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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2021

 

or

 

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For transition period from ___ to ____

 

Commission file number: 000-31549

 

PCT LTD

(Exact name of registrant as specified in its charter)

 

Nevada

(State or other jurisdiction of incorporation or organization)

90-0578516

(I.R.S. Employer Identification No.)

4235 Commerce Street, Little River, South Carolina

(Address of principal executive offices)

29566

(Zip Code)

 

(843) 390-7900

(Registrant’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Act: None

 

Securities registered under Section 12(g) of the Act: Common Stock, par value $0.001 per share

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer ☐

Non-accelerated filer

Accelerated filer ☐

Smaller reporting company

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No

 

As at June 30, 2021, the aggregate market value of the Registrant’s common equity held by non-affiliates computed by reference to the closing price ($0.0172) of the Registrant’s most recently completed second fiscal quarter was $12,589,934.

 

The number of shares outstanding of the registrant's common stock as of March 24, 2022 was 790,924,690 which does not include 209,075,310 shares of common stock reserved against default on convertible debt.

 

Documents incorporated by reference: None

  

 
 

 

TABLE OF CONTENTS

 

  PART I  
Item 1. Business 5
Item 1A. Risk Factors 15
Item 1B. Unresolved Staff Comments 25
Item 2. Properties 25
Item 3. Legal Proceedings 25
Item 4. Mine Safety Disclosures 25
     
  PART II  
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 26
Item 6. [Reserved] 27
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 30
Item 8. Financial Statements and Supplementary Data 31
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 66
Item 9A. Controls and Procedures 66
Item 9B. Other Information 67
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 67
     
  PART III  
Item 10. Directors, Executive Officers and Corporate Governance 68
Item 11. Executive Compensation 70
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 73
Item 13. Certain Relationships and Related Transactions, and Director Independence 74
Item 14. Principal Accounting Fees and Services 75
     
  PART IV  
Item 15. Exhibits, Financial Statement Schedules 76
Item 16. Form 10-K Summary 76
Signatures   77

 

 

FORWARD-LOOKING STATEMENTS

 

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.

 

Forward-looking statements may include the words “may,” “could,” “should,” “project,” “position,” “target,” “plan,” “seek,” “foresee,” “outlook,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” and variations of these words and similar expressions. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the dates they are made. You should, however, consult further disclosures we make in this Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

 

     

 

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:

 

• our ability to efficiently manage and repay our debt obligations;

• our inability to raise additional financing for working capital, especially related to purchasing critical inventory;

• our ability to generate sufficient revenue in our targeted markets to support operations;

• significant dilution resulting from our financing activities;

• actions and initiatives taken by both current and potential competitors;

• supply chain disruptions for components used in our products;

• manufacturers inability to deliver components or products on time;

• our ability to diversify our operations;

• the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require management to make estimates about matters that are inherently uncertain;

• adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;

• changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which we operate;

• deterioration in general or global economic, market and political conditions;

• inability to efficiently manage our operations;

• inability to achieve future operating results;

• the unavailability of funds for capital expenditures;

• our ability to recruit and hire key employees;

• the global impact of COVID-19 on the United States economy and our operations;

• the inability of management to effectively implement our strategies and business plans; and

• the other risks and uncertainties detailed in this report.

 

Readers of this report should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this report. Before you invest in our common stock, you should be aware that the occurrence of the events described in the section entitled “Risk Factors” and elsewhere in this report could negatively affect our business, operating results, financial condition and stock price. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this report to conform our statements to actual results or changed expectations.

 

In this annual report, references to “PCT LTD,” “we,” “us,” “our” and “the Company” refer to PCT LTD and its wholly-owned operating subsidiary, Paradigm Convergence Technologies Corporation (“PCT Corp.” or “Paradigm”). We also have a minority owned subsidiary, Disruptive Oil and Gas Technologies Corp, and a dormant wholly-owned subsidiary, Technologies Development Corp.

 

  

AVAILABLE INFORMATION

 

We file annual, quarterly and special reports and other information with the SEC.  You can read these SEC filings and reports over the Internet at the SEC’s website at www.sec.gov.  You can also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, NE, Washington, DC 20549 on official business days between the hours of 10:00 am and 3:00 pm.  Please call the SEC at (800) SEC-0330 for further information on the operations of the public reference facilities. We will provide a copy of our annual report to security holders, including audited financial statements, at no charge upon receipt to of a written request to us at PCT LTD, 4235 Commerce Street, Little River, South Carolina 29566.

  

 

 

PART I

 

ITEM 1. BUSINESS

 

Historical Development

 

On February 27, 1986, PCT LTD, formerly known as Bingham Canyon Corporation (“PCTL”), was incorporated in the State of Delaware as Hystar Aerospace Marketing Corporation of Delaware (“Hystar-Delaware”) and was a subsidiary of Nautilus Entertainment, Inc., (now called VIP Worldnet, Inc.), a Nevada corporation. Hystar-Delaware completed a change of domicile merger on August 26, 1999 with then named Bingham Canyon Corporation, now named PCT LTD, a Nevada corporation.

 

On August 31, 2016, PCTL (then known as Bingham Canyon Corporation) entered into a Securities Exchange Agreement (the “Exchange Agreement”) with Paradigm Convergence Technologies Corporation, a Nevada corporation (“PCT Corp.”). Pursuant to the terms of the Exchange Agreement, PCT Corp. became the wholly-owned subsidiary of PCTL after the exchange transaction. PCTL is a holding company which, through PCT Corp., is engaged in the business of marketing new products and technologies through licensing and joint ventures.

 

PCTL and PCT Corp. are located in Little River, SC. PCT Corp. was formed June 6, 2012 under the name of EUR-ECA, Ltd. which was changed in September 2015 to PCT Corp.

 

Business Strategy – Operating Subsidiaries

 

PCT Corp.

 

PCTL focuses its business on acquiring, developing and providing sustainable, environmentally safe disinfecting, cleaning and tracking technologies. The Company acquires and holds rights to innovative products and technologies, which are commercialized through its wholly-owned operating subsidiary, PCT Corp. PCT Corp. is a technology development, design, assembly and manufacturing company specializing in providing cleaning/sanitizing/disinfectant fluid solutions and fluid-generating equipment that create environmentally safe solutions for global sustainability. PCT Corp. markets new products and technologies for the healthcare, agriculture, oil and gas and other industries through multiyear system and service contracts that provide equipment and support for our customers.

 

The Company holds and defends its patents, trademarks, intellectual property and distribution rights to its innovative products and technologies. While a direct-sales capability is in place and will continue to be expanded, it is not PCT Corp.’s intent to be the sole distributor of its proprietary products. Members of PCT Corp.’s management also act in supportive roles for the development of distributors and manufacturers’ representatives who are involved in selling its products. In addition to the direct sales program, senior management is responsible for continuing to develop the distribution and licensing program operations for the technology, to develop new opportunities and applications for the products and to promote the brands. PCT Corp.’s senior management intends to also continue the pursuit of new technologies – particularly technologies which are complementary to or enhance applications opportunities for its existing products - upon which it will build and expand its business.

 

PCT Corp. has developed several models of electrochemical activation generators and systems for the production of Hydrolyte®, an EPA registered, highly effective sanitizer/disinfectant microbiocide that is environmentally responsible and for use around humans and animals. Hydrolyte® has been market tested with commercial customers and is now fully launched into the hospital and healthcare market. Management intends to focus on leveraging the opportunities presented by Hydrolyte® during 2021within the healthcare market, as well as building into its oil and gas and agriculture markets.

