied over time. As a result, we are permittedthe Company recognizes revenue over time by using the output method, as the Company can measure progress of the performance obligation using the time elapsed under each obligation.
The Company’s licenses provide a right to use and intend to, rely on exemptionscreate performance obligations satisfied at a point in time. The Company recognizes revenue from certain disclosure requirements.licenses when the performance obligation is satisfied through the transfer of the license. For solicenses that include royalties the Company will recognize royalty revenue as the underlying sales or usages occur, as long as we are an emerging growth company, among other things, we willthis approach does 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.entity’s performance.
We will remain an “emerging growth company” untilThe Company has disclosed disaggregated revenue via revenue stream on the earliest of (i) the last dayface of the first fiscal year in which our total annual gross revenues exceed $1 billion; (ii) the fifth anniversarystatement 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;operations. The Company did not have any contract assets or (iv) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.liabilities at September 30, 2019.
Recent Accounting Developments
The Company has reviewed all other FASB issued ASU accounting pronouncements and interpretations thereof that have effective dates during the period reported and in future periods. The Company has carefully considered the new pronouncements that alter the previous GAAP and doesdo not believe that any new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term.
We have continued to refine our 5-step qualifying approach to FASB ASC Topic 606 “Revenue Recognition of Contracts” and will continue to monitor progress in determining correct reported revenues.
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 President,Gary J. Grieco, our Chief Executive Officer, who servedserves as our principal executive officer and principal financial officer, through the end of the period,has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this 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 Presidentprincipal executive officer as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Presidentprincipal executive officer concluded that as of September 30, 2018,2019, our disclosure controls and procedures were not effective.
Notwithstanding this 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 regardingDuring 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 periodquarter ended September 30, 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 President has determined that2019, there were no changes in our internal control over financial reporting for period ended September 30, 2018 and the year ended December 31, 2017, 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 third quarter of 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Internal control systems, no matter how well designedreporting (as defined in Exchange Act Rules 13a-15(f) 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 systems15d-15(f) under the Securities Exchange Act of internal controls are designed to provide reasonable assurance with respect to financial statement preparation and presentation.1934).
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. We were named as a defendant in a case for $6,010 to be paid to a HVAC contractor, which we maintain is our landlord’s responsibility. This legal dispute has been fully satisfied.
