NOTE
1
–
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Operations
– PCT Ltd (the “Company”), a Delaware corporation, (formerly Bingham Canyon Corporation)
was formed on August 27, 1986. The Company changed its domicile to Nevada on August 26, 1999.
On
August 31, 2016, the Company entered into a Securities Exchange Agreement with Paradigm Convergence Technologies Corporation (“Paradigm,”
“PCT Corp,” or PCT Corp., the wholly-owned operating subsidiary”) to affect the acquisition of Paradigm as a
wholly-owned subsidiary. Under the terms of the agreement, the Company issued 16,790,625 restricted common shares of Company stock
to all of the shareholders of Paradigm in exchange for all 22,387,500 outstanding Paradigm common stock. In addition, the Company
issued options exercisable into 2,040,000 shares of the Company’s common stock (with exercise prices ranging between $0.133
and $0.333) in exchange for 2,720,000 outstanding Paradigm stock options (with exercise prices ranging between $0.10 and $0.25).
These 2,040,000 options have been adjusted at the same exchange rate of 75% that the outstanding common shares were exchanged.
As a result of this reverse recapitalization, PCT Corp, the operating company, is considered the accounting acquirer.
PCT Corp.
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 names to Paradigm Convergence Technologies
Corp. PCT Corp. is a technology licensing, OEM and sales/leasing company specializing in environmentally-responsible solutions
for global sustainability. PCT LTD, the public company and “parent” of PCT Corp. holds a United States Patent No.
9,679,170 B2 with a recently granted Canadian Allowance, as well as owning future and pending international patent(s) (response
to examiners comments in process), intellectual property and/or distribution rights to innovative products and technologies. PCT
Corp. provides innovative products and technologies for eliminating bacterial contamination in healthcare facilities, the agricultural
market and in the oil & gas industry. PCT Corp.’s overall strategy is to design, assemble, market, sell and/or lease
equipment, fluids and proprietary “certifications” of its products and technologies. PCT Corp., utilizes equipment
leasing program (“System Service Agreements”), 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,
PCT Corp.
Principles
of Consolidations
– The accompanying consolidated financial statements include the accounts of PCT LTD (“Parent”)
and PCT Corp. 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. There was cash of $4,893 and $7,838 at December 31, 2018 and 2017, respectively. There were
no cash equivalents at December 31, 2018 and December 31, 2017 respectively.
Fair
Value Measurements
- The Company follows ASC 820,
“Fair Value Measurements and Disclosures,”
which
defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on
the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize
the use of unobservable inputs. A fair value hierarchy based on three levels of inputs, of which the first two are considered
observable and the last is considered unobservable, is used to measure fair value:
|
•
|
Level 1
-
Valuations for assets and liabilities traded in active markets from readily available pricing sources such as quoted prices
in active markets for identical assets or liabilities.
|
|
•
|
Level 2
- Observable
inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted
prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable
or can be corroborated by observable market data.
|
|
•
|
Level 3
-
Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value
of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
|
The
carrying values of our financial instruments, including, cash and cash equivalents, accounts receivable, inventory, prepaid expenses,
accounts payable and accrued expenses approximate their fair value due to the short maturities of these financial instruments.
There were no financial assets or liabilities that are measured at fair value on a recurring basis as of December 31, 2017.
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 years ended December 31,
2018 and 2017. 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 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 December 31, 2018, and December 31, 2017, the Company
had a $322,976 and $0 derivative liability, respectively and preferred stock liabilities of $144,352 and $0, 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 and $12,000 for the years
ending December 31, 2018 and 2017, 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 December 31, 2018, and 2017, the inventory consisted of parts for equipment sold as replacement parts to existing customers
or sold to new customers. The Company has recorded a reserve allowance of $0 and $0 for the years ended December 31, 2018 and
2017, respectively. The Company wrote off the inventory previously reserved against during 2017. 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 Machines and Equipment. The balance at December 31, 2018 and 2017 of such supplies and equipment not yet placed
in service amounted to $319,735 and $269,382, respectively. During the 4
th
quarter of 2017, management determined that
$193,344 of supplies inventory as of the 3
rd
quarter of 2017 be reclassified to property and equipment.
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 years ended December 31, 2018
and 2017.
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 years ended December 31, 2018 and
2017, respectively.
Research
and Development
– Research and development costs are recognized as an expense during the period incurred, which
is until the conceptual formulation, design, and testing of a process is completed and the process has been determined to be commercially
viable.
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 December 31, 2018.
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 December 31, 2018, there were
outstanding common share equivalents (options, warrants and convertible debt) which amounted to 5,852,661 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.
Reclassification
–
Certain balances in previously issued financial statements have been reclassified to be consistent with the current
period presentation. Current liabilities were reclassified and the reclassification had no impact on total financial position,
net income, or stockholders’ equity.
Recent
Accounting Pronouncements
– In February 2016, the FASB issued ASU 2016-02, “
Leases
” (“ASU
2016-02”), and associated ASUs related to ASU 842, Leases, which require organizations that lease assets to recognize on
the balance sheet the assets and liabilities for the rights and obligations created by those leases. In addition, the new guidance
will require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty
of cash flows arising from leases. For leases where we are a lessee, the presentation and measurement of the assets and liabilities
will depend on each lease’s classification as either a finance or operating lease. For leases where we are a lessor, the
accounting remains largely unchanged from current U.S. GAAP but does contain some targeted improvements to align with the new
revenue recognition guidance issued in 2014 (ASC 606). The new standard is effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2018.
In
June 2018, the FASB issued ASU 2018-07,
Compensation - Stock Compensation (Topic 718): Improvements to Nonemployees Share-Based
Payment Accounting
(“ASU 2018-07”). ASU 2018-07 expands the scope of Topic 718 (which currently only includes
share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. With the adoption
of ASU 2018-07, the accounting for share-based payments for nonemployees and employees will be substantially the same. ASU 2018-07
is effective for public companies for annual and interim periods beginning after December 15, 2018, with early adoption permitted.
ASU 2018-07 is not expected to have a material impact on the Company’s financial statements.
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 audited 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 $9,927,003 and has negative cash flows
from operations. As of December 31, 2018, the Company had a working capital deficit of $1,606,592, as compared to $1,415,877 at
December 31, 2017. 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 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
–
INCOME TAXES
There
was no provision for, or benefit from, income tax during the years ended December 31, 2018 and 2017 respectively. The Company
was subject to United States federal and state income taxes at an approximate rate of 34% for the year ended May 31, 2017. Due
to the enactment of the Tax Reform Act of 2017, the tax rate for the year ended May 31, 2018 has been reduced to 21%.
The
components of the net deferred tax asset as of December 31, 2018, and 2017:
For the year ended December 31,
|
|
2018
|
|
2017
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
2,607,659
|
|
|
$
|
2,293,137
|
|
Stock/options issued for services
|
|
|
(323,275
|
)
|
|
|
(74,875
|
)
|
Stock/option issued for acquisitions
|
|
|
(106,856
|
)
|
|
|
(162,766
|
)
|
Contributed services
|
|
|
(77,997
|
)
|
|
|
(126,287
|
)
|
Depreciation and Amortization
|
|
|
(175,363
|
)
|
|
|
(142,563
|
)
|
Meals & Entertainment
|
|
|
(1,809
|
)
|
|
|
(339
|
)
|
Loss on change in fair value of conversion features
|
|
|
(46,820
|
)
|
|
|
—
|
|
Accretion of discount on convertible note
|
|
|
(12,640
|
)
|
|
|
—
|
|
Loss on preferred stock liability
|
|
|
(17,710
|
)
|
|
|
—
|
|
Valuation allowance
|
|
$
|
(1,845,189
|
)
|
|
$
|
(1,786,307
|
)
|
Federal
and state net operating loss carry forwards at December 31, 2018 were $6,541,856. The net operating loss carry forwards expire
between 2033 and 2038.