 

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PCT Corp.’s revenue streams have in the past been derived primarily from master service contracts, placing its Annihilyzer Infection Control Systems and other models of its equipment into clients’ locations and benefitting from recurring monthly revenue for typically 3- to 5-year contract periods, as well as licensing and distributor agreements, along with some outright sales of equipment. PCT Corp. made a “soft” launch in 2017, and management focused on establishing distributor operations and direct sales in addition to expanding its equipment production capabilities. Direct sales of equipment and Hydrolyte® have been managed by members of the senior management team. During 2019, PCT Corp. added additional distributors and supplemental EPA registrants (licenses), in addition to building on existing distributors that have existing healthcare, and other industry, customer relationships. The prior years’ distributors were based in New Jersey/New York, North Carolina, Ohio and Florida. As a result of the unprecedented COVID-19 pandemic’s onset in March of 2020, PCT Corp. found itself unable to travel to install Annihilyzer Infection Control Systems into healthcare settings; so, management decided to upfit its Little River, SC facility to produce significantly increased fluid production capacity to 10,000 gallons a day to serve healthcare facilities’ and others’ critical needs for a hospital level, US EPA-registered disinfectant. During 2020, PCT Corp.’s distribution network was vastly expanded throughout the United States, including Puerto Rico, as well as into the United Kingdom. A distributor-focused website was launched (www.pctcorporation.com) to build the company’s Hydrolyte® brand and promote fluid sales. Management expects to continue vetting and adding more strategically located and specific industry-focused distributors and is in negotiations with several potential entities for certain market segments.

 

In building out our production capabilities, PCT Corp. developed strategic operating relationships with firms that are leaders in production, manufacturing and distribution within the various industries where the markets for our technologies exist. Management believes that this strategy, properly executed, should allow for the most rapid possible rollout of the products and solid capture of market share.

 

Disruptive Oil and Gas Technologies Corp

 

On July 11, 2021, we incorporated a new wholly-owned subsidiary, Disruptive Oil and Gas Technologies Corp (“Disruptive O&G”), in the State of Nevada. Disruptive O&G was formed to allow us flexibility in operations dealing with the oil and gas industry. As at December 31, 2021, Disruptive O&G had not commenced operations.

 

In October of 2021, we entered into a contribution agreement (the “Contribution Agreement”) among Nano Gas Technologies, Inc. (“Nano Gas”), NGT Energy Inc, Pentagon Technical Services, Inc. (“Pentagon”) and Disruptive O&G. Pursuant to the Contribution Agreement, Nano Gas assigned a patent, titled “Nanobubble Dispersions in Electrochemically Activated Solutions”, to Disruptive O&G in return for a 46.25% ownership interest in the entity and Pentagon was issued a 7.5% ownership interest in the entity for services. A copy of the Contribution Agreement is attached hereto as Exhibit 10.7.

 

Technologies Development Corp

 

On July 11, 2021, we incorporated a new wholly-owned subsidiary, Technologies Development Corp (“TDC”), in the State of Nevada. TDC was formed in anticipation of expanding our operations through the development of additional technologies, joint venturing with industry partners or other purposes as determined by management. As of December 31, 2021, TDC was inactive; however, subsequent to year-end, TDC has located a company with unique technology and is in discussions to structure a potential transaction in the second quarter of 2022. 

 

Principal Technology: Hydrolyte® and PCT Catholyte

 

Paradigm’s generator systems make two products in the cleansers, hard-surface sanitizers, and disinfectants categories:

  Hydrolyte® US EPA Registration No. 92108-1 is a highly effective hard-surface sanitizer and/or disinfectant with the lowest EPA toxicity rating possible (“4”); and,

 

  PCT Catholyte, a similarly safe, mild detergent, degreaser and surfactant that is easily applied using mop buckets, sprayers and floor cleaning machines for basic janitorial cleaning purposes.

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Both products are outputs of a single process of electrochemical activation (“ECA”) generation process using the Company’s technology and input ingredients derived from naturally occurring salt minerals and water. Commercially, the primary product is Hydrolyte®, and the second product of the process, Catholyte, is a very useful and effective product for which parallel markets exist and profitable revenue streams are being developed.

 

The company had two registrations of Hydrolyte® with the U. S. Environmental Protection Agency (“EPA”) during 2019 but retained only the most valuable Registration (92108-1) at the end of 2019, having sold the duplicate registration to a third-party entity. Hypochlorous acid- (HOCl-) based solutions such as Hydrolyte® are approved for specific uses and with specific directions by the Food and Drug Administration (“FDA”) for cleaning and sanitizing applications and by the United States Department of Agriculture (“USDA”) for use in food processing. These “approvals” are covered in various Federal Codes.

 

Although it has been well known for many years that an aqueous solution of hypochlorous acid (HOCl), branded by the Company as “Hydrolyte®”, (commonly called “anolyte”) can deliver extremely effective decontamination and disinfectant results, previous challenges in the production technology had rendered its use economically infeasible in most applications. The primary drawbacks with previous anolyte production technology were: 1) the inability to generate anolyte in high enough concentrations (Parts Per Million – PPM) of the active ingredient, HOCL; 2) high enough commercial volumes from the generators (as opposed to 1 quart to 1 gallon, small volume batch or low flow generators); 3) reliability of the generators or fluids; and, 4) the relatively short time that the product maintained its maximum decontaminative efficacy (“shelf life”) and consistency.

 

By nature, Hydrolyte® is a metastable, aqueous solution of hypochlorous acid generated through the ECA process. It has a high redox potential (900 millivolts) and a greater biocidal effect than chlorine and other toxic chemicals. Hydrolyte® is 99.5% water + salt rendering it of less concern to humans; yet, it is effective against the various classes of pathogens comprising bacteria, viruses, spores and yeast. Organisms in these categories include C. diff, TB, Parvovirus. Norovirus, Listeria, E. Coli, HIV, Hepatitis C, Influenza A, Candida and antibiotic-resistant strains such as MRSA, VRE and CRE. Using Hydrolyte® in decontamination and sterilization processes generally eliminates the need for the use of other highly toxic chemical biocides (such as ammonia, chlorine bleach and glutaraldehyde) which are commonly used in sanitizing, disinfection and decontamination. On March 31, 2020, we became sanctioned to use the US EPA’s “emerging viral pathogens claim” which assisted our commercialization efforts to provide Hydrolyte® to many distributors.

 

This Company’s proprietary production, distribution and applications technologies have solved these problems. Its production equipment allows the Hydrolyte® solution to be produced consistently with specific, predetermined concentration of HOCl within the range of concentrations typically employed (50 to 600 PPM) as well as the desired pH level (the pH scale measures how acidic or Alkaline a substance is) that may be desirable for any given application. To resolve the maintenance of efficacy issue, PCT Corp. has perfected generation (production) equipment which is small enough to be located on the customer’s facility, allowing for production-on-demand rather than maintaining stored product inventory. For customers who will not use enough product to justify the on-site equipment, the company intends to engage industry-specific distribution and commercial services companies to provide the products to end-user customers on a regular delivery schedule. The combination of the on-site generation and delivery solutions should assure end-users will always be supplied with fresh, full-strength product. 

 

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Production:

 

Hydrolyte® is generated with the Company’s proprietary equipment. The production technology for Hydrolyte® generates a product with predetermined PPM and pH properties, i.e., the equipment can be calibrated to deliver any desired PPM level; and we believe it is superior to any other known production process or equipment available in the market today. The scalable Hydrolyte® generation systems technology largely will be housed in portable and mobile units, which can be readily moved within a building or from site to site, although more permanent installations, probably employing larger generation systems, will be made in situations where such installation is appropriate or required. The Company’s models of Hydrolyte® generator equipment is classified, dependent upon configuration and volume of output:

 

  Annihilyzer Infection Control System – Hospital/Healthcare

 

  Annihilyzer Infection Control System – Rack Model

 

  Hydrolyte Generator – Large and Medium Volume

 

  SurvivaLyte Manual Generator – Small Volume

 

  Annihilyzer Hospital 360 SMART Spray Cart

 

  School/Hospitality Industry and General Business 360 SMART Utility Cart

 

Other models and newer generations of the Annihilyzer® Infection Control System and Hydrolyte® generating equipment are in research and development.

