Quarterly Report (10-q) August 14 2020 - 02:04P
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Posted On: 08/14/2020 6:50:07 PM
Quarterly Report (10-q)
August 14 2020 - 02:04PM
Edgar (US Regulatory)
https://ih.advfn.com/stock-market/USOTC/pct-p...eport-10-q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-31549
PCT LTD
(Exact name of registrant as specified in its charter)
Nevada 90-0578516
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
4235 Commerce Street
Little River, South Carolina
29566
(Address of principal executive offices) (Zip Code)
(843) 390-7900
(Registrant’s telephone number, including area code)
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 emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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’s common stock as of August 13, 2020 was 585,701,486 which does not include 413,548,514 shares of common stock reserved against default on convertible debt and 750,000 shares for vesting of executive shares.
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 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
Item 4. Controls and Procedures 23
Part II – Other Information
Item 1. Legal Proceedings 24
Item 1A. Risk Factors 24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 25
Item 4. Mine Safety Disclosures 25
Item 5. Other Information 25
Item 6. Exhibits 26
Signatures 27
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial information set forth below with respect to our statements of operations, stockholders’ equity (deficit), and cash flows for the three-month periods ended March 31, 2020 and 2019 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-month periods ended March 31, 2020 and 2019 are not necessarily indicative of results to be expected for any subsequent period.
3
PCT LTD
Condensed Consolidated Balance Sheets
March 31,
2020
December 31,
2019
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 254,828 $ 67,613
Accounts receivable, net 127,660 111,915
Prepaid expenses 10,076 43,100
Other current assets 17,110 2,110
Total current assets 409,674 224,738
PROPERTY AND EQUIPMENT
Property and equipment, net 407,287 440,109
OTHER ASSETS
Intangible assets, net 3,627,561 3,704,429
Deposits 2,526 5,499
Total other assets 3,630,087 3,709,928
TOTAL ASSETS $ 4,447,048 $ 4,374,775
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 359,801 $ 315,228
Accrued expenses – related parties 89,968 84,538
Accrued expenses 1,248,992 890,104
Notes payable – related parties, net 818,214 826,957
Notes payable, net 543,145 468,153
Convertible notes payable, net 1,055,765 1,187,633
Derivative liability 19,470,524 10,517,873
Total current liabilities 23,586,409 14,290,486
TOTAL LIABILITIES 23,586,409 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 March 31, 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 March 31, 2020 and December 31, 2019, respectively 158,247 158,247
Preferred series C stock, $0.001 par value; 5,500,000 authorized; 490,000 and nil issued and outstanding at March 31, 2020 and December 31, 2019, respectively 534,000 —
TOTAL MEZZANINE EQUITY 752,645 218,645
STOCKHOLDERS’ DEFICIT
Common stock, $0.001 par value; 1,000,000,000 authorized; 550,705,300 and 498,880,300 issued and outstanding at March 31, 2020 and December 31, 2019, respectively 550,706 498,881
Additional paid-in-capital 16,614,503 15,872,330
Accumulated deficit (37,057,215 ) (26,505,567 )
TOTAL STOCKHOLDERS’ DEFICIT (19,892,006 ) (10,134,356 )
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 4,447,048 $ 4,374,775
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
PCT LTD
Condensed Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended
March 31,
2020 2019
REVENUES
Product $ 162,648 $ 87,094
Licensing 7,000 44,500
Equipment leases 102,534 64,363
Total Revenues 272,182 195,957
OPERATING EXPENSES
General and administrative 548,786 666,964
Costs of product, licensing and equipment leases 148,850 72,654
Depreciation and amortization 83,021 84,912
Total operating expenses 780,657 824,530
Loss from operations (508,475 ) (628,573 )
OTHER INCOME (EXPENSE)
Loss on change in fair value of derivative liability (9,294,762 ) (162,299 )
Gain on change in fair value of preferred stock liability — 75,477
Loss on settlement of debt (44,000 ) (84,409 )
Interest expense (434,411 ) (120,519 )
Total other income (expense) (9,773,173 ) (291,750 )
Loss before income taxes (10,281,648 ) (920,323 )
Income taxes — —
NET LOSS $ (10,281,648 ) $ (920,323 )
Preferred series C stock deemed dividends (270,000 ) —
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS’ $ (10,551,648 ) $ (920,323 )
Basic and diluted net loss per share $ (0.02 ) $ (0.02 )
Basic and diluted weighted average shares outstanding 545,843,212 45,621,657
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
PCT LTD
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
Additional Total Stockholders’
Common Stock Paid-in Accumulated Equity
Shares Amount Capital Deficit (Deficit)
Balance – December 31, 2018 44,559,238 $ 44,560 $ 11,588,030 $ (9,927,003 ) $ 1,705,587
Common stock issued for services 575,000 575 98,352 — 98,927
Common stock issued in settlement of debt 5,383,810 5,383 800,012 — 805,395
Net loss 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
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 )
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
PCT LTD
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
March 31,
2020 2019
Cash Flows from Operating Activities
Net loss $ (10,281,648 ) $ (920,323 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 83,021 84,912
Amortization of debt discount 73,588 47,592
Amortization of operating lease right-of-use asset — 11,817
Common stock issued for services 119,063 98,927
Loss on change in fair value of derivative liability 9,294,762 162,299
Gain on change in fair value of preferred stock liability — (75,477 )
Loss on settlement of debt 44,000 84,409
Default penalties on convertible notes 13,762 —
Changes in operating assets and liabilities:
Accounts receivable (15,745 ) (73,058 )
Inventory 26,669 629
Prepaid expenses 33,024 154,305
Deposits (12,027 ) —
Operating lease liability — (10,264 )
Accrued expenses 377,306 78,582
Accrued expenses – related party 5,430 (332 )
Accounts payable 44,573 35,922
Net cash used in operating activities (194,222 ) (320,060 )
Cash Flows from Investing Activities
Purchase of property and equipment — (2,516 )
Purchase of intangible assets — (5,000 )
Net cash used in investing activities — (7,516 )
Cash Flows from Financing Activities
Proceeds from notes payable 155,525 —
Proceeds from notes payable – related parties 3,500 2,544
Proceeds from convertible notes payable 76,000 425,750
Proceeds from preferred series C stock subscriptions 270,000 —
Repayment of convertible notes payable (8,888 ) (91,000 )
Repayment of notes payable (102,414 ) —
Repayment of notes payable – related parties (12,286 ) (5,544 )
Net cash provided by financing activities 381,437 331,750
Net change in cash 187,215 4,174
Cash and cash equivalents at beginning of period 67,613 4,893
Cash and cash equivalents at end of period $ 254,828 $ 9,067
Supplemental Cash Flow Information
Cash paid for interest $ 147 $ 47,739
Cash paid for income taxes $ — $ —
Non-cash investing and financing activities:
Preferred series C stock deemed dividend $ 270,000 $ —
Original debt discount against convertible notes $ 41,888 $ 217,125
Original debt discount against notes payable $ 25,068 $ —
Common stock issued in conversion of convertible notes payable $ 396,710 $ —
Common stock issued in settlement of debt $ 8,225 $ 805,395
Property plant and equipment transferred to inventory $ 26,669 $ —
Modification of notes payable $ — $ 20,590
Accounts receivable netted against notes payable $ — $ 9,000
Initial operating lease right-of-use asset and liability $ — $ 43,330
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
MARCH 31, 2020
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited interim condensed consolidated financial statements of PCT LTD (the “Company”) have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of our balance sheet, statements of operations, stockholders’ equity (deficit), and cash flows for the periods presented. All such adjustments are of a normal recurring nature. The results of operations for the interim period are not necessarily indicative of the results to be expected for a full year.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2019 audited financial statements as reported in its Form 10-K, filed on August 3, 2020.
Nature of Operations
PCT LTD (formerly Bingham Canyon Corporation, (the “Company,” “PCT Ltd,” or “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.
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’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’s direction and to develop the complimentary relationship and association with its wholly-owned operating company, Paradigm Convergence Technologies Corporation (“Paradigm” or “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.
Basic and Diluted Loss Per Share
Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per share is computed by dividing net loss by the weighted-average number of common shares and dilutive potential common shares outstanding during the period. As March 31, 2020, there were outstanding common share equivalents (options, warrants, convertible debt, preferred series A stock and preferred series C stock) which amounted to 669,955,797 shares of common stock. These common share equivalents were not included in the computation of diluted loss per share as their effect would have been anti-dilutive.
Recent Accounting Pronouncements
In August 2018, the FASB issued Accounting Standards Update No. 2018-13 (“ASU 2018-13”), Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements relating to fair value measurements as outlined 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. The amendments outlined in ASU 2018-13 are effective for all entities for fiscal years, 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. The Company the adoption of ASU 2018-13 did not have a material effect on the consolidated financial statements.
8
NOTE 2. GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has limited assets, has an accumulated deficit of $37,057,215 and has negative cash flows from operations. As of March 31, 2020, the Company had a working capital deficit of $23,176,735. 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 March 31, 2020 and December 31, 2019 consisted of the following:
March 31, 2020 December 31, 2019
Machinery and leased equipment $ 151,719 $ 151,719
Machinery and equipment not yet in service 294,896 321,565
Office equipment and furniture 20,064 20,064
Website 2,760 2,760
Total property and equipment $ 469,439 $ 496,108
Less: Accumulated Depreciation (62,152 ) (55,999 )
Property and equipment, net 407,287 440,109
Depreciation expense was $6,153 and $5,884 for the three-months ended March 31, 2020 and 2019, respectively.
