The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
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, 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,
2018 audited financial statements as reported in its Form 10-K, filed on April 15, 2019.
Nature
of Operations
PCT
LTD (formerly Bingham Canyon Corporation, (the “Company,” “PCT Ltd,” or “Bingham”), a Delaware
corporation, was formed on August 27, 1986. The Company changed its domicile to Nevada on August 26, 1999.
On August 31,
2016, the Company entered into a Securities Exchange Agreement with Paradigm Convergence Technologies Corporation (“Paradigm”)
to affect the acquisition of Paradigm as a wholly-owned subsidiary. Under the terms of the agreement, Bingham issued 16,790,625
restricted common shares of Bingham stock to the shareholders of Paradigm in exchange for all 22,387,500 outstanding common shares
of Paradigm stock. In addition, Bingham issued options exercisable into 2,040,000 shares of the Bingham’s common stock (with
exercise prices ranging between $0.133 and $0.333) in exchange for 2,720,000 outstanding Paradigm stock options (with exercise
prices ranging between $0.10 and $0.25). These 2,040,000 options have been adjusted at the same exchange rate of 75% that the
outstanding common shares were exchanged. As a result of this share exchange agreement, Paradigm, the operating company, is considered
the accounting acquirer.
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
March 23, 2018 the Company changed its name from Bingham Canyon Corporation to PCT LTD to more accurately identify the Company’s
direction and to develop the complimentary relationship and association with its wholly-owned operating company, Paradigm Convergence
Technologies Corporation (“Paradigm” or “PCT Corp.”).
Principles
of Consolidations
The accompanying
consolidated financial statements include the accounts of PCT LTD (“Parent”) and its wholly owned subsidiary, Paradigm
Convergence Technologies Corporation (“Paradigm” or “Subsidiary”). All intercompany accounts have been
eliminated upon consolidation.
Use
of Estimates
The preparation
of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements as well as the reported
amounts of revenues and expenses during the reporting periods. Estimates are based on historical experience and on various other
market-specific and other relevant assumptions that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results could differ materially from those estimates.
Cash
and Cash Equivalents
Cash and
cash equivalents are considered to be cash and highly liquid securities with original maturities of three months or less. The
cash of $9,067 and $4,893 as of March 31, 2019 and December 31, 2018, respectively, represents cash on deposit in various bank
accounts. There were no cash equivalents as of March 31, 2019 and December 31, 2018.
Fair
Value Measurements
The Company
follows ASC 820, “Fair Value Measurements and Disclosures,” which defines fair value as the exchange price
that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market
for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques
used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value
hierarchy based on three levels of inputs, of which the first two are considered observable and the last is considered unobservable,
is used to measure fair value:
|
•
|
Level 1 - Valuations for assets and liabilities traded in active
markets from readily available pricing sources such as quoted prices in active markets for identical assets or liabilities.
|
|
•
|
Level 2 - Observable inputs (other than Level 1 quoted
prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active
for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market
data.
|
|
•
|
Level 3 - Unobservable inputs that are supported by little or
no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing
models, discounted cash flow methodologies and similar techniques.
|
The
carrying values of our financial instruments, including, cash and cash equivalents, accounts receivable, inventory, prepaid expenses,
accounts payable and accrued expenses approximate their fair value due to the short maturities of these financial instruments.
Derivative
liabilities and preferred stock liabilities are determined based on “Level 3” inputs, which are significant and unobservable
and have the lowest priority. There were no transfers into or out of “Level 3” during the three months ended March
31, 2019. The recorded values of all other financial instruments approximate their current fair values because of their nature
and respective relatively short maturity dates or durations.
Our
financial assets and liabilities carried at fair value measured on a recurring basis as of March 31, 2019, consisted of the following:
|
|
Total fair value at
March 31, 2019
$
|
|
Quoted prices in active markets
(Level 1)
$
|
|
Significant other observable inputs
(Level 2)
$
|
|
Significant unobservable inputs
(Level 3)
$
|
|
|
|
|
|
|
|
|
|
Description:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock liability (1)
|
|
|
57,394
|
|
|
|
—
|
|
|
|
—
|
|
|
|
57,394
|
|
Derivative liability (1)
|
|
|
588,157
|
|
|
|
—
|
|
|
|
—
|
|
|
|
588,157
|
|
Total
|
|
|
645,551
|
|
|
|
—
|
|
|
|
—
|
|
|
|
645,551
|
|
Our
financial assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2018, consisted of the
following:
|
|
Total fair value at
December 31,
2018
$
|
|
Quoted prices in active markets
(Level 1)
$
|
|
Significant other observable inputs
(Level 2)
$
|
|
Significant unobservable inputs
(Level 3)
$
|
|
|
|
|
|
|
|
|
|
Description:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock liability (1)
|
|
|
144,352
|
|
|
|
—
|
|
|
|
—
|
|
|
|
144,352
|
|
Derivative liability (1)
|
|
|
322,976
|
|
|
|
—
|
|
|
|
—
|
|
|
|
322,976
|
|
Total
|
|
|
467,328
|
|
|
|
—
|
|
|
|
—
|
|
|
|
467,328
|
|
(1)
The Company has estimated the fair value of these liabilities using the Binomial Model.
Derivative
and Preferred Stock Liabilities
The
Company accounts for derivative instruments in accordance with ASC Topic 815, “
Derivatives and Hedging
” and
all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet. The Company uses
estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a
liability in an orderly transaction between willing and able market participants. In general, the Company’s policy in estimating
fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available.
When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities,
prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability
of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values
presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in
accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in
measuring financial instruments at fair value as discussed above. As of March 31, 2019, and December 31, 2018, the Company had
a $588,157 and $322,976 derivative liability, respectively and preferred stock liabilities of $57,394 and $144,352, respectively.
Fair
value estimates are made at a specific point in time, based on relevant market information and information about the financial
statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore
cannot be determined with precision. Changes in assumptions could significantly affect the estimates. See Note 7 for additional
information.
Accounts
Receivable
Trade accounts
receivable are recorded at the time product is shipped or services are provided including any shipping and handling fees. The
Company provided allowances for uncollectible accounts receivable equal to the estimated collection losses that will be incurred
in collection of all receivables. Accounts receivable is periodically evaluated for collectability bases on past credit history
with customers and their current financial condition. The Company’s management determines which accounts are past due and
if deemed uncollectible, the Company charges off the receivable in the period the determination is made. Based on management’s
evaluation, the Company provided an allowance for doubtful accounts of $0 at March 31, 2019 and December 31, 2018, respectively.
Inventories
Inventories
are stated at the lower of cost or market. Cost is determined by using the first in, first out (FIFO) method. We record the value
of our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and
the estimated market value based upon assumptions about future demand, future pricing and market conditions. As of March 31, 2019
and December 31, 2018, the inventory consisted of parts for equipment sold as replacement parts to existing customers or sold
to new customers. The Company has recorded a reserve allowance of $0 and $0 as of March 31, 2019 and December 31, 2018, respectively.