 

Markets:

 

The primary applications for the Hydrolyte® technology are in cleaning, sanitizing, and disinfecting in a variety of market sectors and settings, including:

 

  Institutional facilities, such as hospitals, nursing homes, hotels, correctional facilities and schools;

 

  The agriculture industry for pre- and post-harvest disinfection of crops, sanitization in food processing, and certain applications in animal husbandry;

 

  The oil and gas industry where Hydrolyte® can provide a process to disinfect water used in hydraulic fracking processes (“frac water”) and to kill sulfate reducing bacteria in “sour” oil and gas wells; and Catholyte can be used to clean equipment and aid in product recovery when applied “down hole”; and.

 

  Other potential market opportunities are available, e.g., disinfecting and sanitizing of water in public and private water systems and industrial waste-water systems.

 

Management determined that the most direct paths to rapid revenue and earnings growth are in the institutional facilities and agriculture markets, although the agricultural market presents some EPA-related barriers. The preponderance of business development and marketing resources are currently being devoted to these two markets. Management intends to also work to maintain our position and expertise in the oil and gas industry to assure that current customer relationships are maintained, business opportunities at hand are pursued and that we are properly positioned for a roll-out as, and when, drilling activity increases as anticipated. As further market development occurs, the Company anticipates considering and acting upon factual information.

  

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Institutional Facilities: Hospitals, Health Care Facilities and Schools

 

PCT Corp.’s senior research and development personnel have developed several models of equipment to be deployed as a state-of-the-art integrated product dispensing, tracking (patented RFID tracking features) and management systems for applications in the institutional facilities market. This integrated technologies solution, branded as PCT’s Annihilyzer® Infection Control System, has been designed most particularly for hospitals, large long-term care, assisted living and nursing home facilities. In various configurations (utilizing a rack model) it in can be deployed in other health care facilities including urgent care centers, medical, dental and veterinary offices. It is adaptable to deployment in schools, prisons, hotels, and many other facilities, although the primary marketing and sales goal for PCT Corp. remains with the hospital market. A complete and custom turn-key cleaning and disinfection program solution can be provided to each facility.

 

At the physical core of the Annihilyzer® System is PCT Corp.’s on-site generation equipment, housed in the Annihilyzer® Filling Station (the Hydrolyte® generating portion of the equipment), also containing the Company’s patented tracking system, managed disbursement and bottling system for fluid production, containerization and use. Spray bottles and other containers are labeled when filled or refilled with product identification and date of production using printed labels and radio-frequency identification (“RFID”) tags. Reading these labels and tags before use assures that the correct and “fresh” product is always being used. Each room is also given an RFID tag. By reading the RFID room tags with a mobile app in a Mobile Data Terminal (ruggedized smartphone), the system tracks what is cleaned and disinfected, when, with what product, and by whom. The station is Wi-Fi connected to smartphones, so it can receive and store all of the data collected. The data can be used to generate a complete record of all cleaning, disinfecting and sanitizing activity, including personnel time and task data – a cost saving convenience to management.

 

The Company created and offers a proprietary automated state-of-the-art Electrostatic Spray Cart for use in hospital (or hospitality-industry) settings, allowing for rapid disinfecting of rooms once a patient (guest) has vacated the room. This system is designed to reduce the turnover time required between patients/guests, potentially increasing revenue opportunities, and improving efficiency of hospital/hotel personnel. A smaller scaled model of the electrostatic spray cart is available to other industries, such as hotels, transportation, schools, and other businesses.

 

PCT Corp. deploys its on-site production equipment under service contracts, charging an installation and set-up fee followed by monthly contract fees (some pricing models may include, or may be based on, a price per gallon of product used), over a contract period of approximately 3 – 5 years. The equipment is deployed and maintained through PCT Corp.’s personnel at first, then through specially-trained distributors. The Company is exploring the use of licensed commercial services companies to provide the future on-site support, as required. The product generators and other components of the on-site systems are currently monitored remotely by a PCT Corp. equipment specialist(s), but we are considering contracting with a monitoring company that is highly experienced and provides round the clock expertise in remote monitoring and response systems. The precise nature of any functional problems that may occur with any of the system’s components are, in most cases, automatically communicated via the internet to the monitoring and control center of the equipment. Any problem is then resolved through a three-tiered problem response system: first by remote access to the computerized system controls, second by an on-site technician call, and third through a “rapid replacement” program. If problems are not resolved by the first or second tier responses, then PCT Corp. would overnight ship replacement parts or, if necessary, a complete station or system and have the defective unit returned for repair.

  

Agricultural Antimicrobial Pesticide

 

In the agricultural sector our microbicide is branded as “Hydrolyte® Green.” Our testing and field trials continue to indicate that it can provide pre-harvest disinfection and decontamination solutions for any number of field crops that are affected by various bacterial and fungal pathogens. Through USDA grants and multiple studies by universities around the world, hypochlorous acid solutions have been tested and proven effective in post-harvest applications to include sanitizing at point of harvest, point of packing, and points of sale.

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While Hydrolyte Green® is effective in these post-harvest applications, the Company’s major objective is to deliver solutions for pre-harvest pathogen contaminations, where a multitude of microbial infestations of many crops still need effective solutions that will qualify for regulatory approvals necessary to bring the treatment solution into commercial use. PCT Corp.’s agricultural research program continued throughout 2019 and is intended to support a continuous rollout of scientifically tested and certified applications for the treatment and prevention of numerous specific microbial infestations of a wide variety of crops. This research activity is expected to capture the test data required for regulatory approvals, and market acceptance of, the specific uses for the specific crops. During 2018, we executed a distribution and license agreement with an agricultural chemical specialty company and are actively involved in additional field trials of Hydrolyte Green®. The US EPA product registration “system” has presented the Company with challenges that have yet to be overcome so that commercial entry in this industry may move forward. For this reason, PCT Corp.’s prior agricultural-focused distributor allowed its distribution and license agreement to lapse after October 1, 2019, having paid the Company $100,000 for the 1-year rights associated with the agreement.

 

While company management, technical staff and consultants are certain of the ability of Hydrolyte® to mitigate most microbes; further testing and documentation are required to determine optimal protocols for treatment, including application concentrations, volumes, and frequency, as well as optimal delivery techniques (which could be any or all of: root drenching, foliar spray or injection) needed to produce the most effective and least costly solutions to microbial infestations. It must also be demonstrated and certified by independent third-party testing that the treatment does no harm to the plants or the crops to be harvested and leaves no chemical residual inside the crop.

 

PCT Corp. undertook a long-term testing and field trial program with an independent agricultural pesticide research firm to determine the feasibility of pre-harvest use of Hydrolyte® to treat various microbial infestations in as many different crops as possible. The research in this field continues, to-date. Management has identified several microbial crop infestation problems for which safe and effective treatment solutions have yet to be found and for which there is preliminary evidence that a properly researched Hydrolyte® treatment protocol could provide such a solution. Management anticipates positive results from independent testing leading to the creation, over time, of multiple business opportunity targets on which to build a solid consistent, long-term revenue stream with solid growth potential for the foreseeable future.

 

Testing/Research:

 

Six years ago (2015), an opportunity was identified for research into a possibly significant opportunity for commercialization of a formulation of the Company’s Hydrolyte® product. A critical agricultural market was seeking solutions to eradicate a serious and threatening microbial infestation. The company’s management determined that our product’s microbicide capability could provide a readily deployable and effective solution to the problem. Three months (late 2015 and early 2016) were spent determining the research requirements, target-market requirements and the potential for successful commercialization in the identified market. Two seasoned professionals with the necessary expertise were brought on board, and the project was launched from the Company’s facility in Little River, South Carolina, during the fourth quarter of 2015.