NOTE 4. INTANGIBLE ASSETS
Intangible assets at March 31, 2020 and December 31, 2019 consisted of the following:
March 31, 2020 December 31, 2019
Patents $ 4,505,489 $ 4,505,489
Technology rights 200,000 200,000
Intangible, at cost 4,705,489 4,705,489
Less: Accumulated amortization (1,077,928 ) (1,001,060 )
Net Carrying Amount $ 3,627,561 $ 3,704,429
Amortization expense was $76,868 and $79,028 for the three-months ended March 31, 2020 and 2019, respectively.
Estimated Future Amortization Expense:
$
For year ending December 31, 2020 - remaining 226,503
For year ending December 31, 2021 302,003
For year ending December 31, 2022 302,003
For year ending December 31, 2023 302,003
For year ending December 31, 2024 302,003
Thereafter 2,193,046
Total 3,627,561
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NOTE 5. NOTES PAYABLE
The following tables summarize notes payable as of March 31, 2020 and December 31, 2019:
Type Original Amount
Origination
Date
Maturity
Date
Annual
Interest
Rate
Balance at
March 31,
2020
Balance at
December 31,
2019
Note Payable ** $ 25,000 05/08/2017 06/30/2018 0% $ 27,500 $ 27,500
Note Payable ** $ 130,000 06/20/2018 01/02/2020 8% $ 130,000 $ 130,000
Note Payable ** $ 8,700 11/15/2018 06/30/2019 10% $ 8,700 $ 8,700
Note Payable $ 90,596 09/15/2019 05/28/2020 8% $ 90,596 $ 90,596
Note Payable (j) $ 50,000 10/03/2019 04/03/2020 12% $ - $ 37,500
Note Payable $ 17,500 11/12/2019 11/12/2020 8% $ 17,500 $ 17,500
Note Payable ** $ 83,400 12/20/2019 06/19/2020 150% $ 51,322 $ 80,192
Note Payable $ 148,362 12/20/2019 11/27/2020 80% $ 106,950 $ 145,404
Note Payable (a) $ 26,933 01/08/2020 05/13/2020 318% $ 10,983 $ -
Note Payable (b) $ 33,660 02/19/2020 04/30/2020 585% $ 14,520 $ -
Note Payable (c) $ 20,000 02/28/2020 05/28/2020 8% $ 20,000 $ -
Note Payable (d) $ 100,000 03/31/2020 08/01/2020 30% $ 100,000 $ -
Subtotal $ 578,071 $ 537,392
Debt discount $ (34,926) $ (69,239)
Balance, net $ 543,145 $ 468,153
Less current portion $ (543,145) $ (468,153)
Total long-term $ - $ -
** Currently in default
a) On January 8, 2020, the Company sold future receivables with a non-related party for up to $87,540. During the period $26,933 was sold, of which $11,358 was loan fees and original issue discount resulting in cash proceeds to the Company of $15,575. The advance is to be repaid through $1,450 weekly payments. In connection with the advance, the Company granted the lender a security interest in all accounts, equipment, intangibles and inventory.
b) On February 19, 2020, the Company sold future receivables with a non-related party for $33,660, of which $13,710 was loan fees and original issue discount resulting in cash proceeds to the Company of $19,950. The advance is to be repaid through $660 daily payments. In connection with the advance, the Company granted the lender a security interest in all accounts, equipment, intangibles and inventory.
c) On February 28, 2020, the Company entered into a promissory note with a non-related party for $20,000. The note is due May 28, 2020, is unsecured and bears an interest rate of 8% per annum.
d) On March 31, 2020, the Company entered into a promissory note with a non-related party for $100,000. The note is due August 1, 2020, is unsecured and bears interest at $2,500 per month, repayable in four monthly payments of $27,500 commencing May 1, 2020. Additionally, the Company issued the lender 250,000 shares of the Company’s common stock with a fair market value of $8,225 as additional consideration for the loan.
10
The following table summarizes notes payable, related parties as of March 31, 2020 and December 31, 2019:
Type Original Amount
Origination
Date
Maturity
Date
Annual
Interest
Rate
Balance at
March 31,
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% $ 314,214 $ 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 (e) $ 1,500 02/11/2020 Demand 0% $ 2,000 $ -
Note Payable, RP (f) $ 2,000 02/11/2020 Demand 0% $ 2,000 $ -
Subtotal $ 818,214 $ 827,000
Debt discount $ - $ (43)
Balance, net $ 818,214 $ 826,957
Less current portion $ (818,214) $ (826,957)
Total long-term $ - $ -
** Currently in default
e) On February 11, 2020, the Company entered into a promissory note with the Chairman and CEO of the Company for $1,500. The note is due on demand, is unsecured and bears an interest rate of 0% per annum.
f) On February 11, 2020, the Company entered into a promissory note with the COO and Director of the Company for $2,000. The note is due on demand, is unsecured and bears an interest rate of 0% per annum.
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The following table summarizes convertible notes payable as of March 31, 2020 and December 31, 2019:
Type Original Amount
Origination
Date
Maturity
Date
Annual
Interest
Rate
Balance at
March 31,
2020
Balance at
December 31,
2019
Convertible Note Payable (g) * ** $ 50,000 12/06/2018 12/06/2019 12% $ 5,685 $ 22,777
Convertible Note Payable * ** $ 65,000 12/06/2018 12/06/2019 12% $ 46 $ 46
Convertible Note Payable (h) * ** $ 100,000 01/18/2019 01/16/2020 24% $ 105,041 $ 95,492
Convertible Note Payable * ** $ 60,000 01/29/2019 01/22/2020 18% $ 266,050 $ 266,050
Convertible Note Payable * ** $ 50,000 02/01/2019 10/22/2019 24% $ 154,330 $ 154,330
Convertible Note Payable * ** $ 60,000 02/21/2019 02/14/2022 0% $ 74,000 $ 74,000
Convertible Note Payable (i) * ** $ 55,125 02/21/2019 02/20/2020 24% $ 46,338 $ 42,125
Convertible Note Payable * ** $ 75,000 03/18/2019 12/13/2019 24% $ 232,814 $ 232,814
Convertible Note Payable * ** $ 26,000 09/16/2019 09/11/2022 0% $ 26,000 $ 26,000
Convertible Note Payable (j) $ 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 $ 53,000
Convertible Note Payable $ 50,000 10/31/2019 10/29/2020 12% $ 50,000 $ 50,000
Convertible Note Payable (k) $ 8,888 02/19/2020 02/18/2021 5% $ - $ -
Convertible Note Payable (l) $ 30,000 03/06/2020 03/05/2021 5% $ 30,000 $ -
Convertible Note Payable (m) $ 45,000 03/09/2020 03/02/2021 12% $ 45,000 $ -
Subtotal $ 1,088,304 $ 1,192,448
Debt discount $ (32,539) $ (4,815)
Balance, net $ 1,055,765 $ 1,187,633
Less current portion $ (1,055,765) $ (1,187,633)
Total long-term $ - $ -
* Embedded conversion feature accounted for as a derivative liability at period end
** Currently in default
g) During the period ended March 31, 2020, $17,092 of principal and $3,507 of interest of the convertible note payable was converted into 36,050,000 shares of the Company’s common stock.
h) During the period ended March 31, 2020, the Company was further assessed default penalties and interest on this convertible note as the note reached maturity. Additional default and penalties were assessed in the amount of $72,795 of which $9,549 was recorded as a principal addition and $63,246 was recorded in accrued interest.
i) During the period ended March 31, 2020, the Company was further assessed default penalties and interest on this convertible note as the note reached maturity. Additional default and penalties were assessed in the amount of $4,213 was recorded as a principal addition to the note.
j) On February 7, 2020, the Company extinguished both promissory note (totaling $39,000) and convertible note (totaling $181,000), including accrued interest with a non-related party through the issuance of 220,000 shares of preferred series C stock. The Company recorded the difference between the fair value of the preferred series C stock of $264,000 and the debt outstanding of $220,000 as a loss on extinguishment of debt of $44,000.
k)
On February 19, 2020, the Company received another tranche on a convertible note originally dated December 6, 2018. The new tranche had a principal amount of $8,888, with an original issue discount of $888. The convertible note is due 365 days from issuance, bears interest at 5% per annum and is convertible into common shares of the Company at 65% multiplied by the lowest traded price or lowest closing bid price during the 25 days the Company’s stock is tradable prior to the conversion date. Further, if at any time the stock price is less than $0.30 an additional 20% discount is applied and if at any time the conversion price is less than $0.01 and additional 10% is applied. Further, an additional 15% is applied if the Company fails to comply with its reporting requirements. During the period, all these additional discounts were triggered.
The embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15. The initial fair value of the conversion feature was $70,719 and resulted in a discount to the note payable of $8,000 and an initial derivative expense of $62,719.
During the period ended March 31, 2020, the entire amount was repaid.
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l)
On March 6, 2020, the Company received another tranche on a convertible note originally dated December 6, 2018. The new tranche had a principal amount of $30,000, with an original issue discount of $4,000. The convertible note is due 365 days from issuance, bears interest at 5% per annum and is convertible into common shares of the Company at 65% multiplied by the lowest traded price or lowest closing bid price during the 25 days the Company’s stock is tradable prior to the conversion date. Further, if at any time the stock price is less than $0.30 an additional 20% discount is applied and if at any time the conversion price is less than $0.01 and additional 10% is applied. Further, an additional 15% is applied if the Company fails to comply with its reporting requirements. During the period, all these additional discounts were triggered.
The embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15. The initial fair value of the conversion feature was $391,837 and resulted in a discount to the note payable of $26,000 and an initial derivative expense of $365,837.
m) On March 9, 2020, the Company entered into a convertible promissory with a non-related party for $45,000 of which $3,000 was an original issue discount resulting in cash proceeds to the Company of $42,000. The note is due on March 2, 2021 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note’s term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company’s common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date. As the note isn’t convertible until 180 days following issuance, no derivative liability was recognized as of March 31, 2020.