On August 8, 2019, we received notice from Annihilare, Inc. that certain intellectual properties developed jointly between us and Annihilare are to be discontinued from use by us and our customers. We dispute the claims from Annihilare that the intellectual properties are exclusively Annihilare’s and are in discussions with Annihilare on this point. We have engaged counsel to assist us with this dispute and are evaluating potential litigation on this matter. However, as of the date of this filing no litigation has been initiated.
ITEM 1A. RISK FACTORS
We are a 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, 2017.2018.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The disclosure set forth below under Item 5 (Other Information) pertaining toTFK Investments LLC Note Conversions
During the quarter ended September 30, 2019, the Company issued TFK Investments LLC shares of its common stock upon partial conversion of the promissory note dated November 28, 2018 as follows:
Date of Conversion | Principal Amount Converted | Conversion Price | Number of Shares Issued | Principal Balance Remaining |
7/2/2019 | $5,100 plus $500 in fees | $0.0014 | 4,000,000 | $38,499 |
7/10/2019 | $3,874 plus $500 in fees | $0.0009 | 4,628,000 | $34,625 |
7/15/2019 | $3,360 plus $500 in fees | $0.0007 | 5,252,000 | $31,265 |
7/17/2019 | $2,990 plus $500 in fees | $0.0006 | 5,540,000 | $28,275 |
7/19/2019 | $3,494 plus $500 in fees | $0.0006 | 6,340,000 | $24,781 |
7/22/2019 | $3,501 plus $500 in fees | $0.0006 | 6,350,000 | $21,280 |
7/23/2019 | $4,483 plus $500 in fees | $0.0006 | 7,910,000 | $16,797 |
7/24/2019 | $4,962 plus $500 in fees | $0.0006 | 8,670,000 | $11,835 |
7/29/2019 | $4,893 plus $500 in fees | $0.0006 | 8,560,000 | $6,942 |
Total | $41,157 | 57,250,000 |
Power Up Notes andLending Group Ltd Note Conversions
During the quarter ended September 30, 2019, the Company issued Power Up Agreements is incorporated by reference into this Item 2. The Power Up Notes described in ItemLending Group LTD shares of its common stock upon partial conversion of the promissory note dated December 5, below were2018 as follows:
Date of Conversion | Principal Amount Converted | Conversion Price | Number of Shares Issued | Principal Balance Remaining | ||||||||||||||
7/1/2019 | $ | 8,100 | $ | 0.0031 | 2,612,903 | $ | 34,700 | * | ||||||||||
7/5/2019 | $ | 10,400 | $ | 0.0026 | 4,000,000 | $ | 24,300 | * | ||||||||||
7/8/2019 | $ | 10,000 | $ | 0.0025 | 4,000,000 | $ | 14,300 | * | ||||||||||
Total | $ | 28,500 | 10,612,903 |
* Includes default amount
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Crown Bridge Partners, LLC Note Conversions
During the quarter ended September 30, 2019, the Company issued in relianceCrown Bridge Partners, LLC shares of its common stock upon exemptions from registration pursuant to Section 4(a)(2) underpartial conversion of the Securities Actpromissory note dated November 28, 2018 as follows:
Date of Conversion | Principal Amount Converted | Conversion Price | Number of Shares Issued | Principal Balance Remaining | |||||||||||||
7/8/2019 | $1,470 | $ | 0.0004 | 4,200,000 | $ | 34,653 | |||||||||||
7/9/2019 | $1,610 | $ | 0.0004 | 4,600,000 | $ | 33,043 | |||||||||||
7/16/2019 | $1,820 | $ | 0.0004 | 5,200,000 | $ | 31,223 | |||||||||||
7/17/2019 | $1,942 | $ | 0.0004 | 5,550,000 | $ | 29,281 | |||||||||||
7/19/2019 | $2,226 | $ | 0.0004 | 6,360,000 | $ | 27,055 | |||||||||||
7/22/2019 | $2,415 | $ | 0.0004 | 6,900,000 | $ | 24,640 | |||||||||||
7/23/2019 | $2,660 | $ | 0.0004 | 7,600,000 | $ | 21,980 | |||||||||||
7/24/2019 | $4,617 plus $500 in fees | $ | 0.0006 | 8,600,000 | $ | 17,363 | |||||||||||
7/29/2019 | $4,617 plus $500 in fees | $ | 0.0006 | 8,600,000 | $ | 12,746 | |||||||||||
8/1/2019 | $4,968 plus $500 in fees | $ | 0.0006 | 9,189,631 | $ | 7,778 | |||||||||||
Total | $29,845 | 66,799,631 |
GS Capital Partners, LLC Note Conversions