The Company has determined that some of the supplies inventory is necessary to be placed into service, after assembly into equipment
to be used in product manufacturing and classified as Machinery and Equipment. The balance at March 31, 2019 and December 31,
2018 of such supplies and equipment not yet placed in service amounted to $319,735 and $319,735, respectively.
Property
and Equipment
Property
and equipment are stated at purchased cost and depreciated utilizing a straight-line method over estimated useful lives ranging
from 3 to 7 years after the asset has been placed in service. Upon selling equipment that had been under a lease agreement, the
company discontinues the depreciation on that piece of equipment, as it transfers ownership to another entity. Additions and major
improvements that extend the useful lives of property and equipment are capitalized. Maintenance and repairs are charged to operations
as incurred. Upon trade-in, sale or retirement of property and equipment, the related cost and accumulated depreciation are removed
from the accounts and any related gains or losses are recorded in the results of operations.
Impairment
of Long-lived Assets
The carrying
values of the Company’s long-lived assets are reviewed for impairment annually and whenever events or changes in circumstances
indicate that they may not be recoverable. When projections indicate that the carrying value of the long-lived asset is not recoverable,
the carrying value is reduced by the estimated excess of the carrying value over the fair value. Under similar analysis no impairment
was recorded during the three months ended March 31, 2019.
Intangible
Assets
Costs to obtain
or develop patents are capitalized and amortized over the remaining life of the patents, and technology rights are amortized over
their estimated useful lives. The Company currently has the right to several patents and proprietary technology. Patents
and technology are amortized from the date the Company acquires or is awarded the patent or technology right, over their estimated
useful lives, which range from 1 to 15 years. An impairment charge is recognized if the carrying amount is not recoverable
and the carrying amount exceeds the fair value of the intangible assets as determined by projected discounted net future cash
flows. The recorded impairment expense was nil for the three months ended March 31, 2019.
Research
and Development
Research and
development costs are recognized as an expense during the period incurred, which is until the conceptual formulation, design,
and testing of a process is completed and the process has been determined to be commercially viable.
Leases
In February
2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02,
Leases (Topic 842) ("ASC 842"), which requires lessees to recognize right-of-use ("ROU") assets and related
lease liabilities on the balance sheet for all leases greater than one year in duration. We adopted ASC 842 on January 1, 2019
using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements. The modified retrospective approach did not require any transition accounting
for leases that expired before the earliest comparative period presented. The adoption of this standard resulted in the recording
of ROU assets and lease liabilities for our lease agreements with original terms of greater than one year. Upon implementation,
the Company recognized an initial operating lease right-of-use asset of $43,330 and operating lease liability of $43,330. Due
to the simplistic nature of the Company's leases, no retained earnings adjustment was required. See Note 5 for further details.
Revenue
Recognition
On May 2014,
the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customer (Topic 606)
. The new revenue recognition standard
provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principal is that a company
should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflect the consideration
to which the entity expects to be entitled in exchange for those goods or services.
The Company
has the following three revenue streams:
1)
|
product sales (equipment and/or fluid solutions);
|
2)
|
licensing (contract-based use of the Company’s US EPA Product Registration, returning revenue in licensing fees and/or royalties from minimum or actual fluid sales); and
|
3)
|
equipment leases (under systems service agreements, usually 3-year contracts for the provision of the Company’s equipment and service of such, under contract to customers, with renewable terms).
|
The Company
recognizes revenue from the sale of products when the performance obligation is satisfied by transferring control of the product
to a customer.
The Company
recognizes revenue from the leasing of equipment as the entity provides the equipment and the customer simultaneously receives
and consumes the benefits through the use of the equipment. This revenue generating activity would meet the criteria for a performance
obligation satisfied over time. As a result, the Company recognizes revenue over time by using the output method, as the Company
can measure progress of the performance obligation using the time elapsed under each obligation.
The Company’s
licenses provide a right to use and create performance obligations satisfied at a point in time. The Company recognizes revenue
from licenses when the performance obligation is satisfied through the transfer of the license. For licenses that include royalties
the Company will recognize royalty revenue as the underlying sales or usages occur, as long as this approach does not result in
the acceleration of revenue ahead of the entity’s performance.
The Company
has disclosed disaggregated revenue via revenue stream on the face of the statement of operations. The Company did not have any
contract assets or liabilities at March 31, 2019.
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 of March 31, 2019, there were outstanding common share equivalents (options, warrants,
convertible debt and preferred stock) which amounted to 13,033,694 shares of common stock. These common share equivalents were
not included in the computation of diluted loss per share as their effect would have been anti-dilutive.
Recent
Accounting Pronouncements
The Company
has reviewed all other FASB issued ASU accounting pronouncements and interpretations thereof that have effective dates during
the period reported and in future periods. The Company has carefully considered the new pronouncements that alter the previous
GAAP and do not believe that any new or modified principles will have a material impact on the Company’s reported financial
position or operations in the near term.
NOTE 2. GOING
CONCERN
The accompanying
unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
The Company has limited assets, has incurred losses since inception of $10,847,326 and has negative cash flows from operations.
As of March 31, 2019, the Company had a working capital deficit of $2,823,247. 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
Depreciation is computed using the
straight-line method and is recognized over the estimated useful lives of the property and equipment, which range from 3 to 7
years once placed into service. Depreciation expense does not begin until documentation of equipment placed in service is provided.
Machinery and leased equipment is not intended to be sold to the customer at the end of the lease term. Depreciation expense was
$5,884 (2018 - $5,652) for the three months ended March 31, 2019. Property and equipment at March 31, 2019 and December 31, 2018
consisted of the following:
|
|
March 31, 2019
|
|
December 31, 2018
|
Machinery and leased equipment
|
|
$
|
138,209
|
|
|
$
|
138,209
|
|
Machinery and equipment not yet in services
|
|
|
372,270
|
|
|
|
369,754
|
|
Office equipment and furniture
|
|
|
20,064
|
|
|
|
20,064
|
|
Website
|
|
|
2,760
|
|
|
|
2,760
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
$
|
533,303
|
|
|
$
|
530,787
|
|
Less: Accumulated Depreciation
|
|
|
(36,699
|
)
|
|
|
(30,815
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
496,604
|
|
|
|
499,972
|
|
NOTE 4. INTANGIBLE ASSETS
Amortization
is computed using the straight-line method and is recognized over the estimated useful lives of the intangible assets, which range
from 1 to 15 years. Amortization expense was $79,028 and $81,044 for the three months ended March 31, 2019 and 2018 respectively.