 

To demonstrate that the Company could provide a viable solution, research protocols were developed, and a series of laboratory tests and preliminary trials were performed at a major university by agricultural scientists who were experts on the crop and the infestation. The results of these tests and the trial analysis were very favorable, showing a >97% percent kill rate on the treated microbes in the laboratory and a >88% kill rate in the field trial environment.

 

Encouraged by early laboratory and field trial results, management secured the services of a consulting specialist in the target crop and the microbial pathogen causing the disease. Working with the consultant, management determined the market to be viable for the use of the Company’s Hydrolyte® in effectively treating the disease.

 

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The second field trial, for nine months during 2016, was extensive and involved a larger-scale operation over a greater length of time. Specific third-party reports to the company indicated “good to excellent control of the disease source, economically feasible, EPA registration possible” and a continuing very high field kill rate. Upon receiving these results, the Company began developing plans to make certain it will be prepared to “supply fluid product in commercial quantities.”

 

Preventive, curative and health maintenance programs for the application of the Company’s Hydrolyte® were discussed and developed, with input and encouragement by the fruit’s national growing association, as well as from nationally recognized educational and research institutions.

  

In March 2017, the Company began a much larger-scale field trial of our product on a 20-acre plot that has trees showing widespread presence of the disease. We, and our consulting specialist, expect to replicate and to validate previous results and further define the best possible methodology and protocols for effective application of the Hydrolyte® solution. Because the results of the trial were positive, as expected, management continued to expand its commercial field trial usage of Hydrolyte Green ® with its agriculture distributor and licensee and is gaining valuable research data to be used in further commercialization efforts:

 

  Finalize regulatory approvals to enter the market as the only known resource for resolving this agricultural disease with no known negative effects to the fruit;

 

  Finalize designs for, and assemble, large volume product generation and delivery systems best suited to the agricultural working environment;

 

  Pursue additional EPA approvals for additional applications in the agricultural markets; and,

 

  Forecast, with greater accuracy, product deployment protocols through research and development input for use in the distribution and sales of product in this market.

  

Although regulatory agency progress within this market was much slower than expected during 2020 due at least in part to the pandemic and certain financial constraints, the Company continues its field trials and compiling documented results.

 

Oil and Gas Industry

 

World market prices for oil have fluctuated during the past several years. As opportunities in this market emerge, we plan to use oil-field service companies to market and distribute our Hydrolyte® and Catholyte products to their clients/customers. Management incorporated Disruptive O&G to address this market and anticipates the Contribution Agreement with Nano Gas will enhance our presence and success in the industry.

 

Management believes that the benefits of our proven technologies continue to be desirable for, and should continue to be used in, hydraulic fracturing drilling worldwide. Some of the benefits of our products and systems include: elimination of highly toxic chemicals currently used for decontamination, reduced negative environmental impact, reduced recovery costs, improved product quality, and potentially opening new areas for oil and gas retrieval. As a result, management is preparing for expanding business opportunities in this sector in the mid-term future. As part of this preparation, Paradigm is developing a large-scale system utilizing Hydrolyte® to decontaminate water and fluid going “down hole” in oil and gas-well drilling; and to decontaminate recovered “frac” water for reuse in the fracking process. Operational experience has shown that Hydrolyte® not only effectively decontaminates the water supply of microbes, but also does not cause corrosive damage to gas and oil recovery equipment; nor does it cause any loss of performance to the other chemicals, additives, and propellants currently used in drilling and fracking processes.

 

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Hydrolyte® also addresses another problem in the oil and gas industry. In a separate application, Hydrolyte® can be used to reduce the sulfur content of crude oil in the ground. There are sulfite-producing microbes in crude oil which cause higher levels of hydrogen sulfide (“H2S”) and “sour” wells with sour crude oil which is less valuable than “sweet” crude which has low H2S. It has been demonstrated that Hydrolyte® is effective in reducing or eliminating these microbes, thus improving the quality and value of the oil recovered from the treated well.

 

Hydrolyte® can reduce the costs of transporting contaminated water from the wellbore to a treatment facility and back for reuse, thus reducing the need for construction of water processing capacity, providing a substantial reduction in the costs of drilling, and enabling a sustainable increase in efficiency. The Company intends to maintain an active marketing program; and expects that there will be renewed opportunities for revenue growth from the frac drilling and related oil-field applications.

 

In 2019 we put in place a commercial collaboration agreement and sold additional Hydrolyte® large volume equipment with a distributor located in Meeker, Oklahoma. Collaboration in oilfield/gas industry testing, along with preliminary conversations and observations about the Cannabis market, regarding models of delivery of the fluids to the oil and gas market. During 2020, we engaged the consulting services of Pentagon Technical Services led by David Holcomb, PhD, a renowned oil and gas industry expert. Building on laboratory testing, Dr. Holcomb guided the development of protocols for a three- to four-month in-field testing program of PCT Catholyte and other additives to enhance oil production in wells. The in-field testing project was initiated utilizing six (6) test wells in the Grassy Creek oil field located in Deerfield, MO. Four weeks were spent establishing a baseline of oil production from each well. Initial test results were very encouraging, so the Company determined it needed to further explore the oil to water ratio results in the test wells. Recently, it was concluded that three of the six wells were so damaged that it was unlikely there would be any positive results from the PCT Catholyte treatments. The damage to the wells was due to previous recovery efforts that utilized a super-heated steam process that increased the number of fractures, which, when combined with the viscosity of oil (16°), created a prohibitive situation wherein primarily waters would “go through.” We continue to perform testing on the remaining three wells and are encouraged by the increasing ratio of oil to water.

 

Marketing, Sales and Distribution of Hydrolyte®

 

Once again, marketing and sales activities were nominal in the first half of 2021 while management focused on adapting its business model to meet the climate created by the worldwide pandemic. A good portion of 2021 was spent building sufficient physical production capacity to meet demand, while developing work flows, shipper relationships and accounting systems to serve fluids customers instead of assembling equipment. New distributor and customer relationships were established through management’s existing contacts and as a result of much of the business world seeking an effective disinfectant to protest themselves during the unprecedented pandemic event. Management, working with consultants well-known to management, continues to establish distributor and/or joint venture opportunities and other agreements for the marketing and sales of PCT Corp.’s products and services.

 

The Company began updating marketing materials and websites in order to present a consistent brand identity.

 

PCT Corp. uses its production, operations and research and development facility in Little River, South Carolina to display its products and technologies, to produce fluids for shipment, and also established a fluid production depot in Fort Wayne, Indiana during 2020, and is considering strategic assembly capabilities for this facility. The Little River location provides a meeting and demonstration area where working models and simulations allow first-hand interaction and live demonstrations for interested parties. Little River hosts on-site visits for training, as well as allowing for research and development to freely occur in a controlled environment.

 

The Institutional program for PCT Corp.’s healthcare sales program began with agreements with prospective customers for pilot/demonstration installations at their facilities; those pilot installations were completed early in 2019 and the Company has completely moved away from “trial” installations in the healthcare industry, as pre-contract trial periods are no longer necessary.