During the quarter ended September 30, 2019, the Company issued GS Capital Partners, LLC shares of 1933,its common stock upon partial conversion of the promissory note dated January 16, 2019 as amended,follows:
Date of Conversion | Principal Amount Converted | Conversion Price | Number of Shares Issued | Principal Balance Remaining | ||||||||||||
7/19/2019 | $4,508 plus $179 of interest | $ | 0.0009 | 5,207,600 | $ | 95,492 |
JSJ Investments Inc. Note Conversions
During the quarter ended September 30, 2019, the Company issued JSJ Investments Inc. shares of its common stock upon partial conversion of the promissory note dated January 22, 2019 as follows:
Date of Conversion | Principal Amount Converted | Conversion Price | Number of Shares Issued | Principal Balance Remaining | ||||||||||||||
7/29/2019 | $ | 8,640 | $ | 0.0012 | 7,500,000 | $ | 51,360 |
EMA Financial LLC Note Conversions
During the quarter ended September 30, 2019, the Company issued EMA Financial LLC shares of its common stock upon partial conversion of the promissory note dated January 22, 2019 as follows:
Date of Conversion | Principal Amount Converted | Conversion Price | Number of Shares Issued | Principal Balance Remaining | ||||||||||||
8/1/2019 | $2,196 plus $953 of interest | $ | 0.0006 | 4,999,000 | $ | 72,804 |
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Peak One Opportunity Fund Note Conversion 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 acquiringWarrant Exercise
During the securities forquarter ended September 30, 2019, the Company issued Peak One Opportunity Fund, LP shares of its own account and not with a view tocommon stock upon partial conversion of the distribution thereof, and is an “accredited investor”promissory note dated February 14, 2019 as such term is defined in Rule 501(a) of Regulation D promulgated underfollows:
Date of Conversion | Principal Amount Converted | Conversion Price | Number of Shares Issued | Principal Balance Remaining | ||||||||||||||
8/9/2019 | $ | 5,000 | $ | 0.0009 | 5,555,555 | $ | 55,000 |
On August 16, 2019, the Securities Act. At the time of their issuance, the Power Up Notes and anyCompany issued Peak One Opportunity Fund, LP 5,989,500 shares of common stock upon the cashless exercise of 6,000,000 warrants.
Adar Alef LLC Note Conversion
During the quarter ended September 30, 2019, the Company issued Adar Alef LLC shares of its common stock upon partial conversion thereof will be deemed to be restricted securities for purposes of the Securities Act andpromissory note dated February 20, 2019 as follows:
Date of Conversion | Principal Amount Converted | Conversion Price | Number of Shares Issued | Principal Balance Remaining | ||||||||||||||
9/19/2019 | $ | 13,000 | $ | 0.004256 | 3,054,511 | $ | 42,125 |
Peak One Investments LLC Warrant Exercise
On September 24, 2019, the certificates representing the securities shall bear legends to that effect. We have initially reserved 4,039,707Company issued Peak One Investments LLC 6,041,381 shares of common stock for issuance underupon the termscashless exercise of 6,057,1431 warrants.
Auctus Fund LLC
During the quarter ended September 30, 2019, the Company issued Auctus Fund LLC shares of its common stock upon partial conversion of the promissory note dated March 13, 2019 as follows:
Date of Conversion | Principal Amount Converted | Conversion Price | Number of Shares Issued | Principal Balance Remaining | ||||||||||||
9/27/2019 | $27,804.21 plus $4,536.99 in interest and $750 in fees | $ | 0.00288 | 11,490,000 | $ | 47,195.79 |
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Subsequent Issuances after Quarter-End
Peak One Opportunity Fund Note Conversions
Subsequent to the quarter ended September 30, 2019, the Company issued Peak One Opportunity Fund, LP shares of its common stock upon partial conversion of the promissory note dated February 14, 2019 as follows:
Date of Conversion | Principal Amount Converted | Conversion Price | Number of Shares Issued | Principal Balance Remaining | ||||||||||||||
10/4/2019 | $ | 7,000 | $ | 0.0011 | 6,363,636 | $ | 48,000 | |||||||||||
10/22/2019 | $ | 7,000 | $ | 0.001 | 7,000,000 | $ | 41,000 | |||||||||||
11/6/2019 | $ | 11,000 | $ | 0.00085 | 12,941,176 | $ | 30,000 | |||||||||||
Total | $ | 25,000 | 37,849,867 |
Power Up Notes.Lending Group Ltd Note Conversions
Subsequent to the quarter ended September 30, 2019, the Company issued Power Up Lending Group LTD shares of its common stock upon partial conversion of the promissory note dated December 5, 2018 as follows:
Date of Conversion | Principal Amount Converted | Conversion Price | Number of Shares Issued | Principal Balance Remaining | ||||||||||||
10/8/2019 | $21,450 plus $3,780 in interest | $ | 0.002 | 12,615,000 | $ | 0.00 |
Subsequent to the quarter ended September 30, 2019, the Company issued Power Up Lending Group LTD shares of its common stock upon partial conversion of the promissory note dated January 15, 2019 as follows:
Date of Conversion | Principal Amount Converted | Conversion Price | Number of Shares Issued | Principal Balance Remaining | |||||||||||||
10/15/2019 | $23,500 | $ | 0.0018 | 13,055,556 | $ | 26,000 | * | ||||||||||
10/16/2019 | $22,500 | $ | 0.0015 | 15,000,000 | $ | 3,500 | * | ||||||||||
10/21/2019 | $3,500 plus $1,980 in interest | $ | 0.0012 | 4,566,667 | $ | 0.00 | |||||||||||
Total | $49,500 | 32,622,223 |
* Includes default amount
Subsequent to the quarter ended September 30, 2019, the Company issued Power Up Lending Group LTD shares of its common stock upon partial conversion of the promissory note dated February 21, 2019 as follows:
Date of Conversion | Principal Amount Converted | Conversion Price | Number of Shares Issued | Principal Balance Remaining | ||||||||||||||
10/22/2019 | $ | 13,000 | $ | 0.0012 | 11,083,333 | $ | 66,200 | * | ||||||||||
10/23/2019 | $ | 18,900 | $ | 0.0012 | 15,750,000 | $ | 47,300 | * | ||||||||||
10/25/2019 | $ | 14,100 | $ | 0.0012 | 11,750,000 | $ | 33,200 | * | ||||||||||
10/28/2019 | $ | 18,900 | $ | 0.0012 | 15,750,000 | $ | 14,300 | |||||||||||
10/29/2019 | $14,300 plus $3,180 in interest | $ | 0.0012 | 14,566,667 | $ | 0.00 | ||||||||||||
Total | $ | 79,200 | * | 68,900,000 | ||||||||||||||
* Includes default amount
Subsequent to the quarter ended September 30, 2019, the Company issued Power Up Lending Group LTD shares of its common stock upon partial conversion of the promissory note dated April 29, 2019 as follows:
Date of Conversion | Principal Amount Converted | Conversion Price | Number of Shares Issued | Principal Balance Remaining | ||||||||||||||
11/4/2019 | $ | 15,700 | $ | 0.001 | 15,700,000 | $ | 41,300 | * | ||||||||||
11/5/2019 | $ | 15,600 | $ | 0.001 | 15,600,000 | $ | 25,700 | * | ||||||||||
11/6/2019 | $ | 20,100 | $ | 0.001 | 20,100,000 | $ | 5,600 | |||||||||||
11/11/2019 | $5,600 plus $2,280 in interest | $ | 0.00098 | 8,040,816 | $ | 0.00 | ||||||||||||
Total | $ | 57,000 | * | 59,440,816 | ||||||||||||||
* Includes default amount
Peak One Investments LLC Warrant Exercises
On July 2, 2018,October 8, 2019, the Company entered into a 1-year services agreement which called forissued Peak One Investments LLC 6,399,302 shares of common stock upon the issuancecashless exercise of 1,000,0006,424,286 warrants.
On October 22, 2019, the Company issued Peak One Investments LLC 6,498,105 shares of common stock upon the cashless exercise of 6,528,571 warrants.
On April 1, 2020, the Company issued Peak One Investments LLC 4,623,093 shares of common stock upon the cashless exercise of 4,640,371 warrants.