Intangible assets at March 31, 2019 and December 31, 2018 consisted of the following:
|
|
March 31, 2019
|
|
December 31, 2018
|
Patents
|
|
$
|
4,514,989
|
|
|
$
|
4,514,989
|
|
Technology rights
|
|
|
240,500
|
|
|
|
235,500
|
|
Intangible, at cost
|
|
|
4,755,489
|
|
|
|
4,750,489
|
|
Less: Accumulated amortization
|
|
|
(769,742
|
)
|
|
|
(690,714
|
)
|
Net Carrying Amount
|
|
$
|
3,985,747
|
|
|
$
|
4,059,775
|
|
Estimated Future
Amortization Expense:
|
|
$
|
|
For year ending December 31, 2019
|
|
|
|
235,253
|
|
|
For year ending December 31, 2020
|
|
|
|
306,941
|
|
|
For year ending December 31, 2021
|
|
|
|
305,337
|
|
|
For year ending December 31, 2022
|
|
|
|
305,337
|
|
|
For year ending December 31, 2023 to December 31, 2034
|
|
|
|
2,832,879
|
|
|
Total
|
|
|
|
3,985,747
|
|
NOTE 5 – LEASES
In February
2016, the FASB issued ASU No. 2016-02,
Leases
, which introduced a lessee model that requires the majority of leases to
be recognized on the balance sheet. On January 1, 2019, the Company adopted the ASU using the modified retrospective transition
approach and elected the transition option to recognize the adjustment in the period of adoption rather than in the earliest period
presented. The Company elected the package of practical expedients permitted under the transition guidance within the new standard,
which among other things, allowed us to carry forward the historical lease classification. Adoption of the new standard resulted
in the recording of additional net lease assets and lease liabilities of approximately $43,330 and $43,330 respectively, as of
January 1, 2019. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
The depreciable
lives of operating lease assets and leasehold improvements are limited by the expected lease term. The Company's leases generally
do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring
operating lease liabilities. The Company used incremental borrowing rates as of January 1, 2019 for operating leases that commenced
prior to that date.
The following
table sets forth the ROU assets and liabilities as of March 31, 2019:
|
|
March 31, 2019
|
Operating lease right-of-use asset
|
|
$
|
31,513
|
|
|
|
|
|
|
Operating lease liability:
|
|
|
|
|
Current operating lease liability
|
|
$
|
33,066
|
|
Noncurrent operating lease liability
|
|
|
—
|
|
Total operating lease liability
|
|
$
|
33,066
|
|
Expense
related to leases is recorded on a straight-line basis over the lease term, including rent holidays. During the three months ended
March 31, 2019, the Company recognized operating lease expense of $15,954. Operating lease costs are included within selling,
administrative and other expenses on the condensed consolidated statements of income.
Cash paid
for amounts included in the measurement of operating lease liabilities were $14,400 for the three months ended March 31,
2019. During the three months ended March 31, 2019, the Company reduced its ROU liabilities by $10,263 from cash paid.
Our weighted
average discount rate is 41% and the weighted average remaining lease term is 8 months. Lease payments over the next five years
and thereafter are as follows:
|
|
March 31, 2019
|
2019 - remaining
|
|
$
|
38,400
|
|
2020 and thereafter
|
|
|
—
|
|
Total lease payments
|
|
|
38,400
|
|
Less: imputed interest
|
|
|
(5,334
|
)
|
Total ROU liabilities
|
|
$
|
33,066
|
|
As
previously disclosed in our 2018 Form 10-K under the prior guidance of ASC 840, minimum payments under operating lease agreements
as of December 31, 2018 were as follows:
|
|
December 31, 2018
|
|
2019
|
|
|
$
|
52,950
|
|
|
2020
|
|
|
|
—
|
|
|
Total
|
|
|
$
|
33,066
|
|
NOTE 6.
Notes
Payable
The following
tables summarize notes payable as of March 31, 2019 and December 31, 2018:
Type
|
Amount
|
Origination
Date
|
Maturity
Date
|
Annual
Interest
Rate
|
Balance at
March 31,
2019
|
Balance at
December 31, 2018
|
Note Payable
|
|
$
|
150,000
|
|
|
5/18/2016
|
|
6/1/2019
|
|
|
13.00
|
%
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
Note Payable ***
|
|
$
|
25,000
|
|
|
5/8/2017
|
|
6/30/2018
|
|
|
0.00
|
%
|
|
$
|
27,500
|
|
|
$
|
27,500
|
|
Note Payable
|
|
$
|
130,000
|
|
|
6/20/2018
|
|
1/2/2020
|
|
|
8.00
|
%
|
|
$
|
130,000
|
|
|
$
|
130,000
|
|
Note Payable (a)
|
|
$
|
126,964
|
|
|
6/20/2018
|
|
8/31/2018
|
|
|
6.00
|
%
|
|
$
|
—
|
|
|
$
|
126,964
|
|
Note Payable (b)
|
|
$
|
26,500
|
|
|
6/26/2018
|
|
7/31/2018
|
|
|
10.00
|
%
|
|
$
|
—
|
|
|
$
|
26,500
|
|
Note Payable (b)
|
|
$
|
20,590
|
|
|
2/1/2019
|
|
10/1/2019
|
|
|
10.00
|
%
|
|
$
|
19,090
|
|
|
$
|
—
|
|
Note Payable
|
|
$
|
60,000
|
|
|
10/30/2018
|
|
12/30/2018
|
|
|
8.00
|
%
|
|
$
|
—
|
|
|
$
|
60,000
|
|
Note Payable
|
|
$
|
8,700
|
|
|
11/15/2018
|
|
6/30/2019
|
|
|
10.00
|
%
|
|
$
|
8,700
|
|
|
$
|
8,700
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
335,290
|
|
|
$
|
529,664
|
|
Debt Discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,493
|
)
|
|
$
|
(3,293
|
)
|
Balance, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
332,797
|
|
|
$
|
526,371
|
|
Less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(332,797
|
)
|
|
$
|
(399,664
|
)
|
Total long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
126,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*** Currently in default
|
|
a)
|
On
January 28, 2019, the Company agreed to convert $131,327 of principal and interest of
its note payable with a non-related party into 987,421 shares of the Company’s
common stock. The company recorded a loss on settlement of debt of $38,319 equal to the
difference between the fair value of the common shares of $177,736 and the carrying value
of the note and interest.
|
|
b)
|
On
February 1, 2019, the Company had the following note balance with a non-related party
of the Company outstanding (totaling $26,500 – issued June 26, 2018). On February
1, 2019, the Company issued a new note that modified the note above and also applied
any outstanding interest owed. The new note issued was for $20,590 with a maturity date
on or before October 1, 2019, and bears interest at 10% per annum. Further, the Company
and the lender agreed that the customer’s minimum monthly royalty payments of $1,500
would be applied to reduce the principal and interest of the note. Total accounts receivable
from the noteholder of $9,000 was applied to the note during the three months ended March
31, 2019. At March 31, 2019, the remaining balance of the note was $19,090.
