UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A10-Q
(Amendment No. 1)
| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterlyperiod ended September 30 2020, 2021
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
(843) 390-7900
(Registrant’sRegistrant's telephone number, including area code)
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 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐ The registrant does not have a Web site.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large,"large accelerated filer,” “accelerated" "accelerated filer,” “smaller" "smaller reporting company,”" and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange 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 ☑
The number of shares outstanding of the registrant’sregistrant's common stock as of November 13, 202015, 2021 was 689,437,846 which does not include 309,812,154204,123,771 shares of common stock reserved against default on convertible debt and 750,000 shares for vesting of executive shares.
EXPLANATORY NOTE
Overview
Amendment No. 1 to Form 10-Q/A (this “Form 10-Q/A") amends and restates certain items noted below in the Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, as originally filed with the Securities and Exchange Commission on November 16, 2020 (the “Original Filing”). This Form 10-Q/A amends the Original Filing to reflect the correction of an error in the previously reported financial statements related to the accounting for the settlement of certain derivative warrants. See Note 13 to the Condensed Consolidated Financial Statements included in Item 1 for additional information and a reconciliation of the previously reported amounts to the restated amounts.
For the convenience of the reader, this Form 10-Q/A sets forth the Original Filing, as amended, in its entirety; however, this Form 10-Q/A amends and restates only the following financial statements and disclosures that were impacted from the correction of the error:
• Part I, Item 1 – Financial Statements
• Part I, Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
• Part I, Item 4 – Controls and Procedures
Except as described above, no other changes have been made to the Original Filing. This Form 10-Q/A speaks as of the date of the Original Filing and does not reflect events that may have occurred after the date of the Original Filing or modify or update any disclosures that may have been affected by subsequent events.
The Company filed an amended Quarterly Report for June 30, 2020 and is subsequently filing an amended Annual Report for the fiscal year ended December 31, 2020 and an amended Quarterly Report for March 31, 2021 to restate the previously issued annual and interim financial statements due to the accounting error described above.
TABLE OF CONTENTS
TABLE OF CONTENTS
| Part I - Financial Information | Page | |
| Item 1. | Condensed Consolidated Financial Statements (Unaudited) | 3 |
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 26 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 29 |
| Item 4. | Controls and Procedures | 29 |
| Part II - Other Information | ||
| Item 1. | Legal Proceedings | 30 |
| Item 1A. | Risk Factors | 30 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 30 |
| Item 3. | Defaults Upon Senior Securities | 31 |
| Item 4. | Mine Safety Disclosures | 31 |
| Item 5. | Other Information | 31 |
| Item 6. | Exhibits | 32 |
| Signatures | 33 | |
PART I –- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial information set forth below with respect to our statements of operations, stockholders’stockholders' equity (deficit), and cash flows for the three and nine-month periods ended September 30, 20202021 and 20192020 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, 20202021 and 20192020 are not necessarily indicative of results to be expected for any subsequent period.
PCT LTD
Consolidated Balance Sheets
September 30, 2020 | December 31, 2019 | |||||||
(Unaudited) (Restated - see note 13) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 161,248 | $ | 67,613 | ||||
| Accounts receivable, net | 268,991 | 111,915 | ||||||
| Prepaid expenses | 276,864 | 43,100 | ||||||
| Other current assets | 6,236 | 2,110 | ||||||
| Total current assets | 713,339 | 224,738 | ||||||
| PROPERTY AND EQUIPMENT | ||||||||
| Property and equipment, net | 513,567 | 440,109 | ||||||
| �� | ||||||||
| OTHER ASSETS | ||||||||
| Intangible assets, net | 3,476,146 | 3,704,429 | ||||||
| Deposits | 5,226 | 5,499 | ||||||
| Total other assets | 3,481,372 | 3,709,928 | ||||||
| TOTAL ASSETS | $ | 4,708,278 | $ | 4,374,775 | ||||
| LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 227,859 | $ | 315,228 | ||||
| Accrued expenses – related parties | 111,609 | 84,538 | ||||||
| Accrued expenses | 857,071 | 890,104 | ||||||
| Notes payable – related parties, net | 798,214 | 826,957 | ||||||
| Notes payable, net | 434,344 | 468,153 | ||||||
| Current portion of convertible notes payable, net | 1,134,190 | 1,187,633 | ||||||
| Derivative liability | 10,494,416 | 10,517,873 | ||||||
| Total current liabilities | 14,057,703 | 14,290,486 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Convertible notes payable, net of current portion | 53,500 | — | ||||||
| TOTAL LIABILITIES | 14,111,203 | 14,290,486 | ||||||
| MEZZANINE EQUITY | ||||||||
| Preferred series A stock, $0.001 par value; 1,000,000 authorized; 500,000 and 500,000 issued and outstanding at September 30, 2020 and December 31, 2019, respectively | 60,398 | 60,398 | ||||||
| Preferred series B stock, $0.001 par value; 1,000,000 authorized; 1,000,000 and 1,000,000 issued and outstanding at September 30, 2020 and December 31, 2019, respectively | 158,247 | 158,247 | ||||||
| Preferred series C stock, $0.001 par value; 5,500,000 authorized; 90,000 and nil issued and outstanding at September 30, 2020 and December 31, 2019, respectively | 90,000 | — | ||||||
| TOTAL MEZZANINE EQUITY | 308,645 | 218,645 | ||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Common stock, $0.001 par value; 1,000,000,000 authorized; 674,937,846 and 498,880,300 issued and outstanding at September 30, 2020 and December 31, 2019, respectively | 674,938 | 498,881 | ||||||
| Additional paid-in-capital | 23,457,582 | 15,872,330 | ||||||
| Accumulated deficit | (33,844,090 | ) | (26,505,567 | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | (9,711,570 | ) | (10,134,356 | ) | ||||
| TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' DEFICIT | $ | 4,708,278 | $ | 4,374,775 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
PCT LTD
Condensed Consolidated Statements of Operations
(Unaudited)Balance Sheets
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| (Restated - see note 13) | (Restated - see note 13) | |||||||||||||||
| REVENUES | ||||||||||||||||
| Product | $ | 488,021 | $ | 110,739 | $ | 1,233,058 | $ | 209,578 | ||||||||
| Licensing | 119,000 | 29,500 | 203,000 | 108,000 | ||||||||||||
| Equipment leases | 177,067 | 79,794 | 501,384 | 217,274 | ||||||||||||
| Total Revenues | 784,088 | 220,033 | 1,937,442 | 534,852 | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General and administrative | 614,667 | 468,694 | 1,755,495 | 1,550,997 | ||||||||||||
| Research and development | 15,547 | 203 | 20,547 | 3,995 | ||||||||||||
| Cost of product, licensing and equipment leases | 54,901 | 51,483 | 619,606 | 148,214 | ||||||||||||
| Depreciation and amortization | 90,999 | 84,467 | 255,368 | 253,568 | ||||||||||||
| Total operating expenses | 776,114 | 604,847 | 2,651,016 | 1,956,774 | ||||||||||||
| Income (Loss) from operations | 7,974 | (384,814 | ) | (713,574 | ) | (1,421,922 | ) | |||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Gain (loss) on change in fair value of derivative liability | 57,054 | (4,169,978 | ) | (15,253,543 | ) | (7,121,619 | ) | |||||||||
| Gain on change in fair value of preferred series A stock liability | — | — | — | 72,473 | ||||||||||||
| Gain on sale of intangible assets | — | — | — | 52,498 | ||||||||||||
| Gain (loss) on settlement of debt | (3,670,393 | ) | 16,706 | 9,993,528 | (67,703 | ) | ||||||||||
| Interest expense | (200,593 | ) | (1,225,906 | ) | (1,094,934 | ) | (1,728,189 | ) | ||||||||
| Total other income (expense) | (3,813,932 | ) | (5,379,178 | ) | (6,354,949 | ) | (8,792,540 | ) | ||||||||
| Loss before Income taxes | (3,805,958 | ) | (5,763,992 | ) | (7,068,523 | ) | (10,214,462 | ) | ||||||||
| Income taxes | — | — | — | — | ||||||||||||
| NET LOSS | $ | (3,805,958 | ) | $ | (5,763,992 | ) | $ | (7,068,523 | ) | $ | (10,214,462 | ) | ||||
| Preferred series C stock deemed dividends | — | — | (270,000 | ) | — | |||||||||||
| NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS’ | $ | (3,805,958 | ) | $ | (5,763,992 | ) | $ | (7,338,523 | ) | $ | (10,214,462 | ) | ||||
| Basic and diluted net loss per share | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.10 | ) | ||||
| Basic and diluted weighted average shares outstanding | 608,601,357 | 206,524,228 | 575,094,639 | 102,223,061 | ||||||||||||
September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 239,327 | $ | 115,196 | ||||
| Accounts receivable, net | 163,147 | 349,526 | ||||||
| Inventory | 12,318 | 6,188 | ||||||
| Prepaid expenses | 168,136 | 274,736 | ||||||
| Other current assets | 18,850 | 2,110 | ||||||
| Total current assets | 601,778 | 747,756 | ||||||
| PROPERTY AND EQUIPMENT | ||||||||
| Property and equipment, net | 320,131 | 358,719 | ||||||
| OTHER ASSETS | ||||||||
| Intangible assets, net | 3,171,658 | 3,400,024 | ||||||
| Operating lease right-of-use asset | 92,772 | 118,385 | ||||||
| Deposits | - | 9,726 | ||||||
| Total other assets | 3,264,430 | 3,528,135 | ||||||
| TOTAL ASSETS | $ | 4,186,339 | $ | 4,634,610 | ||||
| LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 60,854 | $ | 272,978 | ||||
| Accrued expenses - related parties | 82,038 | 139,280 | ||||||
| Accrued expenses | 707,450 | 622,040 | ||||||
| Deferred revenue | 1,075 | 1,075 | ||||||
| Advances payable | 1,450,000 | - | ||||||
| Current portion of operating lease liability | 40,127 | 34,965 | ||||||
| Current portion of notes payable - related parties, net | 154,271 | 789,214 | ||||||
| Current portion of notes payable, net | 231,504 | 384,380 | ||||||
| Current portion of convertible notes payable, net | 1,876,338 | 1,554,503 | ||||||
| Derivative liability | 1,561,420 | 7,102,801 | ||||||
| Total current liabilities | 6,165,077 | 10,901,236 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Convertible notes payable, net of current portion and discounts | - | 53,500 | ||||||
| Operating lease liability, net of current portion | 52,645 | 83,420 | ||||||
| TOTAL LIABILITIES | $ | 6,217,722 | 11,038,156 | |||||
| MEZZANINE EQUITY | ||||||||
| Preferred series A stock, $ par value; authorized; and issued and outstanding at September 30, 2021 and December 31, 2020, respectively | 60,398 | 60,398 | ||||||
| Preferred series B stock, $ par value; authorized; and issued and outstanding at September 30, 2021 and December 31, 2020, respectively | 158,247 | 158,247 | ||||||
| Preferred series C stock, $ par value; authorized; and issued and outstanding at September 30, 2021 and December 31, 2020, respectively | - | 40,000 | ||||||
| TOTAL MEZZANINE EQUITY | 218,645 | 258,645 | ||||||
| STOCKHOLDERS' DEFICIT | ||||||||
| CCommon stock, $ par value; authorized; and issued and outstanding at September 30, 2021 and December 31, 2020, respectively | 780,126 | 722,488 | ||||||
| Additional paid-in-capital | 24,349,886 | 23,202,933 | ||||||
| Accumulated deficit | (27,380,040 | ) | (30,587,612 | ) | ||||
| TOTAL STOCKHOLDERS' DEFICIT | (2,250,028 | ) | (6,662,191 | ) | ||||
| TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' DEFICIT | $ | 4,186,339 | $ | 4,634,610 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
PCT LTD
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)Operations
(Unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| REVENUES | ||||||||||||||||
| Product | $ | 33,279 | $ | 488,021 | $ | 204,138 | $ | 1,233,058 | ||||||||
| Licensing | 75,347 | 119,000 | 225,122 | 203,000 | ||||||||||||
| Equipment leases | 258,104 | 177,067 | 802,132 | 501,384 | ||||||||||||
| Total Revenues | 366,730 | 784,088 | 1,231,392 | 1,937,442 | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General and administrative | 1,031,072 | 614,667 | 2,583,139 | 1,755,495 | ||||||||||||
| Research and development | 14,783 | 15,547 | 29,738 | 20,547 | ||||||||||||
| Cost of product, licensing and equipment leases | 85,591 | 54,901 | 225,960 | 619,606 | ||||||||||||
| Depreciation and amortization | 98,364 | 90,999 | 295,092 | 255,368 | ||||||||||||
| Total operating expenses | 1,229,810 | 776,114 | 3,133,929 | 2,651,016 | ||||||||||||
| Income (loss) from operations | (863,080 | ) | 7,974 | (1,902,537 | ) | (713,574 | ) | |||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Gain (loss) on change in fair value of derivative liability | 457,116 | 57,054 | 1,749,277 | (15,253,543 | ) | |||||||||||
| Gain (loss) on settlement of debt | 361,357 | (3,670,393 | ) | 3,689,055 | 9,993,528 | |||||||||||
| Interest expense | (101,580 | ) | (200,593 | ) | (378,223 | ) | (1,094,934 | ) | ||||||||
| Miscellaneous income | - | - | 50,000 | - | ||||||||||||
| Total other income (expense) | 716,893 | (3,813,932 | ) | 5,110,109 | (6,354,949 | ) | ||||||||||
| Income (loss) before Income taxes | (146,187 | ) | (3,805,958 | ) | 3,207,572 | (7,068,523 | ) | |||||||||
| Income taxes | - | - | - | - | ||||||||||||
| NET INCOME (LOSS) | $ | (146,187 | ) | $ | (3,805,958 | ) | $ | 3,207,572 | $ | (7,068,523 | ) | |||||
| Preferred series C stock deemed dividends | - | - | - | (270,000 | ) | |||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS' | $ | (146,187 | ) | $ | (3,805,958 | ) | $ | 3,207,572 | $ | (7,338,523 | ) | |||||
| Basic income (loss) per share | $ | (0.00 | ) | $ | (0.01 | ) | $ | 0.00 | $ | (0.01 | ) | |||||
| Diluted income (loss) per share | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.01 | ) | ||||
| Basic weighted average shares outstanding | 773,082,751 | 608,601,357 | 760,229,694 | 575,094,639 | ||||||||||||
| Diluted weighted average shares outstanding | 773,082,751 | 608,601,357 | 1,024,432,537 | 575,094,639 | ||||||||||||
| Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s Equity | |||||||||||||||||
| Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balance – December 31, 2019 | 498,880,300 | $ | 498,881 | $ | 15,872,330 | $ | (26,505,567 | ) | $ | (10,134,356 | ) | |||||||||
| Common stock issued for services | 15,525,000 | 15,525 | 103,538 | — | 119,063 | |||||||||||||||
| Common stock issued in settlement of debt | 250,000 | 250 | 7,975 | — | 8,225 | |||||||||||||||
| Common stock issued in conversion of convertible notes payable | 36,050,000 | 36,050 | 360,660 | — | 396,710 | |||||||||||||||
| Beneficial conversion feature on preferred series C stock | — | — | 270,000 | (270,000 | ) | — | ||||||||||||||
| Net loss for the three-months ended March 31, 2020 | — | — | — | (10,281,648 | ) | (10,281,648 | ) | |||||||||||||
| Balance – March 31, 2020 | 550,705,300 | $ | 550,706 | $ | 16,614,503 | $ | (37,057,215 | ) | $ | (19,892,006 | ) | |||||||||