NOTE 6. DERIVATIVE LIABILITIES
The embedded conversion option of (1) the convertible debentures 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, the Company concluded that it only has sufficient shares to satisfy the conversion of some but not all of the outstanding convertible notes, warrants and options. The Company elected to reclassify contracts from equity with the earliest inception date first. As a result, none of the Company’s previously outstanding convertible instruments qualified for derivative reclassification, however, any convertible securities issued after the election, including the warrants described in Note 9, qualified for derivative classification. The Company reassesses the classification of the instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities.
March 31,
2020
December 31,
2019
Balance at the beginning of period $ 10,517,873 $ 322,976
Original discount limited to proceeds of notes 34,000 540,750
Fair value of derivative liabilities in excess of notes proceeds received 428,556 1,653,887
Settlement of derivative instruments (376,111 ) (3,258,054 )
Change in fair value of embedded conversion option 8,866,206 11,258,314
Balance at the end of the period $ 19,470,524 $ 10,517,873
The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option and warrant liabilities as their fair values were determined by using the Binomial Model based on various assumptions.
Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:
Expected Volatility Risk-free Interest Rate Expected Dividend Yield Expected Life (in years)
At issuance during the period 336-344 % 0.39-1.47 % 0 % 1.00
At March 31, 2020 232-368 % 0.11-0.29 % 0 % 0.25-3.68
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.
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NOTE 7. STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred Stock
On February 7, 2020, the Company extinguished a promissory note and convertible note, including accrued interest through the issuance of 220,000 shares of preferred series C stock. The Company recorded the difference between the fair value of the preferred series C stock of $264,000 and the debt outstanding of $220,000 as a loss on extinguishment of debt of $44,000.
From March 16, 2020 through March 30, 2020, the Company sold 270,000 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 three-months ended March 31, 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.
As of March 31, 2020, there were 490,000 shares of preferred series C stock issued and outstanding.
Common Stock
On January 1, 2019, the Company entered into a four-year employment agreement with F. Jody Read in his role as Chief Executive Officer. The employment agreement awards the CEO 1,500,000 restricted shares of the Company’s restricted stock, which shall vest in the following manner: 375,000 shares on March 1, 2019, 375,000 shares on March 1, 2020, 375,000 shares on March 1, 2021 and the final 375,000 shares on March 1, 2022. On 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 March 31, 2020, 750,000 shares were issued and the Company had recognized $130,911 of compensation expense.
During the period ended March 31, 2020, $17,092 of principal and $3,507 of interest of a convertible note payable was converted into 36,050,000 shares of the Company’s common stock as further described in Note 5(g).
On January 1, 2020, 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 a consultant. The Company recorded the fair value of the common shares of $5,880 in consulting expense.
On March 31, 2020, 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.
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NOTE 8. STOCK OPTIONS
Below is a table summarizing the options issued and outstanding as of March 31, 2020:
Number of options Weighted average exercise price
$
Balance, December 31, 2019 200,000 2.00
Granted — —
Expired — —
Settled — —
Balance, March 31, 2020 200,000 2.00
As at March 31, 2020, the following share stock options were outstanding:
Date Number Number Exercise Weighted Average Remaining Contractual Expiration Proceeds to Company if
Issued Outstanding Exercisable Price $ Life (Years) Date Exercised
01/26/2017 200,000 200,000 2.00 1.82 01/26/2022 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 March 31, 2020 was $nil.
NOTE 9. 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:
Number of
warrants Weighted average exercise price
$
Balance, December 31, 2019 413,816,252 0.00053
Adjustment to warrants outstanding 43,154,762 0.00056
Granted — —
Settled — —
Balance, March 31, 2020 456,971,014 0.00048
As at March 31, 2020, the following share purchase warrants were outstanding:
Date Number Number Exercise Weighted Average Remaining Contractual Expiration Proceeds to Company if
Issued Outstanding Exercisable Price $ Life (Years) Date Exercised
11/28/2018 142,857,143* 142,857,143* 0.00035 * 1.66 11/28/2021 $ 50,000
12/3/2018 500,000 500,000 0.10 3.68 12/3/2023 50,000
2/14/2019 152,899,585* 152,899,585* 0.00035 * 3.88 2/14/2024 53,515
3/13/2019 107,142,857* 107,142,857* 0.00035 * 3.95 3/13/2024 37,500
9/11/2019 53,571,429* 53,571,429* 0.00056 * 4.45 9/11/2024 30,000
456,971,014 456,971,014 $ 221,015
*The number of warrants outstanding and exercisable is variable based on adjustments to the exercise price of the warrant due to dilutive issuances.
The intrinsic value of warrants outstanding at March 31, 2020 was $14,846,882.
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NOTE 10. 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, 8 and 11 for more details.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Consulting Agreements –
On October 1, 2019, the Company entered into a consulting agreement for investor relations services through March 31, 2020. The agreement called for a cash payment of $25,000 and 12,000,000 restricted shares of common stock to be issued to the consultant. As of December 31, 2019, the Company recorded 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.
In addition to contracts for service, the Company also regularly uses the professional services of securities attorneys, a US EPA specialist, professional accountants and other public-company specialists.
Employment Agreements –
On January 1, 2019, the Company entered into a four-year employment agreement with F. Jody Read in his role as Chief Executive Officer. The terms of the contract call for an annual salary of $90,000 for the first year, effective March 1, 2019 and increasing to $120,000 once the Company’s revenue exceeds monthly expenses, then incrementally over time and with certain 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 and the final 375,000 shares on March 1, 2022. On August 12, 2019, the Company amended the Employment Contract with F. Jody Read, CEO, whereby 500,000 preferred series B 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 terms of the agreement.
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 six months. The Company had issued the consultant 150,000 shares of common stock with a fair value of $5,880 for services received.
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NOTE 12. SUBSEQUENT EVENTS
On April 2, 2020, the Company entered into a settlement agreement to settle the $60,000 and $26,000 convertible notes described in Notes 5. The Company agreed to pay $100,000 to settle the principal and accrued interest and penalties relating to the two convertible notes.
On April 10, 2020, the Company entered into a convertible promissory note with a non-related party for $150,000 of which $18,000 was an original issue discount resulting in cash proceeds to the Company of $132,000. The note is due on April 9, 2021 and bears interest on the unpaid principal balance at a rate of 5% per annum and any part of the note which is not paid when due shall bear interest at the rate of 12% per annum from the due date until paid. The Note may be converted by the Lender at any time into shares of Company’s common stock at a conversion price equal to 65% of the lowest trading price during the 25-trading day period prior to the conversion date.
On April 16, 2020, the Company entered into a convertible promissory with a non-related party for $128,000 of which $3,000 was an original issue discount resulting in cash proceeds to the Company of $125,000. The note is due on March 2, 2021 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note’s term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company’s common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date.
On April 21, 2020, the Company issued 1,000,000 shares of common stock to an employee of the Company for cash proceeds of $10,000.
On April 24, 2020, the Company issued 2,750,000 shares of common stock for cash proceeds of $110,000.
On May 5, 2020, the Company consolidated the three notes described in Notes 5 into a new note with a principal amount of $118,644 and a maturity date of May 5, 2021. The note bears interest at 8% per annum and in connection with the consolidation the Company issued the lender 15,000,000 shares of the Company’s common stock.
From April 1, 2020 through May 8, 2020, the Company issued 9,246,186 shares of common stock upon the cashless exercise of 9,280,742 warrants.
On May 11, 2020, the Company entered into a settlement agreement to settle the $60,000 convertible notes described in Note 5. The Company agreed to pay $100,000 to settle the principal and accrued interest and penalties relating the convertible note.
On May 12, 2020, the Company entered into a convertible promissory with a non-related party for $83,000 of which $3,000 was an original issue discount resulting in cash proceeds to the Company of $42,000. The note is due on November 8, 2021 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note’s term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company’s common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date.
On June 24, 2020, 50,000 shares of preferred series C stock was converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 5,000,000 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 common shares of the Company.
On July 7, 2020, the Company entered into a promissory note with a non-related party for $150,000. The note is due October 5, 2020, is unsecured and bears an interest rate of 10% per annum.
On July 8, 2020, the Company entered into a consulting agreement. Pursuant to the agreement the consultant will provide business development and introductory services for a period of five years in consideration for the issuance of 1,000,000 common shares of the Company and a 5% commission, paid in shares, for any investments brokered.
On July 15, 2020, the Company entered into a promissory note with a non-related party for $119,200. The note is repayable in $7,450 weekly payments.
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FORWARD-LOOKING STATEMENTS
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the dates they are made. You should, however, consult further disclosures we make in this Quarterly Report on Form 10-Q, 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”, “the Company”, “we,” “us,” “our” and similar terms refer to PCT LTD and its wholly owned operating subsidiary, Paradigm Convergence Technologies Corporation (“Paradigm”).
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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’ 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”) 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 take to contain it or treat its impact.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Overview
On August 31, 2016, PCT LTD entered into a Securities Exchange Agreement (the “Exchange Agreement”) with Paradigm Convergence Technologies Corporation, a Nevada corporation (“Paradigm”). Pursuant to the terms of the Exchange Agreement, Paradigm became the wholly-owned subsidiary of PCT LTD after the exchange transaction. PCT LTD is a holding company, which through Paradigm is engaged in the business of marketing new products and technologies through licensing and joint ventures.
PCT LTD had not recorded revenues for the two fiscal years prior to its acquisition of Paradigm and was dependent upon financing to continue basic operations. Paradigm has recorded revenue since it initiated operations in 2012; however, those revenues have not been sufficient to finance operations. The Company recorded a net loss of $10,281,648 for the three-months ended March 31, 2020 and accumulated losses of $37,057,215 from inception through March 31, 2020.
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 2020; and
• general and administrative operating costs.