|
The following
table summarizes notes payable, related parties as of March 31, 2019 and December 31, 2018:
Type
|
Amount
|
Origination
Date
|
Maturity
Date
|
Annual
Interest
Rate
|
Balance at
March 31,
2019
|
Balance at
December 31, 2018
|
Note Payable, RP ***
|
|
$
|
30,000
|
|
|
4/10/2018
|
|
1/15/2019
|
|
|
3.00
|
%
|
|
$
|
30,000
|
|
|
$
|
30,000
|
|
Note Payable, RP
|
|
$
|
380,000
|
|
|
6/20/2018
|
|
1/2/2020
|
|
|
8.00
|
%
|
|
$
|
380,000
|
|
|
$
|
380,000
|
|
Note Payable, RP
|
|
$
|
350,000
|
|
|
6/20/2018
|
|
1/2/2020
|
|
|
5.00
|
%
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
Note Payable, RP
|
|
$
|
17,000
|
|
|
6/20/2018
|
|
1/2/2020
|
|
|
5.00
|
%
|
|
$
|
17,000
|
|
|
$
|
17,000
|
|
Note Payable, RP ***
|
|
$
|
50,000
|
|
|
7/27/2018
|
|
11/30/2018
|
|
|
8.00
|
%
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
Note Payable, RP
|
|
$
|
5,000
|
|
|
10/9/2018
|
|
Demand
|
|
|
0.00
|
%
|
|
$
|
5,000
|
|
|
$
|
5,000
|
|
Note Payable, RP
|
|
$
|
5,000
|
|
|
10/19/2018
|
|
Demand
|
|
|
0.00
|
%
|
|
$
|
5,000
|
|
|
$
|
5,000
|
|
Note Payable, RP **
|
|
$
|
3,000
|
|
|
10/24/2018
|
|
Demand
|
|
|
0.00
|
%
|
|
$
|
—
|
|
|
$
|
3,000
|
|
Note Payable, RP (c)**
|
|
$
|
2,544
|
|
|
1/3/2019
|
|
6/30/2019
|
|
|
3.00
|
%
|
|
$
|
—
|
|
|
$
|
—
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
837,000
|
|
|
$
|
840,000
|
|
Debt Discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(9,976
|
)
|
|
$
|
(13,174
|
)
|
Balance, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
827,024
|
|
|
$
|
826,826
|
|
Less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(827,024
|
)
|
|
$
|
(93,000
|
)
|
Total long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
733,826
|
|
|
** Paid off during the period
***Currently in default
|
|
c)
|
On
January 3, 2019, the Company entered into a promissory note with the Chairman and President
of the Company for $2,544. The note is due June 30, 2019, is unsecured and bears an interest
rate of 3.0% per annum. At March 31, 2019, the remaining balance of this note was $0.
|
The following
table summarizes convertible notes payable as of March 31, 2019 and December 31, 2018:
Type
|
Amount
|
Origination
Date
|
Maturity
Date
|
Annual
Interest
Rate
|
Balance at
March 31,
2019
|
Balance at
December 31, 2018
|
Convertible Note Payable (d)
|
|
$
|
450,000
|
|
|
3/28/2018
|
|
3/31/2021
|
|
|
8.00
|
%
|
|
$
|
—
|
|
|
$
|
450,000
|
|
Convertible Note Payable (d)*
|
|
$
|
539,936
|
|
|
1/15/2019
|
|
1/15/2022
|
|
|
8.00
|
%
|
|
$
|
—
|
|
|
$
|
—
|
|
Convertible Note Payable **
|
|
$
|
38,000
|
|
|
7/30/2018
|
|
7/25/2019
|
|
|
12.00
|
%
|
|
$
|
—
|
|
|
$
|
38,000
|
|
Convertible Note Payable **
|
|
$
|
53,000
|
|
|
8/29/2018
|
|
8/27/2019
|
|
|
12.00
|
%
|
|
$
|
—
|
|
|
$
|
53,000
|
|
Convertible Note Payable *
|
|
$
|
50,000
|
|
|
12/6/2018
|
|
12/6/2019
|
|
|
5.00
|
%
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
Convertible Note Payable *
|
|
$
|
65,000
|
|
|
12/6/2018
|
|
12/6/2019
|
|
|
5.00
|
%
|
|
$
|
65,000
|
|
|
$
|
65,000
|
|
Convertible Note Payable
|
|
$
|
63,000
|
|
|
12/12/2018
|
|
12/5/2019
|
|
|
12.00
|
%
|
|
$
|
63,000
|
|
|
$
|
63,000
|
|
Convertible Note Payable (e)
|
|
$
|
33,000
|
|
|
1/16/2019
|
|
1/15/2020
|
|
|
12.00
|
%
|
|
$
|
33,000
|
|
|
$
|
—
|
|
Convertible Note Payable (f)
|
|
$
|
100,000
|
|
|
1/18/2019
|
|
1/16/2020
|
|
|
8.00
|
%
|
|
$
|
100,000
|
|
|
$
|
—
|
|
Convertible Note Payable (g)
|
|
$
|
60,000
|
|
|
1/29/2019
|
|
1/22/2020
|
|
|
8.00
|
%
|
|
$
|
60,000
|
|
|
$
|
—
|
|
Convertible Note Payable (h)*
|
|
$
|
50,000
|
|
|
2/1/2019
|
|
10/22/2019
|
|
|
12.00
|
%
|
|
$
|
50,000
|
|
|
$
|
—
|
|
Convertible Note Payable (i)*
|
|
$
|
60,000
|
|
|
2/21/2019
|
|
2/14/2022
|
|
|
0.00
|
%
|
|
$
|
60,000
|
|
|
$
|
—
|
|
Convertible Note Payable (j)
|
|
$
|
55,125
|
|
|
2/21/2019
|
|
2/20/2020
|
|
|
8.00
|
%
|
|
$
|
55,125
|
|
|
$
|
—
|
|
Convertible Note Payable (k)
|
|
$
|
53,000
|
|
|
2/26/2019
|
|
2/20/2020
|
|
|
12.00
|
%
|
|
$
|
53,000
|
|
|
$
|
—
|
|
Convertible Note Payable (l)*
|
|
$
|
75,000
|
|
|
3/18/2019
|
|
12/13/2019
|
|
|
12.00
|
%
|
|
$
|
75,000
|
|
|
$
|
—
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
664,125
|
|
|
$
|
719,000
|
|
Debt Discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(281,251
|
)
|
|
$
|
(165,186
|
)
|
Balance, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
382,874
|
|
|
$
|
553,814
|
|
Less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(376,344
|
)
|
|
$
|
(161,280
|
)
|
Total long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,530
|
|
|
$
|
392,534
|
|
* Embedded conversion feature accounted for as a derivative liability
** Paid off during the period
|
|
d)
|
On
January 15, 2019, the Company executed a new, consolidated convertible note with a non-related
party by extinguishing the March 28, 2018 convertible note in the amount of $450,000
with interest due of $28,898 and a $60,000 term note, dated October 31, 2018 with interest
due of $1,038. The new convertible note is in the amount of $539,936, is due on or before
January 15, 2022, has an 8.00% per annum interest rate and may be converted into shares
of the Company’s common stock at $0.20 per share. The new note incorporates an
anti-dilution feature if the Company issues more than 60,000,000 shares of its common
stock. The embedded conversion option qualified for derivative accounting and bifurcation
under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature
was $292,651. The company recorded a loss on extinguishment of debt of $350,117 equal
to the initial fair value of derivative liability on the new note and the previous unamortized
debt discount balance of one the old notes.