| Common stock issued for cash | 4,250,000 | 4,250 | 135,750 | — | 140,000 | |||||||||||||||
| Stock-based compensation | — | — | 14,182 | — | 14,182 | |||||||||||||||
| Common stock issued in settlement of debt | 15,000,000 | 15,000 | 826,500 | — | 841,500 | |||||||||||||||
| Common stock issued in cashless exercise of warrants | 9,246,186 | 9,246 | 420,702 | — | 429,948 | |||||||||||||||
| Common stock issued in conversion of preferred series C stock | 5,000,000 | 5,000 | 45,000 | — | 50,000 | |||||||||||||||
| Net income for the three-months ended June 30, 2020 | — | — | — | 7,019,083 | 7,019,083 | |||||||||||||||
| Balance – June 30, 2020 (restated - see note 13) | 584,201,486 | $ | 584,202 | $ | 18,056,637 | $ | (30,038,132 | ) | $ | (11,397,293 | ) | |||||||||
| Common stock issued for services | 10,000,000 | 10,000 | 384,038 | — | 394,038 | |||||||||||||||
| Common stock issued in conversion of convertible notes payable | 45,736,360 | 45,736 | 497,222 | — | 542,958 | |||||||||||||||
| Common stock issued in conversion of preferred series C stock | 35,000,000 | 35,000 | 359,000 | — | 394,000 | |||||||||||||||
| Premium related to conversion feature on note payable | — | — | 4,160,685 | — | 4,160,685 | |||||||||||||||
| Net loss for the three-months ended September 30, 2020 | — | — | — | (3,805,958 | ) | (3,805,958 | ) | |||||||||||||
| Balance – September 30, 2020 (restated - see note 13) | 674,937,846 | $ | 674,938 | $ | 23,457,582 | $ | (33,844,090 | ) | $ | (9,711,570 | ) | |||||||||
PCT LTD
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
| Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s 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 for the three-months ended March 31, 2019 | — | — | — | (920,323 | ) | (920,323 | ) | |||||||||||||
| Balance – March 31, 2019 | 50,518,048 | $ | 50,518 | $ | 12,486,394 | $ | (10,847,326 | ) | $ | 1,689,586 | ||||||||||
| Stock-based compensation | — | — | 23,125 | — | 23,125 | |||||||||||||||
| Common stock issued in conversion of convertible notes payable | 26,341,913 | 26,342 | 261,034 | — | 287,376 | |||||||||||||||
| Net loss for the three-months ended June 30, 2019 | — | — | — | (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 for services | 1,000,000 | 1,000 | 28,339 | — | 29,339 | |||||||||||||||
| Common stock issued in cashless 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 for the three-months ended September 30, 2019 | — | — | — | (5,763,992 | ) | (5,763,992 | ) | |||||||||||||
| Balance – September 30, 2019 | 262,360,042 | $ | 262,361 | $ | 14,971,340 | $ | (20,141,465 | ) | $ | (4,907,764 | ) | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
PCT LTD
Condensed Consolidated Statements of Cash FlowsStockholders' Equity (Deficit)
For the Three and Nine Months Ended September 30, 2021 and 2020
(Unaudited)
For the Nine Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| (Restated - see note 13) | ||||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | (7,068,523 | ) | $ | (10,214,462 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 255,368 | 253,568 | ||||||
| Amortization of debt discounts | 353,012 | 735,582 | ||||||
| Amortization of operating lease right-of-use asset | — | 35,452 | ||||||
| Common stock issued for services | 527,283 | 151,391 | ||||||
| Loss on change in fair value of derivative liability | 15,253,543 | 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 | (9,993,528 | ) | 67,703 | |||||
| Gain on sale of intangible assets | — | (52,498 | ) | |||||
| Default penalties on convertible notes payable | 13,762 | 665,731 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (157,076 | ) | (137,092 | ) | ||||
| Inventory | 26,669 | 21,707 | ||||||
| Prepaid expenses | (241,764 | ) | 173,514 | |||||
| Other assets | (3,853 | ) | — | |||||
| Operating lease liability | — | (34,205 | ) | |||||
| Accounts payable | (87,369 | ) | 66,737 | |||||
| Accrued expenses – related party | 27,071 | 18,104 | ||||||
| Accrued expenses | 807,049 | 447,921 | ||||||
| Contract liabilities | — | — | ||||||
| Net cash used in operating activities | (288,356 | ) | (596,701 | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Proceeds from sale of intangible assets | — | 111,323 | ||||||
| Purchases of property and equipment | (127,212 | ) | (2,516 | ) | ||||
| Purchase of intangible assets | — | (5,000 | ) | |||||
| Net cash provided by investing activities | (127,212 | ) | 103,807 | |||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from notes payable – related parties | 3,500 | 17,544 | ||||||
| Proceeds from notes payable | 428,030 | 138,600 | ||||||
| Proceeds from convertible notes payable | 613,000 | 480,750 | ||||||
| Proceeds from the sale of common stock | 140,000 | — | ||||||
| Proceeds from preferred series C stock subscriptions | 270,000 | — | ||||||
| Repayments of notes payable – related parties | (32,286 | ) | (20,044 | ) | ||||
| Repayments of notes payable | (556,153 | ) | (31,180 | ) | ||||
| Repayments of convertible notes payable | (356,888 | ) | (91,000 | ) | ||||
| Net cash provided by financing activities | 509,203 | 494,670 | ||||||
| Net change in cash | 93,635 | 1,776 | ||||||
| Cash and cash equivalents at beginning of period | 67,613 | 4,893 | ||||||
| Cash and cash equivalents at end of period | $ | 161,248 | $ | 6,669 | ||||
| Supplemental Cash Flow Information | ||||||||
| Cash paid for interest | $ | 77,687 | $ | 40,914 | ||||
| Cash paid for income taxes | $ | — | $ | — | ||||
| Non-Cash Investing and Financing Activities: | ||||||||
| Preferred series C stock deemed dividend | $ | 270,000 | $ | — | ||||
| Original debt discounts against notes payable | $ | 95,562 | $ | 10,204 | ||||
| Original debt discounts against convertible notes payable | $ | 201,388 | $ | 610,125 | ||||
| Modification of notes payable | $ | — | $ | 20,590 | ||||
| Common stock issued in conversion of convertible notes payable | $ | 939,668 | $ | 2,411,491 | ||||
| Common stock issued in cashless exercise of warrants | $ | 429,948 | $ | 232,834 | ||||
| Common stock issued in conversion of preferred series C stock | $ | 444,000 | $ | — | ||||
| Accounts receivable netted against notes payable | $ | — | $ | 28,090 | ||||
| Initial operating lease right-of-use asset and liability | $ | — | $ | 43,330 | ||||
| Preferred series A stock reclassification from liability to mezzanine equity | $ | — | $ | 60,398 | ||||
| Property plant and equipment transferred to inventory | $ | 26,669 | $ | 19,405 | ||||
| Extinguishment of notes payable | $ | — | $ | 175,814 | ||||
| Additional | Total Stockholders' | |||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Equity | |||||||||||||||||
| Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balance - December 31, 2019 | 498,880,300 | $ | 498,881 | $ | 15,872,330 | $ | (26,505,567 | ) | $ | (10,134,356 | ) | |||||||||
| Common stock issued for services | 15,525,000 | 15,525 | 103,538 | - | 119,063 | |||||||||||||||
| Common stock issued in settlement of debt | 250,000 | 250 | 7,975 | - | 8,225 | |||||||||||||||
| Common stock issued in conversion of convertible notes payable | 36,050,000 | 36,050 | 360,660 | - | 396,710 | |||||||||||||||
| Beneficial conversion feature on preferred series C stock | - | - | 270,000 | (270,000 | ) | - | ||||||||||||||
| Net loss for the three-months ended March 31, 2020 | - | - | - | (10,281,648 | ) | (10,281,648 | ) | |||||||||||||
| Balance - March 31, 2020 | 550,705,300 | $ | 550,706 | $ | 16,614,503 | $ | (37,057,215 | ) | $ | (19,892,006 | ) | |||||||||
| Common stock issued for cash | 4,250,000 | 4,250 | 135,750 | - | 140,000 | |||||||||||||||
| Common stock issued in settlement of debt | 15,000,000 | 15,000 | 826,500 | - | 841,500 | |||||||||||||||
| Common stock issued in cashless exercise of warrants | 9,246,186 | 9,246 | 420,702 | - | 429,948 | |||||||||||||||
| Common stock issued in conversion of preferred series C stock | 5,000,000 | 5,000 | 45,000 | - | 50,000 | |||||||||||||||
| Stock-based compensation | - | - | 14,182 | - | 14,182 | |||||||||||||||
| Net income for the three-months ended June 30, 2020 | - | - | - | 7,019,083 | 7,019,083 | |||||||||||||||
| Balance - June 30, 2020 | 584,201,486 | $ | 584,202 | $ | 18,056,637 | $ | (30,038,132 | ) | $ | (11,397,293 | ) | |||||||||
| Common stock issued for services | 10,000,000 | 10,000 | 384,038 | - | 394,038 | |||||||||||||||
| Common stock issued in conversion of convertible notes payable | 45,736,360 | 45,736 | 497,222 | - | 542,958 | |||||||||||||||
| Common stock issued in conversion of preferred series C stock | 35,000,000 | 35,000 | 359,000 | - | 394,000 | |||||||||||||||
| Premium related to conversion feature on note payable | - | - | 4,160,685 | - | 4,160,685 | |||||||||||||||
| Net loss for the three-months ended September 30, 2020 | �� | - | - | - | (3,805,958 | ) | (3,805,958 | ) | ||||||||||||
| Balance - September 30, 2020 | 674,937,846 | $ | 674,938 | $ | 23,457,582 | $ | (33,844,090 | ) | $ | (9,711,570 | ) | |||||||||
| Additional | Total Stockholders' | |||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Equity | |||||||||||||||||
| Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balance - December 31, 2020 | 722,487,846 | $ | 722,488 | $ | 23,202,933 | $ | (30,587,612 | ) | $ | (6,662,191 | ) | |||||||||
| Common stock issued for services | 2,500,000 | 2,500 | 74,276 | - | 76,776 | |||||||||||||||
| Common stock issued in settlement of debt | 4,466,508 | 4,466 | 648,844 | - | 653,310 | |||||||||||||||
| Common stock issued in conversion of convertible notes payable | 25,000,000 | 25,000 | - | - | 25,000 | |||||||||||||||
| Common stock issued in conversion of preferred series C stock | 4,000,000 | 4,000 | 36,000 | - | 40,000 | |||||||||||||||
| Net loss for the three-months ended March 31, 2021 | - | - | - | (718,028 | ) | (718,028 | ) | |||||||||||||
| Balance - March 31, 2021 | 758,454,354 | $ | 758,454 | $ | 23,962,053 | $ | (31,305,640 | ) | $ | (6,585,133 | ) | |||||||||
| Common stock issued for cash | 8,750,000 | 8,750 | 166,250 | - | 175,000 | |||||||||||||||
| Common stock issued for services | 1,000,000 | 1,000 | 32,174 | - | 33,174 | |||||||||||||||
| Common stock issued in cashless exercise of warrants | 1,921,875 | 1,922 | 32,672 | - | 34,594 | |||||||||||||||
| Net income for the three-months ended June 30, 2021 | - | - | - | 4,071,787 | 4,071,787 | |||||||||||||||
| Balance - June 30, 2021 | 770,126,229 | $ | 770,126 | $ | 24,193,149 | $ | (27,233,853 | ) | $ | (2,270,578 | ) | |||||||||
| Common stock issued for services | 2,000,000 | 2,000 | 40,737 | - | 42,737 | |||||||||||||||
| Common stock issued in conversion of convertible notes payable | 8,000,000 | 8,000 | 116,000 | - | 124,000 | |||||||||||||||
| Net loss for the three-months ended September 30, 2021 | - | - | - | (146,187 | ) | (146,187 | ) | |||||||||||||
| Balance - September 30, 2021 | 780,126,229 | $ | 780,126 | $ | 24,349,886 | $ | (27,380,040 | ) | (2,250,028 | ) | ||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
PCT LTD
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | 3,207,572 | $ | (7,068,523 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 295,092 | 255,368 | ||||||
| Amortization of debt discounts | 240,413 | 353,012 | ||||||
| Amortization of operating lease right-of-use asset | 39,182 | - | ||||||
| Common stock issued for services | 267,830 | 527,283 | ||||||
| Loss on change in fair value of derivative liability | (1,749,277 | ) | 15,253,543 | |||||
| (Gain) loss on settlement of debt | (3,689,055 | ) | (9,993,528 | ) | ||||
| Default penalties on convertible notes payable | 15,172 | 13,762 | ||||||
| Bad debt expense | 182,700 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 3,679 | (157,076 | ) | |||||
| Inventory | (6,130 | ) | 26,669 | |||||
| Prepaid expenses | (8,543 | ) | (241,764 | ) | ||||
| Other assets | (16,740 | ) | (3,853 | ) | ||||
| Deposits | 9,726 | |||||||
| Operating lease liability | (39,182 | ) | - | |||||
| Accounts payable | (212,125 | ) | (87,369 | ) | ||||
| Accrued expenses - related party | 14,887 | 27,071 | ||||||
| Accrued expenses | 165,479 | 807,049 | ||||||
| Net cash used in operating activities | (1,279,320 | ) | (288,356 | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchases of property and equipment | (28,138 | ) | (127,212 | ) | ||||
| Net cash provided by investing activities | (28,138 | ) | (127,212 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from notes payable - related parties | - | 3,500 | ||||||
| Proceeds from notes payable | 410,377 | 428,030 | ||||||
| Proceeds from convertible notes payable | 920,000 | 613,000 | ||||||
| Proceeds from advances payable | 1,450,000 | - | ||||||
| Proceeds from sale of common stock | 175,000 | 140,000 | ||||||
| Proceeds from preferred series C stock subscriptions | - | 270,000 | ||||||
| Repayments of notes payable - related parties | (53,763 | ) | (32,286 | ) | ||||
| Repayments of notes payable | (796,036 | ) | (556,153 | ) | ||||
| Repayments of convertible notes payable | (673,989 | ) | (356,888 | ) | ||||
| Net cash provided by financing activities | 1,431,589 | 509,203 | ||||||
| Net change in cash | 124,131 | 93,635 | ||||||
| Cash and cash equivalents at beginning of period | 115,196 | 67,613 | ||||||
| Cash and cash equivalents at end of period | $ | 239,327 | $ | 161,248 | ||||
| Supplemental Cash Flow Information | ||||||||
| Cash paid for interest | $ | 72,763 | $ | 77,687 | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| Non-Cash Investing and Financing Activities: | ||||||||
| Preferred series C stock deemed dividend | $ | - | $ | 270,000 | ||||
| Original debt discounts against notes payable | $ | 174,435 | $ | 95,562 | ||||
| Original debt discounts against convertible notes payable | $ | 12,000 | $ | 201,388 | ||||
| Common stock issued for services | $ | 81,740 | $ | - | ||||
| Common stock issued in conversion of convertible notes payable | $ | 149,000 | $ | 939,668 | ||||
| Common stock issued in settlement of notes payable to related parties | 653,310 | - | ||||||
| Common stock issued in cashless exercise of warrants | $ | 34,594 | $ | 429,948 | ||||
| Common stock issued in conversion of preferred series C stock | $ | 40,000 | $ | 444,000 | ||||
| Property plant and equipment transferred to inventory | $ | - | $ | 26,669 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
PCT LTD
Notes to the Unaudited
Condensed Consolidated Financial Statements
September 30, 20202021
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited interim condensed consolidated financial statements of PCT LTD (the “Company”"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 sheets, statements of operations, stockholders’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’sCompany's December 31, 20192020 audited financial statements as reported in its Form 10-K,10-K/A filed on August 3, 2020.September 10, 2021.
COVID-19
In December 2019 COVID-19 emerged in Wuhan, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to almost all other countries, including the United States, and infections have been reported globally. Because COVID-19 infections have been reported throughout the United States, certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive proclamations and/or directives may be issued in the future.