Management projects these costs to total approximately $2,700,000. 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”)by the end of the third quarter of 2020.
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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 March 31,
2020 December 31,
2019
Cash and cash equivalents $ 254,828 $ 67,613
Total current assets 409,674 224,738
Total assets 4,447,048 4,374,775
Total liabilities 23,586,409 14,290,486
Accumulated deficit (37,057,215 ) (26,505,567 )
Total stockholders’ deficit $ (19,892,006 ) $ (10,134,356 )
At March 31, 2020, the Company recorded a net loss of $10,281,648 and a working capital deficit of $23,176,735. 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 three-months ended March 31, 2020 and 2019 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 $254,828 in cash at March 31, 2020, compared to $67,613 in cash at December 31, 2019. We had total liabilities of $23,586,409 at March 31, 2020 compared to $14,290,486 at December 31, 2019.
Our current cash flow is not sufficient to meet our monthly expenses of approximately $252,000 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 March 31, 2020 the Company recorded notes payable totaling approximately $2,417,124 (related, non-related and convertible, net of debt discount) compared to notes payable totaling $2,482,743 (related, non-related and convertible, net of debt discount) at December 31, 2019. 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% and are due ranging from on demand to February 14, 2022.
The Company headquarters and operations is located in Little River, South Carolina. The South Carolina lease payment was to $4,800 per month through November 30, 2019. The building was sold and the Company is on a month-to-month lease with the new Landlord, while negotiating a new annual lease, which will likely include monthly lease payments of $7,500/month.
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Results of Operations
SUMMARY OF OPERATIONS Three-month period ended
March 31,
(Unaudited)
2020 2019
Revenues $ 272,182 $ 195,957
Total operating expenses 780,657 824,530
Total other expenses 9,773,173 291,750
Net loss (10,281,648 ) (920,323 )
Preferred series C stock deemed dividends 270,000 —
Net loss attributable to common stockholders’ (10,551,648 ) (920,323 )
Basic and diluted loss per share $ (0.02 ) $ (0.02 )
Revenues increased to $272,182, for the three-months ended March 31, 2020 (the “2020 first quarter”) compared to $195,957 for the three-months ended March 31, 2019 (the “2019 first quarter”). The revenue increase for the period was due to the increased volume of fluids sold and the additional revenue from recurring leased-equipment income.
Total operating expenses decreased to $780,657 during the 2020 first quarter compared to $824,530 during the 2019 first quarter. The decrease during the first quarter of 2020 was primarily due to a decrease in general and administrative expenses due to lack of available funding. This was offset by an increase in cost of product, licensing, and equipment leases associated with increased revenue, and increased stock-based compensation.
General and administrative expenses decreased to $548,786 for the 2020 first quarter compared to $666,964 during the 2019 first quarter. The decrease during the first quarter of 2020 was primarily due to a decrease in consulting and salary expenses offset by an increase in stock-based compensation.
Depreciation and amortization expenses decreased slightly to $83,021 during the 2020 first quarter compared to $84,912 during the 2019 first quarter. Depreciation and amortization was comparable between the two periods.
Total other expenses increased to $9,773,173 for the 2020 first quarter compared to $291,750 during the 2019 first quarter. The overall increase was a result of an increase in interest expense and loss on change in fair value of derivatives.
As a result of the changes described above, net loss from operations after income taxes increased to $10,281,648 during the 2020 first quarter compared to $920,323 during the 2019 first quarter.
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’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.
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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. F. Jody Read, 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’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 March 31, 2020, our disclosure controls and procedures were not effective.
Notwithstanding this finding of ineffective disclosure controls and procedures, we concluded that the consolidated financial statements included in this Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.
Changes in Internal Control Over Financial Reporting
During the quarter ended March 31, 2020, 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).
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We may become involved in various routine legal proceedings incidental to our business. To our knowledge as of the date of this report, other than described below, there are no material pending legal proceedings to which we are a party or to which any of our property is subject.
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-K for the year ended December 31, 2019.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On January 1, 2019, the Company entered into a four-year employment agreement with F. Jody Read in his role as Chief Executive Officer. The employment agreement awards the CEO 1,500,000 restricted shares of the Company’s restricted stock, which shall vest in the following manner: 375,000 shares on March 1, 2019, 375,000 shares on March 1, 2020, 375,000 shares on March 1, 2021 and the final 375,000 shares on March 1, 2022. On 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 March 31, 2020, 750,000 shares were issued and the Company had recognized $130,911 of compensation expense.
During the period ended March 31, 2020, $17,092 of principal and $3,507 of interest of a convertible note payable was converted into 36,050,000 shares of the Company’s common stock as further described in Note 5(g).
On January 1, 2020, 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 a consultant. The Company recorded the fair value of the common shares of $5,880 in consulting expense.
On March 31, 2020, 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.
24
Subsequent Issuances After Quarter-End
On April 21, 2020, the Company issued 1,000,000 shares of common stock to an employee of the Company for cash proceeds of $10,000.
On April 24, 2020, the Company issued 2,750,000 shares of common stock for cash proceeds of $110,000.
On May 5, 2020, the Company consolidated the three notes described in Notes 5 into a new note with a principal amount of $118,644 and a maturity date of May 5, 2021. The note bears interest at 8% per annum and in connection with the consolidation the Company issued the lender 15,000,000 shares of the Company’s common stock.
On June 24, 2020, 50,000 shares of preferred series C stock was converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 5,000,000 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 common shares of the Company.
On July 8, 2020, the Company entered into a consulting agreement. Pursuant to the agreement the consultant will provide business development and introductory services for a period of five years in consideration for the issuance of 1,000,000 common shares of the Company and a 5% commission, paid in shares, for any investments brokered.
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 March 31, 2020.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
We have entered into a number of promissory notes, some of which are in default as of March 31, 2020, or went into default before the filing of this Quarterly Report (See Note 5 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 March 31, 2020, we only had cash and cash equivalents of $254,828 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 Annual Report none of the lenders have pursued their legal remedies, although several lenders have sent us demand letters. Management’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, 2019 and first quarter ended March 31, 2020 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
Not applicable.
25
ITEM 6. EXHIBITS
Exhibit No. Description
3(i) Amended and Restated Articles of Incorporation, as currently in effect (Incorporated by reference to Exhibit 3.1 of Form 8-K, filed April 13, 2018)
3.1 Amended Articles of Incorporation increasing authorized shares (Incorporated by reference to Exhibit 3.1 of Form 8-K, filed on October 25, 2019)
3(ii) Amended and Restated Bylaws, as currently in effect (Incorporated by reference to Exhibit 3.2 of Form 8-K, filed April 13, 2018)
4.1 Certificate of Designation of Series A Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 of Form 10-Q, filed on September 16, 2019)
4.2 Certificate of Designation of Series B – Super Voting Convertible Preferred Stock (Incorporated by reference to Exhibit 4.2 of Form 10-Q, filed on September 16, 2019)
4.3 Certificate of Designation of Series C Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 of Form 8-K, filed on October 25, 2019)
4.4 Power Up Note dated June 5, 2018 (Incorporated by reference to Exhibit 4.1 of Form 10-Q, filed August 20, 2018)
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
4.17 Power-Up #8 Note dated October 8, 2019
4.18 Power-Up #9 Note dated October 31, 2019
4.19 Power-Up #10 Note dated March 2, 2020
4.20 TFK Investments Note dated April 10, 2020
4.21 Power-Up #11 Note dated April 16, 2020
4.22 Herschbach 2005 Trust Consolidated Note dated May 5, 2020
4.23 Power-Up #12 Note dated May 12, 2020
4.24 Digital Ally Note dated July 7, 2020
4.25 Reserve Capital Management Note dated July 15, 2020
10.1 Agreement with Annihilyzer, Inc. dated November 29, 2016 (Incorporated by reference to Exhibit 10.1 of Form 8-K, filed April 20, 2017)
10.2 Amendment to Agreement with Annihilyzer, Inc. dated April 6, 2017 (Incorporated by reference to Exhibit 10.2 of Form 8-K, filed April 20, 2017)
10.3 Read Consolidated Promissory Note dated September 27, 2017 (Incorporated by reference to Exhibit 10.1 of Form 8-K, filed October 4, 2017)
10.4† Paris Employment Agreement (Incorporated by reference to Exhibit 10.5 of Form 10-Q, filed November 14, 2017)
10.5 Strategic Planning Services Agreement dated March 15, 2018
10.6 Power Up Agreement dated June 5, 2018 (Included in Exhibit 4.1, which is incorporated by reference to Exhibit 4.1 of Form 10-Q, filed August 20, 2018)
10.7 Second Power Up Agreement dated July 25, 2018 (Included in Exhibit 4.2, which is incorporated by reference to Exhibit 4.2 of Form 10-Q, filed August 20, 2018
10.8 Third Power Up Agreement dated August 27, 2018 (Included in Exhibit 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 Incorporated by reference to Exhibit 10.21 of Form 10-Q, filed on April 13, 2020)
10.22 Peak One Opportunity Fund Agreement dated September 16, 2019
10.23 Power-Up #8 Agreement dated October 8, 2019
10.24 Power-Up #9 Agreement dated October 31, 2019
10.25 Power-Up #10 Agreement dated March 2, 2020
10.26 TFK Investments Agreement dated April 10, 2020
10.27 Power-Up #11 Agreement dated April 16, 2020
10.28 Herschbach 2005 Trust Agreement dated May 12, 2020
31.1 Principal Executive Officer Certification
31.2 Principal Financial Officer Certification
32.1 Section 1350 Certification
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Label Linkbase Document
101.PRE XBRL Taxonomy Presentation Linkbase Document
† Indicates management contract or compensatory plan or arrangement.