 

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Production, Assembly and Principal Suppliers

 

Hydrolyte® Generation and Equipment Production:

 

PCT Corp. moved into its operations, research and development and production facility in Little River, South Carolina on December 15, 2016. The research, development and testing spaces were suitable and functional as already built. A new design and layout for a final systems assembly area and an expanded testing area was finalized in January 2018. Since 2019, PCT Corp. has designed and built the following Hydrolyte® generating systems in the Little River facility:

 

  Annihilyzer Infection Control System – Hospital/Healthcare

 

  Annihilyzer Infection Control System – Rack Model

 

  Hydrolyte Generator – Large and Medium Volume

 

  SurvivaLyte Manual Generator – Small Volume

 

  Annihilyzer Hospital 360 Electrostatic SMART Spray Cart

 

  School/Hospitality Industry and General Business Electrostatic 360 SMART Spray Cart

 

Annihilyzer® Systems Assembly:

 

Annihilyzer generator systems are assembled and tested in Little River and the other outsourced components for the Annihilyzer® Infection Control Systems are shipped to Werks Manufacturing Inc., in Ft. Wayne, Indiana for final assembly of the Annihilyzer® Kiosk and Filling Station cabinet. The Kiosks, Filling Stations and the 360 Electrostatic Spray Carts are fabricated by Werks, where PCT LTD’s patented RFID technology is inserted, as well.

  

Competition

 

In all our target markets, PCT Corp. will compete directly with large firms selling competing, but toxic, traditional cleanser and disinfectant products that are manufactured off-site and shipped to customers or distributors. These competitors have longer operating histories, more experience, substantially greater financial and human resources, greater size, more substantial research and development and marketing operations, established distribution channels and are well positioned in the market to fight aggressively to defend their market share. However, the combined markets in which PCT Corp. is engaged are so massive that its competitive position as environmentally-responsible and, growing numbers of installations in various markets, combined with being less expensive, are allowing PCT Corp. to prosper. The Company’s on-site generation technology provides a substantial competitive advantage in addition to its unique properties.

 

There are a limited number of potential competitors providing some form of anolyte-based biocide. Based on management’s research these companies are largely in early operating stages, concentrated in local or regional markets and have no technology or pricing advantage. These include Aquaox, Ecologic Solutions, and MIOX Corporation. During 2020, several new HOCl-focused companies have entered the market, but we find that the competitors are oftentimes not producing the same, consistent, 500 ppm, near-neutral pH fluid solutions or that they may be altering the fluid to increase “shelf-life,” which changes the chemical composition of the HOCl. The markets for HOCl (Hydrolyte®) are so vast, that we believe that credible competitors will positively impact our growth.

 

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In institutional facilities and agricultural industries, PCT Corp. believes that its proprietary integrated technologies solutions in production, distribution, applications management and tracking will continue to provide a competitive advantage in direct competition with other HOCl-producers. In the oil and gas industry PCT Corp. has demonstrated the effectiveness and efficiencies of its Hydrolyte® and continues to develop commercial market data and test results to further promote the use of PCT Catholyte and processes and commercial acceptance from its customers. It is well positioned with respect to other companies providing anolyte-based biocides.

 

Intellectual Property

 

EPA product registrations of disinfectants and pesticides allow the registered products to be sold and distributed with labels identifying specific laboratory tested and proven kill claims of its effectiveness against specific microbial pathogens. Below is a summary of recent EPA registrations, EPA sub-registrations and other intellectual property the Company has acquired. The Company continues to hold certain intellectual properties relative to the Soloplax biodegradable plastics technology but does not anticipate pursuing commercialization of the technology associated in the foreseeable future.

 

On December 15, 2016, Paradigm acquired an EPA sub-registration (#82341-1-92108), which provides for entry into the facilities and agricultural markets described previously in this document. The company is actively pursuing sales under this registration and label. In addition, the Company has registered its products in several states, under its US EPA No. 92108-1.

 

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, Paradigm, acquired the complete intellectual property, including know-how, trade secrets and patent rights to the hardware, firmware and software comprising the product inventory generation, disbursement, containerization, tracking and reporting system, trademarked as the Annihilyzer® System. The Annihilyzer® System is designed to be employed on-site in healthcare facilities. The company already owns IP rights in the generation system employed in this integrated technology system.

 

The Company has developed proprietary know-how related to the electrolytic cells and systems that generate our Hydrolyte® and Catholyte products. Paradigm continues, through its research and development program, to perfect the production innovation, know-how, trade secrets and patentable innovations incorporated into the improved production, inventory management and reporting systems. Current focus is on customizing system and equipment design to suite the production parameters and conditions in various specific venues and applications, e.g., agricultural field setting vs. packing house or oil and gas field.

 

On April 12, 2018 the Company entered into an agreement to purchase the original US EPA Registration No. 83241-1 for EcaFlo® Anolyte. The Company paid a $5,000 deposit on the agreement with the remaining balance due in increments during the second quarter of 2018 to finalize the agreement. The Company continued to make installment payments to complete the purchase of this label and, during 2019, sold the rights to this registration to a third-party for a price that included the remaining portion of the registration that PCTL had not yet paid to the owner, thus completing the transaction and conveying the registration to the new owner.

 

Research and Development

 

PCT Corp.’s research and development costs for the years ended 2021 and 2020 were $38,630, and $40,429, respectively. During that period, PCTL continued ongoing research and development testing of the application of the Hydrolyte® technology in the oil and gas industry; as a biocide in institutional facilities, such as, hospitals, jails and medical facilities; and continued in trial tests in agriculture and food processing.

 

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Research and Development is an ongoing process to develop new and more functional designs for our equipment, specifically Annihilyzer® and “rack model,” high-volume equipment.

 

Several years ago, PCT Corp. entered into an agreement with Florida Pesticide Research, Inc. to conduct agricultural research intended to support an aggressive rollout of tested and certified applications for the treatment and prevention of numerous specific microbial infestations of a wide variety of crops. While company management, technical staff and consultants are confident of Hydrolyte® Green’s ability to kill many damaging microbe, further testing and testing validation is required to determine proper application concentrations, volumes, frequency and delivery techniques (which could be any or all of: root drenching, foliar spray or injection) needed to be most effective and least costly. It also must be demonstrated that the treatment does no harm to the plants or the product to be harvested and that no harmful residual remains in the crop because of the treatment. Management continues to maintain and expand the testing and demonstration program currently in place over to other crops, as well as to target various additional crop infestation problems for the foreseeable future.

 

Government Regulations and Compliance with Environmental Laws

 

PCTL is not aware of any existing or probable government regulations that would negatively impact our operations, other than requiring additional time for US EPA protocol approval in the agricultural market. As a licensor of water treatment technology, the Company is not subject to government regulations for the removal of oils, solids and pathogens from water, other than normal safety standards and certifications (such as UL or CE) for goods that we manufacture for demonstrations and joint ventures, and our product lines. However, prospective customers are subject to local, state and federal laws and regulations governing water quality, environmental quality and pollution control. To date, compliance with government regulations has had no material effect on the company’s operations, capital, earnings, or competitive position, and the cost of such compliance has not been material. The Company is unable to assess or predict at this time what effect additional regulations or legislation could have on its activities.

 

In addition, PCT Corp.’s prospective customers will be subject to the Clean Water Act which regulates the discharge of pollutants into streams and other waters of the U.S. (as defined in the statute) from a variety of sources. If wastewater or runoff from facilities or operations may be discharged into surface waters, the Clean Water Act requires that person to apply for and obtain discharge permits, conduct sampling and monitoring and, under certain circumstances, reduce the quantity of pollutants in those discharges. The federal government may delegate Clean Water Act authority to the states.

 

Employees

 

At the end of 2021, PCT Corp. had sixteen (16) full-time employees, two (2) part-time employees, and contract consultants who were engaged on a regular basis. Management confers with outside expert consultants, attorneys and accountants as necessary. The company anticipates engaging additional full-time employees in 2022.