The ultimate impact of the COVID-19 pandemic on the Company’sCompany's operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak. Any resulting financial impact cannot be reasonably estimated at this time but may have a material impact on our business, financial condition and results of operations. The significance of the impact of the COVID-19 outbreak on the Company’sCompany's businesses and the duration for which it may have an impact cannot be determined at this time. At a minimum, the COVID-19 pandemic caused the Company to restrict travel of its personnel and to initiate distributor installations of certain of the Company’sCompany's equipment, as possible. The Company adapted to the immediate need for its US EPA registered disinfectant at the end of March and beginning of April, 2020, butby installing greater storage reserves and by assembling more of it higher-volume equipment to produce the hospital grade disinfectant known as Hydrolyte®. There were hard costs associatesassociated with these adaptations to the Little River, SC facility, but the Company continues to benefit from its fluid production capacities over the longer term. As the Federal, state and other restrictions associated with the pandemic have lessened, the Company is able to act more effectively in obtaining new contracts for its healthcare equipment, the Annihilyzer®. and other equipment.
Nature of Operations
PCT LTD (formerly Bingham Canyon Corporation, (the “Company,” “PCT"Company," "PCT Ltd,”" or “Bingham”"Bingham"), a Delaware corporation, was formed on February 27, 1986. The Company changed its domicile to Nevada on August 26, 1998. The Company acquires, develops and provides sustainable, environmentally safe disinfecting, cleaning and tracking technologies. The Company specializes in providing cleaning, sanitizing, and disinfectant fluid solutions and fluid-generating equipment that creates environmentally safe solutions for global sustainability.
The Company has one wholly-owned subsidiary, Paradigm Convergence Technologies Corporation (“Paradigm” or “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 to file with the Nevada Secretary of State to change its name to Paradigm Convergence Technologies Corp. Paradigm is a technology licensing company specializing in environmentally safe solutions for global sustainability. The company holds a patent, intellectual property and/or distribution rights to innovative products and technologies. Paradigm provides innovative products and technologies for eliminating biocidal contamination from water supplies, industrial fluids, hard surfaces, food processing equipment, and medical devices. Paradigm’sParadigm's overall strategy is to market new products and technologies through the use of equipment leasing, joint ventures, licensing, distributor agreements and partnerships.
Effective on February 29, 2018, the Company changed its name from Bingham Canyon Corporation to PCT LTD to more accurately identify the Company’sCompany's direction and to develop the complimentary relationship and association with its wholly-owned operating company, Paradigm Convergence Technologies Corporation (“Paradigm”("Paradigm" or “PCT"PCT Corp.”").
Significant Accounting Policies
There have been no changes to the significant accounting policies of the Company from the information provided in Note 1 of the Notes to the Consolidated Financial Statements in the Company's most recent Form 10-K.
Reclassification
Certain balances on the previously issued statements of operations and cash flows have been reclassified to be consistent with the current period presentation. The reclassification had no impact on total financial position, net loss, or stockholders’ equity (deficit).
Fair Value Measurements
The Company follows ASC 820, “"Fair Value Measurements and Disclosures”", which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last is considered unobservable, is used to measure fair value:
| • | Level 1 - Valuations for assets and liabilities traded in active markets from readily available pricing sources such as quoted prices in active markets for identical assets or liabilities. |
| • | Level 2 - Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. |
| • | Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. |
The carrying values of our financial instruments, including, cash and cash equivalents, accounts receivable, inventory, prepaid expenses, accounts payable and accrued expenses approximate their fair value due to the short maturities of these financial instruments.
Derivative liabilities and preferred series A stock liabilities are determined based on “Level 3”"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.
Our financial assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2020,2021, consisted of the following:
| Total fair value at September 30, 2020 $ | Quoted prices in active markets (Level 1) $ | Significant other observable inputs (Level 2) $ | Significant unobservable inputs (Level 3) $ | |||||||||||||||||||||||||||||
| (restated) | (restated) | Total fair value at September 30, 2021 $ | Quoted prices in active markets (Level 1) $ | Significant other observable inputs (Level 2) $ | Significant unobservable inputs (Level 3) $ | |||||||||||||||||||||||||||
| Description: | ||||||||||||||||||||||||||||||||
| Derivative liability (1) | 10,494,416 | — | — | 10,494,416 | 1,561,420 | - | - | 1,561,420 | ||||||||||||||||||||||||
| Total | 10,494,416 | — | — | 10,494,416 | 1,561,420 | - | - | 1,561,420 | ||||||||||||||||||||||||
Our financial assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2019,2020, consisted of the following:
| Total fair value at December 31, 2019 $ | Quoted prices in active markets (Level 1) $ | Significant other observable inputs (Level 2) $ | Significant unobservable inputs (Level 3) $ | Total fair value at December 31, 2020 $ | Quoted prices in active markets (Level 1) $ | Significant other observable inputs (Level 2) $ | Significant unobservable inputs (Level 3) $ | |||||||||||||||||||||||||
| Description: | ||||||||||||||||||||||||||||||||
| Derivative liability (1) | 10,517,873 | — | — | 10,517,873 | 7,102,801 | - | - | 7,102,801 | ||||||||||||||||||||||||
| Total | 10,517,873 | — | — | 10,517,873 | 7,102,801 | - | - | 7,102,801 | ||||||||||||||||||||||||
(1) The Company has estimated the fair value of these liabilities using the Binomial Model.
��
Basic and Diluted Loss Per Share
| Three months ended September 30, 2021 $ | Three months ended September 30, 2020 $ | Nine months ended September 30, 2021 $ | Nine months ended September 30, 2020 $ | |||||||||||||
| Numerator: | ||||||||||||||||
| Net income (loss) | (146,187 | ) | (3,805,958 | ) | 3,207,572 | (7,338,523 | ) | |||||||||
| (Gain) loss on change in fair value of derivative liability | - | - | (1,641,616 | ) | - | |||||||||||
| Gain on settlement of debt | - | - | (3,792,104 | ) | - | |||||||||||
| Interest expense | - | - | 30,617 | - | ||||||||||||
| Adjusted net income (loss) | (146,187 | ) | (3,805,958 | ) | (2,195,531 | ) | (7,338,523 | ) | ||||||||
| Denominator: Weighted average shares outstanding used in computing net income (loss) per share | ||||||||||||||||
| Basic | 773,082,751 | 608,601,357 | 760,229,694 | 575,094,639 | ||||||||||||
| Effect of dilutive warrants | - | - | 203,745,854 | - | ||||||||||||
| Effect of convertible note weighted shares | - | - | 60,456,989 | - | ||||||||||||
| Diluted | 773,082,751 | 608,601,357 | 1,024,432,537 | 575,094,639 | ||||||||||||
| Net income (loss) per share applicable to common shareholders: | ||||||||||||||||
| Basic | (0.00 | ) | (0.01 | ) | (0.00 | ) | (0.01 | ) | ||||||||
| Diluted | (0.00 | ) | (0.01 | ) | (0.00 | ) | (0.01 | ) | ||||||||
Recent Accounting Pronouncements
ASU 2019-12 amends the requirements related to the accounting for "hybrid" tax regimes. Such regimes are tax jurisdictions that impose the greater of two taxes - one based on income, or one based on items other than income. Although ASC 740 does not apply to taxes based on items other than income, ASC 740-10-15-4(a) originally specified that if there is a tax based on income that is greater than a franchise tax based on capital, only that excess is subject to the guidance in ASC 740. In feedback to the FASB, stakeholders indicated that the guidance on hybrid tax regimes increased the cost and complexity of applying ASC 740, particularly when the tax amount deemed to be a non-income tax was insignificant. Further, such guidance made it more difficult for entities to determine the appropriate tax rate to use when recording deferred taxes.
Accordingly, the FASB amended ASC 740-10-15-4(a) to state that an entity should include the amount of tax based on income in the tax provision and should record any incremental amount recorded as a tax not based on income. This amendment effectively reverses the order in which an entity determines the type of tax under current U.S. GAAP. In addition, the ASU amends the illustrative examples referred to and included in ASC 740-10-55-26 and ASC 740-10-55-139 through 55-144. The FASB notes that such amendments are consistent with the accounting for other incremental taxes, such as the base erosion anti-abuse tax. Moreover, in paragraph BC12 of the ASU, the FASB concluded that subjecting these taxes to the disclosure requirements in ASC 740 will result in greater transparency of franchise tax amounts.
| 10 |
In August 2018,2020, the FASB issued Accounting Standards Update No. 2018-13 (“ASU 2018-13”2020-06, "Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815- 40)" ("ASU 2020-06"), Fair Value Measurement (Topic 820): Disclosure Framework – Changes. ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity. The ASU is part of the FASB's simplification initiative, which aims to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements relating to fair value measurements as outlinedreduce unnecessary complexity in Topic 820, Fair Value Measurement. ASU 2018-13 is applicable to all entities that are required, under GAAP, to make disclosures about recurring or nonrecurring fair value measurements.U.S. GAAP. The ASU's amendments outlined in ASU 2018-13 are effective for all entities for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for any removed or modified disclosures upon issuance of ASU 2018-13.years. The Company adoptedis currently evaluating the impact ASU 2018-132020-06 will have on January 1, 2020 and the adoption of ASU 2018-13 did not have a material effect on the consolidatedits financial statements.
NOTE 2. GOING CONCERN
The accompanying consolidated condensed financial statements have been prepared assuming that the Company will continue as a going concern. The Company has an accumulated deficit of $33,844,090 (restated)$27,380,040 and has negative cash flows from operations. As of September 30, 2020,2021, the Company had a working capital deficit of $13,344,364 (restated)$5,563,299. 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.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 20202021 and December 31, 20192020 consisted of the following:
| September 30, 2020 | December 31, 2019 | September 30, 2021 | December 31, 2020 | |||||||||||||
| Leasehold improvements | $ | 33,770 | $ | 18,840 | ||||||||||||
| Machinery and leased equipment | $ | 151,719 | $ | 151,719 | 365,483 | 365,483 | ||||||||||
| Machinery and equipment not yet in service | 294,896 | 321,565 | 32,580 | 32,580 | ||||||||||||
| Office equipment and furniture | 147,276 | 20,064 | 52,566 | 39,357 | ||||||||||||
| Website | 2,760 | 2,760 | 2,760 | 2,760 | ||||||||||||
| Total property and equipment | $ | 596,651 | $ | 496,108 | $ | 487,159 | $ | 459,020 | ||||||||
| Less: Accumulated Depreciation | (83,084 | ) | (55,999 | ) | (167,028 | ) | (100,301 | ) | ||||||||
| Property and equipment, net | 513,567 | 440,109 | 320,131 | 358,719 | ||||||||||||
Depreciation expense was $27,085$66,726 and $18,947$27,085 for the nine-months ended September 30, 2021 and 2020, and 2019, respectively.
NOTE 4. INTANGIBLE ASSETS
Intangible assets at September 30, 20202021 and December 31, 20192020 consisted of the following:
| September 30, 2020 | December 31, 2019 | September 30, 2021 | December 31, 2020 | |||||||||||||
| Patents | $ | 4,505,489 | $ | 4,505,489 | $ | 4,505,489 | $ | 4,505,489 | ||||||||
| Technology rights | 200,000 | 200,000 | 200,000 | 200,000 | ||||||||||||
| Intangibles, at cost | 4,705,489 | 4,705,489 | 4,705,489 | 4,705,489 | ||||||||||||
| Less: Accumulated amortization | (1,229,343 | ) | (1,001,060 | ) | (1,533,831 | ) | (1,305,465 | ) | ||||||||
| Net Carrying Amount | $ | 3,476,146 | $ | 3,704,429 | $ | 3,171,658 | $ | 3,400,024 | ||||||||
Amortization expense was $228,283$228,366 and $234,621$228,283 for the nine-months ended September 30, 20202021 and 2019,2020, respectively.
Estimated Future Amortization Expense:Expense:
| $ | ||||||
| For year ending December 31, 2021 - remaining | ||||||
| For year ending December 31, 2022 | ||||||
| For year ending December 31, 2023 | 304,488 | |||||
| For year ending December 31, 2024 | ||||||
| 1,877,584 | ||||||
| Total | 3,171,658 | |||||
NOTE 5. Notes PayableLEASES
On August 26, 2020, the Company signed a new one-year lease for the Company headquarters and operations located in Little River, South Carolina. The lease was effective retroactively from July 1, 2020, ending on June 30, 2021, for $7,500 per month. The Company re-negotiated an annual lease on the Little River, SC facility for $7,500 per month, retroactive to July 1, 2020, which is renewable for an additional four years (with a 2% increase annually). The Company renewed the lease for another year, effective July 1, 2021, at $7,650 per month.
On October 19, 2020, the Company entered into a building lease with a three-year term and an effective date of November 1, 2020. The lease requires the Company to make payments of $4,500 per month. The Company recognized operating lease expense of $40,500 during the nine-month period ended September 30, 2021.
On March 15, 2021, the Company entered into a building lease with a two-year term and an effective date of April 1, 2021. The lease requires the Company to make payments of $2,750 per month. The Company recognized operating lease expense of $19,250 during the nine-month period ended September 30, 2021. The Company terminated the lease effective October 14, 2021 and recognized an impairment of $39,030 during the nine-month period ended September 30, 2021.
At September 30, 2021, the weighted average remaining operating lease term was 2.07 years and the weighted average discount rate associated with operating leases was 18.5%.