26
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: August 14, 2020 By: /s/ Gary Grieco
Gary Grieco, Principal Executive Officer, Principal Financial Officer
Chief Executive Officer and Chairman
27
August 14 2020 - 02:04PM
Edgar (US Regulatory)
https://ih.advfn.com/stock-market/USOTC/pct-p...eport-10-q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-31549
PCT LTD
(Exact name of registrant as specified in its charter)
Nevada 90-0578516
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
4235 Commerce Street
Little River, South Carolina
29566
(Address of principal executive offices) (Zip Code)
(843) 390-7900
(Registrant’s telephone number, including area code)
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 emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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’s common stock as of August 13, 2020 was 585,701,486 which does not include 413,548,514 shares of common stock reserved against default on convertible debt and 750,000 shares for vesting of executive shares.
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 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
Item 4. Controls and Procedures 23
Part II – Other Information
Item 1. Legal Proceedings 24
Item 1A. Risk Factors 24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 25
Item 4. Mine Safety Disclosures 25
Item 5. Other Information 25
Item 6. Exhibits 26
Signatures 27
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial information set forth below with respect to our statements of operations, stockholders’ equity (deficit), and cash flows for the three-month periods ended March 31, 2020 and 2019 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-month periods ended March 31, 2020 and 2019 are not necessarily indicative of results to be expected for any subsequent period.
3
PCT LTD
Condensed Consolidated Balance Sheets
March 31,
2020
December 31,
2019
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 254,828 $ 67,613
Accounts receivable, net 127,660 111,915
Prepaid expenses 10,076 43,100
Other current assets 17,110 2,110
Total current assets 409,674 224,738
PROPERTY AND EQUIPMENT
Property and equipment, net 407,287 440,109
OTHER ASSETS
Intangible assets, net 3,627,561 3,704,429
Deposits 2,526 5,499
Total other assets 3,630,087 3,709,928
TOTAL ASSETS $ 4,447,048 $ 4,374,775
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 359,801 $ 315,228
Accrued expenses – related parties 89,968 84,538
Accrued expenses 1,248,992 890,104
Notes payable – related parties, net 818,214 826,957
Notes payable, net 543,145 468,153
Convertible notes payable, net 1,055,765 1,187,633
Derivative liability 19,470,524 10,517,873
Total current liabilities 23,586,409 14,290,486
TOTAL LIABILITIES 23,586,409 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 March 31, 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 March 31, 2020 and December 31, 2019, respectively 158,247 158,247
Preferred series C stock, $0.001 par value; 5,500,000 authorized; 490,000 and nil issued and outstanding at March 31, 2020 and December 31, 2019, respectively 534,000 —
TOTAL MEZZANINE EQUITY 752,645 218,645
STOCKHOLDERS’ DEFICIT
Common stock, $0.001 par value; 1,000,000,000 authorized; 550,705,300 and 498,880,300 issued and outstanding at March 31, 2020 and December 31, 2019, respectively 550,706 498,881
Additional paid-in-capital 16,614,503 15,872,330
Accumulated deficit (37,057,215 ) (26,505,567 )
TOTAL STOCKHOLDERS’ DEFICIT (19,892,006 ) (10,134,356 )
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 4,447,048 $ 4,374,775
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
PCT LTD
Condensed Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended
March 31,
2020 2019
REVENUES
Product $ 162,648 $ 87,094
Licensing 7,000 44,500
Equipment leases 102,534 64,363
Total Revenues 272,182 195,957
OPERATING EXPENSES
General and administrative 548,786 666,964
Costs of product, licensing and equipment leases 148,850 72,654
Depreciation and amortization 83,021 84,912
Total operating expenses 780,657 824,530
Loss from operations (508,475 ) (628,573 )
OTHER INCOME (EXPENSE)
Loss on change in fair value of derivative liability (9,294,762 ) (162,299 )
Gain on change in fair value of preferred stock liability — 75,477
Loss on settlement of debt (44,000 ) (84,409 )
Interest expense (434,411 ) (120,519 )
Total other income (expense) (9,773,173 ) (291,750 )
Loss before income taxes (10,281,648 ) (920,323 )
Income taxes — —
NET LOSS $ (10,281,648 ) $ (920,323 )
Preferred series C stock deemed dividends (270,000 ) —
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS’ $ (10,551,648 ) $ (920,323 )
Basic and diluted net loss per share $ (0.02 ) $ (0.02 )
Basic and diluted weighted average shares outstanding 545,843,212 45,621,657
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
PCT LTD
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
Additional Total Stockholders’
Common Stock Paid-in Accumulated Equity
Shares Amount Capital Deficit (Deficit)
Balance – December 31, 2018 44,559,238 $ 44,560 $ 11,588,030 $ (9,927,003 ) $ 1,705,587
Common stock issued for services 575,000 575 98,352 — 98,927
Common stock issued in settlement of debt 5,383,810 5,383 800,012 — 805,395
Net loss 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
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 )
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
PCT LTD
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
March 31,
2020 2019
Cash Flows from Operating Activities
Net loss $ (10,281,648 ) $ (920,323 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 83,021 84,912
Amortization of debt discount 73,588 47,592
Amortization of operating lease right-of-use asset — 11,817
Common stock issued for services 119,063 98,927
Loss on change in fair value of derivative liability 9,294,762 162,299
Gain on change in fair value of preferred stock liability — (75,477 )
Loss on settlement of debt 44,000 84,409
Default penalties on convertible notes 13,762 —
Changes in operating assets and liabilities:
Accounts receivable (15,745 ) (73,058 )
Inventory 26,669 629
Prepaid expenses 33,024 154,305
Deposits (12,027 ) —
Operating lease liability — (10,264 )
Accrued expenses 377,306 78,582
Accrued expenses – related party 5,430 (332 )
Accounts payable 44,573 35,922
Net cash used in operating activities (194,222 ) (320,060 )
Cash Flows from Investing Activities
Purchase of property and equipment — (2,516 )
Purchase of intangible assets — (5,000 )
Net cash used in investing activities — (7,516 )
Cash Flows from Financing Activities
Proceeds from notes payable 155,525 —
Proceeds from notes payable – related parties 3,500 2,544
Proceeds from convertible notes payable 76,000 425,750
Proceeds from preferred series C stock subscriptions 270,000 —
Repayment of convertible notes payable (8,888 ) (91,000 )
Repayment of notes payable (102,414 ) —
Repayment of notes payable – related parties (12,286 ) (5,544 )
Net cash provided by financing activities 381,437 331,750
Net change in cash 187,215 4,174
Cash and cash equivalents at beginning of period 67,613 4,893
Cash and cash equivalents at end of period $ 254,828 $ 9,067
Supplemental Cash Flow Information
Cash paid for interest $ 147 $ 47,739
Cash paid for income taxes $ — $ —
Non-cash investing and financing activities:
Preferred series C stock deemed dividend $ 270,000 $ —
Original debt discount against convertible notes $ 41,888 $ 217,125
Original debt discount against notes payable $ 25,068 $ —
Common stock issued in conversion of convertible notes payable $ 396,710 $ —
Common stock issued in settlement of debt $ 8,225 $ 805,395
Property plant and equipment transferred to inventory $ 26,669 $ —
Modification of notes payable $ — $ 20,590
Accounts receivable netted against notes payable $ — $ 9,000
Initial operating lease right-of-use asset and liability $ — $ 43,330
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
MARCH 31, 2020
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited interim condensed consolidated financial statements of PCT LTD (the “Company”) have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of our balance sheet, statements of operations, stockholders’ equity (deficit), and cash flows for the periods presented. All such adjustments are of a normal recurring nature. The results of operations for the interim period are not necessarily indicative of the results to be expected for a full year.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2019 audited financial statements as reported in its Form 10-K, filed on August 3, 2020.
Nature of Operations
PCT LTD (formerly Bingham Canyon Corporation, (the “Company,” “PCT Ltd,” or “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.
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’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’s direction and to develop the complimentary relationship and association with its wholly-owned operating company, Paradigm Convergence Technologies Corporation (“Paradigm” or “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.
Basic and Diluted Loss Per Share
Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per share is computed by dividing net loss by the weighted-average number of common shares and dilutive potential common shares outstanding during the period. As March 31, 2020, there were outstanding common share equivalents (options, warrants, convertible debt, preferred series A stock and preferred series C stock) which amounted to 669,955,797 shares of common stock. These common share equivalents were not included in the computation of diluted loss per share as their effect would have been anti-dilutive.
Recent Accounting Pronouncements
In August 2018, the FASB issued Accounting Standards Update No. 2018-13 (“ASU 2018-13”), Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements relating to fair value measurements as outlined 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. The amendments outlined in ASU 2018-13 are effective for all entities for fiscal years, 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. The Company the adoption of ASU 2018-13 did not have a material effect on the consolidated financial statements.
8
NOTE 2. GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has limited assets, has an accumulated deficit of $37,057,215 and has negative cash flows from operations. As of March 31, 2020, the Company had a working capital deficit of $23,176,735. 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 March 31, 2020 and December 31, 2019 consisted of the following:
March 31, 2020 December 31, 2019
Machinery and leased equipment $ 151,719 $ 151,719
Machinery and equipment not yet in service 294,896 321,565
Office equipment and furniture 20,064 20,064
Website 2,760 2,760
Total property and equipment $ 469,439 $ 496,108
Less: Accumulated Depreciation (62,152 ) (55,999 )
Property and equipment, net 407,287 440,109
Depreciation expense was $6,153 and $5,884 for the three-months ended March 31, 2020 and 2019, respectively.
NOTE 4. INTANGIBLE ASSETS
Intangible assets at March 31, 2020 and December 31, 2019 consisted of the following:
March 31, 2020 December 31, 2019
Patents $ 4,505,489 $ 4,505,489
Technology rights 200,000 200,000
Intangible, at cost 4,705,489 4,705,489
Less: Accumulated amortization (1,077,928 ) (1,001,060 )
Net Carrying Amount $ 3,627,561 $ 3,704,429
Amortization expense was $76,868 and $79,028 for the three-months ended March 31, 2020 and 2019, respectively.