The
following is a reconciliation of the amount of benefit that would result from applying the federal statutory rate to pretax loss
with the provision for income taxes for the years ended December 31, 2018 and 2017, respectively:
|
|
|
|
|
For the Years Ended December 31,
|
|
2018
|
|
2017
|
Book income (loss) from operations
|
|
$
|
(668,321
|
)
|
|
$
|
(925,322
|
)
|
Stock/options issued for services
|
|
|
248,400
|
|
|
|
—
|
|
Stock/options issued for acquisition
|
|
|
—
|
|
|
|
146,207
|
|
Contributed services
|
|
|
—
|
|
|
|
126,287
|
|
Depreciation & Amortization
|
|
|
70,710
|
|
|
|
99,141
|
|
Meals & Entertainment
|
|
|
1,550
|
|
|
|
207
|
|
Loss on change in fair value of conversion feature
|
|
|
46,820
|
|
|
|
—
|
|
Accretion of discount on convertible note
|
|
|
12,640
|
|
|
|
—
|
|
Preferred stock liability loss
|
|
|
17,710
|
|
|
|
—
|
|
Change in valuation allowance
|
|
|
270,491
|
|
|
|
553,480
|
|
Provision for Income Taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
In
June 2006, FASB issued FASB ASC 740-10-05-6. The Company adopted FASB ASC 740-10-05-6 on January 1, 2013. Under FASB ASC 740-10-05-6,
tax benefits are recognized only for the tax positions that are more likely than not to be sustained upon examination by tax authorities.
The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon
ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the company's tax return that do not meet these recognition
and measurement standards.
Upon
the adoption of FASB ASC 740-10-05-6, the Company had no liabilities for unrecognized tax benefits and, as such, the adoption
had no impact on its financial statements, and the Company has recorded no additional interest or penalties. The Adoption of FASB
ASC 740-10-05-6 did not impact the Company's effective tax rates.
The
Company's policy is to recognize potential interest and penalties accrued related to unrecognized tax benefits with the income
tax expense. For the years ended December 31, 2018, and 2017, the Company did not recognize any interest or penalties in its Statement
of Operations, nor did it have any interest or penalties accrued in its Balance Sheet at December 31, 2018 and 2017 relating to
unrecognized benefits.
The
tax years 2018 and 2017 remain open to examination for federal income tax purposes and by other major taxing jurisdictions to
which the Company is subject.
NOTE
4 – 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 $26,376 (2017 - $18,790) for the year ended December 31, 2018, of which $11,549 (2017 - $12,191) relates
to product costs and $10,749 (2017 - $422) relates to leased equipment costs. During the year ended December 31, 2018, the Company
recognized an impairment charge of $26,550 (2017 - $Nil). Property and equipment at December 31, 2018 and 2017 consisted of the
following:
December 31,
|
|
2018
|
|
2017
|
Machinery and leased equipment
|
|
$
|
138,209
|
|
|
$
|
129,076
|
|
Machinery and equipment not yet in service
|
|
|
369,754
|
|
|
|
278,079
|
|
Office equipment and furniture
|
|
|
20,064
|
|
|
|
20,064
|
|
Website
|
|
|
2,760
|
|
|
|
2,760
|
|
Leasehold improvements
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total Property and equipment
|
|
$
|
530,787
|
|
|
$
|
429,979
|
|
Less: Accumulated depreciation
|
|
|
(30,815
|
)
|
|
|
(46,725
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
499,972
|
|
|
$
|
383,254
|
|
NOTE
5 – 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 $310,332 for the year ended December 31, 2018, of which $16,662 relates to
patents and $293,670 relates to technology rights. Amortization expense was $272,800 for the year ended December 31, 2017, of
which $13,681 relates to product costs, $3,029 relates to licensing costs and $1,477 relates to leased equipment costs. No impairment
was recognized during the twelve months ended December 31, 2018. Intangible assets at December 31, 2018 and 2017 consisted of
the following:
The
components of intangible assets at December 31, 2018 and December 31, 2017 were as follows:
|
|
December 31,
2018
|
|
December 31,
2017
|
Patents
|
|
$
|
4,514,989
|
|
|
$
|
4,505,489
|
|
Technology rights
|
|
|
235,500
|
|
|
|
200,000
|
|
Intangibles, at Cost
|
|
|
4,750,489
|
|
|
|
4,705,489
|
|
Less Accumulated Amortization
|
|
|
(690,714
|
)
|
|
|
(380,382
|
)
|
Net Carrying Amount
|
|
$
|
4,059,775
|
|
|
$
|
4,325,107
|
|
On
March 10, 2017, the Company entered into a three-year Efficacy Test Data License Agreement and Efficacy Test Data Assignment Agreement
(the “Agreement”) with a third party for $25,000. Under the Agreement, the Company can use certain Efficacy Test Data
and purchases the rights to other Efficacy Test Data to be added to its EPA Registration number 83241-4. The Company paid $25,000
for the use of certain Efficacy Test Data and purchase of other Efficacy Test Data.
On
March 13, 2017, the Company entered into a Registration Transfer Agreement (“Transfer Agreement”) and a Data License
and Assignment Agreement (“Data Agreement”) with a third party. Pursuant to the Transfer Agreement, the Company received
United States Environmental Protection Agency’s (“EPA”) Registration number 82341-4 for Excelyte® VET for
a one-time fee of $125,000.
On
April 6, 2017, the Company acquired intangible assets by issuing 2,250,000 shares of common stock at a deemed value of $1.96 per
share ($4,405,050) to Annihilyzer Inc. in order to close on the amended agreement dated April 6, 2017. Pursuant to the terms of
the Agreement, as amended, the Company acquired an Annihilyzer patent and all associated intellectual property. In addition, Paradigm
granted Annihilyzer Inc, a three-year license and sub-registration under Paradigm’s EPA Product Registration #82341-4. Annihilyzer,
Inc. had no activity under this sub-registration agreement as of December 31, 2017.
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. At December 31, 2018, the Company owed $45,000 of installment payments.