 

 

ITEM 1A. RISK FACTORS

 

You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to PCTL’s securities. The risks and uncertainties described below are not the only risks and uncertainties facing us. Additional risks not currently known to us or that we currently believe are immaterial may also impair our operating results, financial condition, and liquidity. Our business is also subject to general risks and uncertainties that affect many other companies. For purposes of this section, references to our business include the businesses of our subsidiaries, PCT Corp., Disruptive O&G and TDC. The risks discussed below are not presented in order of importance or probability of occurrence.

 

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COVID-19

 

The current and potential effects of coronavirus may impact our business, results of operations and financial condition.

 

Actual or threatened epidemics, pandemics, outbreaks, or other public health crises could materially and adversely impact or disrupt our operations, adversely affect the local economies where we operate and negatively impact our customers' spending in the impacted regions or depending upon the severity, globally, which could materially and adversely impact our business, results of operations and financial condition. For example, since December 2019, a strain of novel coronavirus (causing "COVID-19") surfaced in China and has spread into the United States, Europe and most other countries of the world, resulting in certain supply chain disruptions, volatilities in the stock market, lower oil and other commodity prices due to diminished demand, massive unemployment, and lockdown on international travels, all of which has had an adverse impact on the global economy. There is significant uncertainty around the breadth and duration of the business disruptions related to COVID-19, as well as its impact on the U.S. economy. Moreover, an epidemic, pandemic, outbreak or other public health crisis, such as COVID-19, could adversely affect our ability to adequately staff and manage our business. The extent to which COVID-19 impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain, rapidly changing and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions taken to contain it or treat its impact.

 

Risks Related to Our Business

 

We have a history of losses and may never become profitable.

We have recorded net losses for the past four years and have significant accumulated deficits. We have relied upon loans and advances for operating capital. Total revenues will be insufficient to pay off existing debt and fund research and development.  We cannot assure you that we can identify suitable license or joint venture opportunities, or that any such agreements will be profitable. We may be required to rely on further debt financing, further loans from related parties, and private placements of our common and preferred stock for our additional cash needs. Such funding sources may not be available, or the terms of such funding sources may not be acceptable to the Company.

 

Our inability to generate sufficient cash flows may result in us not being able to continue as a going concern.

 

Our overall cash position as of December 31, 2021 provides limited liquidity to fund day-to-day operations. The Company’s independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern. We may need to seek additional financing to support our continued operations; however, there are no assurances that any such financing can be obtained or achieved on commercially reasonable terms, if at all. In view of these conditions, our ability to continue as a going concern depends on our ability to generate sufficient cash flows from our new technology products or to obtain the necessary financing for operations. The outcome of these matters cannot be predicted at this time. The audited consolidated financial statements for the year ended December 31, 2021 do not include any adjustment to the amounts and classification of assets and liabilities that might be necessary should we be unable to continue business operations. Any such adjustment could be material.

  

Our indebtedness could adversely affect our business and limit our ability to plan for or respond to changes in our business, and we may be unable to generate sufficient cash flow to satisfy significant debt service obligations.

 

As of December 31, 2021, our consolidated indebtedness was $2,165,102 (net of discounts), with approximately $85,850 due to related parties. Our indebtedness could have important consequences, including the following:

 

    increasing our vulnerability to general adverse economic and industry conditions;

 

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    reducing the availability of our cash flow for other purposes;

 

    limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate, which would place us at a competitive disadvantage compared to our competitors that may have less debt; and

 

    having a material adverse effect on our business if we fail to comply with the covenants in our debt agreements, because such failure could result in an event of default that, if not cured or waived, could result in all or a substantial amount of our indebtedness becoming immediately due and payable.

 

Further, a portion of our current indebtedness is in default, which subjects us to potential litigation, increased fees and expenses, increased interest rates and other potential damages.

 

Our ability to repay our significant indebtedness will depend on our ability to generate cash, whether through cash from operations or cash raised through the issuance of additional equity-based securities. To a certain extent, our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control. If our business does not generate sufficient cash flow from operations or if future equity financings are not available to us in amounts sufficient to enable us to fund our liquidity needs, our financial condition and operating results may be adversely affected. If we cannot make scheduled principal and interest payments on our debt obligations in the future, we may need to refinance all or a portion of our indebtedness on or before maturity, sell assets, delay capital expenditures, cease operations or seek additional equity.

 

Despite the Company’s indebtedness levels, we are able to incur substantially more debt, including secured debt. This could further increase the risks associated with its leverage.

 

The Company may incur substantial additional indebtedness in the future. The terms of current debt agreements do not fully prohibit it from doing so. To the extent that the Company incurs additional indebtedness, the risks associated with its substantial indebtedness describe above, including its possible inability to service its debt, will increase.

 

A significant portion of our current debt is in default, which may subject us to litigation by the debt holders.

 

As of December 31, 2021, we had cash and cash equivalents of $116,497 and had a portion of short-term debt in default. The short-term debt agreements provide legal remedies for satisfaction of defaults, including increased interest rates, default fees and other financial penalties. As of the date of this Annual Report none of the lenders have pursued their legal remedies. Management’s plan is to raise additional funds in the form of debt or equity in order to continue to fund losses until such time as revenues are able to sustain the Company. To date, the main source of funding has been through the issuance of Preferred Series C shares and the issuance of convertible notes with provisions that allow the holder to convert the debt and accrued and unpaid interest at substantial discounts to the trading price of our common stock. The effect of the conversions and settlement of convertible debt in the year ended December 31, 2021 for the convertible notes has been to substantially dilute existing holders of common stock of our Company. However, there is no assurance that management will be successful in being able to continue to obtain additional funding or defend potential litigation by note holders.

  

We will need additional capital in the future to finance our planned growth, which we may not be able to raise or it may only be available on terms unfavorable to us or our stockholders, which may result in our inability to fund our working capital requirements and harm our operational results.

 

We have and expect to continue to have substantial working capital needs. Our cash on hand, together with cash generated from product sales, services, cash equivalents and short-term investments will not meet our working capital and capital expenditure requirements for the next twelve months. In fact, we will be required to raise additional funds throughout 2022 or we will need to limit operations until such time as we can raise substantial funds to meet our working capital needs. In addition, we will need to raise additional funds to fund our operations and implement our growth strategy, or to respond to competitive pressures and/or perceived opportunities, such as investment, acquisition, marketing and development activities.

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If we experience operating difficulties or other factors, many of which may be beyond our control, cause our revenues or cash flows from operations, if any, to decrease, we may be limited in our ability to spend the capital necessary to complete our development, marketing and growth programs. We require additional financing, in addition to anticipated cash generated from our operations, to fund our working capital requirements.  Additional financing might not be available on terms favorable to us, or at all. If adequate funds were not available or were not available on acceptable terms, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our business or otherwise respond to competitive pressures would be significantly limited. In such a capital restricted situation, we may curtail our marketing, development, and operational activities or be forced to sell some of our assets on an untimely or unfavorable basis.

 

We are highly dependent on our officers and directors. The loss of any of them, whose knowledge, leadership and technical expertise upon which we rely, could harm our ability to execute our business plan.

 

Our success depends heavily upon the continued contributions of our current officers and directors, whose knowledge, leadership and technical expertise may be difficult to replace at this stage in our business development, and on our ability to retain and attract experienced experts, and other technical and professional staff.   If we were to lose the services of our officers or directors, our ability to execute our business plan would be harmed and we may be forced to limit operations until such time as we could hire suitable replacements.

 

At this stage of our business operations, even with our good faith efforts, potential investors have an increased probability of losing their entire investment.

 

Because the nature of our business is expected to change as a result of shifts in the industries in which we operate, competition, and the development of new and improved technology, management forecasts are not necessarily indicative of future operations and should not be relied upon as an indication of future performance. Further, we have raised substantial debt and equity to fund our business operations, which to date have generated insufficient revenue to support our working capital needs.