|
|
|
|
|
|
On
March 27, 2019, the Company agreed to convert $548,686 of principal ($539,936) and interest ($8,750) of its convertible note payable
into 3,597,989 shares of the Company’s common stock. The company recorded a gain on settlement of debt of $359,857 equal
to the difference between both the fair value of the common shares of $523,867 and the fair value of the conversion feature at
conversion of $335,038 compared to the carrying value of the note and interest.
|
|
e)
|
On
January 16, 2019, the Company entered into a convertible promissory note with an unrelated
party for $33,000 of which $3,000 was an original issue discount resulting in cash proceeds
to the Company of $30,000. The note is due on January 15, 2020 and bears interest on
the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms
apply (from 12% to 37%, 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 average 3 lowest trading prices
during the 15 trading day period prior to the conversion date. Due to this provision,
the Company considered whether the embedded conversion option qualifies for derivative
accounting under ASC 815-15 Derivatives and Hedging. The note isn’t convertible
until 180 days following funding and no derivative liability was recognized as of March
31, 2019.
|
|
|
|
|
f)
|
On
January 18, 2019, the Company entered into a convertible promissory note with an unrelated
party for $100,000 of which $5,000 was an original issue discount and $5,000 was paid
directly to third parties resulting in cash proceeds to the Company of $90,000. The note
is due on January 16, 2020 and bears interest on the unpaid principal balance at a rate
of 8% per annum. Stringent pre-payment terms apply (from 10% to 30%, dependent upon the
timeframe of repayment during the note’s term) and any part of the note which is
not paid when due shall bear interest at the rate of 24% per annum from the due date
until paid. The Note may be converted by the Lender at any time after 180 days of the
date of issuance into shares of Company’s common stock at a conversion price equal
to 64% of the average 2 lowest trading prices during the 10 trading day period prior
to the conversion date. Due to this provision, the Company considered whether the embedded
conversion option qualifies for derivative accounting under ASC 815-15 Derivatives and
Hedging. The note isn’t convertible until 180 days following funding and no derivative
liability was recognized as of March 31, 2019.
|
|
|
|
|
g)
|
On
January 29, 2019, the Company entered into a convertible promissory note with an unrelated
for $60,000 of which $3,000 was an original issue discount and $8,000 was paid directly
to third parties resulting in cash proceeds to the Company of $49,000. The note is due
on January 22, 2020 and bears interest on the unpaid principal balance at a rate of 8%
per annum. Stringent pre-payment terms apply (from 10% to 30%, dependent upon the timeframe
of repayment during the note’s term) and any part of the note which is not paid
when due shall bear interest at the rate of 18% per annum from the due date until paid.
The Note may be converted by the Lender at any time after 180 days of the date of issuance
into shares of Company’s common stock at a conversion price equal to the lower
of 64% of the average 2 lowest trading prices during the 10 trading day period prior
to the conversion date or $0.12. Due to this provision, the Company considered whether
the embedded conversion option qualifies for derivative accounting under ASC 815-15 Derivatives
and Hedging. The note isn’t convertible until 180 days following funding and no
derivative liability was recognized as of March 31, 2019.
|
|
|
|
|
h)
|
On
February 1, 2019, the Company entered into a convertible promissory note with an unrelated
party for $50,000 of which $5,000 was an original issue discount resulting in cash proceeds
to the Company of $45,000. The note is due on October 22, 2019 and bears interest on
the unpaid principal balance at a rate of 12% per annum and a default interest rate of
24% per annum. The Note may be converted by the Lender at any time after the date of
issuance into shares of Company’s common stock at a conversion price equal 50%
of the lowest trading price during the 20 trading day period prior to the conversion
date. If at any time the closing sales price falls below $0.03, then an additional 15%
discount will be attributed to the conversion price.
|
|
|
|
|
|
The
embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial
fair value of the conversion feature was $158,142 and resulted in a discount to the note payable of $50,000 and an initial derivative
expense of $113,142. During the period ended March 31, 2019, the Company recorded accretion of $8,602 increasing the carrying
value of the note to $8,602.
|
|
i)
|
On
February 21, 2019, the Company entered into a convertible promissory note with an unrelated
party for $60,000 of which $5,000 was an original issue discount and $8,000 was paid
directly to third parties resulting in cash proceeds to the Company of $47,000. The Company
also issued a warrant with a term of five years to purchase up to 300,000 shares of common
stock of the Company at an exercise price of $0.20 per share and subject to adjustment
for dilutive issuances and cashless exercise. The note is due on February 14, 2022 and
bears interest on the unpaid principal balance at a rate of 0% per annum. Stringent pre-payment
terms apply (from 10% to 40%, dependent upon the timeframe of repayment during the note’s
term) and in the event of default an additional 40% of the principal and interest balance
shall be owed. The Note may be converted by the Lender at any time after the date of
issuance into shares of Company’s common stock at a conversion price equal to the
lower of 60% of the lowest trading price during the 20 trading day period prior to the
conversion date or $0.12. If at any time the closing sales price falls below $0.01, then
an additional 10% discount will be attributed to the conversion price.
|
|
|
|
|
|
The embedded conversion option and
warrant qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging.
The initial fair value of the conversion feature of $124,796 and the warrant of $51,856 resulted
in a discount to the note payable of $60,000 and an initial derivative expense of $129,652. During
the period ended March 31, 2019, the Company recorded accretion of $6,530 increasing the carrying
value of the note to $6,530.
|
|
j)
|
On
February 21, 2019, the Company entered into a convertible promissory note with an unrelated
party for $55,125 of which $2,500 was an original issue discount and $2,625 was paid
directly to third parties resulting in cash proceeds to the Company of $50,000. The note
is due on February 20, 2020 and bears interest on the unpaid principal balance at a rate
of 8% per annum. Stringent pre-payment terms apply (from 10% to 30%, dependent upon the
timeframe of repayment during the note’s term) and any part of the note which is
not paid when due shall bear interest at the rate of 24% per annum from the due date
until paid. The Note may be converted by the Lender at any time after 180 days of the
date of issuance into shares of Company’s common stock at a conversion price equal
to 64% of the average 2 lowest trading prices during the 10 trading day period prior
to the conversion date. Due to this provision, the Company considered whether the embedded
conversion option qualifies for derivative accounting under ASC 815-15 Derivatives and
Hedging. The note isn’t convertible until 180 days following funding and no derivative
liability was recognized as of March 31, 2019.
|
|
|
|
|
k)
|
On
February 26, 2019, the Company entered into a convertible promissory note with an unrelated
party for $53,000 of which $3,000 was an original issue discount resulting in cash proceeds
to the Company of $50,000. The note is due on February 20, 2020 and bears interest on
the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms
apply (from 12% to 37%, 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 average 3 lowest trading prices
during the 15 trading day period prior to the conversion date. Due to this provision,
the Company considered whether the embedded conversion option qualifies for derivative
accounting under ASC 815-15 Derivatives and Hedging. The note isn’t convertible
until 180 days following funding and no derivative liability was recognized as of March
31, 2019.
|
|
|
|
|
l)
|
On
March 18, 2019, the Company entered into a convertible promissory note with an unrelated
party for $75,000 of which $10,250 was an original issue discount resulting in cash proceeds
to the Company of $64,750. The Company also issued a warrant with a term of five years
to purchase up to 187,500 shares of common stock of the Company at an exercise price
of $0.20 per share and subject to adjustment for dilutive issuances and cashless exercise.