NOTE
6 - DEBT
The
following table summarizes notes payable as of December 31, 2018 and December 31, 2017:
Type
|
|
Amount
|
|
Origination
Date
|
|
Maturity
Date
|
|
Annual
Interest
Rate
|
|
Balance at
December 31, 2018
|
|
Balance at
December 31, 2017
|
Note Payable (c)
|
|
$
|
150,000
|
|
|
5/18/2016
|
|
6/1/2019
|
|
|
13.00
|
%
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
Note Payable (f) *
|
|
$
|
50,000
|
|
|
10/18/2016
|
|
8/18/2017
|
|
|
5.00
|
%
|
|
$
|
—
|
|
|
$
|
50,000
|
|
Note Payable (f) *
|
|
$
|
25,000
|
|
|
4/12/2017
|
|
10/12/2017
|
|
|
5.00
|
%
|
|
$
|
—
|
|
|
$
|
25,000
|
|
Note Payable (b)***
|
|
$
|
25,000
|
|
|
5/8/2017
|
|
6/30/2018
|
|
|
0.00
|
%
|
|
$
|
27,500
|
|
|
$
|
25,000
|
|
Note Payable (f) *
|
|
$
|
25,000
|
|
|
7/25/2017
|
|
9/25/2017
|
|
|
5.00
|
%
|
|
$
|
—
|
|
|
$
|
25,000
|
|
Note Payable (e)
|
|
$
|
50,000
|
|
|
9/1/2017
|
|
12/31/2017
|
|
|
8.00
|
%
|
|
$
|
—
|
|
|
$
|
50,000
|
|
Note Payable (e)
|
|
$
|
25,000
|
|
|
9/27/2017
|
|
12/31/2017
|
|
|
8.00
|
%
|
|
$
|
—
|
|
|
$
|
25,000
|
|
Note Payable (e)
|
|
$
|
37,500
|
|
|
10/11/2017
|
|
10/11/2018
|
|
|
8.00
|
%
|
|
$
|
—
|
|
|
$
|
37,500
|
|
Note Payable (f) *
|
|
$
|
20,000
|
|
|
10/24/2017
|
|
4/24/2018
|
|
|
5.00
|
%
|
|
$
|
—
|
|
|
$
|
20,000
|
|
Note Payable **
|
|
$
|
56,000
|
|
|
12/1/2017
|
|
1/10/2018
|
|
|
8.00
|
%
|
|
$
|
—
|
|
|
$
|
20,000
|
|
Note Payable (a)
|
|
$
|
150,000
|
|
|
1/5/2018
|
|
4/3/2018
|
|
|
8.00
|
%
|
|
$
|
—
|
|
|
$
|
—
|
|
Note Payable (e)
|
|
$
|
12,500
|
|
|
2/16/2018
|
|
4/15/2018
|
|
|
8.00
|
%
|
|
$
|
—
|
|
|
$
|
—
|
|
Note Payable (a)
|
|
$
|
250,000
|
|
|
2/27/2018
|
|
4/30/2018
|
|
|
8.00
|
%
|
|
$
|
—
|
|
|
$
|
—
|
|
Note Payable (e)
|
|
$
|
130,000
|
|
|
6/20/2018
|
|
1/2/2020
|
|
|
8.00
|
%
|
|
$
|
130,000
|
|
|
$
|
—
|
|
Note
Payable (f)*, ***
|
|
$
|
126,964
|
|
|
6/20/2018
|
|
8/31/2018
|
|
|
6.00
|
%
|
|
$
|
126,964
|
|
|
$
|
—
|
|
Note Payable (d)***
|
|
$
|
26,500
|
|
|
6/26/2018
|
|
7/31/2018
|
|
|
10.00
|
%
|
|
$
|
26,500
|
|
|
$
|
—
|
|
Note Payable (g)***
|
|
$
|
60,000
|
|
|
10/30/2018
|
|
12/30/2018
|
|
|
8.00
|
%
|
|
$
|
60,000
|
|
|
$
|
—
|
|
Note Payable (h)
|
|
$
|
8,700
|
|
|
11/15/2018
|
|
6/30/2019
|
|
|
10.00
|
%
|
|
$
|
8,700
|
|
|
$
|
—
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
$
|
529,664
|
|
|
$
|
427,500
|
|
Debt Discount
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,293
|
)
|
|
$
|
(6,283
|
)
|
Balance, net
|
|
|
|
|
|
|
|
|
|
|
$
|
526,371
|
|
|
$
|
421,217
|
|
Less current portion
|
|
|
|
|
|
|
|
|
|
|
$
|
(399,664
|
)
|
|
$
|
(421,217
|
)
|
Total long-term
|
|
|
|
|
|
|
|
|
|
|
$
|
126,707
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Indicates a re-classification from a related party to a non-related party note, as of January 1, 2018
|
** Paid off during the period
*** Currently in default
|
|
a)
|
On
January 5, 2018, the Company entered into a promissory note with an unrelated party for
$150,000. The note is due April 3, 2018, is unsecured and bears an interest rate of 8.0%
per annum. Effective February 27, 2018 the Company extinguished its January 5, 2018 promissory
note of $150,000 with an unrelated party and consolidated this amount into a new promissory
note for $250,000 (an additional $100,000 received). The note is due on April 30, 2018,
is unsecured and bears an interest rate of 8.0% per annum. On March 28, 2018 the Company
extinguished its February 27, 2018 promissory note of $250,000 with an unrelated party
and consolidated this amount into a convertible note for $450,000 (receiving $100,000
in the first quarter of 2018 and the remaining $100,000 in the second quarter of 2018).
See under convertible notes table below for additional details of the convertible note.
|
|
b)
|
On
May 29, 2018, the Company entered into a Guarantee Agreement with a non-related party.
The Company owed an unrelated party $25,000 that was due on October 10, 2017. In consideration
for increasing the principal amount of the loan to $27,500 and a personal guarantee by
the Company’s CEO, the lender agreed to extend the maturity date of the loan to
June 30, 2018. The Company evaluated the modification pursuant to ASC 470-60
Troubled
Debt Restructuring by Debtors
, and ASC 470-50
Modification and Extinguishment
.
The Company concluded that the Company is experiencing financial difficulty and that
a concession was not granted. As the creditors have not granted a concession the guidance
contained in ASC 470-60 does not apply. As the original and new debt instruments are
not considered substantially different, extinguishment accounting does not apply, and
the Company accounted for the revised note as a debt modification. The carrying amount
of the payable was not adjusted and the effects of the changes are reflected in future
periods by computing the constant effective interest rate and applying it to the carrying
amount of the payable each period until maturity.
|
|
c)
|
On
June 1, 2018, the Company signed an agreement to extend its $150,000 note dated May 18,
2016 for one year, for a total extension fee of $7,500 ($6,000 broker fee and $1,500
lender fee). The Company paid one-half of the total fee ($3,750), recorded as interest
expense. The remainder of the extension fee, ($3,750), is past due and upon payment to
the non-related note-holder, the loan shall be extended through June 1, 2019. The terms
of the note remain the same, with interest set at 13%.
|
|
d)
|
On
June 26, 2018, the Company entered into a promissory note with an unrelated party for
$26,500. The note is due July 31, 2018, is unsecured and bears an interest rate of 10%
per annum. Payment of the note and interest are past due as of December 31, 2018 and
the Company has temporarily granted the lender permission to waive the lender’s
obligation as a royalty-paying licensee of $1,500 per month in minimum fluid solution
payments until the Company is able to satisfy the terms of this note.
|
|
e)
|
On
June 20, 2018, the Company had the following notes, to a non-related party, outstanding:
|
|
•
|
$50,000
issued September 1, 2017
|
|
•
|
$25,000
issued September 27, 2017
|
|
•
|
$37,500
issued October 11, 2017
|
|
•
|
$12,500
issued February 16, 2018
|
On
June 20, 2018, the Company issued a new note that consolidated into one the notes above as well as any outstanding interest owed.
The new note has a principal of $130,000, bears interest at 8% per annum and is due on January 2, 2020. As the debt is being exchanged
with the lender, the Company evaluated the modification pursuant to ASC 470-60
Troubled Debt Restructuring by Debtors
,
and ASC 470-50
Modification and Extinguishment
.
The
indicators of financial difficulty contained in ASC 470-60 were reviewed and it was concluded that the Company is experiencing
financial difficulty. The Company then determined that a concession was granted. As the creditors have granted a concession the
troubled debt restructuring model contained in ASC 470-60 was applied. The carrying amount of the payable was not adjusted and
the effects of the changes are reflected in future periods by computing the constant effective interest rate and applying it to
the carrying amount of the payable each period until maturity.
|
f)
|
On
June 20, 2018, the Company had the following notes to a non-related party, outstanding:
|
|
•
|
$50,000
issued October 18, 2016
|
|
•
|
$25,000
issued April 12, 2017
|
|
•
|
$25,000
Issued July 25, 2017
|
|
•
|
$20,000
issued October 24, 2017
|
On
June 20, 2018, the Company issued a new note that consolidated into one note the notes above as well as any outstanding interest
owed. The new note has a principal of $126,964, bears interest at 6% per annum. The Company must repay $66,964 of the note on
August 31, 2018, and the remaining $60,000 on January 2, 2020. If the Company fails to make the $66,664 on August 31, 2018 the
entire amount owed under the original notes becomes due immediately. As the debt is being exchanged with the lender, the Company
evaluated the modification pursuant to ASC 470-60
Troubled Debt Restructuring by Debtors
, and ASC 470-50
Modification
and Extinguishment
.
The
indicators of financial difficulty contained in ASC 470-60 were reviewed and it was concluded that the Company is experiencing
financial difficulty as there is significant doubt that the Company is a going concern and that there is no assurance that the
Company will have sufficient cash flows to service the debt through its maturity. The Company then proceeded to assess whether
the creditors granted a concession. The Company determined that a concession was granted as the effective borrowing rate on the
restructured debt is lower than the effective borrowing rate of the old debt. As the creditors have granted a concession the troubled
debt restructuring model contained in ASC 470-60 was applied. The carrying amount of the payable was not adjusted and the effects
of the changes are reflected in future periods by computing the constant effective interest rate and applying it to the carrying
amount of the payable each period until maturity.