Estimated Future Amortization Expense:
$
For year ending December 31, 2020 - remaining 226,503
For year ending December 31, 2021 302,003
For year ending December 31, 2022 302,003
For year ending December 31, 2023 302,003
For year ending December 31, 2024 302,003
Thereafter 2,193,046
Total 3,627,561
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NOTE 5. NOTES PAYABLE
The following tables summarize notes payable as of March 31, 2020 and December 31, 2019:
Type Original Amount
Origination
Date
Maturity
Date
Annual
Interest
Rate
Balance at
March 31,
2020
Balance at
December 31,
2019
Note Payable ** $ 25,000 05/08/2017 06/30/2018 0% $ 27,500 $ 27,500
Note Payable ** $ 130,000 06/20/2018 01/02/2020 8% $ 130,000 $ 130,000
Note Payable ** $ 8,700 11/15/2018 06/30/2019 10% $ 8,700 $ 8,700
Note Payable $ 90,596 09/15/2019 05/28/2020 8% $ 90,596 $ 90,596
Note Payable (j) $ 50,000 10/03/2019 04/03/2020 12% $ - $ 37,500
Note Payable $ 17,500 11/12/2019 11/12/2020 8% $ 17,500 $ 17,500
Note Payable ** $ 83,400 12/20/2019 06/19/2020 150% $ 51,322 $ 80,192
Note Payable $ 148,362 12/20/2019 11/27/2020 80% $ 106,950 $ 145,404
Note Payable (a) $ 26,933 01/08/2020 05/13/2020 318% $ 10,983 $ -
Note Payable (b) $ 33,660 02/19/2020 04/30/2020 585% $ 14,520 $ -
Note Payable (c) $ 20,000 02/28/2020 05/28/2020 8% $ 20,000 $ -
Note Payable (d) $ 100,000 03/31/2020 08/01/2020 30% $ 100,000 $ -
Subtotal $ 578,071 $ 537,392
Debt discount $ (34,926) $ (69,239)
Balance, net $ 543,145 $ 468,153
Less current portion $ (543,145) $ (468,153)
Total long-term $ - $ -
** Currently in default
a) On January 8, 2020, the Company sold future receivables with a non-related party for up to $87,540. During the period $26,933 was sold, of which $11,358 was loan fees and original issue discount resulting in cash proceeds to the Company of $15,575. The advance is to be repaid through $1,450 weekly payments. In connection with the advance, the Company granted the lender a security interest in all accounts, equipment, intangibles and inventory.
b) On February 19, 2020, the Company sold future receivables with a non-related party for $33,660, of which $13,710 was loan fees and original issue discount resulting in cash proceeds to the Company of $19,950. The advance is to be repaid through $660 daily payments. In connection with the advance, the Company granted the lender a security interest in all accounts, equipment, intangibles and inventory.
c) On February 28, 2020, the Company entered into a promissory note with a non-related party for $20,000. The note is due May 28, 2020, is unsecured and bears an interest rate of 8% per annum.
d) On March 31, 2020, the Company entered into a promissory note with a non-related party for $100,000. The note is due August 1, 2020, is unsecured and bears interest at $2,500 per month, repayable in four monthly payments of $27,500 commencing May 1, 2020. Additionally, the Company issued the lender 250,000 shares of the Company’s common stock with a fair market value of $8,225 as additional consideration for the loan.
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The following table summarizes notes payable, related parties as of March 31, 2020 and December 31, 2019:
Type Original Amount
Origination
Date
Maturity
Date
Annual
Interest
Rate
Balance at
March 31,
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% $ 314,214 $ 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 (e) $ 1,500 02/11/2020 Demand 0% $ 2,000 $ -
Note Payable, RP (f) $ 2,000 02/11/2020 Demand 0% $ 2,000 $ -
Subtotal $ 818,214 $ 827,000
Debt discount $ - $ (43)
Balance, net $ 818,214 $ 826,957
Less current portion $ (818,214) $ (826,957)
Total long-term $ - $ -
** Currently in default
e) On February 11, 2020, the Company entered into a promissory note with the Chairman and CEO of the Company for $1,500. The note is due on demand, is unsecured and bears an interest rate of 0% per annum.
f) On February 11, 2020, the Company entered into a promissory note with the COO and Director of the Company for $2,000. The note is due on demand, is unsecured and bears an interest rate of 0% per annum.
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The following table summarizes convertible notes payable as of March 31, 2020 and December 31, 2019:
Type Original Amount
Origination
Date
Maturity
Date
Annual
Interest
Rate
Balance at
March 31,
2020
Balance at
December 31,
2019
Convertible Note Payable (g) * ** $ 50,000 12/06/2018 12/06/2019 12% $ 5,685 $ 22,777
Convertible Note Payable * ** $ 65,000 12/06/2018 12/06/2019 12% $ 46 $ 46
Convertible Note Payable (h) * ** $ 100,000 01/18/2019 01/16/2020 24% $ 105,041 $ 95,492
Convertible Note Payable * ** $ 60,000 01/29/2019 01/22/2020 18% $ 266,050 $ 266,050
Convertible Note Payable * ** $ 50,000 02/01/2019 10/22/2019 24% $ 154,330 $ 154,330
Convertible Note Payable * ** $ 60,000 02/21/2019 02/14/2022 0% $ 74,000 $ 74,000
Convertible Note Payable (i) * ** $ 55,125 02/21/2019 02/20/2020 24% $ 46,338 $ 42,125
Convertible Note Payable * ** $ 75,000 03/18/2019 12/13/2019 24% $ 232,814 $ 232,814
Convertible Note Payable * ** $ 26,000 09/16/2019 09/11/2022 0% $ 26,000 $ 26,000
Convertible Note Payable (j) $ 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 $ 53,000
Convertible Note Payable $ 50,000 10/31/2019 10/29/2020 12% $ 50,000 $ 50,000
Convertible Note Payable (k) $ 8,888 02/19/2020 02/18/2021 5% $ - $ -
Convertible Note Payable (l) $ 30,000 03/06/2020 03/05/2021 5% $ 30,000 $ -
Convertible Note Payable (m) $ 45,000 03/09/2020 03/02/2021 12% $ 45,000 $ -
Subtotal $ 1,088,304 $ 1,192,448
Debt discount $ (32,539) $ (4,815)
Balance, net $ 1,055,765 $ 1,187,633
Less current portion $ (1,055,765) $ (1,187,633)
Total long-term $ - $ -
* Embedded conversion feature accounted for as a derivative liability at period end
** Currently in default
g) During the period ended March 31, 2020, $17,092 of principal and $3,507 of interest of the convertible note payable was converted into 36,050,000 shares of the Company’s common stock.
h) During the period ended March 31, 2020, the Company was further assessed default penalties and interest on this convertible note as the note reached maturity. Additional default and penalties were assessed in the amount of $72,795 of which $9,549 was recorded as a principal addition and $63,246 was recorded in accrued interest.
i) During the period ended March 31, 2020, the Company was further assessed default penalties and interest on this convertible note as the note reached maturity. Additional default and penalties were assessed in the amount of $4,213 was recorded as a principal addition to the note.
j) On February 7, 2020, the Company extinguished both promissory note (totaling $39,000) and convertible note (totaling $181,000), including accrued interest with a non-related party through the issuance of 220,000 shares of preferred series C stock. The Company recorded the difference between the fair value of the preferred series C stock of $264,000 and the debt outstanding of $220,000 as a loss on extinguishment of debt of $44,000.
k)
On February 19, 2020, the Company received another tranche on a convertible note originally dated December 6, 2018. The new tranche had a principal amount of $8,888, with an original issue discount of $888. The convertible note is due 365 days from issuance, bears interest at 5% per annum and is convertible into common shares of the Company at 65% multiplied by the lowest traded price or lowest closing bid price during the 25 days the Company’s stock is tradable prior to the conversion date. Further, if at any time the stock price is less than $0.30 an additional 20% discount is applied and if at any time the conversion price is less than $0.01 and additional 10% is applied. Further, an additional 15% is applied if the Company fails to comply with its reporting requirements. During the period, all these additional discounts were triggered.
The embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15. The initial fair value of the conversion feature was $70,719 and resulted in a discount to the note payable of $8,000 and an initial derivative expense of $62,719.
During the period ended March 31, 2020, the entire amount was repaid.
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l)
On March 6, 2020, the Company received another tranche on a convertible note originally dated December 6, 2018. The new tranche had a principal amount of $30,000, with an original issue discount of $4,000. The convertible note is due 365 days from issuance, bears interest at 5% per annum and is convertible into common shares of the Company at 65% multiplied by the lowest traded price or lowest closing bid price during the 25 days the Company’s stock is tradable prior to the conversion date. Further, if at any time the stock price is less than $0.30 an additional 20% discount is applied and if at any time the conversion price is less than $0.01 and additional 10% is applied. Further, an additional 15% is applied if the Company fails to comply with its reporting requirements. During the period, all these additional discounts were triggered.
The embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15. The initial fair value of the conversion feature was $391,837 and resulted in a discount to the note payable of $26,000 and an initial derivative expense of $365,837.
m) On March 9, 2020, the Company entered into a convertible promissory with a non-related party for $45,000 of which $3,000 was an original issue discount resulting in cash proceeds to the Company of $42,000. The note is due on March 2, 2021 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note’s term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company’s common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date. As the note isn’t convertible until 180 days following issuance, no derivative liability was recognized as of March 31, 2020.