The components of lease expenses for the nine-month period ended September 30, 2021 and 2020 were as follows:
2021 $ | 2020 $ | |||||||
| Total operating lease cost | 59,750 | - | ||||||
The following table provides supplemental cashflow and other information related to leases for the nine-month period ended September 30, 2021 and 2020:
2021 $ | 2020 $ | |||||||
| Lease payments | 127,700 | 40,440 | ||||||
Supplemental balance sheet information related to leases as of September 30, 2021 and 2020 are as below:
2021 $ | 2020 $ | |||||||
| Cost | 176,213 | - | ||||||
| Accumulated amortization | (44,411 | ) | - | |||||
| Impairment | (39,030 | ) | ||||||
| Net carrying value | 92,772 | - | ||||||
Future minimum lease payments related to lease obligations are as follows as of September 30, 2021:
| $ | ||||
| 2021 | 13,500 | |||
| 2022 | 54,000 | |||
| 2023 | 45,000 | |||
| Total minimum lease payments | 112,500 | |||
| Less: amount of lease payments representing effects of discounting | (19,728 | ) | ||
| Present value of future minimum lease payments | 92,772 | |||
| Less: current obligations under leases | (40,127 | ) | ||
| Lease liabilities, net of current portion | 52,645 | |||
| 12 |
NOTE 6. NOTES PAYABLE
The following tables summarize notes payable as of September 30, 20202021 and December 31, 2019:2020:
| Type | Original Amount | Origination Date | Maturity Date | Annual Interest Rate | Balance at September 30, 2020 | Balance at December 31, 2019 | Original Amount | Origination Date | Maturity Date | Effective Annual Interest Rate | Balance at September 30, 2021 | Balance at December 31, 2020 | ||||||||||||||||||||||||||||
| Note Payable (a)** | $ | 25,000 | 05/08/2017 | 06/30/2018 | 0 | % | $ | 22,500 | $ | 27,500 | ||||||||||||||||||||||||||||||
| Note Payable (b) | $ | 8,700 | 11/15/2018 | 06/30/2019 | 10 | % | $ | - | $ | 8,700 | ||||||||||||||||||||||||||||||
| Note Payable ** | $ | 25,000 | 05/08/2017 | 06/30/2018 | 0 | % | $ | 27,500 | $ | 27,500 | $ | 118,644 | 05/05/2020 | 05/05/2021 | 8 | % | $ | 110,644 | $ | 110,644 | ||||||||||||||||||||
| Note Payable (aa) | $ | 130,000 | 06/20/2018 | 01/02/2020 | 8 | % | $ | — | $ | 130,000 | ||||||||||||||||||||||||||||||
| Note Payable ** | $ | 8,700 | 11/15/2018 | 06/30/2019 | 10 | % | $ | 8,700 | $ | 8,700 | ||||||||||||||||||||||||||||||
| Note Payable (e) | $ | 90,596 | 09/15/2019 | 05/28/2020 | 8 | % | $ | — | $ | 90,596 | ||||||||||||||||||||||||||||||
| Note Payable (c) | $ | 199,500 | 10/01/2020 | 09/28/2021 | 66 | % | $ | - | $ | 149,573 | ||||||||||||||||||||||||||||||
| Note Payable | $ | 50,000 | 10/03/2019 | 04/03/2020 | 12 | % | $ | — | $ | 37,500 | $ | 126,000 | 11/03/2020 | 04/23/2021 | 166 | % | $ | - | $ | 85,050 | ||||||||||||||||||||
| Note Payable (e) | $ | 17,500 | 11/12/2019 | 11/12/2020 | 8 | % | $ | — | $ | 17,500 | $ | 113,980 | 11/04/2020 | 03/15/2021 | 210 | % | $ | - | $ | 65,988 | ||||||||||||||||||||
| Note Payable ** | $ | 83,400 | 12/20/2019 | 06/19/2020 | 150 | % | $ | 19,245 | $ | 80,192 | ||||||||||||||||||||||||||||||
| Note Payable (f) | $ | 177,800 | 01/02/2021 | 07/12/2021 | 116 | % | $ | - | $ | - | ||||||||||||||||||||||||||||||
| Note Payable | $ | 148,362 | 12/20/2019 | 11/27/2020 | 80 | % | $ | 33,000 | $ | 145,404 | $ | 111,920 | 03/09/2021 | 05/21/2021 | 220 | % | $ | - | $ | - | ||||||||||||||||||||
| Note Payable | $ | 25,782 | 01/08/2020 | 05/13/2020 | 313 | % | $ | — | $ | — | $ | 29,686 | 03/09/2021 | Demand | 34 | % | $ | - | $ | - | ||||||||||||||||||||
| Note Payable | $ | 33,660 | 02/19/2020 | 04/30/2020 | 585 | % | $ | — | $ | — | $ | 222,400 | 06/01/2021 | Demand | 181 | % | $ | 76,985 | $ | - | ||||||||||||||||||||
| Note Payable | $ | 20,000 | 02/28/2020 | 05/28/2020 | 8 | % | $ | — | $ | — | $ | 87,000 | 06/29/2021 | Demand | 211 | % | $ | 31,320 | $ | - | ||||||||||||||||||||
| Note Payable (d) ** | $ | 100,000 | 03/31/2020 | 08/01/2020 | 30 | % | $ | 25,000 | $ | — | ||||||||||||||||||||||||||||||
| Note Payable (e) | $ | 118,644 | 05/05/2020 | 05/05/2021 | 8 | % | $ | 110,644 | $ | — | ||||||||||||||||||||||||||||||
| Note Payable (f)(x) | $ | 150,000 | 07/08/2020 | 10/05/2021 | 10 | % | $ | — | $ | — | ||||||||||||||||||||||||||||||
| Note Payable (g) | $ | 119,200 | 07/15/2020 | 11/04/2020 | 23 | % | $ | 37,250 | $ | — | ||||||||||||||||||||||||||||||
| Note Payable (w) | $ | 140,000 | 08/18/2020 | 11/19/2020 | 0 | % | $ | 70,000 | $ | — | ||||||||||||||||||||||||||||||
| Note Payable (h) | $ | 74,950 | 08/21/2020 | 11/28/2020 | 343 | % | $ | 46,040 | $ | — | ||||||||||||||||||||||||||||||
| Note Payable (y) | $ | 100,000 | 09/03/2020 | 12/08/2020 | 0 | % | $ | 75,000 | $ | — | ||||||||||||||||||||||||||||||
| Subtotal | $ | 452,379 | $ | 537,392 | ||||||||||||||||||||||||||||||||||||
| Sub-total | $ | 241,449 | $ | 447,455 | ||||||||||||||||||||||||||||||||||||
| Debt discount | $ | (18,035 | ) | $ | (69,239 | ) | $ | (9,945 | ) | $ | (63,075 | ) | ||||||||||||||||||||||||||||
| Balance, net | $ | 434,344 | $ | 468,153 | $ | 231,504 | $ | 384,380 | ||||||||||||||||||||||||||||||||
| Less current portion | $ | (434,344 | ) | $ | (468,153 | ) | $ | (231,504 | ) | $ | (384,380 | ) | ||||||||||||||||||||||||||||
| Total long-term | $ | — | $ | — | $ | - | $ | - | ||||||||||||||||||||||||||||||||
| ** Currently in default | ** Currently in default | |||||||||||||||||||||||||||||||||||||||
| a) | On |
| b) | On July 19, 2021, the Company repaid the principal amount of $8,700 leaving a note balance of $0. |
| c) | On October 1, 2020, the Company sold future receivables with a non-related party for |
| d) | On November 3, 2020, the Company sold future receivables with a non-related party for $, of which $ was loan fees and original issue discount resulting in cash proceeds to the Company of $86,350. The advance is to be repaid through |
| e) | On November 4, 2020, the Company sold future receivables with a non-related party for $, of which $was loan fees and original issue discount resulting in cash proceeds to the Company of $79,540. The advance is to be repaid through $weekly payments. In connection with the advance, the Company granted the lender a security interest |
| On |
| 13 |
| g) | On March 9, 2021, the Company sold future receivables with a non-related party for $, of which $ was loan fees and original issue discount resulting in cash proceeds to the Company of |
| h) |
| On March |
| i) | On June 1, 2021, the Company sold future receivables with a non-related party for $, of which $ was attributable to loan fees and $ to original issue discount resulting in cash proceeds to the Company of $152,000. The advance is |
| j) | On |
The following table summarizes notes payable, related parties as of September 30, 2021 and December 31, 2020:
| Type | Original Amount | Origination Date | Maturity Date | Annual Interest Rate | Balance at September 30, 2021 | Balance at December 31, 2020 | ||||||||||||||
| Note Payable, RP (k) | $ | 30,000 | 04/10/2018 | 01/15/2019 | 3 | % | $ | - | $ | 30,000 | ||||||||||
| Note Payable, RP (l) | $ | 380,000 | 06/20/2018 | 01/02/2020 | 8 | % | $ | - | $ | 380,000 | ||||||||||
| Note Payable, RP (m) | $ | 350,000 | 06/20/2018 | 01/02/2020 | 5 | % | $ | - | $ | 285,214 | ||||||||||
| Note Payable, RP (n)** | $ | 17,000 | 06/20/2018 | 01/02/2020 | 5 | % | $ | 15,000 | $ | 17,000 | ||||||||||
| Note Payable, RP ** | $ | 50,000 | 07/27/2018 | 11/30/2018 | 8 | % | $ | 50,000 | $ | 50,000 | ||||||||||
| Note Payable, RP (o) | $ | 5,000 | 10/09/2018 | Demand | 0 | % | $ | - | $ | 5,000 | ||||||||||
| Note Payable, RP (p) | $ | 5,000 | 10/19/2018 | Demand | 0 | % | $ | 4,237 | $ | 5,000 | ||||||||||
| Note Payable, RP ** | $ | 15,000 | 08/16/2019 | 02/16/2020 | 8 | % | $ | 15,000 | $ | 15,000 | ||||||||||
| Note Payable, RP (q) | $ | 2,000 | 02/11/2020 | Demand | 0 | % | $ | - | $ | 2,000 | ||||||||||
| Note Payable, RP (m) | $ | 84,034 | 02/16/2021 | Demand | 5 | % | $ | 70,034 | $ | - | ||||||||||
| Subtotal | $ | 154,271 | $ | 789,214 | ||||||||||||||||
| Debt discount | $ | - | $ | - | ||||||||||||||||
| Balance, net | $ | 154,271 | $ | 789,214 | ||||||||||||||||
| Less current portion | $ | (154,271 | ) | $ | (789,214 | ) | ||||||||||||||
| Total long-term | $ | - | $ | - | ||||||||||||||||
| ** Currently in default | ||||||||||||||||||||
| k) | During the nine-months ended September 30, 2021, the Company made several payments to repay the principal amount of $30,000 leaving a note balance of $0. |
| l) | On February 16, 2021, the Company issued shares of common stock to settle a June 20, 2018, note payable of $380,000 and accrued interest of $26,153 owed to the current COO and Director of the Company. The Company recognized the fair value of the shares issued of $ and due to the related party nature of the transaction no gain was recognized for the difference between the fair value of the shares and the extinguished debt. The resulting difference was recorded as Additional Paid-in Capital in the amount of $. |
| 14 |
The following table summarizes notes payable, related parties as of September 30, 2020 and December 31, 2019:
| Type | Original Amount | Origination Date | Maturity Date | Annual Interest Rate | Balance at September 30, 2020 | Balance at December 31, 2019 | ||||||||||||||
| Note Payable, RP ** | $ | 30,000 | 04/10/2018 | 01/15/2019 | 3 | % | $ | 30,000 | $ | 30,000 | ||||||||||
| Note Payable, RP ** | $ | 380,000 | 06/20/2018 | 01/02/2020 | 8 | % | $ | 380,000 | $ | 380,000 | ||||||||||
| Note Payable, RP ** | $ | 350,000 | 06/20/2018 | 01/02/2020 | 5 | % | $ | 294,214 | $ | 325,000 | ||||||||||
| Note Payable, RP ** | $ | 17,000 | 06/20/2018 | 01/02/2020 | 5 | % | $ | 17,000 | $ | 17,000 | ||||||||||
| Note Payable, RP ** | $ | 50,000 | 07/27/2018 | 11/30/2018 | 8 | % | $ | 50,000 | $ | 50,000 | ||||||||||
| Note Payable, RP | $ | 5,000 | 10/09/2018 | Demand | 0 | % | $ | 5,000 | $ | 5,000 | ||||||||||
| Note Payable, RP | $ | 5,000 | 10/19/2018 | Demand | 0 | % | $ | 5,000 | $ | 5,000 | ||||||||||
| Note Payable, RP ** | $ | 15,000 | 08/16/2019 | 02/16/2020 | 8 | % | $ | 15,000 | $ | 15,000 | ||||||||||
| Note Payable, RP (i) | $ | 1,500 | 02/11/2020 | Demand | 0 | % | $ | — | $ | — | ||||||||||
| Note Payable, RP (j) | $ | 2,000 | 02/11/2020 | Demand | 0 | % | $ | 2,000 | $ | — | ||||||||||
| Subtotal | $ | 798,214 | $ | 827,000 | ||||||||||||||||
| Debt discount | $ | — | $ | (43 | ) | |||||||||||||||
| Balance, net | $ | 798,214 | $ | 826,957 | ||||||||||||||||
| Less current portion | $ | (798,214 | ) | $ | (826,957 | ) | ||||||||||||||
| Total long-term | $ | — | $ | — | ||||||||||||||||
| ** Currently in default | ||||||||||||||||||||
| On February |
| On |
| o) | On September 23, 2021, the Company |
| p) | On September 23, 2021, the Company repaid the principal amount of $763 leaving a note balance of $4,237. |
| q) | On September 23, 2021, the Company repaid the principal amount of $2,000 leaving a note balance of $0. |
The following table summarizes convertible notes payable as of September 30, 2021 and December 31, 2020:
| Type | Original Amount | Origination Date | Maturity Date | Annual Interest Rate | Balance at September 30, 2021 | Balance at December 31, 2020 | ||||||||||||||
| Convertible Note Payable* ** | $ | 65,000 | 12/06/2018 | 12/06/2019 | 12 | % | $ | 46 | $ | 46 | ||||||||||
| Convertible Note Payable (r) | $ | 75,000 | 03/18/2019 | 12/13/2019 | 24 | % | $ | - | $ | 177,795 | ||||||||||
| Convertible Note Payable (s) | $ | 30,000 | 03/06/2020 | 03/05/2021 | 12 | % | $ | - | $ | 21,662 | ||||||||||
| Convertible Note Payable (t)* ** | $ | 150,000 | 04/10/2020 | 04/09/2021 | 12 | % | $ | 65,000 | $ | 165,000 | ||||||||||
| Convertible Note Payable (u) ** | $ | 300,000 | 08/27/2020 | 07/31/2021 | 12 | % | $ | 270,000 | $ | 300,000 | ||||||||||
| Convertible Note Payable (v) | $ | 53,500 | 09/22/2020 | 03/21/2022 | 12 | % | $ | - | $ | 53,500 | ||||||||||
| Convertible Note Payable (w) | $ | 87,500 | 09/24/2020 | Demand | 8 | % | $ | 15,000 | $ | 40,000 | ||||||||||
| Convertible Note Payable (x) | $ | 200,000 | 10/07/2020 | 10/06/2021 | 5 | % | $ | 200,000 | $ | 200,000 | ||||||||||
| Convertible Note Payable (y) | $ | 200,000 | 10/16/2020 | 10/15/2021 | 5 | % | $ | 200,000 | $ | 200,000 | ||||||||||
| Convertible Note Payable (z) | $ | 300,000 | 11/11/2020 | 11/10/2021 | 5 | % | $ | 300,000 | $ | 300,000 | ||||||||||
| Convertible Note Payable (aa) | $ | 150,000 | 12/29/2020 | 12/28/2021 | 5 | % | $ | 150,000 | $ | 150,000 | ||||||||||
| Convertible Note Payable (bb) | $ | 150,000 | 01/27/2021 | 01/27/2022 | 5 | % | $ | 150,000 | $ | - | ||||||||||
| Convertible Note Payable (cc) | $ | 128,000 | 02/22/2021 | 02/22/2022 | 12 | % | $ | - | $ | - | ||||||||||
| Convertible Note Payable (dd) | $ | 200,000 | 03/18/2021 | 03/18/2022 | 5 | % | $ | 200,000 | $ | - | ||||||||||
| Convertible Note Payable (ee) | $ | 83,000 | 03/26/2021 | 03/26/2022 | 12 | % | $ | - | $ | - | ||||||||||
| Convertible Note Payable (ff) | $ | 43,000 | 04/05/2021 | 04/05/2022 | 12 | % | $ | - | $ | - | ||||||||||
| Convertible Note Payable (gg) | $ | 200,000 | 04/14/2021 | 04/14/2022 | 5 | % | $ | 200,000 | $ | - | ||||||||||
| Convertible Note Payable (hh) | $ | 128,000 | 05/03/2021 | 05/03/2022 | 12 | % | $ | 128,000 | $ | - | ||||||||||
| Subtotal | $ | 1,876,046 | $ | 1,608,003 | ||||||||||||||||
| Debt discount | $ | (1,708 | ) | $ | - | |||||||||||||||
| Balance, net | $ | 1,876,338 | $ | 1,608,003 | ||||||||||||||||
| Less current portion | $ | (1,876,338 | ) | $ | (1,554,503 | ) | ||||||||||||||
| Total long-term | - | 53,500 | ||||||||||||||||||
| * Embedded conversion feature accounted for as a derivative liability at period end ** Currently in default | ||||||||||||||||||||
| 15 |
The following table summarizes convertible notes payable as of September 30, 2020 and December 31, 2019:
| Type | Original Amount | Origination Date | Maturity Date | Annual Interest Rate | Balance at September 30, 2020 | Balance at December 31, 2019 | ||||||||||||||
| Convertible Note Payable (k) | $ | 50,000 | 12/06/2018 | 12/06/2019 | 12 | % | $ | — | $ | 22,777 | ||||||||||
| Convertible Note Payable * ** | $ | 65,000 | 12/06/2018 | 12/06/2019 | 12 | % | $ | 46 | $ | 46 | ||||||||||
| Convertible Note Payable (l)(w) | $ | 100,000 | 01/18/2019 | 01/16/2020 | 24 | % | $ | — | $ | 95,492 | ||||||||||
| Convertible Note Payable (u) | $ | 60,000 | 01/29/2019 | 01/22/2020 | 18 | % | $ | — | $ | 266,050 | ||||||||||
| Convertible Note Payable * ** | $ | 50,000 | 02/01/2019 | 10/22/2019 | 24 | % | $ | 154,330 | $ | 154,330 | ||||||||||
| Convertible Note Payable (r) | $ | 60,000 | 02/21/2019 | 02/14/2022 | 0 | % | $ | — | $ | 74,000 | ||||||||||
| Convertible Note Payable (m)(y) | $ | 55,125 | 02/21/2019 | 02/20/2020 | 24 | % | $ | — | $ | 42,125 | ||||||||||
| Convertible Note Payable * ** | $ | 75,000 | 03/18/2019 | 12/13/2019 | 24 | % | $ | 232,814 | $ | 232,814 | ||||||||||
| Convertible Note Payable (r) | $ | 26,000 | 09/16/2019 | 09/11/2022 | 0 | % | $ | — | $ | 26,000 | ||||||||||
| Convertible Note Payable (n) | $ | 175,814 | 09/27/2019 | 09/25/2020 | 8 | % | $ | — | $ | 175,814 | ||||||||||
| Convertible Note Payable | $ | 53,000 | 10/08/2019 | 10/07/2020 | 12 | % | $ | — | $ | 53,000 | ||||||||||
| Convertible Note Payable | $ | 50,000 | 10/31/2019 | 10/29/2020 | 12 | % | $ | — | $ | 50,000 | ||||||||||
| Convertible Note Payable (o) | $ | 8,888 | 02/19/2020 | 02/18/2021 | 12 | % | $ | — | $ | — | ||||||||||
| Convertible Note Payable (p) * ** | $ | 30,000 | 03/06/2020 | 03/05/2021 | 12 | % | $ | 30,000 | $ | — | ||||||||||
| Convertible Note Payable (q) | $ | 45,000 | 03/09/2020 | 03/02/2021 | 12 | % | $ | — | $ | — | ||||||||||
| Convertible Note Payable (s) * ** | $ | 150,000 | 04/10/2020 | 04/09/2021 | 12 | % | $ | 150,000 | $ | — | ||||||||||
| Convertible Note Payable (t) | $ | 128,000 | 04/16/2020 | 04/09/2021 | 12 | % | $ | 128,000 | $ | — | ||||||||||
| Convertible Note Payable (v) | $ | 83,000 | 05/12/2020 | 11/08/2021 | 12 | % | $ | 83,000 | $ | — | ||||||||||
| Convertible Note Payable (x) | $ | 300,000 | 08/27/2020 | 07/31/2021 | 10 | % | $ | 300,000 | $ | — | ||||||||||
| Convertible Note Payable (z) | $ | 53,500 | 09/22/2020 | 03/21/2022 | 12 | % | $ | 53,500 | $ | — | ||||||||||
| Convertible Note Payable (aa) | $ | 87,500 | 09/24/2020 | Demand | 8 | % | $ | 56,000 | $ | — | ||||||||||
| Subtotal | $ | 1,187,690 | $ | 1,192,448 | ||||||||||||||||
| Debt discount | $ | — | $ | (4,815 | ) | |||||||||||||||
| Balance, net | $ | 1,187,690 | $ | 1,187,633 | ||||||||||||||||
| Less current portion | $ | (1,134,190 | ) | $ | (1,187,633 | ) | ||||||||||||||