At
December 31, 2018, the Company has not repaid the $66,964 due on August 31, 2018; hence making $66,964 and $60,000, and interest,
due immediately.
|
g)
|
On
October 30, 2018, the Company entered into a promissory note with an unrelated party
for $60,000. The note is due December 30, 2018, is unsecured and bears an interest rate
of 8% per annum. Payment of the note and interest are past due as of December 31, 2018.
|
|
h)
|
On
November 15, 2018, the Company entered into a promissory note with an unrelated party
for $8,700. The note is due June 30, 2019, is unsecured and bears an interest rate of
10% per annum.
|
The
following table summarizes notes payable, related parties as of December 31, 2018 and December 31, 2017:
Type
|
|
Amount
|
|
Origination
Date
|
|
Maturity
Date
|
|
Annual
Interest
Rate
|
|
Balance at
December 31, 2018
|
|
Balance at
December 31, 2017
|
Note Payable, RP (l)
|
|
$
|
25,000
|
|
|
4/27/2017
|
|
4/27/2018
|
|
|
3.00
|
%
|
|
$
|
—
|
|
|
$
|
17,500
|
|
Note Payable, RP (m)
|
|
$
|
15,000
|
|
|
5/15/2017
|
|
5/15/2018
|
|
|
5.00
|
%
|
|
$
|
—
|
|
|
$
|
15,000
|
|
Note Payable, RP (l)
|
|
$
|
10,000
|
|
|
6/12/2017
|
|
6/12/2018
|
|
|
3.00
|
%
|
|
$
|
—
|
|
|
$
|
10,000
|
|
Note Payable, RP (l)
|
|
$
|
5,500
|
|
|
7/3/2017
|
|
6/30/2018
|
|
|
3.00
|
%
|
|
$
|
—
|
|
|
$
|
5,500
|
|
Note Payable, RP **
|
|
$
|
2,000
|
|
|
7/5/2017
|
|
6/30/2018
|
|
|
3.00
|
%
|
|
$
|
—
|
|
|
$
|
2,000
|
|
Note Payable, RP **
|
|
$
|
3,000
|
|
|
7/6/2017
|
|
6/30/2018
|
|
|
3.00
|
%
|
|
$
|
—
|
|
|
$
|
3,000
|
|
Note Payable, RP **
|
|
$
|
2,500
|
|
|
7/10/2017
|
|
6/30/2018
|
|
|
3.00
|
%
|
|
$
|
—
|
|
|
$
|
2,500
|
|
Note Payable, RP **
|
|
$
|
2,500
|
|
|
7/12/2017
|
|
6/30/2018
|
|
|
3.00
|
%
|
|
$
|
—
|
|
|
$
|
2,500
|
|
Note Payable, RP (l)
|
|
$
|
25,000
|
|
|
7/13/2017
|
|
6/30/2018
|
|
|
3.00
|
%
|
|
$
|
—
|
|
|
$
|
25,000
|
|
Note Payable, RP (l)
|
|
$
|
5,000
|
|
|
8/14/2017
|
|
6/30/2018
|
|
|
3.00
|
%
|
|
$
|
—
|
|
|
$
|
5,000
|
|
Note Payable, RP (k) *
|
|
$
|
275,000
|
|
|
9/27/2017
|
|
10/1/2018
|
|
|
7.50
|
%
|
|
$
|
—
|
|
|
$
|
275,000
|
|
Note Payable, RP (l)
|
|
$
|
250,000
|
|
|
11/15/2017
|
|
12/15/2018
|
|
|
1.00
|
%
|
|
$
|
—
|
|
|
$
|
250,000
|
|
Note Payable, RP (k)
|
|
$
|
100,000
|
|
|
11/15/2017
|
|
10/1/2018
|
|
|
7.50
|
%
|
|
$
|
—
|
|
|
$
|
100,000
|
|
Note Payable, RP (i)
|
|
$
|
30,000
|
|
|
4/10/2018
|
|
1/15/2019
|
|
|
3.00
|
%
|
|
$
|
30,000
|
|
|
$
|
—
|
|
Note Payable, RP (j) (l)
|
|
$
|
24,000
|
|
|
5/31/2018
|
|
6/30/2019
|
|
|
3.00
|
%
|
|
$
|
—
|
|
|
$
|
—
|
|
Note Payable, RP (k) *
|
|
$
|
380,000
|
|
|
6/20/2018
|
|
1/2/2020
|
|
|
8.00
|
%
|
|
$
|
380,000
|
|
|
$
|
—
|
|
Note Payable, RP (l)
|
|
$
|
350,000
|
|
|
6/20/2018
|
|
1/2/2020
|
|
|
5.00
|
%
|
|
$
|
350,000
|
|
|
$
|
—
|
|
Note Payable, RP (m)
|
|
$
|
17,000
|
|
|
6/20/2018
|
|
1/2/2020
|
|
|
5.00
|
%
|
|
$
|
17,000
|
|
|
$
|
—
|
|
Note Payable, RP (n)**
|
|
$
|
5,000
|
|
|
7/13/2018
|
|
6/30/2019
|
|
|
3.00
|
%
|
|
$
|
—
|
|
|
$
|
—
|
|
Note Payable, RP (o)***
|
|
$
|
50,000
|
|
|
7/27/2018
|
|
11/30/2018
|
|
|
8.00
|
%
|
|
$
|
50,000
|
|
|
$
|
—
|
|
Note Payable, RP (p)
|
|
$
|
5,000
|
|
|
10/9/2018
|
|
Demand
|
|
|
0.00
|
%
|
|
$
|
5,000
|
|
|
$
|
—
|
|
Note Payable, RP (q)
|
|
$
|
5,000
|
|
|
10/19/2018
|
|
Demand
|
|
|
0.00
|
%
|
|
$
|
5,000
|
|
|
$
|
—
|
|
Note Payable, RP (r)**
|
|
$
|
2,000
|
|
|
10/24/2018
|
|
Demand
|
|
|
0.00
|
%
|
|
$
|
—
|
|
|
$
|
—
|
|
Note Payable, RP (s)
|
|
$
|
3,000
|
|
|
10/24/2018
|
|
Demand
|
|
|
0.00
|
%
|
|
$
|
3,000
|
|
|
$
|
—
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
$
|
840,000
|
|
|
$
|
713,000
|
|
Debt Discount
|
|
|
|
|
|
|
|
|
|
|
$
|
(13,174
|
)
|
|
$
|
—
|
|
Balance, net
|
|
|
|
|
|
|
|
|
|
|
$
|
826,826
|
|
|
$
|
713,000
|
|
Less current portion
|
|
|
|
|
|
|
|
|
|
|
$
|
(93,000
|
)
|
|
$
|
(713,000
|
)
|
Total long-term
|
|
|
|
|
|
|
|
|
|
|
$
|
733,826
|
|
|
$
|
—
|
|
|
* Indicates a note that is collateralized by a patent (Note 4)
|
** Paid off during the period
***Currently in default
|
|
i)
|
On
April 10, 2018 the Company entered into a promissory note with an entity owned by the
Chairman of the Company for $30,000. The note is due January 15, 2019, is unsecured and
bears an interest rate of 3.0% per annum.
|
|
j)
|
On
May 31, 2018 the Company entered into a promissory note with the Chairman of the Company
for $24,000. The note is due June 30, 2019, is unsecured and bears an interest rate of
3.0% per annum.
|
|
k)
|
On
June 20, 2018, the Company had the following notes to the CEO and Director of the Company
outstanding:
|
|
•
|
$275,000
issued September 27, 2017
|
|
•
|
$100,000
issued November 15, 2017
|
On
June 20, 2018, the Company issued a new note that consolidated into one note the notes above as well as any outstanding interest
owed. The new note has a principal of $380,000, bears interest at 8% per annum and is due on January 2, 2020. As the debt is being
exchanged with the lender, the Company evaluated the modification pursuant to ASC 470-60
Troubled Debt Restructuring by Debtors
,
and ASC 470-50 Modification and Extinguishment.