 

While Management believes its estimates of projected occurrences and events are within the timetable of its business plan, our actual results may differ substantially from those that are currently anticipated. If our revenues do not increase to a level to support our working capital needs, we will be forced to seek equity capital to fund our operations and repay our substantial debt balances, which may not be available to us at all or on acceptable terms.

  

Our ability to license our products and technologies on a commercially viable basis is unproven, which could have a detrimental effect on our ability to generate or sustain revenues.

 

The technologies we offer to waste water and water from oil and gas drilling have never been utilized on a full-scale commercial basis. The Hydrolyte™ technology was only recently developed and all of the tests conducted to date with respect to the technology have been performed in a limited scale or small commercial scale environment and the same or similar results may not be obtainable at competitive costs on a large-scale commercial basis. Accordingly, the Hydrolyte™ technology may not perform successfully on a commercial basis and may never generate significant revenues or be profitable.

  

We may not be able to successfully protect our intellectual property rights.

 

We rely on a combination of product registration, trademark, patent and other proprietary rights laws to protect the intellectual property rights that we own or license. It is possible that third parties may challenge our rights to such intellectual property. In addition, there is a risk of third parties infringing upon our licensors’ or our intellectual property rights and producing counterfeit products. These events may result in lost revenue as well as litigation, which may be expensive and time-consuming even if a favorable outcome is obtained. There can be no assurance that adequate remedies would be available for any infringement of the intellectual property rights owned or licensed by us. Any such failure to successfully protect our intellectual property rights may have a material adverse effect on our competitive position.

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Because our technology products are designed to provide a solution which competes with existing methods, we are likely to face resistance to change, which could impede our ability to commercialize this business.

       

Our Hydrolyte™ products are designed to provide a solution to replacing traditional chemicals that are used in the treatment of bacteria and scaling in industrial water processes. Specifically, we believe it can provide a cost effective and environmentally friendly solution in industrial facilities, agriculture, oil and gas and other industries that consume large amounts of water in their industrial processes. Currently, large and well-capitalized service companies provide traditional chemical equipment and services in these areas. These competitors have strong relationships with their customers’ personnel, and there is a natural reluctance for businesses to change to new technologies. This reluctance is increased when potential customers make significant capital investments in competing technologies. Because of these obstacles, we may face substantial barriers to commercializing our business.

 

To the extent demand for our products increase, our future success will be dependent upon our ability to ramp up manufacturing production capacity.

 

We intend to continue marketing our products and services. To the extent demand for our products and services, or other products we may develop, increases significantly in future periods, one of our key challenges will be to ramp up production capacity to meet sales demand, while maintaining product quality. Our inability to meet any future increase in sales demand, access capital for inventory, may hinder growth or increase dilution.

 

Component shortages could result in our inability to produce volume to adequately meet customer demand. This could result in a loss of sales, delay in deliveries and injury to our reputation.

     

Single source components used in the manufacture of our products may become unavailable or discontinued. Delays caused by industry allocations, or obsolescence may take weeks or months to resolve. In some cases, parts obsolescence may require a product re-design to ensure quality replacement components. These delays could cause significant delays in manufacturing and loss of sales, leading to adverse effects significantly impacting our financial condition or results of operations.

 

We may acquire assets or other businesses in the future.

 

We may consider acquisitions of assets or other business. Any acquisition involves a number of risks that could fail to meet our expectations and adversely affect our profitability. For example:

 

• The acquired assets or business may not achieve expected results;

 

• We may incur substantial, unanticipated costs, delays or other operational or financial problems when integrating the acquired assets;

 

• We may not be able to retain key personnel of an acquired business;

 

• Our management’s attention may be diverted; or

 

• Our management may not be able to manage the acquired assets or combined entity effectively or to make acquisitions and grow our business internally at the same time.

 

If these problems arise, we may not realize the expected benefits of an acquisition.

 

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We may not be able to successfully fund future acquisitions of new businesses due to the lack of availability of debt or equity financing on acceptable terms, which could impede the implementation of our acquisition strategy and materially adversely impact our financial condition, business and results of operations.

 

In order to make future acquisitions, we intend to raise capital primarily through debt financing, additional equity offerings, the sale of stock or assets of our businesses, and by offering equity in the businesses to the sellers of target businesses or by undertaking a combination of any of the above. Since the timing and size of acquisitions cannot be readily predicted, we may need to be able to obtain funding on short notice to benefit fully from attractive acquisition opportunities. Such funding may not be available on acceptable terms. In addition, the level of our indebtedness may impact our ability to borrow funds on acceptable terms. Another source of capital for us may be the sale of additional shares of common stock, subject to market conditions and investor demand for the shares at prices that we consider to be in the interests of our stockholders. These risks may materially adversely affect our ability to pursue our acquisition strategy successfully and materially adversely affect our financial condition, business and results of operations. 

 

Risk Related to Our Industries

 

We are subject to extensive, complex, and challenging healthcare and other laws.

 

The Healthcare industry is highly regulated, and further regulation of our distribution businesses and technology products and services could impose increased costs, negatively impact our profit margins and the profit margins of our customers, delay the introduction or implementation of our new products, or otherwise negatively impact our business and expose the Company to litigation and regulatory investigations. Any noncompliance by us with applicable laws or the failure to maintain, renew or obtain necessary permits and licenses could lead to litigation and might have a materially adverse impact on our business operations and our financial position or results of operations.

 

Global increases in the supply of natural gas or oil may reduce drilling operations in shale deposits, which could adversely affect the attractiveness of our Hydrolyte™ technology in the oil and gas industry.

 

The development of new horizontal drilling techniques and the discovery of unconventional oil and gas in new shale areas throughout the U.S. and world market have opened up an enormous opportunity for the Hydrolyte™ technology to replace traditional chemicals used to kill bacteria in waters used for hydraulic fracturing. These fracturing operations rely on enormous supplies of clean water to be pumped downhole to break the rock that holds the oil and gas. Much of the water used in drilling oil and natural gas wells and the resulting water that flows back needs to be treated and creates an opportunity for our Hydrolyte™ technology. However, horizontal drilling in shale areas is very expensive; and if current oil prices remain depressed, horizontal drilling may not be cost-effective, and the lack thereof may adversely affect the market for the Hydrolyte™ technology.

 

If federal and state legislation and regulatory initiatives relating to horizontal drilling are passed, then it could materially and adversely affect our results of operations.

 

Our business relies upon supplying chemical-free solutions for cleaning the large amounts of water used in hydraulic fracturing applications. Objections have been raised by environmentalists, some landowners and some government officials including environmental authorities that there have been adverse side effects affecting the purity of the water supply as a result of the injection of chemicals and water in connection with horizontal drilling. Although we believe that Hydrolyte™ is a chemical-free solution which should result in increased business, we cannot assure you that legislation or rules will not be passed, or action taken by environmental authorities that will preclude the use of horizontal drilling.

 

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At the state level, certain states and localities have implemented moratoriums and certain obligations on oil and gas companies using horizontal drilling. The adoption of any future federal, state or local laws or implementing regulations imposing reporting or permitting obligations on, or otherwise limiting, the horizontal drilling process could make it more difficult to perform, or even prohibit oil and gas companies from using horizontal drilling, to complete gas and oil wells. These additional costs to drillers could result in reduced oil and gas drilling. This would reduce our potential licensing revenue. If this were to occur more widely in the United States, the demand for Hydrolyte™ may be eliminated or substantially reduced. If any such federal or state legislation on horizontal fracturing were passed, our revenues and results of operations could be adversely affected.

 

Risks Related to PCTL’s Common Stock

 

We have been late in filing our SEC Reports several times over the last two years and may not be able to timely file our reports in the future.