| Total long-term | $ | 53,500 | $ | — | ||||||||||||||||
| * Embedded conversion feature accounted for as a derivative liability at period end ** Currently in default | ||||||||||||||||||||
| During the |
| On May 7, 2021, the Company | ||
| t) | On | |
The embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15. The initial fair value of the conversion feature was | ||
| $375,847. During the |
| During the nine months ended September 30, 2021, the Company | ||
| On |
| x) | On |
| y) | On October 16, 2020, the Company entered into a convertible promissory note with a non-related party for $200,000. The note is due on October 15, 2021 and bears interest on the unpaid principal balance at a rate of 5% per annum. 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 of $0.20. As the stock price at the issuance date was lesser than the effective conversion price, it was determined that no beneficial conversion feature exists. The Company determined that there was no derivative liability associated with the debenture under ASC 815-15 Derivatives and Hedging. |
| 16 |
| z) | On November 11, 2020, the Company entered into a convertible promissory note with a non-related party for $300,000. The note is due on November 10, 2021 and bears interest on the unpaid principal balance at a rate of 5% per annum. 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 of $0.15. As the stock price at the issuance date was lesser than the effective conversion price, it was determined that no beneficial conversion feature exists. The Company determined that there was no derivative liability associated with the debenture under ASC 815-15 Derivatives and Hedging. |
| aa) | On December 29, 2020, the Company entered into a convertible promissory note with a non-related party for $150,000. The note is due on December 28, 2021 and bears interest on the unpaid principal balance at a rate of 5% per annum. 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 of $0.10. As the stock price at the issuance date was lesser than the effective conversion price, it was determined that no beneficial conversion feature exists. The Company determined that there was no derivative liability associated with the debenture under ASC 815-15 Derivatives and Hedging. |
| bb) | On January 27, 2021, the Company entered into a convertible promissory note with a non-related party for $150,000. The note is due on January 26, 2022 and bears interest on the unpaid principal balance at a rate of 5% per annum. The note may be converted by the lender at any time before 180 days of the date of issuance into shares of Company's common stock at a conversion price equal to $0.10. As the stock price at the issuance date was lesser than the effective conversion price, it was determined that no beneficial conversion feature exists. The Company determined that there was no derivative liability associated with the debenture under ASC 815-15 Derivatives and Hedging. |
| cc) | On February 22, 2021, the Company entered into a convertible promissory note with a non-related party for $128,000, of which | |
| On |
| ee) | On March 26, 2021, the Company entered into a convertible promissory note with a non-related party for $83,000, of which |
| On |
| 17 |
| gg) | On April 14, 2021, the Company entered into a convertible promissory note with a non-related party for $200,000. The note is due on April 14, 2022 and bears interest on the unpaid principal balance at a rate of 5% per annum. 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 of $0.10. As the stock price at the issuance date was lesser than the effective conversion price, it was determined that no beneficial conversion feature exists. As the note is not convertible until 180 days following issuance, no derivative liability was recognized as of September 30, |
| hh) | On | |
NOTE 6.7. DERIVATIVE LIABILITIES
The embedded conversion option of (1) the convertible notes payable described in Note 5; (2) 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 5,6, 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’sCompany's previously outstanding convertible instruments qualified for derivative reclassification, however, any convertible securities issued after the election, including the warrants described in Note 9,10, 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’sCompany's Level 3 financial liabilities.liabilities.
| September 30, 2020 | December 31, 2019 | |||||||||||||||
| (restated) | September 30, 2021 | December 31, 2020 | ||||||||||||||
| Balance at the beginning of period | $ | 10,517,873 | $ | 322,976 | $ | 7,102,801 | $ | 10,517,873 | ||||||||
| Original discount limited to proceeds of notes | 166,000 | 540,750 | - | 166,000 | ||||||||||||
| Fair value of derivative liabilities in excess of notes proceeds received | 804,403 | 1,653,887 | ||||||||||||||
| Settlement of derivative instruments | (15,443,000 | ) | (3,258,054 | ) | (3,792,104 | ) | (16,824,669 | ) | ||||||||
| Change in fair value of embedded conversion option | 14,449,140 | 11,258,314 | (1,749,277 | ) | 13,243,597 | |||||||||||
| Balance at the end of the period | $ | 10,494,416 | $ | 10,517,873 | $ | 1,561,420 | $ | 7,102,801 | ||||||||
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:calculations:
| Expected Volatility | Risk-free Interest Rate | Expected Dividend Yield | Expected Life (in years) | |||||||||||||
| At issuance during the period | 336-358 | % | 0.25-1.47 | % | 0 | % | 1.00 | |||||||||
| At September 30, 2020 | 127-256 | % | 0.11-0.16 | % | 0 | % | 0.43-3.45 | |||||||||
| Expected Volatility | Risk-free Interest Rate | Expected Dividend Yield | Expected Life (in years) | |||||||||||||
| At September 30, 2021 | - | % | - | % | % | - | ||||||||||
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.
NOTE 7. STOCKHOLDERS’8. STOCKHOLDERS' DEFICIT
Preferred Stock
Effective March 23, 2018, the Company amended the articles of incorporation and authorized shares of preferred stock with a par value of $ per share. The preferred stock may be issued from time to time by the Board of Directors as shares of one or more classes or series, as summarized below.
Series A Preferred Shares
Effective March 23, 2018, the Company amended the articles of incorporation and authorized shares of preferred stock with a par value of $ per share, of which shares were designated as Series A Convertible Preferred Stock as of December 31, 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 February 7, 2020,December 1, 2018, the Company's Board of Directors 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 extinguished a promissory note and convertible note, including accrued interest throughreceived $60,000 of subscriptions for the issuance of 220,000 shares of preferred series C stock.Preferred Series "A" stock to three accredited investors who are related parties. The Company recordedwas unable to issue the difference betweensubscriber the preferred shares until the Company filed a Certificate of Designation and the Preferred Series "A" stock has been duly validly authorized. Resulting in a preferred stock liability 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 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 the shares then held by them.
Dividends
None.
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:
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| 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 CA stock on April 12, 2019 was $60,398 and was valued by using the Binomial Model based on various assumptions and was reclassified from a liability to mezzanine equity.
As of $264,000September 30, 2021, and December 31, 2020, there were shares of Series A Convertible Preferred Stock issued and outstanding, respectively.
Series B Preferred Shares
Effective August 13, 2019, the debtCompany filed a Certificate of Designation with the Nevada Secretary of State thereby designating 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.
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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. To date the Company has received $500,500 of equity capital, and upon the receipt of an additional $499,500 in equity capital the redemption right will be triggered.
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 $220,000the 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 to each of its current CEO/Chairman and COO/Director (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 a loss on extinguishmentliabilities but that could require the employer to redeem the equity instruments for cash or other assets, the Company classified the initial redemption amount of debtthe shares of $44,000.$158,247 as temporary equity or "mezzanine".
During the period endedAs of September 30, 2021, and December 31, 2020, there were shares of Series B Preferred Stock issued and outstanding, respectively.
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 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:
| 21 |
The number of shares constituting the Series C Convertible Preferred Stock shall be . Such number of shares may be increased or decreased by resolution of the Board of Directors, 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 sold 270,000convertible 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 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.
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 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.
As conversion of the Series C Preferred Shares is not within the control of the Company, and it is not certain that the Company could satisfy its obligation to deliver shares upon conversion, the Series C Preferred Shares were classified in temporary equity or "mezzanine".
At December 31, 2020, there were Series C Preferred Shares issued and outstanding, valued at $ per share or $40,000.
On February 15, 2021, shares of preferred series C stock for proceeds of $270,000.
The preferred series C stock sold during the period contained a beneficial conversion feature as the conversion price was less than the fair value of the common stock which the instrument is convertible at the commitment date. During the nine-months ended September 30, 2020, the intrinsic value of the 270,000 shares sold was $270,000. As the preferred series C stock are have no stated maturity date and are convertible at any time, the discount created in the preferred series C stock is fully amortized at issuance as a deemed dividend.
During the period ended September 30, 2020, 400,000 shares of preferred series C stock with a value of $444,000 was converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 40,000,000 shares of common stock. At September 30, 2021, no Series C Preferred Shares were outstanding.
| 22 |
Common Stock
On January 1, 2019,Effective March 23, 2018, the Company entered into a four-year employment agreement with F. Jody Read in his role as Chief Executive Officer. The employment agreement awardsamended the CEO 1,500,000 restricted sharesArticles of Incorporation and increased the Company’s restricted stock valued at $240,000, 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 October 4, 2019, F. Jody Read resigned from the position of CEO and moved back into the role of COO. The terms of his employment agreement remained unchanged. As of September 30, 2020, 750,000 shares were issued and the Company had recognized $159,431 of stock-based compensation.
During the period ended September 30, 2020, $22,777 of principal and $4,007 of interest of the convertible note payable was converted into 37,005,272 shares of the Company’s common stock as further described in Note 5(h).
During the period ended September 30, 2020, the Company issued 9,246,186authorized shares of common stock uponwith a par value of $ per share from to shares. Effective October 4, 2019, the cashless exerciseCompany amended the Articles of 9,280,742 warrants.Incorporation and increased the authorized shares of common stock with a par value of $ per share from to shares. The number of shares outstanding of the registrant's common stock as of September 30, 2021 and December 31, 2020 was and , respectively.
DuringOn January 4, 2021, the period ended September 30, 2020, 400,000Company issued common shares to settle a convertible note described in Note 6(p), with a remaining balance of $.
On February 15, 2021, shares of preferred series C stock with a value of $444,000 was converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 40,000,000 shares of common stock.
On January 1, 2020,February 16, 2021, the Company issued 15,000,000 fully vested shares of the Company’s common stock to Gary J. Grieco, its President and CEO, pursuant to an employment agreement. The Company recorded the fair value of the common shares of $99,000 as stock-based compensation.
On March 20, 2020, the Company issued 150,000 shares of common stock to settle $247,270 from a consultant. The Company recorded$275,000 note payable dated June 20, 2018, which has a balance of $, including interest, to the fair valuecurrent Chairman and CEO of the common shares of $5,880 in consulting expense.Company.
On March 31, 2020,February 16, 2021, the Company issued 250,000 shares of common stock pursuant to a loan agreement. The Company recorded the fair value of the common shares of $8,225 in interest expense.
On April 27, 2020, the Company issued 1,000,000 shares of common stock to an employeesettle a June 20, 2018 note payable of $380,000 and accrued interest of $26,153 owed to the current COO and Director of the Company for cash proceeds of $10,000.Company.
On April 27, 2020, the Company issued 2,750,000 shares of common stock for cash proceeds of $110,000.
On May 5, 2020, the Company issued 15,000,000 shares of common stock as part of the note extinguishment and consolidation agreement described in Note 5(e).
On May 19, 2020, the Company issued 500,000 shares of common stock for cash proceeds of $20,000.
On JulyMarch 1, 2020,2021, the Company entered into a consulting agreement. Pursuant to the agreement, the consultant will provide advisory services through DecemberMay 31, 2021 in consideration of 8,000,000 shares of common stock. The fair value of the common stock was $307,200 of$62,750 which $49,685 washas been recognized in consulting expenses forexpense during the periodsix months ended SeptemberJune 30, 2020, with the remainder in prepaid assets for future services.2021.
On July 6, 2020,May 7, 2021, the Company entered intoissued common shares pursuant to a consulting agreement. Pursuantcashless exercise of warrants as described in Note 6(l).
On May 27, 2021, the Company issued common shares pursuant to an employment agreement dated May 5, 2021 with an officer of the agreement the consultant will provide investor relations services for a period of one year in consideration for $3,000 per month and the issuance of 1,000,000 shares of common stock.Company. The fair value of the common stock was $36,000 of which $8,482 was recognized in consulting expenses for the period ended September 30, 2020, with the remainder in prepaid assets for future services.$18,990.
On July 8, 2020,June 2, 2021, the Company entered intoissued common shares for cash proceeds of $75,000.
On June 30, 2021, the Company issued common shares for cash proceeds of $100,000.
On September 1, 2021, the Company issued common shares and paid $21,000 to settle the remaining outstanding principal on a consulting agreement. Pursuantconvertible note payable of $88,795 and accrued interest of $26,153 resulting in a gain on settlement of debt of $20,364.
On September 10, 2021, the Company issued common shares pursuant to a general release agreement dated July 23, 2021 with a former employee of the agreement the consultant will provide operational business development and introductory services for a period of five years in consideration for the issuance of 1,000,000 shares of common stock and a 5% commission, payable in cash, for any product sales brokered.Company. The fair value of the common stock was $36,500 which was recognized in consulting expenses.
On August 14, 2020, $4,562 of principal and $191 of interest of a convertible note payable was converted into 5,281,088 shares of the Company’s common stock as further described in Note 5(l)$28,400.
On September 2, 2020, $7,168 of principal of a convertible note payable was converted into 8,000,000 shares of the Company’s common stock as further described in Note 5(m).
On September 29, 2020, $31,500 of principal of a convertible note payable was converted into 31,500,000 shares of the Company’s common stock as further described in Note 5(aa).