The
indicators of financial difficulty contained in ASC 470-60 were reviewed and it was concluded that the Company is experiencing
financial difficulty and that a concession was granted. As the creditor granted a concession the troubled debt restructuring model
contained in ASC 470-60 was applied. The carrying amount of the payable was not adjusted and the effects of the changes are reflected
in future periods by computing the constant effective interest rate and applying it to the carrying amount of the payable each
period until maturity.
|
l)
|
On
June 20, 2018, the Company had the following notes to the Chairman of the Company outstanding:
|
|
•
|
$17,500
issued April 27, 2017
|
|
•
|
$10,000
issued June 12, 2017
|
|
•
|
$5,500
Issued July 3, 2017
|
|
•
|
$25,000
issued July 13, 2017
|
|
•
|
$5,000
issued August 14, 2017
|
|
•
|
$250,000
issued November 15, 2017
|
|
•
|
$24,000
issued May 31, 2018
|
On
June 20, 2018, the Company issued a new note that consolidated into one note the notes above as well as any outstanding interest
owed. The new note has a principal of $350,000, bears interest at 5% per annum and is due on January 2, 2020. The Company evaluated
the transaction under the guidance found in ASC 470-50
Modification and Extinguishment
.
The
Company concluded that the Company is experiencing financial difficulty and that a concession was not granted. As the creditor
has not granted a concession, the guidance contained in ASC 470-60 was applied. The Company accounted for the new note as a debt
modification. The carrying amount of the payable was not adjusted and a new effective interest rate was determined on the modification
date that equates the revised cash flows to the carrying amount of the original debt.
|
m)
|
On
June 20, 2018, the Company had a $15,000 note to the Chairman of the Company’s
spouse outstanding. On June 20, 2018, the Company issued a new note that consolidated
the note above as well as any outstanding interest owed. The new note has a principal
of $17,000, bears interest at 5% per annum and is due on January 2, 2020. The Company
evaluated the transaction under the guidance found in ASC 470-50
Modification and
Extinguishment
.
|
The
Company concluded that the Company is experiencing financial difficulty and that a concession was not granted. As the creditor
has not granted a concession, the guidance contained in ASC 470-60 was applied. The Company accounted for the new note as a debt
modification. The carrying amount of the payable was not adjusted and a new effective interest rate was determined on the modification
date that equates the revised cash flows to the carrying amount of the original debt.
|
n)
|
On
July 13, 2018 the Company entered into a promissory note with the Chairman of the Company
for $5,000. The note is due June 30, 2019, is unsecured and bears an interest rate of
3.0% per annum. This note was repaid during the period ended December 31, 2018
|
|
o)
|
On
July 27, 2018, the Company entered into a short-term promissory note with the CEO and
Director of the Company, for $50,000 to be used in operations. The note is unsecured,
incorporates the purchase of a piece of SurvivaLyte® equipment at cost and grants
a three-year (from installation of equipment), non-exclusive US EPA sub-registration
for markets (with specific exceptions) in a specific geographical location with a per
gallon royalty feature as added benefits, is due on November 15, 2018, and bears an interest
rate of 8% per annum. The Note Payable agreement was extended through November 30, 2018
on November 19, 2018, the additional benefit section of the note was removed, the equipment
was never transferred to the Officer and Director, the equipment was never installed,
and no related sales occurred nor related royalties were earned by the Company, through
December 31, 2018 and through the date of this filing. The Company evaluated the transaction
under the guidance found in ASC 470-50
Modification and Extinguishment
.
|
The
Company concluded that the Company is experiencing financial difficulty and that a concession was not granted. As the creditor
has not granted a concession, the guidance contained in ASC 470-60 was applied. The Company accounted for the new note as a debt
modification. The carrying amount of the payable was not adjusted and a new effective interest rate was determined on the modification
date that equates the revised cash flows to the carrying amount of the original debt.
|
p)
|
On
October 9, 2018 the Company entered into a promissory note with the CEO of the Company
for $5,000. The note is due on demand, is unsecured and non-interest bearing.
|
|
q)
|
On
October 19, 2018 the Company entered into a promissory note with the CEO of the Company
for $5,000. The note is due on demand, is unsecured and non-interest bearing.
|
|
r)
|
On
October 19, 2018 the Company entered into a promissory note with the Chairman of the
Company for $2,000. The note is due on demand, is unsecured and non-interest bearing.
This note was repaid during the year ended December 31, 2018.
|
|
s)
|
On
October 24, 2018 the Company entered into a promissory note with the Chairman of the
Company for $3,000. The note is due on demand, is unsecured and non-interest bearing.
|
The
following table summarizes convertible notes payable as of December 31, 2018 and December 31, 2017:
Type
|
|
Amount
|
|
Origination
Date
|
|
Maturity
Date
|
|
Annual
Interest
Rate
|
|
Balance at
December 31, 2018
|
|
Balance at
December 31, 2017
|
Convertible Note Payable (t)
|
|
$
|
450,000
|
|
|
3/28/2018
|
|
3/31/2021
|
|
|
8.00
|
%
|
|
$
|
450,000
|
|
|
$
|
—
|
|
Convertible Note Payable (u)**
|
|
$
|
68,000
|
|
|
6/13/2018
|
|
6/5/2019
|
|
|
12.00
|
%
|
|
$
|
—
|
|
|
$
|
—
|
|
Convertible Note Payable (v)
|
|
$
|
38,000
|
|
|
7/30/2018
|
|
7/25/2019
|
|
|
12.00
|
%
|
|
$
|
38,000
|
|
|
$
|
—
|
|
Convertible Note Payable (w)
|
|
$
|
53,000
|
|
|
8/29/2018
|
|
8/27/2019
|
|
|
12.00
|
%
|
|
$
|
53,000
|
|
|
$
|
—
|
|
Convertible Note Payable (x)
|
|
$
|
50,000
|
|
|
12/6/2018
|
|
12/6/2019
|
|
|
5.00
|
%
|
|
$
|
50,000
|
|
|
$
|
—
|
|
Convertible Note Payable (y)
|
|
$
|
65,000
|
|
|
12/6/2018
|
|
12/6/2019
|
|
|
5.00
|
%
|
|
$
|
65,000
|
|
|
$
|
—
|
|
Convertible Note Payable (z)
|
|
$
|
63,000
|
|
|
12/12/2018
|
|
12/5/2019
|
|
|
12.00
|
%
|
|
$
|
63,000
|
|
|
$
|
—
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
$
|
719,000
|
|
|
$
|
—
|
|
Debt Discount
|
|
|
|
|
|
|
|
|
|
|
$
|
(165,186
|
)
|
|
$
|
—
|
|
Balance, net
|
|
|
|
|
|
|
|
|
|
|
$
|
553,814
|
|
|
$
|
—
|
|
Less current portion
|
|
|
|
|
|
|
|
|
|
|
$
|
(161,280
|
)
|
|
$
|
—
|
|
Total long-term
|
|
|
|
|
|
|
|
|
|
|
$
|
392,534
|
|
|
$
|
—
|
|
** Paid off during the period
|
|
t)
|
On
March 28, 2018 the Company extinguished its February 27, 2018 promissory note of $250,000
with an unrelated party and consolidated this amount into a convertible note for $450,000
(receiving $100,000 in the first quarter of 2018 and the remaining $100,000 in the second
quarter of 2018). The note is due on March 31, 2021 and is convertible into common stock
at a conversion price of $0.4285 and bears interest of 8.0% per annum. This note also
contains an anti-dilution clause, which becomes effective in the event the Company 60,000,000
issued shares of its stock. Due to the fact that the trading price of the Company’s
common stock was greater than the stated conversion rate of this note on the date of
issuance, a total discount of $75,087 for the beneficial conversion was recorded against
the note and will be amortized against interest expense through the life of the note.