The note is due on December 13, 2019 and bears interest on the unpaid principal balance
at a rate of 12% per annum and a default interest rate of 24% per annum. The Note may
be converted by the Lender at any time after the date of issuance into shares of Company’s
common stock at a conversion price equal to 50% of the lowest trading price during the
25 trading day period prior to the conversion date.
|
|
|
|
|
|
The
embedded conversion option and warrant qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging.
The initial fair value of the conversion feature of $139,196 and the warrant of $25,401 resulted in a discount to the note payable
of $75,000 and an initial derivative expense of $99,847. During the period ended March 31, 2019, the Company recorded accretion
of $8,699 increasing the carrying value of the note to $8,699.
|
NOTE 7 –
DERIVATIVE AND PREFERRED STOCK LIABILITIES
The embedded conversion option of
(1) the convertible debentures described in Note 6; (2) preferred stock liability; (3) warrants; contain conversion features that
qualify for embedded derivative classification. The fair value of the liabilities will be re-measured at the end of every reporting
period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial
instruments.
Upon the issuance of the convertible
notes payable described in Note 6, the Company concluded that it only has sufficient shares to satisfy the conversion of some
but not all of the outstanding convertible notes, warrants and options. The Company elected to reclassify contracts from equity
with the earliest inception date first. As a result, none of the Company’s previously outstanding convertible instruments
qualified for derivative reclassification, however, any convertible securities issued after the election, including the warrants
described in Note 10, qualified for derivative classification. The Company reassesses the classification of the instruments at
each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as
of the date of the event that caused the reclassification.
The table below sets forth a summary
of changes in the fair value of the Company’s Level 3 financial liabilities.
|
|
March 31,
2019
|
|
December 31,
2018
|
|
|
|
|
|
Balance at the beginning of period
|
|
$
|
322,976
|
|
|
$
|
—
|
|
Original discount limited to proceeds of notes
|
|
|
156,750
|
|
|
|
100,000
|
|
Fair value of derivative liabilities in excess of notes proceeds received
|
|
|
342,641
|
|
|
|
247,033
|
|
Settlement of derivative instruments
|
|
|
(53,868
|
)
|
|
|
—
|
|
Change in fair value of embedded conversion option
|
|
|
(180,342
|
)
|
|
|
(24,057
|
)
|
Balance at the end of the period
|
|
$
|
588,157
|
|
|
$
|
322,976
|
|
The Company uses Level 3 inputs for
its valuation methodology for the embedded conversion option and warrant liabilities as their fair values were determined by using
the Binomial Model based on various assumptions.
Significant changes in any of these
inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based
on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used
in the calculations:
|
|
Expected Volatility
|
|
|
Risk-free Interest
Rate
|
|
|
Expected Dividend
Yield
|
|
|
Expected Life (in years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At issuance
|
|
|
128-252
|
%
|
|
|
2.42-2.51
|
%
|
|
|
0
|
%
|
|
|
0.72-5.00
|
|
At March 31, 2019
|
|
|
130-239
|
%
|
|
|
2.21-2.44
|
%
|
|
|
0
|
%
|
|
|
0.56-4.96
|
|
On December
1, 2018, the Company’s Board of Director authorized an offering for 1,000,000 Preferred Series “A” stock at
$0.10 per share and with 100%, regular or cashless exercise at $0.10 per share of common stock warrant coverage. At December 31,
2018, the Company received $60,000 of subscriptions for the issuance of 600,000 shares of Preferred Series “A” stock
to three accredited investors who are related parties. This Preferred Series “A” stock had not been issued as of March
31, 2019. The Company did issue 600,000 warrants subject to cashless exercise at $0.10 per share for 5 years.
The Company
is unable to issue the subscriber the preferred shares until the Company files a Certificate of Designation and the Preferred
Series “A” stock has been duly validly authorized. At March 31, 2019, the Company had not filed the Certificate of
Designation, and as the Company cannot issue the preferred shares to settle the proceeds received, it was determined the subscriptions
were settleable in cash. As a result, the Company has classified the subscriptions received as a liability in accordance with
ASC 480 Distinguishing Liabilities from Equity. The fair value of the liability of the preferred stock at December 31, 2018 was
$144,352.
On March 29,
2019, the Company executed a settlement agreement that included the settlement of 100,000 of the Series A Preferred Shares and
100,000 of the warrants subscribed for as part of the December 1, 2018 offering. The Company agreed to issue 164,000 shares of
its common stock as payment in full $25,000 owed to the subscriber for services rendered; the Company agreed to accept conversion
and exercise of the purchased 100,000 Preferred Series A shares into 100,000 shares of the Company’s common stock and the
Company shall accept the cashless conversion of 100,000 warrant into 34,400 shares of the Company’s restricted common stock;
and, as inducement for and consideration for the settlement of the Company’s debt, the Company agrees to grant 500,000 additional
shares of the Company’s restricted stock. The Company recorded the fair value of the shares issued of $103,792 and recorded
a loss on the settlement of the subscriptions and the amounts payable of $55,830. The Company has not issued any shares with regard
to the settlement of this debt at the time of this report.
The fair value
of the liability of the preferred stock at March 31, 2019 was $57,394. The Company recorded a gain on the change in fair value
of the preferred shares of $75,477.
The Company uses Level 3 inputs for
its valuation methodology for the preferred share liability as their fair values were determined by using the Binomial Model based
on various assumptions.
Significant changes in any of these
inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based
on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used
in the calculations:
|
|
Expected Volatility
|
|
|
Risk-free Interest
Rate
|
|
|
Expected Dividend
Yield
|
|
|
Expected Life (in years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2019
|
|
|
134
|
%
|
|
|
2.23
|
%
|
|
|
0
|
%
|
|
|
4.68
|
|
NOTE 8 -
STOCKHOLDERS’ DEFICIT
Preferred
Stock
Effective March
23, 2018, the Company amended the articles of incorporation and authorized 10,000,000 shares of preferred stock with a par value
of $0.001 per share. As of March 31, 2019, there were no shares of preferred stock issued or outstanding. See Note 7 for liabilities
related to the Company’s commitment to issue shares of Series A stock upon the designation.
Common
Stock
Effective March
23, 2018, the Company amended the articles of incorporation and increased the authorized shares of common stock with a par value
of $0.001 per share from 100,000,000 to 300,000,000 shares. The number of shares outstanding of the registrant’s common
stock as of March 31, 2019 was 50,518,048.