NOTE 8.9. STOCK OPTIONS
| Number of options | Weighted average exercise price $ | ||||||||
| Balance, December 31, 2019 | 200,000 | 2.00 | |||||||
| Granted | — | — | |||||||
| Expired | — | — | |||||||
| Settled | — | — | |||||||
| Balance, September 30, 2020 | 200,000 | 2.00 | |||||||
| Number of options | Weighted average exercise price $ | |||||||||
| Balance, December 31, 2020 | 200,000 | 2.00 | ||||||||
| Granted | - | - | ||||||||
| Expired | - | - | ||||||||
| Settled | - | - | ||||||||
| Balance, September 30, 2021 | 200,000 | 2.00 | ||||||||
| Date | Date | Number | Number | Exercise | Weighted Average Remaining Contractual | Expiration | Proceeds to Company if | Date | Number | Number | Exercise | Weighted Average Remaining Contractual | Expiration | Proceeds to Company if | ||||||||||||||||||||||||||||||||||||||
| Issued | Issued | Outstanding | Exercisable | Price $ | Life (Years) | Date | Exercised | Issued | Outstanding | Exercisable | Price $ | Life (Years) | Date | Exercised | ||||||||||||||||||||||||||||||||||||||
| 01/26/2017 | 200,000 | 200,000 | 2.00 | 1.32 | 01/26/2022 | 400,000 | 01/26/2017 | 200,000 | 200,000 | 2.00 | 0.32 | 01/26/2022 | 400,000 | |||||||||||||||||||||||||||||||||||||||
| 200,000 | 200,000 | $ | 400,000 | 200,000 | 200,000 | $ | 400,000 | |||||||||||||||||||||||||||||||||||||||||||||
The weighted average exercise prices are $2.00 for the options outstanding and exercisable, respectively. The intrinsic value of stock options outstanding at September 30, 20202021 was $nil.
| 23 |
NOTE 9.10. WARRANTS
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 6.
The following table summarizes the continuity of share purchase warrants:warrants:
| Number of warrants | Weighted average exercise price $ | |||||||
| (restated) | ||||||||
| Balance, December 31, 2019 | 413,816,252 | 0.00053 | ||||||
| Adjustment to warrants outstanding | 43,154,762 | 0.00056 | ||||||
| Granted | — | — | ||||||
| Cancelled | (197,190,272 | ) | 0.00041 | |||||
| Exercised | (9,280,742 | ) | 0.00035 | |||||
| Balance, September 30, 2020 | 250,500,000 | 0.00055 | ||||||
| Number of warrants | Weighted average exercise price $ | |||||||||
| Balance, December 31, 2020 | 260,500,000 | 0.00283 | ||||||||
| Settled | - | - | ||||||||
| Granted | - | - | ||||||||
| Exercised | (142,857,143 | ) | 0.00035 | |||||||
| Balance, September 30, 2021 | 117,642,857 | 0.00584 | ||||||||
| Date | Number | Number | Exercise | Weighted Average Remaining Contractual | Expiration | Proceeds to Company if | ||||||||||||||||||||
| Issued | Outstanding | Exercisable | Price $ | Life (Years) | Date | Exercised | ||||||||||||||||||||
| (restated) | (restated) | (restated) | ||||||||||||||||||||||||
| 11/28/2018 | 142,857,143 | * | 142,857,143 | * | 0.00035 | * | 1.16 | 11/28/2021 | $ | 50,000 | ||||||||||||||||
| 12/03/2018 | 500,000 | 500,000 | 0.10 | 3.18 | 12/03/2023 | 50,000 | ||||||||||||||||||||
| 03/13/2019 | 107,142,857 | * | 107,142,857 | * | 0.00035 | * | 3.45 | 03/13/2024 | 37,500 | |||||||||||||||||
| 250,500,000 | 250,500,000 | $ | 137,500 | |||||||||||||||||||||||
| Date | Number | Number | Exercise | Weighted Average Remaining Contractual | Expiration | Proceeds to Company if | ||||||||||||||||||||
| Issued | Outstanding | Exercisable | Price $ | Life (Years) | Date | Exercised | ||||||||||||||||||||
| 12/3/2018 | 500,000 | 500,000 | 0.10 | 2.18 | 12/3/2023 | 50,000 | ||||||||||||||||||||
| 3/31/2019 | 107,142,857 | 107,142,857 | * | 0.00035 | * | 2.45 | 03/13/2024 | 37,500 | ||||||||||||||||||
| 8/26/2020 | 10,000,000 | * | 10,000,000 | * | 0.06 | * | 3.91 | 8/26/2025 | 600,000 | |||||||||||||||||
| 117,642,857 | 117,642,857 | $ | 687,500 | |||||||||||||||||||||||
*The number of warrants outstanding and exercisable is variable based on adjustments to the exercise price of the warrant due to dilutive issuances.
The Company cancelled 197,190,272 warrants as part of the settlement of a convertible note as described in Note 5(r).
The intrinsic value of warrants outstanding at September 30, 20202021 was $11,037,500 (restated)$.
NOTE 10.11. 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 5, 7,6, 8, 9 and 11 for more details.
NOTE 11.12. COMMITMENTS AND CONTINGENCIES
Consulting Agreements –-
On OctoberMarch 1, 2019,2021, the Company entered into a consulting agreement. Pursuant to the agreement, for investor relationsthe consultant will provide consulting services through March 31, 2020. The agreement calledto the Company in various marketing and management matters for a cash paymentperiod of $25,000 and 12,000,000 restricted shares of common stock to be issued tothree months. In consideration for the consultant. As of December 31, 2019,services performed by the consultant, the Company recordedagreed to compensate the fair value of the shares of $61,200 for the consulting expense related to the consulting services provided. The expense was recognized over the service period, ending on March 31, 2020.consultant $5,000 per month.
In addition to contracts for service, theThe Company also regularly uses the professional services of securities attorneys, a US EPA specialist, professional accountants and other public-company specialists.
Employment Agreements –-
On January 1, 2019,May 5, 2021, the Company entered into a four-yearan employment agreement with F. Jody Read in his role as Chief Executive Officer.a recently appointed officer, for an initial term of three years. 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 operation 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$70,000 and the final 375,000issuance of 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 stock were issued to Read. All other terms of the January 1, 2019 employment agreement remain in effect. On October 4, 2019, F. Jody Read resigned from the position of CEO and moved back into the role of COO.
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 stock 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. Gary Grieco entered the role of CEO of the Company upon F. Jody Read’s resignation on October 4, 2019 and entered into a four-year employment agreement with the Company on January 1, 2020. Pursuant to the agreement 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 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 termsfair value of the agreement.common stock was $. On July 16, 2021, the officer resigned.
Other Obligations and Commitments –-
On March 20, 2020, the Company entered into a consulting agreement. Pursuant to the agreement the consultant will provide investor relations services for a period of nine months. The Company issued the consultant 150,000 shares of common stock.
On July 1, 2020, the Company entered into a consulting agreement. Pursuant to the agreement the consultant will provide advisory services through December 31, 2021 in consideration of 8,000,000 shares of common stock.
On July 6, 2020, the Company entered into a consulting agreement. Pursuant to the agreement the consultant will provide investor relations services for a period of one year in consideration for $3,000 per month and the issuance of 1,000,000 shares of common stock.
On July 8, 2020, the Company entered into a consulting agreement. Pursuant to the agreement the consultant will provide operational business development and introductory services for a period of five years in consideration for the issuance of 1,000,000 shares of common stock and a 5% commission, payable in cash for any product sales brokered.
On August 26, 2020 the Company signed a new 1-year lease for the Company headquarters and operations located in Little River, South Carolina. The lease was effective retroactively from July 1, 2020, ending on June 30, 2021, for $7,500 per month. The Company has an optiona commitment to renew the leaseacquire inventory for an additional 4-years.a total cost of $61,150, of which $30,575 was paid prior to September 30, 2021.
NOTE 12. SUBSEQUENT EVENTS
On October 1, 2020,Other than the Company sold future receivables with a non-related party for $199,500, of which $97,950 was loan fees, original issue discount and reserve resulting in cash proceeds toabove, there are no new obligation or commitments during the Company of $101,550. The advance is to be repaid through $3,841 weekly payments. In connection with the advance, the Company granted the lender a security interest any and all past, present and future assets of the Company.
On October 7, 2020, the Company entered into a convertible promissory with a non-related party for $200,000. The note is due on October 7, 2021 and bears interest on the unpaid principal balance at a rate of 5% per annum. 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 of $0.20.
On October 5, 2020, $8,338 of principal and $500 of interest of a convertible note payable was converted into 1,000,000 shares of the Company’s common stock as further described in Note 5(p).
On October 5, 2020, 50,000 shares of preferred series C stock was converted into common stock resulting in the issuance of 5,000,000 shares of common stock.
On October 6, 2020, the Company issued 3,500,000 common shares at $0.02 for proceeds of $70,000.
On October 7, 2020, the Company entered into a Services Agreement with a consultant for services for a period of six months. In consideration for services the Company issued 5,000,000 shares of common stock.ending September 30, 2021.
On October 16, 2020, the Company entered into a convertible promissory with a non-related party for $200,000. The note is due on October 16, 2021 and bears interest on the unpaid principal balance at a rate of 5% per annum. 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 of $0.20.
On November 11, 2020, the Company entered into a convertible promissory with a non-related party for $300,000. The note is due on November 11, 2021 and bears interest on the unpaid principal balance at a rate of 5% per annum. 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 of $0.15.
NOTE 13. RESTATEMENT
As previously disclosed, the Company determined that previously issued warrants to a debt holder should have been accounted for as cancelled along with the settlement of all outstanding debt with such holder in May 2020. In May 2020, the Company entered into a debt settlement agreement with one of its debt holders which settled all debt and warrants held by such holder. However, due to a misunderstanding of the facts and circumstances related to the settlement agreement, the Company did not reflect the warrants as settled at that time. Due to the provisions of the warrants, these were accounted for as derivative liabilities. The Company concluded that the impact of recognizing the cancellation of the warrants was materially different from its previously reported results. As a result, the Company is restating its unaudited condensed consolidated financial statements for the periods impacted. The following financial tables reconcile the previously reported amounts to the restated amounts for each unaudited condensed consolidated financial statement.
The table below sets forth changes to the unaudited consolidated balance sheet:
| September 30, 2020 | ||||||||||||
| As Previously Reported | Adjustments | As Restated | ||||||||||
| ASSETS | ||||||||||||
| Total current assets | $ | 713,339 | $ | — | $ | 713,339 | ||||||
| Total property and equipment, net | 513,567 | — | 513,567 | |||||||||
| Total other assets | 3,481,372 | — | 3,481,372 | |||||||||
| TOTAL ASSETS | 4,708,278 | — | 4,708,278 | |||||||||
| LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY | ||||||||||||
| CURRENT LIABILITIES | ||||||||||||
| Accounts payable | 227,859 | — | 227,859 | |||||||||
| Accrued expenses – related parties | 111,609 | — | 111,609 | |||||||||
| Accrued expenses | 857,071 | — | 857,071 | |||||||||
| Notes payable – related parties | 798,214 | — | 798,214 | |||||||||
| Notes payable, net | 434,344 | — | 434,344 | |||||||||
| Convertible notes payable, net | 1,134,190 | — | 1,134,190 | |||||||||
| Derivative liability | 17,066,643 | (6,572,227 | ) | 10,494,416 | ||||||||
| Total current liabilities | 20,629,930 | (6,572,227 | ) | 14,057,703 | ||||||||
| Convertible notes payable, net of current portions and discounts | 53,500 | — | 53,500 | |||||||||
| TOTAL LIABILITIES | 20,683,430 | (6,572,227 | ) | 14,111,203 | ||||||||
| TOTAL MEZZANINE EQUITY | 308,645 | — | 308,645 | |||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||||||
| Common stock | 674,938 | — | 674,938 | |||||||||
| Additional paid-in capital | 23,457,582 | — | 23,457,582 | |||||||||
| Accumulated deficit | (40,416,317 | ) | 6,572,227 | (33,844,090 | ) | |||||||
| (16,283,797 | ) | 6,572,227 | (9,711,570 | ) | ||||||||
| TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY | $ | 4,708,278 | $ | — | $ | 4,708,278 | ||||||
The table below sets forth changes to the unaudited condensed consolidated statements of operations for the three months ended September 30, 2020:NOTE 13. SUBSEQUENT EVENTS
| For the three months ended September 30, 2020 | ||||||||||||
| As Previously Reported | Adjustments | As Restated | ||||||||||
| REVENUES | ||||||||||||
| Total revenues | $ | 784,088 | $ | — | $ | 784,088 | ||||||
| OPERATING EXPENSES | ||||||||||||
| Total operating expenses | 776,114 | — | 776,114 | |||||||||
| INCOME (LOSS) FROM OPERATIONS | 7,974 | — | 7,974 | |||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||
| Gain (Loss) on change in fair value of derivative liability | 510,219 | (453,165 | ) | 57,054 | ||||||||
| Gain (loss) on change in fair value of preferred series A stock liability | — | — | — | |||||||||
| Gain on sale of intangible assets | — | — | — | |||||||||
| Gain (loss) on settlement of debt | (3,670,393 | ) | — | (3,670,393 | ) | |||||||
| Interest expense | (200,593 | ) | — | (200,593 | ) | |||||||
| Total other income (expense) | (3,360,767 | ) | (453,165 | ) | (3,813,932 | ) | ||||||
| Income (loss) before income taxes | (3,352,793 | ) | (453,165 | ) | (3,805,958 | ) | ||||||
| Income taxes | — | — | — | |||||||||
| NET INCOME (LOSS) | (3,352,793 | ) | (453,165 | ) | (3,805,958 | ) | ||||||
| Preferred series C stock deemed dividends | — | — | — | |||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS’ | $ | (3,352,793 | ) | $ | (453,165 | ) | $ | (3,805,958 | ) | |||
| Basic and diluted net income (loss) per share | $ | (0.01 | ) | $ | — | $ | (0.01 | ) | ||||
| Basic and diluted weighted average shares outstanding | 608,601,357 | 608,601,357 | ||||||||||
| a) | On October 11, 2011, the Company issued 15,000,000 common shares upon the conversion of the remaining $15,000 of the convertible note payable, leaving a note balance of $0. Refer to Note 6(w). |
| b) | Effective October 14, 2021, the Company terminated a building lease with an original expiry date of March 31, 2023. Refer to Note 5. |
| 3) | On November 5, 2021, the Company repaid a $128,000 convertible note as well as $61,952 of interest and prepayment penalties. Refer to Note 6(hh). |
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The table below sets forth changes to the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2020:
| For the nine months ended September 30, 2020 | ||||||||||||
| As Previously Reported | Adjustments | As Restated | ||||||||||
| REVENUES | ||||||||||||
| Total revenues | $ | 1,937,442 | $ | — | $ | 1,937,442 | ||||||
| OPERATING EXPENSES | ||||||||||||
| Total operating expenses | 2,651,016 | — | 2,651,016 | |||||||||
| LOSS FROM OPERATIONS | (713,574 | ) | — | (713,574 | ) | |||||||
| OTHER INCOME (EXPENSE) | ||||||||||||
| Loss on change in fair value of derivative liability | (9,877,388 | ) | (5,376,155 | ) | (15,253,543 | ) | ||||||
| Gain (loss) on change in fair value of preferred series A stock liability | — | — | — | |||||||||
| Gain on sale of intangible assets | — | — | — | |||||||||
| Gain (loss) on settlement of debt | (1,954,854 | ) | 11,948,382 | 9,993,528 | ||||||||
| Interest expense | (1,094,934 | ) | — | (1,094,934 | ) | |||||||
| Total other income (expense) | (12,927,176 | ) | 6,572,227 | (6,354,949 | ) | |||||||
| Income (loss) before income taxes | (13,640,750 | ) | 6,572,227 | (7,068,523 | ) | |||||||
| Income taxes | — | — | — | |||||||||
| NET INCOME (LOSS) | (13,640,750 | ) | 6,572,227 | (7,068,523 | ) | |||||||
| Preferred series C stock deemed dividends | (270,000 | ) | — | (270,000 | ) | |||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS’ | $ | (13,910,750 | ) | $ | 6,572,227 | $ | (7,338,523 | ) | ||||
| Basic and diluted net income (loss) per share | $ | (0.02 | ) | $ | 0.01 | $ | (0.01 | ) | ||||
| Basic and diluted weighted average shares outstanding | 575,094,639 | 575,094,639 | ||||||||||
The table below sets forth changes to the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2020:
| For the nine months ended September 30, 2020 | ||||||||||||
| As Previously Reported | Adjustments | As Restated | ||||||||||
| Cash Flows from Operating Activities | ||||||||||||
| Net loss | $ | (13,640,750 | ) | $ | 6,572,227 | $ | (7,068,523 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Depreciation and amortization | 255,368 | — | 255,368 | |||||||||
| Amortization of debt discounts | 353,012 | — | 353,012 | |||||||||
| Common stock issued for services | 527,283 | — | 527,283 | |||||||||
| Loss on change in fair value of derivative liability | 9,877,388 | 5,376,155 | 15,253,543 | |||||||||
| (Gain) loss on settlement of debt | 1,954,854 | (11,948,382 | ) | (9,993,528 | ) | |||||||
| Default penalties on convertible notes payable | 13,762 | 13,762 | ||||||||||
| Change in operating assets and liabilities | ||||||||||||
| Accounts receivable | (157,076 | ) | — | (157,076 | ) | |||||||
| Inventory | 26,669 | — | 26,669 | |||||||||
| Prepaid expenses | (241,764 | ) | — | (241,764 | ) | |||||||
| Other assets | (3,853 | ) | — | (3,853 | ) | |||||||
| Accounts payable | (87,369 | ) | — | (87,369 | ) | |||||||
| Accrued expenses – related party | 27,071 | — | 27,071 | |||||||||
| Accrued expenses | 807,049 | — | 807,049 | |||||||||
| Net cash used in operating activities | (288,356 | ) | — | (288,356 | ) | |||||||
| Net cash provided by investing activities | (127,212 | ) | — | (127,212 | ) | |||||||
| Net cash provided by financing activities | 509,203 | — | 509,203 | |||||||||
| Net change in cash | 93,635 | — | 93,635 | |||||||||
| Cash and cash equivalents at beginning of period | 67,613 | — | 67,613 | |||||||||
| Cash and cash equivalents at end of period | $ | 161,248 | $ | — | $ | 161,248 | ||||||
FORWARD-LOOKING STATEMENTS
This document contains “forward-looking statements”"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”"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”"may," "could," "estimate," "intend," "continue," "believe," "expect" or “anticipate”"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.