As of December 31, 2018, interest expense of $17,622 was recorded as part of the amortization
of the beneficial conversion feature of this note. As of December 31, 2018, the note
had a principal balance of $450,000.
|
|
u)
|
On
June 13, 2018, the Company entered into a convertible promissory with an unrelated party
for $68,000. The note is due on June 5, 2019 and bears interest on the unpaid principal
balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 12% to 17%
to 22% to 27% to 32% to 37%, dependent upon the timeframe of repayment during the note’s
term) and any part of the notice which is not paid when due shall bear interest at the
rate of 22.0% per annum from the due date until paid. The Company must, at all times,
reserve six times that number of shares that would be issuable upon full conversion of
the note, with an initial reserved share amount of 1,592,506 shares. The Note may be
converted by the Lender at any time after 180 days of the date of issuance into shares
of Company’s common stock at a conversion price equal to 61% of the average 3 lowest
trading prices during the 15 trading day period prior to the conversion date. Due to
this provision, the Company considered whether the embedded conversion option qualifies
for derivative accounting under ASC 815-15
Derivatives and Hedging
. The note isn’t
convertible until 180 days following funding and no derivative liability was recognized
as the note was fully repaid prior becoming convertible.
|
|
v)
|
On
July 30, 2018, the Company entered into a convertible promissory with an unrelated party
for $38,000. The note is due on July 25, 2019 and bears interest on the unpaid principal
balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 12% to 17%
to 22% to 27% to 32% to 37%, dependent upon the timeframe of repayment during the note’s
term) and any part of the notice which is not paid when due shall bear interest at the
rate of 22.0% per annum from the due date until paid. The Company must, at all times,
reserve six times that number of shares that would be issuable upon full conversion of
the note, with an initial reserved share amount of 1,038,251 shares. The Note may be
converted by the Lender at any time after 180 days of the date of issuance into shares
of Company’s common stock at a conversion price equal to 61% of the average 3 lowest
trading prices during the 15 trading day period prior to the conversion date.
|
Due
to this provision, the Company considered whether the embedded conversion option qualifies for derivative accounting under ASC
815-15 Derivatives and Hedging. As the note isn’t convertible until 180 days following issuance, no derivative liability
was recognized as of December 31, 2018.
|
w)
|
On
August 29, 2018, the Company entered into a convertible promissory with an unrelated
party for $53,000. The note is due on August 27, 2019 and bears interest on the unpaid
principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from
12% to 17% to 22% to 27% to 32% to 37%, dependent upon the timeframe of repayment during
the note’s term) and any part of the notice which is not paid when due shall bear
interest at the rate of 22.0% per annum from the due date until paid. The Company must,
at all times, reserve six times that number of shares that would be issuable upon full
conversion of the note, with an initial reserved share amount of 1,408,950 shares. The
Note may be converted by the Lender at any time after 180 days of the date of issuance
into shares of Company’s common stock at a conversion price equal to 61% of the
average 3 lowest trading prices during the 15 trading day period prior to the conversion
date. Due to this provision, the Company considered whether the embedded conversion option
qualifies for derivative accounting under ASC 815-15 Derivatives and Hedging. As the
note isn’t convertible until 180 days following issuance, no derivative liability
was recognized as of December 31, 2018.
|
|
x)
|
On
December 6, 2018, the Company entered into a convertible promissory with an unrelated
party in the principal amount of $150,000, with an original issue discount of $15,000
and issued a warrant with a term of three years to purchase up to 50,000 shares of common
stock of the Company at an exercise price of $1.00 per share and subject to adjustment
for dilutive issuances and cashless exercise. At December 31, 2018, the Company had received
$43,000 and owed $50,000 of the note including an original issue discount on the funded
portion of the note of $7,000. The note is due on December 6, 2019 and bears interest
on the unpaid principal balance at a rate of 5% per annum and any part of the notice
which is not paid when due shall bear interest at the rate of 12% per annum from the
due date until paid. Stringent pre-payment terms apply, from 20% to 35% to 40%, dependent
upon the timeframe of repayment during the note’s term. The Company must, at all
times, reserve ten times that number of shares that would be issuable upon full conversion
of the note. The Note may be converted by the Lender at any time after issuance into
shares of Company’s common stock at a conversion price equal to 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. The conversion rate drops from 65% to
55% if at any time the conversion price is less than $0.30. As the conversion price was
less than $0.30 on issuance this decrease was triggered.
|
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 $109,491 and the warrant of $4,920 resulted in a discount to
the note payable of $50,000 and an initial derivative expense of $71,411. During the year ended December 31, 2018, the Company
recorded accretion of $6,028 increasing the carrying value of the notes to $6,028.
|
y)
|
On
December 6, 2018, the Company entered into a convertible promissory with an unrelated
party in the principal amount of $130,000, with an original issue discount of $16,000.
At December 31, 2018, the Company had received $57,000 and owed $65,000 of the note including
an original issue discount on the funded portion of the note of $8,000. The note is due
on December 6, 2019 and bears interest on the unpaid principal balance at a rate of 5%
per annum and any part of the notice which is not paid when due shall bear interest at
the rate of 12% per annum from the due date until paid. Stringent pre-payment terms apply,
from 20% to 35% to 40%, dependent upon the timeframe of repayment during the note’s
term. The Company must, at all times, reserve ten times that number of shares that would
be issuable upon full conversion of the note. The Note may be converted by the Lender
at any time after issuance into shares of Company’s common stock at a conversion
price equal to 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.
The conversion rate drops from 65% to 55% if at any time the conversion price is less
than $0.30. As the conversion price was less than $0.30 on issuance this decrease was
triggered.
|
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 of $142,339 resulted in a discount to the note payable of $65,000 and an initial
derivative expense of $85,339. During the year ended December 31, 2018, the Company recorded accretion of $7,837 increasing the
carrying value of the notes to $7,837.
|
z)
|
On
December 12, 2018, the Company entered into a convertible promissory with an unrelated
party for $63,000. The note is due on December 5, 2019 and bears interest on the unpaid
principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from
12% to 17% to 22% to 27% to 32% to 37%, dependent upon the timeframe of repayment during
the note’s term) and any part of the notice which is not paid when due shall bear
interest at the rate of 22.0% per annum from the due date until paid. The Company must,
at all times, reserve six times that number of shares that would be issuable upon full
conversion of the note. The Note may be converted by the Lender at any time after 180
days of the date of issuance into shares of Company’s common stock at a conversion
price equal to 61% of the average 3 lowest trading prices during the 15 trading day period
prior to the conversion date.
|
Due
to this provision, the Company considered whether the embedded conversion option qualifies for derivative accounting under ASC
815-15
Derivatives and Hedging
. As the note isn’t convertible until 180 days following issuance, no derivative liability
was recognized as of December 31, 2018.
NOTE
7 – DERIVATIVE AND PREFERRED STOCK LIABILITIES
The
embedded conversion option of (1) the convertible debentures described in Note 6(x) & (y); (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(x) & (y), 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 600,000 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 derivatives only (not including changes in the Level 3 of Preferred Stock, which is listed in the paragraphs below
this table) the fair value of the Company’s Level 3 financial liabilities.
|
|
December 31,
2018
|
|
December 31,
2017
|
|
|
|
|
|
Balance at the beginning of period
|
|
$
|
—
|
|
|
$
|
—
|
|
Original discount limited to proceeds of notes
|
|
|
100,000
|
|
|
|
—
|
|
Fair value of derivative liabilities in excess of notes proceeds received
|
|
|
247,033
|
|
|
|
—
|
|
Change in fair value of embedded conversion option
|
|
|
(24,057
|
)
|
|
|
—
|
|
Balance at the end of the period
|
|
$
|
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
|
|
124-222%
|
|
2.56-2.84%
|
|
|
0
|
%
|
|
1.00-5.00
|
At December 31, 2018
|
|
124-222%
|
|
2.46-2.56%
|
|
|
0
|
%
|
|
0.93-4.93
|
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 December 31, 2018. 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 December 31, 2018, 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. The Company recorded a loss on initial fair value of $90,283 and a gain on the change in fair value of the
preferred stock of $5,931.
The
Company uses Level 3 inputs for its valuation methodology for the preferred stock liability as their fair values were determined
by using the Binomial Model based on various assumptions.
Significant
changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these
are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows
the assumptions used in the calculations:
|
|
Expected Volatility
|
|
Risk-free Interest Rate
|
|
Expected Dividend Yield
|
|
Expected Life (in years)
|
|
|
|
|
|
|
|
|
|
At issuance
|
|
|
124
|
%
|
|
|
2.84
|
%
|
|
|
0
|
%
|
|
|
5.00
|
|
At December 31, 2018
|
|
|
124
|
%
|
|
|
2.46
|
%
|
|
|
0
|
%
|
|
|
4.93
|
|
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 December 31, 2018, 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 December 31, 2018 was 44,559,238.