NOTE 6. DERIVATIVE LIABILITIES
The embedded conversion option of (1) the convertible debentures 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, the Company concluded that it only has sufficient shares to satisfy the conversion of some but not all of the outstanding convertible notes, warrants and options. The Company elected to reclassify contracts from equity with the earliest inception date first. As a result, none of the Company’s previously outstanding convertible instruments qualified for derivative reclassification, however, any convertible securities issued after the election, including the warrants described in Note 9, qualified for derivative classification. The Company reassesses the classification of the instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities.
March 31,
2020
December 31,
2019
Balance at the beginning of period $ 10,517,873 $ 322,976
Original discount limited to proceeds of notes 34,000 540,750
Fair value of derivative liabilities in excess of notes proceeds received 428,556 1,653,887
Settlement of derivative instruments (376,111 ) (3,258,054 )
Change in fair value of embedded conversion option 8,866,206 11,258,314
Balance at the end of the period $ 19,470,524 $ 10,517,873
The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option and warrant liabilities as their fair values were determined by using the Binomial Model based on various assumptions.
Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:
Expected Volatility Risk-free Interest Rate Expected Dividend Yield Expected Life (in years)
At issuance during the period 336-344 % 0.39-1.47 % 0 % 1.00
At March 31, 2020 232-368 % 0.11-0.29 % 0 % 0.25-3.68
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.
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NOTE 7. STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred Stock
On February 7, 2020, the Company extinguished a promissory note and convertible note, including accrued interest through the issuance of 220,000 shares of preferred series C stock. The Company recorded the difference between the fair value of the preferred series C stock of $264,000 and the debt outstanding of $220,000 as a loss on extinguishment of debt of $44,000.
From March 16, 2020 through March 30, 2020, the Company sold 270,000 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 three-months ended March 31, 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.
As of March 31, 2020, there were 490,000 shares of preferred series C stock issued and outstanding.
Common Stock
On January 1, 2019, the Company entered into a four-year employment agreement with F. Jody Read in his role as Chief Executive Officer. The employment agreement awards the CEO 1,500,000 restricted shares of the Company’s restricted stock, which shall vest in the following manner: 375,000 shares on March 1, 2019, 375,000 shares on March 1, 2020, 375,000 shares on March 1, 2021 and the final 375,000 shares on March 1, 2022. On 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 March 31, 2020, 750,000 shares were issued and the Company had recognized $130,911 of compensation expense.
During the period ended March 31, 2020, $17,092 of principal and $3,507 of interest of a convertible note payable was converted into 36,050,000 shares of the Company’s common stock as further described in Note 5(g).
On January 1, 2020, 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 a consultant. The Company recorded the fair value of the common shares of $5,880 in consulting expense.
On March 31, 2020, 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.
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NOTE 8. STOCK OPTIONS
Below is a table summarizing the options issued and outstanding as of March 31, 2020:
Number of options Weighted average exercise price
$
Balance, December 31, 2019 200,000 2.00
Granted — —
Expired — —
Settled — —
Balance, March 31, 2020 200,000 2.00
As at March 31, 2020, the following share stock options were outstanding:
Date Number Number Exercise Weighted Average Remaining Contractual Expiration Proceeds to Company if
Issued Outstanding Exercisable Price $ Life (Years) Date Exercised
01/26/2017 200,000 200,000 2.00 1.82 01/26/2022 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 March 31, 2020 was $nil.
NOTE 9. 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:
Number of
warrants Weighted average exercise price
$
Balance, December 31, 2019 413,816,252 0.00053
Adjustment to warrants outstanding 43,154,762 0.00056
Granted — —
Settled — —
Balance, March 31, 2020 456,971,014 0.00048
As at March 31, 2020, the following share purchase warrants were outstanding:
Date Number Number Exercise Weighted Average Remaining Contractual Expiration Proceeds to Company if
Issued Outstanding Exercisable Price $ Life (Years) Date Exercised
11/28/2018 142,857,143* 142,857,143* 0.00035 * 1.66 11/28/2021 $ 50,000
12/3/2018 500,000 500,000 0.10 3.68 12/3/2023 50,000
2/14/2019 152,899,585* 152,899,585* 0.00035 * 3.88 2/14/2024 53,515
3/13/2019 107,142,857* 107,142,857* 0.00035 * 3.95 3/13/2024 37,500
9/11/2019 53,571,429* 53,571,429* 0.00056 * 4.45 9/11/2024 30,000
456,971,014 456,971,014 $ 221,015
*The number of warrants outstanding and exercisable is variable based on adjustments to the exercise price of the warrant due to dilutive issuances.
The intrinsic value of warrants outstanding at March 31, 2020 was $14,846,882.
15
NOTE 10. 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, 8 and 11 for more details.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Consulting Agreements –
On October 1, 2019, the Company entered into a consulting agreement for investor relations services through March 31, 2020. The agreement called for a cash payment of $25,000 and 12,000,000 restricted shares of common stock to be issued to the consultant. As of December 31, 2019, the Company recorded 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.
In addition to contracts for service, the Company also regularly uses the professional services of securities attorneys, a US EPA specialist, professional accountants and other public-company specialists.
Employment Agreements –
On January 1, 2019, the Company entered into a four-year employment agreement with F. Jody Read in his role as Chief Executive Officer. The terms of the contract call for an annual salary of $90,000 for the first year, effective March 1, 2019 and increasing to $120,000 once the Company’s revenue exceeds monthly expenses, then incrementally over time and with certain 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 and the final 375,000 shares on March 1, 2022. On August 12, 2019, the Company amended the Employment Contract with F. Jody Read, CEO, whereby 500,000 preferred series B 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 terms of the agreement.
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 six months. The Company had issued the consultant 150,000 shares of common stock with a fair value of $5,880 for services received.
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NOTE 12. SUBSEQUENT EVENTS
On April 2, 2020, the Company entered into a settlement agreement to settle the $60,000 and $26,000 convertible notes described in Notes 5. The Company agreed to pay $100,000 to settle the principal and accrued interest and penalties relating to the two convertible notes.
On April 10, 2020, the Company entered into a convertible promissory note with a non-related party for $150,000 of which $18,000 was an original issue discount resulting in cash proceeds to the Company of $132,000. The note is due on April 9, 2021 and bears interest on the unpaid principal balance at a rate of 5% per annum and any part of the note which is not paid when due shall bear interest at the rate of 12% per annum from the due date until paid. The Note may be converted by the Lender at any time into shares of Company’s common stock at a conversion price equal to 65% of the lowest trading price during the 25-trading day period prior to the conversion date.
On April 16, 2020, the Company entered into a convertible promissory with a non-related party for $128,000 of which $3,000 was an original issue discount resulting in cash proceeds to the Company of $125,000. The note is due on March 2, 2021 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note’s term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company’s common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date.
On April 21, 2020, the Company issued 1,000,000 shares of common stock to an employee of the Company for cash proceeds of $10,000.
On April 24, 2020, the Company issued 2,750,000 shares of common stock for cash proceeds of $110,000.
On May 5, 2020, the Company consolidated the three notes described in Notes 5 into a new note with a principal amount of $118,644 and a maturity date of May 5, 2021. The note bears interest at 8% per annum and in connection with the consolidation the Company issued the lender 15,000,000 shares of the Company’s common stock.
From April 1, 2020 through May 8, 2020, the Company issued 9,246,186 shares of common stock upon the cashless exercise of 9,280,742 warrants.
On May 11, 2020, the Company entered into a settlement agreement to settle the $60,000 convertible notes described in Note 5. The Company agreed to pay $100,000 to settle the principal and accrued interest and penalties relating the convertible note.
On May 12, 2020, the Company entered into a convertible promissory with a non-related party for $83,000 of which $3,000 was an original issue discount resulting in cash proceeds to the Company of $42,000. The note is due on November 8, 2021 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note’s term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company’s common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date.
On June 24, 2020, 50,000 shares of preferred series C stock was converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 5,000,000 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 common shares of the Company.
On July 7, 2020, the Company entered into a promissory note with a non-related party for $150,000. The note is due October 5, 2020, is unsecured and bears an interest rate of 10% per annum.
On July 8, 2020, the Company entered into a consulting agreement. Pursuant to the agreement the consultant will provide business development and introductory services for a period of five years in consideration for the issuance of 1,000,000 common shares of the Company and a 5% commission, paid in shares, for any investments brokered.
On July 15, 2020, the Company entered into a promissory note with a non-related party for $119,200. The note is repayable in $7,450 weekly payments.
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FORWARD-LOOKING STATEMENTS
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the dates they are made. You should, however, consult further disclosures we make in this Quarterly Report on Form 10-Q, 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”, “the Company”, “we,” “us,” “our” and similar terms refer to PCT LTD and its wholly owned operating subsidiary, Paradigm Convergence Technologies Corporation (“Paradigm”).
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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’ 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”) 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 take to contain it or treat its impact.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Overview
On August 31, 2016, PCT LTD entered into a Securities Exchange Agreement (the “Exchange Agreement”) with Paradigm Convergence Technologies Corporation, a Nevada corporation (“Paradigm”). Pursuant to the terms of the Exchange Agreement, Paradigm became the wholly-owned subsidiary of PCT LTD after the exchange transaction. PCT LTD is a holding company, which through Paradigm is engaged in the business of marketing new products and technologies through licensing and joint ventures.
PCT LTD had not recorded revenues for the two fiscal years prior to its acquisition of Paradigm and was dependent upon financing to continue basic operations. Paradigm has recorded revenue since it initiated operations in 2012; however, those revenues have not been sufficient to finance operations. The Company recorded a net loss of $10,281,648 for the three-months ended March 31, 2020 and accumulated losses of $37,057,215 from inception through March 31, 2020.
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 2020; and
• general and administrative operating costs.
Management projects these costs to total approximately $2,700,000. 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”)by the end of the third quarter of 2020.