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 global impact of COVID-19 on the United States economy and out operations; |
| • | the inability of management to effectively implement our strategies and business plans; and |
| • | the other risks and uncertainties detailed in this report. |
In this form 10-Q references to “PCT LTD”"PCT LTD", “the Company”"the Company", “we,” “us,” “our”"we," "us," "our" and similar terms refer to PCT LTD and its wholly owned operating subsidiary, Paradigm Convergence Technologies Corporation (“Paradigm”("Paradigm").
COVID-19
The current and potential effects of coronavirus may impact our business, results of operations and financial condition.
Actual or threatened epidemics, pandemics, outbreaks, or other public health crises could materially and adversely impact or disrupt our operations, adversely affect the local economies where we operate and negatively impact our customers’customers' spending in the impacted regions or depending upon the severity, globally, which could materially and adversely impact our business, results of operations and financial condition. For example, since December 2019, a strain of novel coronavirus (causing “COVD-19”"COVD-19") surfaced in China and has spread into the United States, Europe and most other countries of the world, resulting in certain supply chain disruptions, volatilities in the stock market, lower oil and other commodity prices due to diminished demand, massive unemployment, and lockdown on international travels, all of which has had an adverse impact on the global economy. There is significant uncertainty around the breadth and duration of the business disruptions related to COVID-19, as well as its impact on the U.S. economy. Moreover, an epidemic, pandemic, outbreak or other public health crisis, such as COVID-19, could adversely affect our ability to adequately staff and manage our business. The extent to which COVID-19 impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain, rapidly changing and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions taken to contain it or treat its impact.
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ITEM 2. MANAGEMENT’SMANAGEMENT'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”"Exchange Agreement") with Paradigm Convergence Technologies Corporation, a Nevada corporation (“Paradigm”("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 lossincome of $7,068,523 (restated)$3,207,572 for the nine-months ended September 30, 20202021 and accumulated losses of $33,844,090 (restated)$27,380,040 from inception through September 30, 2020.2021.
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:
| • | continuation of commercial launch of non-toxic sanitizing, disinfecting and sterilizing products and technologies with a strong emphasis on health care facilities, including hospitals, nursing homes, assisted living facilities, clinics and medical, dental and veterinarian offices; |
| • | continued research and development on product generation units including those designed for on-site deployment at customers' facilities; |
| • | accelerated research and development and initial commercialization on applications of the products in the agricultural sector, most specifically with respect to abatement of a specific crop disease crisis caused by a bacterium in the U.S. and elsewhere; |
| • | acquiring available complementary technology rights; |
| • | payment of short-term debt; |
| • | hiring of additional personnel in 2021; and |
| • | general and administrative operating costs. |
Management projects these costs to total approximately $2,700,000.$2,400,000. 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 covering its fixed operating expenses (“("burn rate”rate") by the end of the firstthird quarter of 2021.2022.
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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, 2020 | December 31, 2019 | September 30, 2021 | December 31, 2020 | ||||||||||||
| (restated) | ||||||||||||||||
| Cash and cash equivalents | $ | 161,248 | $ | 67,613 | $ | 239,327 | $ | 115,196 | ||||||||
| Total current assets | 713,339 | 224,738 | 601,778 | 747,756 | ||||||||||||
| Total assets | 4,708,278 | 4,374,775 | 4,186,339 | 4,634,610 | ||||||||||||
| Total liabilities | 14,111,203 | 14,290,486 | 6,217,722 | 11,038,156 | ||||||||||||
| Accumulated deficit | (33,844,090 | ) | (26,505,567 | ) | (27,380,040 | ) | (30,587,612 | ) | ||||||||
| Total stockholders’ deficit | $ | (9,711,570 | ) | $ | (10,134,356 | ) | ||||||||||
| Total stockholders' deficit | $ | (2,250,028 | ) | $ | (6,662,191 | ) | ||||||||||
AtFor the nine months ended September 30, 2020,2021, the Company recorded a net lossincome of $7,068,523 (restated)$3,207,572 and at September 30, 2021 had a working capital deficit of $13,344,364 (restated).$5,563,299. While we have recently recorded an increase in the amount of revenues from operations, since inception and we had not established an ongoing source of revenue sufficient to cover our operating costs. During the nine-months ended September 30, 20202021 and 20192020 we 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 $161,248$239,327 in cash at September 30, 2020,2021, compared to $67,613$115,196 in cash at December 31, 2019.2020. We had total liabilities of $14,111,203 (restated)$6,217,722 at September 30, 20202021 compared to $14,290,486$11,038,156 at December 31, 2019.2020.
Our current cash flow is not sufficient to meet our monthly expenses of approximately $250,000$200,000 and to fund future research and development adequately. We intend to rely on additional debt financing, loans from existing stockholders and private placements of common stock 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 stock in lieu of cash to convert debt or pay for expenses.
Commitments and Obligations
At September 30, 20202021 the Company recorded notes payable totaling approximately $2,420,248$2,262,113 (related, non-related and convertible, net of debt discount) compared to notes payable totaling $2,482,743$2,781,597 (related, non-related and convertible, net of debt discount) at December 31, 2019.2020. These notes payable represent cash advances received and expenses paid from third parties and related parties. All of the notes payable carry effective interest from 0% to 585%211% and are due ranging from on demand to March 21,May 3, 2022.
The Company headquarters and operations is located in Little River, South Carolina. The South CarolinaCompany re-negotiated an annual lease payment was $4,800on the Little River, SC facility for $7,500 per month, through November 30, 2019. The building was sold, and the Company was on a month-to-month lease with the new Landlord through June 30, 2020. On August 26, 2020 the Company signed a new 1-year lease, retroactive to July 1, 2020, ending on June 30, 2021, for $7,500 per month. The Company has an option to renew the leasewhich is renewable for an additional 4-years.four years (with a 2% increase annually). Effective July 1, 2021 through June 30, 2022, the monthly lease payment is $7,650. The Company added a three-year lease for 9,600 sf. of warehouse space in Fort Wayne, Indiana on November 1, 2020, for $4,500/month. Effective March 15, 2021, the Company entered into a 2-year lease for additional office space in Little River, SC, for $2,750 per month, which was terminated effective October 14, 2021.
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Results of Operations
Three Months Ended September 30, 20202021
| SUMMARY OF OPERATIONS | Three-month period ended September 30, | Three-month period ended September 30, | ||||||||||||||
| (Unaudited) | ||||||||||||||||
| 2020 | 2019 | (Unaudited) | ||||||||||||||
| (restated) | 2021 | 2020 | ||||||||||||||
| Revenues | $ | 784,088 | $ | 220,033 | $ | 366,730 | $ | 784,088 | ||||||||
| Total operating expenses | 776,114 | 604,847 | 1,229,810 | 776,114 | ||||||||||||
| Total other income (expense) | (3,813,932 | ) | (5,379,178 | ) | 716,893 | (3,813,932 | ) | |||||||||
| Net loss | (3,805,958 | ) | (5,763,992 | ) | ||||||||||||
| Preferred series C stock deemed dividends | — | — | ||||||||||||||
| Net loss attributable to common stockholders’ | (3,805,958 | ) | (5,763,992 | ) | ||||||||||||
| Basic and diluted loss per share | $ | (0.01 | ) | $ | (0.03 | ) | ||||||||||
| Net income (loss) | (146,187 | ) | (3,805,958 | ) | ||||||||||||
| Net income (loss) attributable to common stockholders' | (146,187 | ) | (3,805,958 | ) | ||||||||||||
| Basic income (loss) per share | (0.00 | ) | (0.01 | ) | ||||||||||||
| Diluted income (loss) per share | $ | (0.00 | ) | $ | (0.01 | ) | ||||||||||
Revenues increaseddecreased to $366,730, for the three-months ended September 30, 2021 (the "2021 third quarter") compared to $784,088 for the three-months ended September 30, 20202021 (the “2020"2020 third quarter”) compared to $220,033 for the three-months ended September 30, 2019 (the “2019 third quarter”quarter"). The revenue increasedecrease for the period was due to the increaseddecreased volume of fluids sold, as a result of the Company adapting to the COVID-19 pandemic and heighteneddecreased need for an effective US EPA-registered disinfectant as well as the additional revenue from recurring leased-equipment income.country started to come out of the COVID-19 pandemic.
Total operating expenses increased to $776,114$1,229,810 during the 20202021 third quarter compared to $604,847$776,114 during the 20192020 third quarter. The increase during the third quarter of 20202021 was primarily due to an increase in general and administrative expenses and an increase in cost of product, licensing, and equipment leases associated with increased revenue.expenses.
General and administrative expenses increased to $614,667$1,031,072 for the 20202021 third quarter compared to $468,694$614,667 during the 20192020 third quarter. The increase during the third quarter of 20202021 was primarily due to hiring new employeesstock-based compensation for consulting services and expenses related to legal and accounting work.a provision for bad debts.
Depreciation and amortization expenses increased slightly to $98,364 during the 2021 third quarter compared to $90,999 during the 2020 third quarter compared to $84,467 during the 2019 third quarter. Depreciation and amortization was comparable between the two periods.
Total other expensesincome was $3,813,932 (restated)$716,893 for the 20202021 third quarter compared to other expensesexpense of $5,379,178$3,813,932 during the 20192020 third quarter. The overall decreasechange was a resultprimarily due to a gain on settlement of debt of $361,357 during the 2021 third quarter versus a decrease in the loss on change in fair valuesettlement of derivativesdebt of $3,670,393 during the third quarter of 2020 offset by an increase in loss on settlement of debt.2020.
As a result of the changes described above, net loss decreased to $3,805,958 (restated)was $146,187 during the 20202021 third quarter compared to $5,763,992a net loss of $3,805,958 during the 20192020 third quarter.
Nine monthsMonths Ended September 30, 20202021
| SUMMARY OF OPERATIONS | Nine months period ended September 30, | Nine months period ended September 30, | ||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| 2020 | 2019 | 2021 | 2020 | |||||||||||||
| (restated) | ||||||||||||||||
| Revenues | $ | 1,937,442 | $ | 534,852 | $ | 1,231,392 | $ | 1,937,442 | ||||||||
| Total operating expense | $ | 2,651,016 | $ | 1,956,774 | $ | 3,133,929 | $ | 2,651,016 | ||||||||
| Total other expense | $ | (6,354,949 | ) | $ | (8,792,540 | ) | ||||||||||
| Net loss | $ | (7,068,523 | ) | $ | (10,214,462 | ) | ||||||||||
| Total other income (expense) | $ | 5,110,109 | $ | (6,354,949 | ) | |||||||||||
| Net income (loss) | $ | 3,207,572 | $ | (7,068,523 | ) | |||||||||||
| Preferred series C stock deemed dividends | (270,000 | ) | — | - | (270,000 | ) | ||||||||||
| Net loss attributable to common stockholders’ | (7,338,523 | ) | (10,214,462 | ) | ||||||||||||
| Basic and diluted loss per share | $ | (0.01 | ) | $ | (0.10 | ) | ||||||||||
| Net income (loss) attributable to common stockholders' | 3,207,572 | (7,338,523 | ) | |||||||||||||
| Basic income (loss) per share | 0.00 | (0.01 | ) | |||||||||||||
| Diluted income (loss) per share | $ | (0.00 | ) | $ | (0.01 | ) | ||||||||||
Revenues increaseddecreased to $1,231,392 for the nine months ended September 30, 2021 compared to $1,937,442 for the nine months ended September 30, 2020 compared to $534,852 for the nine months ended September 30, 2019.2021. The revenue increasedecrease for the period was primarily due to the increaseddecreased volume of fluids sold as a result of the Company adapting to the COVID-19 pandemic and heighteneddecreased need for an effective US EPA-registered disinfectant as well as the additionalcountry came out of the COVID-19 pandemic. Accordingly, product sales decreased to $204,138 during the nine-months ended September 30, 2021 compared to $1,233,058 during the nine-months ended September 30, 2020. However, revenue from recurring leased-equipment income.for equipment leases increased to $802,132 during the nine-months ended September 30, 2021 compared to $501,384 during the nine-months ended September 30, 2020.
| 28 |
Total operating expenses increased to $3,133,929 during the nine months ended September 30, 2021 compared to $2,651,016 during the nine months ended September 30, 2020 compared to $1,956,774 during the nine months ended September 30, 2019.2020. The increase during the period was primarily due to an increase in general and administrative expenses of $827,644 partially offset by a decrease in cost of product, licensing, and equipment leases associated with increased revenue.of $393,646.
General and administrative expenses increased to $1,755,495$2,583,139 for the nine months ended September 30, 20202021 compared to $1,550,997$1,755,495 during the nine months ended September 30, 2019. The increase during the period was primarily2020. General and administrative increased due to hiring new employeesstock-based compensation for consulting services, salaries and expenses related to legalwages, bad debt provision and professional and accounting work.fees.
Depreciation and amortization expenses increased slightlyto $295,092 during the nine months ended September 30, 2021 compared to $255,368 during the nine months ended September 30, 20202020.
Total other income was $5,110,109 for the nine months ended September 30, 2021 compared to $253,568other expense of $6,354,949 during the nine months ended September 30, 2019. Depreciation2020. The overall change was a primarily due to a gain on change in fair value of derivative liability of $1,749,277 and amortization was comparable between the two periods.
Total other expenses decreased to $6,354,949 (restated) for nine months ended September 30, 2020 compared to $8,792,540a gain on settlement of debt of $3,689,055 during the nine months ended September 30, 2019. The overall decrease was2021 versus a resultloss on change in fair value of derivative liability of $15,253,543 and a gain of settlement of debt of $9,993,528 during the nine months ended September 30, 2020, offset by an increase in loss on change in fair value of derivatives.2020.
As a result of the changes described above, net loss decreased to $7,338,523 (restated)income was $3,207,572 during the nine months ended September 30, 20202021 compared to $10,214,462a net loss of $7,068,523 during the nine months ended September 30, 2019.2020.