On
January 2, 2018, the Company sold 110,000 shares of common stock to an un-related party for $55,000.
On
March 15, 2018, the Company entered into a 12-month service agreement, expiring on March 15, 2019, for strategic planning, financing,
capital formation, up-listing and expansion of the Company’s shareholder base. Per the terms of the agreement, the consulting
company received a non-refundable $5,000 initial fee, will receive $2,500 per month beginning in April 2018, and was issued 2,000,000
fully vested non-forfeitable shares of restricted common stock, valued at $1,000,000 ($0.50 per shares). The 2,000,000 common
shares of the Company’s stock were issued on June 12, 2018. As of December 31, 2018 the Company recorded the fair value
of the common shares of $1,000,000 in common stock and additional paid in capital and has recorded $797,260 for the consulting
expense related to the portion of the 12-month service agreement that has been completed.
On
April 10, 2018 the Company issued 120,000 shares of common stock at $0.50 per share to an employee and Director of the Company
for cash proceeds of $60,000.
On
June 12, 2018, the Company entered into a 6-month service agreement, expiring on December 12, 2018, for business development and
the development of financial reports. Per the terms of the agreement, the consulting company was issued 50,000 shares of restricted
stock on June 29, 2018. As of December 31, 2018, the Company recorded the fair value of the common shares of $28,000 in common
stock and additional paid in capital and has recorded $28,000 for the consulting expense related to the portion of the 6-month
service agreement that has been completed.
On
July 2, 2018 the Company’s Board of Directors authorized the issuance of 1,000,000 restricted shares of common stock to
Life Sciences Journeys, Inc., for six months of services outlined in the July 2, 2018 services agreement. The 1,000,000 restricted
shares of common stock were issued to Life Sciences Journeys, Inc. on October 9, 2018. The Company placed a stop transfer order
on the shares but has since rescinded the stop transfer order. The Company recorded the fair value of the common shares of $355,000
in common stock and additional paid in capital and has recorded $355,000 for the consulting services, during the year ended December
31, 2018.
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 pursuant to the agreement the Company issued the consultant 100,000 common shares.
As of December 31, 2018 the Company recorded the fair value of the common shares of $17,000 in common stock and additional paid
in capital and has recorded $2,615 for the consulting expense related to the portion of the 6-month service agreement that has
been completed.
NOTE
9 – STOCK OPTIONS
The
Company did not grant any stock options during the year ended December 31, 2018.
On
January 1, 2017 the Company issued 30,000 stock options to a related party with an exercise price of $2.00 per share. The options
vest on January 1, 2018. The Company used the Black-Scholes methodology to value the stock-based compensation expense for options.
Compensation expense is recognized on a straight-line basis over the vesting period. As of December 31, 2017, the Company recognized
$56,220 in compensation expense, leaving $0 to be recognized in remaining compensation expense.
On
January 26, 2017, the Company issued 200,000 stock options to a related party with an exercise price of $2.00 per share. The options
vested immediately. The Company used the Black-Scholes methodology to value the stock-based compensation expense for options.
As of December 31, 2017, the Company recognized $373,800 in compensation expense, leaving $0 to be recognized in remaining compensation
expense.
In
applying the Black-Scholes methodology to the options granted through December 31, 2018, the fair value of our stock-based awards
was estimated using the following assumptions ranging from:
|
|
The Year Ended:
|
|
|
December 31, 2018
|
|
December 31, 2017
|
Risk-free interest rate
|
|
|
—
|
|
|
|
1.22 - 1.95%
|
|
Expected option life
|
|
|
—
|
|
|
|
2 - 5 years
|
|
Expected dividend yield
|
|
|
—
|
|
|
|
0.00%
|
|
Expected price volatility
|
|
|
—
|
|
|
|
165.72 - 199.94%
|
|
Below
is a table summarizing the options issued and outstanding as of December 31, 2018 and 2017:
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
|
|
|
|
0.38
|
|
|
|
05/20/2019
|
|
|
$
|
250,000
|
|
|
01/01/2016
|
|
|
|
90,000
|
|
|
|
90,000
|
|
|
|
0.33
|
|
|
|
1.00
|
|
|
|
12/31/2019
|
|
|
|
25,000
|
|
|
01/01/2016
|
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
0.33
|
|
|
|
1.00
|
|
|
|
12/31/2019
|
|
|
|
30,000
|
|
|
09/15/2016
|
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
1.00
|
|
|
|
1.00
|
|
|
|
12/31/2019
|
|
|
|
10,000
|
|
|
10/01/2016
|
|
|
|
7,500
|
|
|
|
7,500
|
|
|
|
1.00
|
|
|
|
1.00
|
|
|
|
12/31/2019
|
|
|
|
7,500
|
|
|
01/01/2017
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
2.00
|
|
|
|
0.01
|
|
|
|
01/01/2019
|
|
|
|
60,000
|
|
|
01/26/2017
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
2.00
|
|
|
|
3.08
|
|
|
|
01/26/2022
|
|
|
|
400,000
|
|
|
|
|
|
|
2,287,500
|
|
|
|
2,287,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
787,500
|
|
The
weighted average exercise prices are $0.34 for the options outstanding and exercisable, respectively. The intrinsic value of stock
options outstanding at December 31, 2018 was $50,000.
NOTE
10 – WARRANTS
As
described in Note 7, on December 3, 2018, the Company issued 600,000 warrants subject to cashless exercise at $0.10 per share
for 5 years. On December 6, 2018, the Company issued a warrant with a term of three years to purchase up to 50,000 shares of common
stock of the Company at an exercise price of $1.00 per share and subject to adjustment for dilutive issuances and cashless exercise.
Upon the issuance of the convertible notes payable described in Note 6(x) & (y), the Company concluded that it only has sufficient
shares to satisfy the conversion of some but not all of the outstanding convertible instruments. The Company elected to reclassify
contracts from equity with the earliest inception date first. As a result, the 650,000 warrants issued after the election, qualified
for derivative classification. The initial fair value of the 50,000 warrants of $4,920, and the initial fair value of the 600,000
warrants of $90,283 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, 2017 and 2016
|
|
|
|
—
|
|
|
|
—
|
|
|
Issued
|
|
|
|
650,000
|
|
|
|
0.17
|
|
|
Balance, December 31, 2018
|
|
|
|
650,000
|
|
|
|
0.17
|
|
As
at December 31, 2018, 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
|
|
|
|
2.91
|
|
|
|
11/28/2021
|
|
|
$
|
50,000
|
|
12/3/2018
|
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
0.10
|
|
|
|
4.93
|
|
|
|
12/3/2023
|
|
|
|
60,000
|
|
|
|
|
|
650,000
|
|
|
|
650,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
110,000
|
The
intrinsic value of stock options outstanding at December 31, 2018 was $36,000.
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 and 12 for more details.
NOTE
12 – COMMITMENTS AND CONTINGENCIES
Consulting
Agreements
–
On August 10, 2017 the Company entered into a consulting contract to receive assistance in financing.
Upon execution of the agreement, the consultant received $3,000 plus a $1,000 retainer for initial expenses and further received
$3,000 per month for six-months thereafter, with the agreement terminating on February 10, 2018.
On
December 1, 2017, the Company entered into a consulting contract for investors relations and media services. The Company paid
$16,667 for these services and the contract was terminated on March 1, 2018.
On
December 12, 2017, the Company engaged the services of a certified public accountant, on a consulting basis, through January 8,
2018 at which time the accounting professional became a temporary part time employee of the Company’s though March 2018.
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
June 12, 2018, the Company entered into a 6-month service agreement, expiring on December 12, 2018, for business development and
the development of financial reports. Per the terms of the agreement, the consulting company was issued 50,000 shares of restricted
stock.
On
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. In addition, the
Company agreed to pay Mr. Paris a signing bonus of $40,000.