Crown Bridge Partners, LLC Note Conversions
Subsequent to the quarter ended September 30, 2019, the Company issued Crown Bridge Partners, LLC shares of its common stock upon partial conversion of the promissory note dated November 28, 2018 as follows:
Date of Conversion | Principal Amount Converted | Conversion Price | Number of Shares Issued | Principal Balance Remaining | ||||||||||||
1/9/2020 | $6,491.25 plus $500 in fees | $ | 0.000595 | 11,750,000 | $ | 1,286.87 | ||||||||||
1/13/2020 | $10,601.48 plus $2,506.52 of interest and $500 in fees | $ | 0.00056 | 24,300,000 | $ | 5,685.39 | ||||||||||
Total | 36,050,000 |
On March 16, 2020, the Company issued 12,000,000 shares of restricted common stock. As of September 30, 2018, the Company had not issued the 1,000,000 shares common stock. The 1,000,000 restricted shares of common stock were issued onto a consultant for public relations services performed in October 9, 2018.2019.
AllAs of the above-described issuances/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 eitherApril 6, 2020, 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 orhas sold absent registration or pursuant to an exemption therefrom.270,000 Series C Convertible Preferred Shares for $270,000.
Issuer Purchases of Equity Securities
We did not repurchase any of our equity securities during the quarter ended September 30, 2018.2019.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
We have entered into a number of promissory notes, threesome of which are in default as of September 30, 2018,2019, or went into default before the filing of this Quarterly Report (See Note 6 to the financial statements).
In addition, we have insufficient common stock reserves for the convertible notes we have outstanding, which places each note into default.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
ResignationOn July 12, 2019, the Company entered into a binding Letter of Intent (“LOI”) to negotiate in good faith a transaction between 2705908 Ontario Inc. and AppointmentPCT LTD for a definitive loan and option agreement to include the acquisition of Executive Officer
Effective November 8, 2018, Gary Grieco gave noticeat least 51% control of his resignation, effective immediately. Mr. Grieco continuesPCT LTD, in addition to serve as our presidentthe terms and chairman. We are not awarecommitments written in the letter of any disagreements Mr. Grieco may have with us on any matter relatingintent. On July 30, 2019 the LOI due diligence and negotiations were slated to our operations, policies or practices.
Effective November 8, 2018, upon acceptance of Mr. Grieco’s resignation, we appointed Francis J. Read, our current Chief Operating Officer and a director, as our new Chief Executive Officer.
Francis J. Read – is a directorterminate, but both parties agreed to extend the term of the Company. In 2017, Mr. Read becameLOI. On August 2, 2019, the Chief Operations OfficerCompany and 2705908 Ontario Inc. executed an extension for Paradigm Convergence Technologies Corp., the Company’s wholly-owned operating subsidiary. In 1998, Mr. Read founded and since 2016 has served asterms of the CEO of CSA Service Solutions, a $44m million field support company specializing in providing support solutions for large equipment manufacturers. CSA has over 350 employees nationwide with over 270 engineers operating in the Healthcare, Clinical Education, Life Sciences, Security, and Power Industries. Mr. Read holds a MBA from Tulane University and a BS, electronic Engineering from DeVry Institute of Technology.
Power Up NotesJuly 10, 2019 LOI to continue until August 19, 2019. The extension expired on August 19, 2019.
On June 5, 2018, July 25, 201830, 2019 the Company accepted a settlement proposal from Annihilare, Inc. (a sub-registrant of the Company’s US EPA Registration No. 92108-1) and August 27, 2018 (each a “Closing Date”), we completedits affiliated company, Prime ITS (a prior owner of Annihilyzer Inc, which transferred previously noted intangible IT assets to PCT LTD for 2,250,000 shares of the saleCompany’s common stock in November of three Convertible Promissory Notes (the “Power Up Notes”)2016). The settlement agreement included credit to the Company by Prime ITS in the principal amountsgross amount of $68,000, $38,000$23,209 on the Company’s payable to Prime ITS for a combination of a portion of Marty Paris’ salary, a resignation from Marty Paris effective July 31, 2019, and $53,000, respectively,equal valued amount of PCT’s inventory, for net credit to PCT in the amount of $13,939, which was received by the Company on July 31, 2019. The transaction was completed on August 1, 2019.