On January 1,
2019, the Company entered into a four-year employment agreement with F. Jody Read in his role as Chief Executive Officer. The
terms of the contract call for an annual salary of $90,000 for the first year, effective March 1, 2019 and increasing to $120,000
once the Company’s revenue exceeds monthly expenses, then incrementally over time and with certain operational results,
up to $200,000/year. The salary may be paid, at the employee’s discretion, either in cash or in common stock. A $1,000 per
month allowance will be granted to the executive for housing near the Company’s South Carolina facility. The employment
agreement awards the CEO 1,500,000 restricted shares of the Company’s restricted stock, which shall vest in the following
manner: 375,000 shares on March 1, 2019, 375,000 shares on March 1, 2020; 375,000 shares on March 1, 2021 and the final 375,000
shares on March 1, 2022. On January 1, 2019 the fair value of the restricted stock award totaled $240,000 which will be expensed
over vesting period. As of March 31, 2019, 375,000 shares were issued and the Company had recognized $64,927 of expense.
On January 28,
2019, the Company agreed to convert $131,327 of principal and interest of the notes payable described in Note 6(a) into 987,421
shares of the Company’s common stock.
On March 25, 2019, the Company issued 200,000
shares of common stock to two employees of the Company as compensation in lieu of commission on sales of the Company’s products.
As of March 31, 2019, the Company recorded the fair value of the common shares of $34,000 in consulting expense.
On March 29, 2019,
the Company executed a settlement agreement with a contractual consultant, UCAP Partners, LLC for the settlement of $25,000 owed
to the contractor for the provision of services as related to the March 15, 2018 agreement between UCAP and us. The settlement
terms include acknowledgement that the Company owes UCAP $25,000 as payment for said services; that UCAP purchased and fully paid
for Series A Preferred Stock and Warrants from the Company on December 3, 2018 (100,000 Preferred Series A Shares and 100,000
warrants to purchase common shares at $0.10/share); the settlement is outlined as follows: the Company shall issue 164,000 shares
of its common stock as payment in full for the services rendered on the consulting contract; the Company shall accept UCAP’s
conversion and exercise of the purchased 100,000 Preferred Series A shares into 100,000 shares of the Company’s common stock
and the Company shall accept the cashless conversion of UCAP’s 100,000 warrant into 34,400 shares of the Company’s
restricted common stock; and, as inducement for and consideration for the settlement of the Company’s debt to UCAP, the
Company agrees to grant 500,000 additional shares of the Company’s restricted stock.
NOTE 9 –
STOCK OPTIONS
The Company
did not grant any stock options during the year ended December 31, 2018 or the three months ended March 31, 2019.
Below is a table
summarizing the options issued and outstanding as of March 31, 2019:
|
|
Number of
warrants
|
|
Weighted average exercise price
$
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
|
2,287,500
|
|
|
|
0.34
|
|
|
Granted
|
|
|
|
—
|
|
|
|
—
|
|
|
Expired
|
|
|
|
(30,000
|
)
|
|
|
2.00
|
|
|
Settled
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance, March 31, 2019
|
|
|
|
2,257,500
|
|
|
|
0.32
|
|
As at March 31, 2019, the following
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
|
|
05/21/2014
|
|
|
|
1,875,000
|
|
|
|
1,875,000
|
|
|
|
0.13
|
|
|
|
0.14
|
|
|
|
05/20/2019
|
|
|
$
|
250,000
|
|
|
01/01/2016
|
|
|
|
90,000
|
|
|
|
90,000
|
|
|
|
0.33
|
|
|
|
0.75
|
|
|
|
12/31/2019
|
|
|
|
25,000
|
|
|
01/01/2016
|
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
0.33
|
|
|
|
0.75
|
|
|
|
12/31/2019
|
|
|
|
30,000
|
|
|
09/15/2016
|
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
1.00
|
|
|
|
0.75
|
|
|
|
12/31/2019
|
|
|
|
10,000
|
|
|
10/01/2016
|
|
|
|
7,500
|
|
|
|
7,500
|
|
|
|
1.00
|
|
|
|
0.75
|
|
|
|
12/31/2019
|
|
|
|
7,500
|
|
|
01/26/2017
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
2.00
|
|
|
|
2.83
|
|
|
|
01/26/2022
|
|
|
|
400,000
|
|
|
|
|
|
|
2,257,500
|
|
|
|
2,257,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
722,500
|
|
The weighted
average exercise prices are $0.32 for the options outstanding and exercisable, respectively. The intrinsic value of stock options
outstanding at March 31, 2019 was $Nil.
NOTE 10 –
WARRANTS
As described
in Note 6, on from February 14 through March 13, 2019, the Company issued 487,500 warrants subject to an exercise price of $0.20
per share for 5 years. The Company concluded that it only has sufficient shares to satisfy the conversion of some but not all
of the outstanding convertible instruments. The initial fair value of the warrants issued during the period was calculated using
the Binomial Model as described in Note 7.
The following
table summarizes the continuity of share purchase warrants:
|
|
Number of
warrants
|
|
Weighted average exercise price
$
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
|
650,000
|
|
|
|
0.17
|
|
|
Granted
|
|
|
|
487,500
|
|
|
|
0.20
|
|
|
Settled
|
|
|
|
(100,000
|
)
|
|
|
0.10
|
|
|
Balance, March 31, 2019
|
|
|
|
1,037,500
|
|
|
|
0.19
|
|
As at March 31, 2019, the following
share purchase warrants were outstanding:
Date
|
|
Number
|
|
Number
|
|
Exercise
|
|
Weighted Average Remaining Contractual
|
|
Expiration
|
|
Proceeds to Company if
|
Issued
|
|
Outstanding
|
|
Exercisable
|
|
Price $
|
|
Life (Years)
|
|
Date
|
|
Exercised
|
|
11/28/2018
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
1.00
|
|
|
|
2.67
|
|
|
|
11/28/2021
|
|
|
$
|
50,000
|
|
12/3/2018
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
0.10
|
|
|
|
4.68
|
|
|
|
12/3/2023
|
|
|
|
50,000
|
|
2/14/2019
|
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
0.20
|
|
|
|
4.88
|
|
|
|
2/14/2024
|
|
|
|
60,000
|
|
3/13/2019
|
|
|
|
187,500
|
|
|
|
187,500
|
|
|
|
0.20
|
|
|
|
4.96
|
|
|
|
3/13/2024
|
|
|
|
37,500
|
|
|
|
|
|
1,037,500
|
|
|
|
1,037,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
197,500
|
The intrinsic
value of warrants outstanding at March 31, 2019 was $15,000.
NOTE 11 –
RELATED PARTY TRANSACTIONS
The
Company has agreements with related parties for consulting services, accrued rent, accrued interest, notes payable and stock options.
See Notes to Financial Statements numbers 6, 9, 8 and 12 for more details.