Lease
Commitments –
On
November 21, 2016, the Company signed a lease for approximately 12,000 square feet of office, research & development, warehouse,
and production space in Little River, South Carolina. The lease was effective December 1, 2016 at a rate of $4,800 per month for
a period of three years. The Company has an option to extend the lease for two periods of three years each. The Company’s
future lease commitments by year are as follow:
|
2019
|
|
|
|
52,950
|
|
|
2020
|
|
|
|
—
|
|
|
Total
|
|
|
$
|
52,950
|
|
On
March 1, 2018 the Company entered into a 24-month fluid sales agreement with an entity. The Company leases 150 square feet of
space from this entity and the Company pays a part time technician to manufacture fluid solutions for the entity to sell, utilizing
the Company’s US EPA product registration. The Company receives a monthly fee from the fluid sales entity based upon the
greater amount between a negotiated royalty price per volume of the fluid solutions or a minimum sales number. This agreement
was mutually cancelled with no further obligation between the parties.
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.
NOTE
13 - SUBSEQUENT EVENTS
|
a)
|
On
January 2, 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.
|
|
b)
|
On
January 3, 2019, the Company executed a short term note in the amount of $2,544 with
its President and Chairman. The note carried 3.00% interest and was due on or before
June 30, 2019. The Company paid the note, principal and interest, in full on February
7, 2019.
|
|
c)
|
On
January 15, 2019, the Company executed a new, consolidated convertible note with a non-related
party by combining the March 28, 2018 convertible note in the amount of $450,000 with
interest due of $28,898 and a $60,000 term note of October 31, 2018 with interest due
of $1,038. The new convertible note is in the amount of $539,936, is 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 new
note retires the notes described in Notes 6(g) and (t).
|
|
d)
|
On
January 15, 2019, the Company executed a new $33,000 convertible note with interest rates
of 12% per annum. The Power Up Note matures on January 15, 2020. The Company reimbursed
Power Up $2,500 for its legal fees and paid Power Up a $500 due diligence fee, resulting
in net proceeds of $30,000 to us from the Power Up Note.
|
The
Power Up Note may be prepaid in whole or in part, at any time during the period beginning on each Closing Date and ending on the
date which is 180 days following the issue date, beginning at 112% of the outstanding principal and accrued interest increasing
by 5% for every 30 day period thereafter until the 180th day following the Closing Date. After the expiration of the 180 days
following the Closing Date, we may not prepay the Note for any reason.
At
any time after 180 days after the date the Power Up Note is issued, the Power Up Note is convertible into our common stock, at
Power Up’s option, at a 39% discount to the market price, which is defined as 61% of the average of the lowest three closing
bid prices for the our common stock during the 15 trading days prior to the conversion date.
|
e)
|
On
January 16, 2019, the Company executed a $100,000 convertible note with interest rates
of 8% per annum pursuant to the terms of the Securities Purchase Agreement between GS
Capital Partners, LLC. (“GS Capital”), a New York corporation, and us (the
“GS Capital Agreement”). The GS Capital Note matures on January 16,
2020 (the “Maturity Date”). The note includes a $5,000 original issue discount,
making the purchase price $95,000. The Company reimbursed Power Up $5,000 for its legal
fees and paid Power Up a $500 due diligence fee, resulting in net proceeds of $90,000
to us from the GS Capital Note. 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 64% of
the average of the two lowest traded prices in the 10 day period preceding conversion.
|
|
f)
|
On
January 22, 2019, the Company executed a $50,000 convertible note with interest rates
of 12% per annum pursuant to the terms of the Securities Purchase Agreement between EMA
Financial, LLC, a Delaware corporation, and us (the “EMA Financial Agreement”).
The EMA Financial Note matures on October 22, 2019 (the “Maturity Date”).
We reimbursed EMA Financial $2,000 for legal fees and there was a $3,000 original issue
discount included resulting in net proceeds of $45,000 to us from the EMA Financial note.
The note is convertible at 50% of the lowest traded price in the 20 day period preceding
conversion.
|
|
g)
|
On
January 22, 2019, the Company executed a $60,000 convertible note with interest rates
of 8.00% per annum pursuant to the terms of the Securities Purchase Agreement between
JSJ Investments Inc. (“JSJ Investments), a Texas corporation, and us. The JSJ Investments
Note matures of January 22, 2020. The note contain includes a $3,000 original issue discount
and we reimbursed JSJ Investments $2,000 for legal fees and $6,000 for third-party due
diligence fees; therefore resulting in net proceeds of $49,000 to us from the JSJ Investments
note. 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 36% of the average two lowest
traded prices in the 10 day period preceding conversion.
|
|
h)
|
On
January 28, 2019, the Company agreed to convert $131,327 of principal and interest of
the notes payable described in Note 6(f) into 987,421 shares of the Company’s common
stock. As of the date of filing the Company had not yet issued the shares.
|
|
i)
|
On
February 1, 2019, the Company executed a new note with one of its noteholders, retiring
its June 26, 2018, $26,500 described in Note 6(d). The note new is in the amount of $20,590
with a maturity date on or before October 1, 2019, and bears interest at 10% per annum.
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 debt. Accounts
receivable from the noteholder of $4,500 was applied to the note.
|
|
j)
|
On
February 14, 2019, the Company executed a $360,000 convertible debenture, of which the
first tranche of $60,000 has been disbursed to the Company, with a 0% interest rate and
300,000 warrants at an initial exercise prince of $0.20, pursuant to the Convertible
Debenture Investment and Securities Purchase Agreement between Peak One Opportunity Fund,
L.P.(“Peak One Fund”), a Delaware partnership, and us. The Peak One Fund
debenture matures on February 14, 2022, contains an original issue discount of $5,000;
a non-accountable commitment fee of $5,000; and a $3,000 up-front obligation to a registered
broker-dealer for business engagement services. The Note may be converted by the Lender
at any time into shares of Company’s common stock at the lower of $0.12 and 60%
of the lowest traded price in the 20 day period preceding conversion.
|
|
k)
|
On
February 20, 2019, the Company executed a $55,125 convertible note with interest of 8.00%
per annum pursuant to the terms of the Securities Purchase Agreement between Adar Alef,
LLC (“Adar Alef”), a New York corporation, and us. The Adar Alef note matures
on February 20, 2020. The note contains a $2,500 original issuance discount we reimbursed
$2,625 of Adar Alef’s legal fees; therefor resulting in net proceeds of $50,000.
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 64% of the average of the two lowest traded
prices in the 10 day period preceding conversion.
|
|
l)
|
On
February 21, 2019, the Company executed new $53,000 convertible note with interest rates
of 12% per annum. The note matures on February 21, 2020. The Company reimbursed
Power Up $2,500 for its legal fees and paid Power Up a $500 due diligence fee, resulting
in net proceeds of $50,000 to us from the Power Up Note.
|
The
Power Up Note may be prepaid in whole or in part, at any time during the period beginning on each Closing Date and ending on the
date which is 180 days following the issue date, beginning at 115% of the outstanding principal and accrued interest increasing
by 5% for every 30 day period thereafter until the 180th day following the Closing Date. After the expiration of the 180 days
following the Closing Date, we may not prepay the Note for any reason.
At
any time after 180 days after the date the Power Up Note is issued, the Power Up Note is convertible into our common stock, at
Power Up’s option, at 61% of the average of the lowest three closing bid prices for the Company’s common stock during
the 15 trading days prior to the conversion date.
|
m)
|
On
March 13, 2019, the Company issued a $75,000 convertible note that bears interest at
12% per annum. The convertible note matures on December 13, 2019. The note is convertible
at 50% of the lowest traded price in the 25 day period preceding conversion. The Company
also issued 187,500 warrants at an exercise price of $0.20. The Company paid $10,250
debt issuance costs and received net proceeds of $64,750.
|
|
n)
|
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.
|
|
o)
|
On
March 27, 2019, the Registrant entered into a binding 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.
|
p)
|
On
March 27, 2019, the Company settled the convertible note of January 15, 2019 with a non-related party in the combined amount of principal and interest of $539,936 at $0.1525/share
of common stock, for a total conversion of debt into equity of $539,936 for 3,597,989
restricted shares of common stock. This conversion transaction shall retire the entire
note as paid in full. The shares have not been issued as of this report.
|
|
q)
|
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); that 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. The
Company has not issued any shares with regard to the settlement of this debt at the time
of this report.
|
|
r)
|
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.
|