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
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management’smanagement's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
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. Gary J. Grieco, our Chief Executive Officer, who serves as our principal executive officer and principal financial officer, 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’sSEC's rule and forms; and (ii) accumulated and communicated to our principal executive officer as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive officer concluded that as of September 30, 2020,2021, 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.
During the quarter ended September 30, 2020, internal financial controls were not sufficient to detect material events, such as the settled debt and cancelled warrants which occurred in the 2nd Quarter 2020 which resulted in a $7 million liability reduction on the Balance Sheet, whereby creating the restatement of the 10-Q for Quarters 2 and 3 in 2020 and Quarter 1 in 2021, along with the 2020 10-K. The Company has since implemented controls around its financial reporting process that will help prevent future financial oversights from occurring again.
Changes in Internal Control Over Financial Reporting
During the quarter ended September 30, 2020,2021, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934).
PART II –- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Auctus Fund Settlement
In March of 2019, we entered into a Securities Purchase Agreement with Auctus Fund, LLC (“Auctus”), whereby we borrowed $75,000 from Auctus under the terms of a convertible promissory note and included the issuance to 187,500 warrants to Auctus. Adjustment provisions in the Securities Purchase Agreement and the note required PCTL to adjust the number of warrants and exercise price based upon future financings.
In late 2019, we defaulted on the Auctus note, which triggered a number of default provisions of the note. We may become involveddisputed the amounts claimed to be owed to Auctus, the number of shares of common stock to be reserved for conversion of the note and the number and exercise price of the warrants held by Auctus. Negotiations of these disputes lasted for several months.
In October of 2020, we entered into a Conditional Settlement Agreement with Auctus to settle all disputes and claims between the parties. A material dispute between the parties was the warrants, which according the Auctus had ballooned to 107,142,857 shares at an exercise price of $0.00035. Pursuant to the settlement agreement, Auctus agreed to settle such disputes and claims based upon the payment of $145,000 in various routine legal proceedings incidentalcash and the issuance of 8,000,000 shares of common stock.
On September 1, 2021, we issued 8,000,000 common shares and paid the remaining cash balance to Auctus under the terms of the settlement. We fully complied with all payments required under the settlement agreement and issued the shares of common stock to Auctus, which triggered the mutual release of all disputes and claims between us and Auctus. Despite our business. To our knowledgecompliance with the terms of the settlement agreement, Auctus has refused to execute the mutual release required by the settlement agreement and acknowledge the cancellation of the warrants as part of the settlement.
As of the date of this report, other than described below, there are no material pending legal proceedings to whichfiling, we are exploring our remedies against Auctus, which may include filing legal action for breach of the settlement agreement and seeking a party ordeclarotory judgment as to which anythe cancellation of our property is subject.the warrants. We are also continuing to seek cooperation with Auctus in settlement of this ongoing dispute.
Annihilare Litigation
On August 8, 2019, we received notice from Annihilare Medical Systems, Inc (“Annihilare”) that certain intellectual properties developed jointly between us and Annihilare were 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
In May of 2020, we filed a complaint in the United States District Court for the Western District of North Carolina (Charlotte Divisions – Civil Action No. 3:20-cv-00287), against Annihilare, Marion E. Paris, Jr. and Clay Parker Sipes. Seeking damages for:
1. Two counts of Patent infringement;
2. Trademark infringement;
3. Federal unfair competition, false designation of origin, and false and misleading description of representation;
4. Trademark dilution;
5. Federal cybersquatting;
6. Violation of Defend Trade Secrets Act;
7. Violation of North Carolina’ Trade Secrets Protection Act;
8. Violation of North Carolina and common law unfair competition
9. Breach of fiduciary duty;
10. Breach of duty of loyalty and faithless service;
11. Breach of consulting agreements;
12. Breach of employment agreements;
13. Tortious interference with prospective business relationships;
14. Unjust enrichment;
15. Conversion;
16. Civil conspiracy; and
17. Injunctive relief.
These claims arise from several consulting agreements and an acquisition agreements between us and the Defendants surrounding the purchase of Annihilyzer® Intellectual property by us and subsequent infringement of the intellectual properties. The case is currently ongoing.
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-K10-K/A for the year ended December 31, 2019.2020.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
DuringOn January 4, 2021, the quarter ended September 30, 2020, 350,000Company issued 25,000,000 common shares to settle a convertible note described in Note 6(bb), with a remaining balance of $40,000.
On February 15, 2021, 40,000 shares of preferred series C stock with a value of $394,000 was converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 35,000,0004,000,000 shares of common stock.
On JulyFebruary 16, 2021, the Company issued 1,803,279 shares of common stock to settle $247,270 from a $275,000 note payable dated June 20, 2018, which has a balance of $331,304, including interest, to the current Chairman and CEO of the Company. The Company also agreed to issue a new note for the remaining balance owed to the Chairman and CEO of $84,034, dated February 16, 2021. The note will bear interest at 5% per annum and is due on June 30, 2021.
On February 16, 2021, the Company issued 2,663,299 shares of common stock to settle a June 20, 2018 note payable of $380,000 and accrued interest of $26,153 owed to the current COO and Director of the Company.
On March 1, 2020,2021, the Company released an additional vested 375,000 shares of common stock to its current COO and Director, as per the Company employment agreement with the executive.
On March 1, 2021, the Company entered into a consulting agreement. Pursuant to the agreement, the consultant will provide advisory services through December 31, 2021for a period of three months in consideration of 8,000,000$5,000 per month and an option to purchase 2,500,000 shares of common stock. The fair value of the common stock was $307,200 of which $49,685 was recognized in consulting expensesat $0.0001 for the period ended September 30, 2020, with the remainder in prepaid assets for future services.one year, exercisable on issuance.
On July 6, 2020,April 5, 2021, the Company entered into a consulting agreement. Pursuant toconvertible promissory note with a non-related party for $43,000. The Note is due on April 5, 2022 and bears interest on the agreementunpaid principal balance at the consultant will provide investor relations services for a periodrate of one year in consideration for $3,00012% per month andannum. The Note may be converted by the lender at any time before 6-months of the date of issuance of 1,000,000into shares of common stock. The fair value of theCompany's common stock was $36,000 of which $8,482 was recognized in consulting expenses forat the period ended September 30, 2020, withconversion price equal to 61% multiplied by the remainder in prepaid assets for future services.Market Price.
On July 8, 2020,April 14, 2021, the Company entered into a consulting agreement. Pursuantconvertible promissory note with a non-related party for $200,000. The Note is due on April 14, 2022 and bears interest on the unpaid principal balance at the rate of 5% per annum. The Note may not be converted by the lender before 6 months of the issuance date into shares of Company's common stock at a conversion price equal to $0.10.
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On May 3, 2021, the Company entered into a convertible promissory note with a non-related party for $128,000. The Note is due on May 3, 2022 and bears interest on the unpaid principal balance at the rate of 12% per annum. The Note may be converted by the lender at any time before 6-months of the date of issuance into shares of Company's common stock at the conversion price equal to 61% multiplied by the Market Price.
On May 5, 2021, the Company entered into an employment agreement the consultant will provide operational business development and introductory services forwith a period of five years in consideration forrecently appointed officer, whereby it authorized the issuance of 1,000,000 shares of common stock and a 5% commission, paid in cash, for any product sales brokered. The fair value of the common stock was $36,500 which was recognized in consulting expenses.to such officer (see 8-K issued May 21, 2021)
On August 14, 2020, $4,562May 7, 2021, the Company deemed in the best interest to settle any and all of principalthe Company's prior convertible debt with Crown Bridge Partners and $191 of interest of a convertible note payable was converted into 5,281,088allow for the cashless exercise to purchase 1,921,875 shares of the Company’sPCT LTD's common stock as further described in Note 5(l).(par value $0.001/share) at the rate of $0.032/share, thereby reducing PCT LTD's prior debt to Crown Bridge Partners to $0. In addition, Crown Bridge Partners shall release 60,072,853 shares to the agreed upon payment terms of $36,994 cash.
On September 1, 2020, $5,685 of principal and $500 of interest ofJune 2, 2021, the convertible note payable was converted into 955,272 shares of the Company’s common stock as further described inCompany paid $25,000 to a non-related party toward a $150,000 Convertible Note 5(k).dated April 9, 2020.
On SeptemberOne June 2, 2020, $7,168 of principal of a convertible note payable was converted into 8,000,000 shares of the Company’s common stock as further described in Note 5(m).
On September 29, 2020, $31,500 of principal of a convertible note payable was converted into 31,500,000 shares of the Company’s common stock as further described in Note 5(aa).
Subsequent Issuances After Quarter-End
On October 5, 2020, 50,000 shares of preferred series C stock was converted into common stock resulting in the issuance of 5,000,000 shares of common stock.
On October 5, 2020, $8,338 of principal and $500 of interest of a convertible note payable was converted into 1,000,000 shares of the Company’s common stock as further described in Note 5(p).
On October 6, 2020, the Company issued 3,500,000 common shares at $0.02 for proceeds of $70,000.
On October 7, 2020,2021, the Company entered into a Services Agreementsubscription and purchase agreement with a consultantnon-related party consisting of 3,750,000 restricted shares of common stock (aggregate) at a price per share of $0.02 for services$75,000 cash.
One June 30 2021, the Company entered into a subscription and purchase agreement with a non-related party consisting of 5,000,000 restricted shares of common stock (aggregate) at a price per share of $0.02 for a period of six months. In consideration for services$100,000 cash.
On September 1, 2021, the Company issued 5,000,0008,000,000 common shares and paid $21,000 to settle the remaining outstanding principal on a convertible note payable with Auctus Fund, LLC, of $88,795 and accrued interest of $26,153.
On September 10, 2021, the Company issued 2,000,000 common stock.shares pursuant to a general release agreement dated July 23, 2021 with a former employee of the Company.
All of the above-described issuances were exempt from registration pursuant to Section 4(a)(2) and/or Regulation D of the Securities Act as transactions not involving a public offering. With respect to each transaction listed above, no general solicitation was made by either the Company or any person acting on its behalf. All such securities issued pursuant to such exemptions are restricted securities as defined in Rule 144(a)(3) promulgated under the Securities Act, appropriate legends have been placed on the documents evidencing the securities and may not be offered or sold absent registration or pursuant to an exemption therefrom.
Issuer Purchases of Equity Securities
We did not repurchase any of our equity securities during the quarter ended September 30, 2020.2021.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
We have entered into a number of promissory notes, some of which are in default as of September 30, 2020,2021, or went into default before the filing of this Quarterly Report (See Note 56 to the financial statements).
A significant portion of our current debt is in default, which may subject us to litigation by the debt holders.
As of September 30, 2020,2021, we only had cash and cash equivalents of $161,248$239,327 and had a significant amount of short-term debt in default. The short-term debt agreements provide legal remedies for satisfaction of defaults, including increased interest rates, default fees and other financial penalties. As of the date of this Quarterly Report none of the lenders have pursued their legal remedies, although several lenders have sent us demand letters. Management’sManagement's plan is to raise additional funds in the form of debt or equity in order to continue to fund losses until such time as revenues are able to sustain the Company. To date, the main source of funding has been through the issuance of convertible notes with provisions that allow the holder to convert the debt and accrued and unpaid interest at substantial discounts to the trading price of our common stock. The effect of the conversions in the year ended December 31, 20192020 and the period ended September 30, 20202021 for the convertible notes has been to substantially dilute existing holders of common stock of our Company. However, there is no assurance that management will be successful in being able to continue to obtain additional funding or defend potential litigation by note holders.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
RB Capital FinancingNot applicable.
In September of 2020, the Company negotiated a financing transaction with RB Capital Partners, Inc. (“RB Capital”), whereby RB Capital would provide the Company with up to $400,000 in financing. As a condition to the financing, the Company was required to reduce the conversion price of a $31,500 promissory note RB Capital acquired from a third-party down to $0.001 and immediately convert the note into 31,500,000 shares of unrestricted common stock. Such shares were issued on or about October 7, 2020.
On October 7, 2020, the Company received an initial $200,000 in the form of a 12-month convertible promissory note bearing interest at 5% per annum and convertible into shares of the Company’s common stock at $0.20 per share. A copy of the promissory note is attached hereto as Exhibit 10.29.
On October 16, 2020, the Company received an additional $200,000 in the form of a second 12-month convertible promissory note bearing interest at 5% per annum and convertible into shares of the Company’s common stock at $0.20 per share. A copy of the promissory note is attached hereto as Exhibit 10.30.
On October 20, 2020, the Company issued a press release announcing the financing. A copy of the press release is attached hereto as Exhibit 99.1.
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 |
| 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) |
| 4.5 | Second Power Up Note dated July 25, 2018 (Incorporated by reference to Exhibit 4.2 of Form 10-Q, filed August 20, 2018) |
| 4.6 | 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) |
| 4.16 | Peak One Opportunity Fund Note dated September 16, 2019 (Incorporated by reference to Exhibit 4.16 of Form 10-Q, filed on August 14, 2020) |
| 4.17 | Power-Up #8 Note dated October 8, 2019 (Incorporated by reference to Exhibit 4.17 of Form 10-Q, filed on August 14, 2020) |
| 4.18 | Power-Up #9 Note dated October 31, 2019 (Incorporated by reference to Exhibit 4.18 of Form 10-Q, filed on August 14, 2020) |
| 4.19 | Power-Up #10 Note dated March 2, 2020 (Incorporated by reference to Exhibit 4.19 of Form 10-Q, filed on August 14, 2020) |
| 4.20 | TFK Investments Note dated April 10, 2020 (Incorporated by reference to Exhibit 4.20 of Form 10-Q, filed on August 14, 2020) |
| 4.21 | Power-Up #11 Note dated April 16, 2020 (Incorporated by reference to Exhibit 4.21 of Form 10-Q, filed on August 14, 2020) |
| 4.22 | Herschbach 2005 Trust Consolidated Note dated May 5, 2020 (Incorporated by reference to Exhibit 4.22 of Form 10-Q, filed on August 14, 2020) |
| 4.23 | Power-Up #12 Note dated May 12, 2020 (Incorporated by reference to Exhibit 4.23 of Form 10-Q, filed on August 14, 2020) |
| 4.24 | Digital Ally Note dated July 7, 2020 (Incorporated by reference to Exhibit 4.24 of Form 10-Q, filed on August 14, 2020) |
| 4.25 | Reserve Capital Management Note dated July 15, 2020 (Incorporated by reference to Exhibit 4.25 of Form 10-Q, filed on August 14, 2020) |
| 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 4.3, which is incorporated by reference to Exhibit 4.3 of Form 10-Q, filed November 21, 2019) |
| 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 |
| 10.22 | Peak One Opportunity Fund Agreement dated September 16, 2019 (Incorporated by reference to Exhibit 10.22 of Form 10-Q, filed on August 14, 2020) |
| 10.23 | Power-Up #8 Agreement dated October 8, 2019 (Incorporated by reference to Exhibit 10.23 of Form 10-Q, filed on August 14, 2020) |
| 10.24 | Power-Up #9 Agreement dated October 31, 2019 (Incorporated by reference to Exhibit 10.24 of Form 10-Q, filed on August 14, 2020) |
| 10.25 | Power-Up #10 Agreement dated March 2, 2020 (Incorporated by reference to Exhibit 10.25 of Form 10-Q, filed on August 14, 2020) |
| 10.26 | TFK Investments Agreement dated April 10, 2020 (Incorporated by reference to Exhibit 10.26 of Form 10-Q, filed on August 14, 2020) |
| 10.27 | Power-Up #11 Agreement dated April 16, 2020 (Incorporated by reference to Exhibit 10.27 of Form 10-Q, filed on August 14, 2020) |
| 10.28 | Herschbach 2005 Trust Agreement dated May 12, 2020 (Incorporated by reference to Exhibit 10.28 of Form 10-Q, filed on August 14, 2020) |
| Principal Executive Officer Certification | |
| 31.2 | Principal Financial Officer Certification |
| 32.1 | Section 1350 Certification |
| 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/ Gary Grieco |
| Gary Grieco, | ||
|
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