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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 March 31,
2020 December 31,
2019
Cash and cash equivalents $ 254,828 $ 67,613
Total current assets 409,674 224,738
Total assets 4,447,048 4,374,775
Total liabilities 23,586,409 14,290,486
Accumulated deficit (37,057,215 ) (26,505,567 )
Total stockholders’ deficit $ (19,892,006 ) $ (10,134,356 )
At March 31, 2020, the Company recorded a net loss of $10,281,648 and a working capital deficit of $23,176,735. 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 three-months ended March 31, 2020 and 2019 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 $254,828 in cash at March 31, 2020, compared to $67,613 in cash at December 31, 2019. We had total liabilities of $23,586,409 at March 31, 2020 compared to $14,290,486 at December 31, 2019.
Our current cash flow is not sufficient to meet our monthly expenses of approximately $252,000 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 March 31, 2020 the Company recorded notes payable totaling approximately $2,417,124 (related, non-related and convertible, net of debt discount) compared to notes payable totaling $2,482,743 (related, non-related and convertible, net of debt discount) at December 31, 2019. 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% and are due ranging from on demand to February 14, 2022.
The Company headquarters and operations is located in Little River, South Carolina. The South Carolina lease payment was to $4,800 per month through November 30, 2019. The building was sold and the Company is on a month-to-month lease with the new Landlord, while negotiating a new annual lease, which will likely include monthly lease payments of $7,500/month.
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Results of Operations
SUMMARY OF OPERATIONS Three-month period ended
March 31,
(Unaudited)
2020 2019
Revenues $ 272,182 $ 195,957
Total operating expenses 780,657 824,530
Total other expenses 9,773,173 291,750
Net loss (10,281,648 ) (920,323 )
Preferred series C stock deemed dividends 270,000 —
Net loss attributable to common stockholders’ (10,551,648 ) (920,323 )
Basic and diluted loss per share $ (0.02 ) $ (0.02 )
Revenues increased to $272,182, for the three-months ended March 31, 2020 (the “2020 first quarter”) compared to $195,957 for the three-months ended March 31, 2019 (the “2019 first quarter”). The revenue increase for the period was due to the increased volume of fluids sold and the additional revenue from recurring leased-equipment income.
Total operating expenses decreased to $780,657 during the 2020 first quarter compared to $824,530 during the 2019 first quarter. The decrease during the first quarter of 2020 was primarily due to a decrease in general and administrative expenses due to lack of available funding. This was offset by an increase in cost of product, licensing, and equipment leases associated with increased revenue, and increased stock-based compensation.
General and administrative expenses decreased to $548,786 for the 2020 first quarter compared to $666,964 during the 2019 first quarter. The decrease during the first quarter of 2020 was primarily due to a decrease in consulting and salary expenses offset by an increase in stock-based compensation.
Depreciation and amortization expenses decreased slightly to $83,021 during the 2020 first quarter compared to $84,912 during the 2019 first quarter. Depreciation and amortization was comparable between the two periods.
Total other expenses increased to $9,773,173 for the 2020 first quarter compared to $291,750 during the 2019 first quarter. The overall increase was a result of an increase in interest expense and loss on change in fair value of derivatives.
As a result of the changes described above, net loss from operations after income taxes increased to $10,281,648 during the 2020 first quarter compared to $920,323 during the 2019 first quarter.
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’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.
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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. F. Jody Read, 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’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 March 31, 2020, our disclosure controls and procedures were not effective.
Notwithstanding this finding of ineffective disclosure controls and procedures, we concluded that the consolidated financial statements included in this Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.
Changes in Internal Control Over Financial Reporting
During the quarter ended March 31, 2020, 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).
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We may become involved in various routine legal proceedings incidental to our business. To our knowledge as of the date of this report, other than described below, there are no material pending legal proceedings to which we are a party or to which any of our property is subject.
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-K for the year ended December 31, 2019.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On January 1, 2019, the Company entered into a four-year employment agreement with F. Jody Read in his role as Chief Executive Officer. The employment agreement awards the CEO 1,500,000 restricted shares of the Company’s restricted stock, which shall vest in the following manner: 375,000 shares on March 1, 2019, 375,000 shares on March 1, 2020, 375,000 shares on March 1, 2021 and the final 375,000 shares on March 1, 2022. On 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 March 31, 2020, 750,000 shares were issued and the Company had recognized $130,911 of compensation expense.
During the period ended March 31, 2020, $17,092 of principal and $3,507 of interest of a convertible note payable was converted into 36,050,000 shares of the Company’s common stock as further described in Note 5(g).
On January 1, 2020, 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 a consultant. The Company recorded the fair value of the common shares of $5,880 in consulting expense.
On March 31, 2020, 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.
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Subsequent Issuances After Quarter-End
On April 21, 2020, the Company issued 1,000,000 shares of common stock to an employee of the Company for cash proceeds of $10,000.
On April 24, 2020, the Company issued 2,750,000 shares of common stock for cash proceeds of $110,000.
On May 5, 2020, the Company consolidated the three notes described in Notes 5 into a new note with a principal amount of $118,644 and a maturity date of May 5, 2021. The note bears interest at 8% per annum and in connection with the consolidation the Company issued the lender 15,000,000 shares of the Company’s common stock.
On June 24, 2020, 50,000 shares of preferred series C stock was converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 5,000,000 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 common shares of the Company.
On July 8, 2020, the Company entered into a consulting agreement. Pursuant to the agreement the consultant will provide business development and introductory services for a period of five years in consideration for the issuance of 1,000,000 common shares of the Company and a 5% commission, paid in shares, for any investments brokered.
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 March 31, 2020.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
We have entered into a number of promissory notes, some of which are in default as of March 31, 2020, or went into default before the filing of this Quarterly Report (See Note 5 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 March 31, 2020, we only had cash and cash equivalents of $254,828 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 Annual Report none of the lenders have pursued their legal remedies, although several lenders have sent us demand letters. Management’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, 2019 and first quarter ended March 31, 2020 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
Not applicable.
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ITEM 6. EXHIBITS
Exhibit No. Description
3(i) Amended and Restated Articles of Incorporation, as currently in effect (Incorporated by reference to Exhibit 3.1 of Form 8-K, filed April 13, 2018)
3.1 Amended Articles of Incorporation increasing authorized shares (Incorporated by reference to Exhibit 3.1 of Form 8-K, filed on October 25, 2019)
3(ii) Amended and Restated Bylaws, as currently in effect (Incorporated by reference to Exhibit 3.2 of Form 8-K, filed April 13, 2018)
4.1 Certificate of Designation of Series A Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 of Form 10-Q, filed on September 16, 2019)
4.2 Certificate of Designation of Series B – Super Voting Convertible Preferred Stock (Incorporated by reference to Exhibit 4.2 of Form 10-Q, filed on September 16, 2019)
4.3 Certificate of Designation of Series C Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 of Form 8-K, filed on October 25, 2019)
4.4 Power Up Note dated June 5, 2018 (Incorporated by reference to Exhibit 4.1 of Form 10-Q, filed August 20, 2018)
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
4.17 Power-Up #8 Note dated October 8, 2019
4.18 Power-Up #9 Note dated October 31, 2019
4.19 Power-Up #10 Note dated March 2, 2020
4.20 TFK Investments Note dated April 10, 2020
4.21 Power-Up #11 Note dated April 16, 2020
4.22 Herschbach 2005 Trust Consolidated Note dated May 5, 2020
4.23 Power-Up #12 Note dated May 12, 2020
4.24 Digital Ally Note dated July 7, 2020
4.25 Reserve Capital Management Note dated July 15, 2020
10.1 Agreement with Annihilyzer, Inc. dated November 29, 2016 (Incorporated by reference to Exhibit 10.1 of Form 8-K, filed April 20, 2017)
10.2 Amendment to Agreement with Annihilyzer, Inc. dated April 6, 2017 (Incorporated by reference to Exhibit 10.2 of Form 8-K, filed April 20, 2017)
10.3 Read Consolidated Promissory Note dated September 27, 2017 (Incorporated by reference to Exhibit 10.1 of Form 8-K, filed October 4, 2017)
10.4† Paris Employment Agreement (Incorporated by reference to Exhibit 10.5 of Form 10-Q, filed November 14, 2017)
10.5 Strategic Planning Services Agreement dated March 15, 2018
10.6 Power Up Agreement dated June 5, 2018 (Included in Exhibit 4.1, which is incorporated by reference to Exhibit 4.1 of Form 10-Q, filed August 20, 2018)
10.7 Second Power Up Agreement dated July 25, 2018 (Included in Exhibit 4.2, which is incorporated by reference to Exhibit 4.2 of Form 10-Q, filed August 20, 2018
10.8 Third Power Up Agreement dated August 27, 2018 (Included in Exhibit 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 Incorporated by reference to Exhibit 10.21 of Form 10-Q, filed on April 13, 2020)
10.22 Peak One Opportunity Fund Agreement dated September 16, 2019
10.23 Power-Up #8 Agreement dated October 8, 2019
10.24 Power-Up #9 Agreement dated October 31, 2019
10.25 Power-Up #10 Agreement dated March 2, 2020
10.26 TFK Investments Agreement dated April 10, 2020
10.27 Power-Up #11 Agreement dated April 16, 2020
10.28 Herschbach 2005 Trust Agreement dated May 12, 2020
31.1 Principal Executive Officer Certification
31.2 Principal Financial Officer Certification
32.1 Section 1350 Certification
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Label Linkbase Document
101.PRE XBRL Taxonomy Presentation Linkbase Document
† Indicates management contract or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PCT LTD
Date: August 14, 2020 By: /s/ Gary Grieco
Gary Grieco, Principal Executive Officer, Principal Financial Officer
Chief Executive Officer and Chairman
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