On August 8, 2019 the Company received notice from PRIME ITS that certain technology services utilized by the Company shall cease to be provided, effective September 8, 2019.
On August 8, 2019 the Company received notice from Annihilare, Inc. that certain intellectual properties developed jointly between the Company and Annihilare are to be discontinued from use by the Company and our customers. We dispute the claims from Annihilare that the intellectual properties are exclusively Annihilare’s and are in discussions with interest ratesAnnihilare on this point.
On August 12, 2019 the Company made an addendum to its Employment Contract with F. Jody Read, CEO, whereby 500,000 Preferred Series B shares were issued to Read. All other terms of 12%the January 1, 2019 employment agreement remain in effect.
On August 12, 2019 the Company executed a new Employment Contract with Gary J. Grieco, President, whereby 500,000 Preferred Series B shares of PCT LTD will be issued to Grieco as soon as the Preferred Series B shares are established through the State of Nevada. Mr. Grieco’s prior employment had expired and this new agreement called for typical executive terms and an annual salary of $24,000, in addition to the 500,000 Preferred Series B shares.
On January 1, 2020, the Company entered into a four-year employment agreement with Gary, J. Grieco, its President and CEO, whereby Mr. Grieco will receive $48,000 per annum pursuantyear commencing April 1, 2020, and receive 15,000,000 shares of the Company’s common stock for services to the Company as its President and CEO. In addition, once monthly revenue exceeds monthly expenses the salary will be increased and Mr. Grieco will be issued an additional 10,000,000 shares of the Company’s common stock. The employment agreement begins on January 1, 2020, and is automatically renewable for two years unless terminated earlier as per the terms of three 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, July 25, 2019, and August 27, 2019 respectively (the “Maturity Dates”). We reimbursed Power Up $7,500 for its legal fees and paid Power Up a $1,500 due diligence fee, resulting in net proceeds to us from the Power Up Notes of $65,000, $35,000, and $50,000 respectively.agreement.
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 issuable upon full conversion of the Power Up Notes, with an initial reserved share amount of 1,592,506, 1,038,251, and 1,408,950 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 amount owed to Power Up and a default interest at the rate of 22% per annum.
The above description of certain material terms of the Power Up Notes and Power Up Agreements are not a complete description of all terms of the financing transaction and is qualified in its entirety by reference to the Power Up Notes and Power Up Agreements, which are attached hereto as Exhibits 4.1, 4.2, 4.3, 10.6, 10.7, and 10.8, respectively.
ITEM 6. 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) |
3.1 | Amended Articles of Incorporation increasing authorized shares (Incorporated by reference to Exhibit 3.1 of Form 8-K, filed on October 25, 2019) |
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 | Certificate of Designation of Series A Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 of Form 10-Q, filed on September 16, 2019) |
4.2 | Certificate of Designation of Series B – Super Voting Convertible Preferred Stock (Incorporated by reference to Exhibit 4.2 of Form 10-Q, filed on September 16, 2019) |
4.3 | Certificate of Designation of Series C Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 of Form 8-K, filed on October 25, 2019) |
4.4 | Power Up Note dated June 5, 2018 (Incorporated by reference to Exhibit 4.1 of Form 10-Q, filed August 20, 2018) |
Second Power Up Note dated July 25, 2018 (Incorporated by reference to Exhibit 4.2 of Form 10-Q, filed August 20, 2018) | |