NOTE
12 – COMMITMENTS AND CONTINGENCIES
Consulting
Agreements
–
On January 1, 2018, the Company entered into a contract for consulting services with a Florida-based
agricultural advocacy group. The agreement included a $5,000 initial engagement fee and $1,250 per month through January 1, 2019
On March
15, 2018, the Company entered into a 12-month service agreement, expiring on March 15, 2019, for strategic planning, financing,
capital formation, up listing and expansion of the Company’s shareholder base. The consulting company received a $5,000
non-refundable initial fee and the agreement included $2,500 per month through March 14, 2019 and received 2,000,000 shares of
the Company’s restricted common stock.
On July 2, 2018, the Company entered
into a 6-month service contract for investor relations services through January 2, 2019. The agreement called for 1,000,000 restricted
shares of common stock to be issued to Life Sciences Journeys, Inc. The shares were issued on October 9, 2018. The Company placed
a stop transfer order on the shares, discussed the benefits of services provided by Life Sciences Journeys and rescinded its stop
transfer, allowing the contract to continue through its end.
On November
28, 2018, the Company re-engaged the services of a prior contractor for finance assistance related to obtaining a line of credit
based on the Company’s equipment and/or contracts, through November 27, 2019. If the Company obtains a line of credit based
on the Company’s equipment and/or contracts the Company will incur a fee of 4% of financings from $1,000,000 to $5,000,000,
3% of financings from $5,000,001 to $10,000,000, and 0.25% of financings over $10,000,000.
On December
3, 2018, the Company engaged a consultant for services related to business development in the healthcare market. The contract
is in place through June 3, 2019 and the consultant received 100,000 restricted shares of the Company’s common stock for
the services.
In addition
to contracts for service, the Company also regularly uses the professional services of securities attorneys, a US EPA specialist,
professional accountants and other public-company specialists.
Employment
Agreements –
On September 1, 2017, the Company entered into a five-year employment agreement with Marion
E. Paris, Jr. to be the Vice President for Business Development and Director of Intellectual Properties for Paradigm. Under the
terms of the employment agreement, Mr. Paris is to be paid an annual base salary of $90,000 and other benefits, including four
weeks paid vacation.
On January 1, 2019, the Company entered
into a four-year employment agreement with F. Jody Read in his role as Chief Executive Officer. The terms of the contract call
for an annual salary of $90,000 for the first year, effective 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.
Other Obligations and Commitments
–
On April 12, 2018, the Company entered into a Purchase agreement with a third party to purchase its exclusive
rights to US EPA Product Registration No. 83241-1 for a fixed fee. The Company paid $5,000 on execution of the agreement and has
continued to make periodic installment payments for the purchase of this Registration.
On March 27, 2019, the Registrant entered into a letter
of intent (the “LOI”) with Magnolia Columbia Limited (“Magnolia”), a Canadian company traded on the TSXV
under the symbol “MCO”. Pursuant to the terms of the LOI, the parties agreed to negotiate and enter into a definitive
agreement pursuant to which, by way of share exchange, amalgamation or other form of business combination to be determined by
the legal and tax advisors of the parties, Magnolia will acquire all of the issued and outstanding shares of the Registrant in
exchange for shares of Magnolia (the “Proposed Transaction”). Following completion of the Proposed Transaction, the
Registrant would become a wholly-owned subsidiary of Magnolia (the “Resulting Issuer”) and will carry on the business
of the Registrant assuming the PCT LTD name. Paradigm Convergence Technology Corporation (PCT Corp) will be wholly owned by PCT
Ltd and continue to be the operational entity based in the US and operating as PCT Corp.
Pursuant to
the terms of the LOI, the parties agreed to enter into a definitive agreement that will provide for the following, among other
things:
|
1.
|
All
of the common shares in the capital of the Registrant will be exchanged for common shares
of Magnolia at a ratio resulting in the stockholders of the Registrant, including following
the conversion of certain debt, owning 60% of the Resulting Issuer and the shareholders
of the Company owning 40% of the Resulting Issuer on an undiluted basis.
|
|
2.
|
The
Registrant will use its best efforts to convert a minimum of USD$1.4million of its current
debt in shares of common stock.
|
|
3.
|
Magnolia
will have no material liabilities, approximately CAD$1.8 million in cash and 57,977,098
common shares issued and outstanding along with options and warrants outstanding.
|
|
4.
|
Magnolia
will loan the Registrant CAD$250,000 following execution of the LOI and Magnolia will
arrange to have a third-party loan the Registrant an additional CAD$400,000. Both loans
will convert into shares of common stock upon closing of the Proposed Transaction.
|
|
5.
|
The
Board of Directors of the Resulting Issuer is expected to be comprised of six members,
with three members nominated by Magnolia and three members nominated by the Registrant.
|
|
6.
|
The
Resulting Issuer shall enter into consulting agreements with members of the Forbes &
Manhattan team to provide services as the CFO, Secretary, Controller, Legal Clerk and
Investors Relations Manager. In addition, the Resulting Issuer shall enter into a management
contract with Jody Read, the current CEO of the Registrant.
|
The LOI provides
that the parties will carry out due diligence and will proceed reasonably and in good faith toward the negotiation and execution
of definitive documentation regarding the Proposed Transaction. The completion of the Proposed Transaction is subject to the receipt
of all necessary approvals, including without limitation stockholder approval of the Proposed Transaction, regulatory approval
for the listing of the common shares of Magnolia on the CSE and the concurrent delisting of the common shares of Magnolia from
the TSXV. The proposed delisting from the TSXV will also require the approval of the Magnolia Board as well as the consent of
the majority of the minority of the shareholders of Magnolia.
If a
definitive agreement is not executed by the parties on or before April 27, 2019 (or such other date agreed to by the
parties), the LOI will terminate. As of April 28, 2019, we had not entered into a definitive agreement with Magnolia or
agreed to any extensions of the LOI, therefore the LOI terminated. However, we continue to negotiate with Magnolia for a
potential future transaction.
NOTE 13.
SUBSEQUENT EVENTS
On April
8, 2019, the Company executed an unsecured line of credit loan with Kabbage Bank in the amount of $42,500. The Company will pay
interest on the loan of $9,563.
As of
April 28, 2019, the Company had not entered into a definitive agreement with Magnolia or agreed to any extensions of the LOI,
therefore the LOI terminated. However, the Company continues to negotiate with Magnolia for a potential future transaction.
On May 2, 2019,
the Company entered into a convertible promissory with an unrelated party for $38,000 of which $3,000 was an original issue discount
resulting in cash proceeds to the Company of $35,000. The note is due on April 29, 2020 and bears interest on the unpaid principal
balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 12% to 37%, 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 average 3 lowest trading prices during the 15
trading day period prior to the conversion date. 3,337,236 shares of the Company’s common stock are held in reserve against
default of this note.
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 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 (formerly Bingham Canyon Corporation) and its wholly owned operating subsidiary, Paradigm Convergence
Technologies Corporation (“PCT Corp.” or “Paradigm”).