Third Power Up Note dated August 27, 2018 (Incorporated by reference to Exhibit 4.3 of Form 10-Q, filed November 21, 2019) | |
4.7 | Fourth Power Up Note dated December 5, 2018 (Incorporated by reference to Exhibit 4.6 of Form 10-Q, filed on September 16, 2019) |
4.8 | Fifth Power Up Note dated January 15, 2019 (Incorporated by reference to Exhibit 4.7 of Form 10-Q, filed on September 16, 2019) |
4.9 | Sixth Power Up Note dated February 22, 2019 (Incorporated by reference to Exhibit 4.8 of Form 10-Q, filed on September 16, 2019) |
4.10 | GS Capital Note dated January 16, 2019 (Incorporated by reference to Exhibit 4.9 of Form 10-Q, filed on September 16, 2019) |
4.11 | JSJ Note dated January 22, 2019 (Incorporated by reference to Exhibit 4.10 of Form 10-Q, filed on September 16, 2019) |
4.12 | EMA Note dated January 22, 2019 (Incorporated by reference to Exhibit 4.11 of Form 10-Q, filed on September 16, 2019) |
4.13 | Adar Note dated February 20, 2019 (Incorporated by reference to Exhibit 4.12 of Form 10-Q, filed on September 16, 2019) |
4.14 | Peak One Note dated February 21, 2019 (Incorporated by reference to Exhibit 4.13 of Form 10-Q, filed on September 16, 2019) |
4.15 | Auctus Note dated March 13, 2019 (Incorporated by reference to Exhibit 4.14 of Form 10-Q, filed on September 16, 2019) |
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 |
10.6 | Power Up Agreement dated June 5, 2018 (Included in Exhibit 4.1, which is incorporated by reference to Exhibit 4.1 of Form 10-Q, filed August 20, 2018) |
10.7 | Second Power Up Agreement dated July 25, 2018 (Included in Exhibit 4.2, which is incorporated by reference to Exhibit 4.2 of Form 10-Q, filed August 20, 2018 |
10.8 | Third Power Up Agreement dated August 27, 2018 (Included in Exhibit |
10.9 | Fourth Power Up Agreement dated December 15, 2018 (Incorporated by reference to Exhibit 10.9 of Form 10-Q, filed on September 16, 2019) |
10.10 | Fifth Power Up Agreement dated January 15, 2019 (Incorporated by reference to Exhibit 10.10 of Form 10-Q, filed on September 16, 2019) |
10.11 | Sixth Power Up Agreement dated February 22, 2019 (Incorporated by reference to Exhibit 10.11 of Form 10-Q, filed on September 16, 2019) |
10.12 | GS Capital Agreement dated January 16, 2019 (Incorporated by reference to Exhibit 10.12 of Form 10-Q, filed on September 16, 2019) |
10.13 | JSJ Agreement dated January 22, 2019 (Incorporated by reference to Exhibit 10.13 of Form 10-Q, filed on September 16, 2019) |
10.14 | EMA Agreement dated January 22, 2019 (Incorporated by reference to Exhibit 10.14 of Form 10-Q, filed on September 16, 2019) |
10.15 | Adar Agreement dated February 20, 2019 (Incorporated by reference to Exhibit 10.15 of Form 10-Q, filed on September 16, 2019) |
10.16 | Peak One Agreement dated February 21, 2019 (Incorporated by reference to Exhibit 10.16 of Form 10-Q, filed on September 16, 2019) |
10.17 | Auctus Agreement dated March 13, 2019 (Incorporated by reference to Exhibit 10.17 of Form 10-Q, filed on September 16, 2019) |
10.18† | Read Employment Agreement (Incorporated by reference to Exhibit 10.18 of Form 10-Q, filed on September 16, 2019) |
10.19† | Read Addendum to Employment Agreement (Incorporated by reference to Exhibit 10.19 of Form 10-Q, filed on September 16, 2019) |
10.20† | Grieco 2019 Employment Agreement (Incorporated by reference to Exhibit 10.20 of Form 10-Q, filed on September 16, 2019) |
10.21† | Grieco 2020 Employment Agreement |
31.1 | Principal Executive Officer Certification |
31.2 | Principal Financial Officer Certification |
32.1 | Section 1350 Certification |
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.
PCT LTD | ||
Date: | By: | /s/ |
Chief Executive Officer and Director | ||
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