 

We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and, in accordance therewith, are required to file quarterly, annual and current reports, proxy statements and other information with the SEC. Over the last two years, we have been late in filing some of our quarterly reports and our annual report. There can be no assurance we will not become delinquent in our reporting requirements in the future, which may result in Rule 144 becoming unavailable for resales of our common stock or the SEC seeking to deregister our common stock from reporting under the 34 Act.

 

There is a limited trading market for our shares of common stock on the OTC Pink.  You may not be able to sell your shares of common stock if you need money.

 

Our common stock is traded on the OTC Pink, an inter-dealer automated quotation system for equity securities.  There has been limited trading activity in our common stock, and when it has traded, the price has fluctuated widely.  We consider our common stock to be “thinly traded” and any last reported sale prices might not be a true market-based valuation of the common stock.  Stockholders may experience difficulty selling their shares if they choose to do so because of the illiquid market and limited public float for our common stock.

 

Since PCTL has been a shell company as defined in subparagraph (i) of Rule 144 any “restricted securities” issued by the Company, while we were a shell company, cannot be publicly sold for at least one year from September 2, 2016, the date we filed a Current Report on Form 8-K regarding Paradigm’s operations. In addition, we must have filed all reports and other materials required to be filed by section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months.

 

Compliance with the criteria for securing exemptions under federal securities laws and the securities laws of the various states is extremely complex, especially in respect of those exemptions affording flexibility and the elimination of trading restrictions in respect of securities received in exempt transactions and subsequently disposed of without registration under the Securities Act or state securities laws.

 

Because our common stock is deemed a low-priced “Penny” stock, an investment in our common stock should be considered high risk and subject to marketability restrictions.

 

Since our common stock is a penny stock, as defined in Rule 3a51-1 under the Securities Exchange Act of 1934, as amended, it will be more difficult for investors to liquidate their investment even if and when a market develops for the common stock. Until the trading price of the common stock rises above $5.00 per share, if ever, trading in the common stock is subject to the penny stock rules of the Securities Exchange Act specified in rules 15g-1 through 15g-10. Those rules require broker-dealers, before effecting transactions in any penny stock, to:

 

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• Deliver to the customer, and obtain a written receipt for, a disclosure document;

• Disclose certain price information about the stock;

• Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer;

• Send monthly statements to customers with market and price information about the penny stock; and

• In some circumstances, approve the purchaser’s account under certain standards and deliver written statements to the customer with information specified in the rules.

 

Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to sell the common stock and may affect the ability of holders to sell their common stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.

  

Financial Industry Regulatory Authority, Inc. (“FINRA”) sales practice requirements may limit a shareholder’s ability to buy and sell our common shares.

 

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

 

If we fail to maintain effective internal controls over financial reporting, then the price of our common stock may be adversely affected.

 

Our internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations. In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock.

 

Transfers of our securities may be restricted by virtue of state securities “blue sky” laws that prohibit trading absent compliance with individual state laws.  These restrictions may make it difficult or impossible to sell shares in those states.

 

Transfers of our common stock may be restricted under the securities or securities regulation laws promulgated by various states and foreign jurisdictions, commonly referred to as “blue sky” laws.  Absent compliance with such individual state laws, our common stock may not be traded in such jurisdictions.  Because the securities registered hereunder have not been registered for resale under the blue sky laws of any state, the holders of such shares and persons who desire to purchase them should be aware that there may be significant state blue sky law restrictions upon the ability of investors to sell the securities and of purchasers to purchase the securities.  These restrictions may prohibit the secondary trading of our common stock.  Investors should consider the secondary market for our securities to be a limited one.

 

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We do not intend to pay dividends on our common stock in the foreseeable future.

 

For the foreseeable future, we intend to retain any earnings to finance the development of our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors (the “Board”) and will be dependent upon then-existing conditions, including our operating results and financial condition, capital requirements, contractual restrictions, business prospects and other factors that our Board considers relevant. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their investment.

 

We have the ability to issue additional shares of our common stock and shares of preferred stock without obtaining stockholder approval, which could cause your investment to be diluted.

 

Our articles of incorporation authorizes the Board of Directors to issue up to 1,000,000,000 shares of common stock and up to 10,000,000 shares of preferred stock, of which we have designated 1,000,000 shares as Series A, 1,000,000 shares as Series B and 1,500,000 shares as Series C.  The power of the Board of Directors to issue shares of common stock, preferred stock or warrants or options to purchase shares of common stock or preferred stock is generally not subject to stockholder approval.  Accordingly, any additional issuance of our common stock, or preferred stock that may be convertible into common stock, may have the effect of diluting your investment. Along these lines, at December 31, 2020 we had approximately 722.5 million shares of common stock outstanding and ended 2021 with approximately 790.9 million shares outstanding, an increase of 9.5%. In addition, as of March 24, 2022 we had approximately 790.9 million shares outstanding.

  

Our Board of Directors has issued Series B Preferred Stock with voting terms that may not be beneficial to common stockholders and has the ability to affect adversely stockholder voting power and allows our current management to perpetuate their control over us.

 

Our Articles of Incorporation allow us to issue shares of preferred stock without any vote or further action by our stockholders. Along these lines, our Board of Directors authorized 1,000,000 shares of Series B Preferred Stock, which were issued to two members of our current management (Messrs. Grieco and Read). These shares have superior voting rights (500 to 1) over shares of our Common Stock. Further, our Board of Directors has the ability to fix and determine the relative rights and preferences of additional series of preferred stock. Our Board of Directors has the authority to issue additional series of preferred stock without further stockholder approval, including large blocks of preferred stock that would grant to the holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock, superior voting or conversion rights and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock.

 

By issuing preferred stock, PCTL may be able to delay, defer or prevent a change of control.

 

PCTL is authorized to issue a total of 10,000,000 shares of “blank check” preferred stock and has issued: 500,000 shares of Series A Preferred Stock, 1,000,000 shares of Series B Preferred Stock (which contain voting rights of 500-to-1) and 1,500,000 shares of Series C Preferred Stock. PCTL’s Board of Directors can determine the rights, preferences, privileges, and restrictions granted to, or imposed upon, the shares of preferred stock and to fix the number of shares constituting any series and the designation of such series. It is possible that PCTL’s Board of Director, in determining the rights, preferences and privileges to be granted when the preferred stock is issued, may include provisions that have the effect of delaying, deferring, or preventing a change in control, discouraging bids for our common stock at a premium over the market price, or that adversely affect the market price of and the voting and other rights of the holders of PCTL’s common stock. 

 

Future sales of our common stock may result in a decrease in the market price of our common stock, even if our business is doing well.

 

The market price of our common stock could drop due to sales of a large number of shares of our common stock in the market or the perception that such sales could occur. This could make it more difficult to raise funds through future offerings of common stock.

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Our articles of incorporation and bylaws contain provisions that could discourage an acquisition or change of control of us.

 

Our articles of incorporation authorize our Board of Directors to issue preferred stock and common stock without stockholder approval. If our board of directors’ elects to issue preferred stock, it could be more difficult for a third party to acquire control of us. In addition, provisions of the articles of incorporation and bylaws could also make it more difficult for a third party to acquire control of us.

 

There are limitations in connection with the availability of quotes and order information on the OTC Pink.

 

Trades and quotations on the OTCBB involve a manual process and the market information for such securities cannot be guaranteed. In addition, quote information, or even firm quotes, may not be available.  The manual execution process may delay order processing and intervening price fluctuations may result in the failure of a limit order to execute or the execution of a market order at a significantly different price.  Execution of trades, execution reporting and the delivery of legal trade confirmation may be delayed significantly.  Consequently, one may not be able to sell shares of our common stock at the optimum trading prices.

 

There are delays in order communication on the OTC Pink.

 

Electronic processing of orders is not available for securities traded on the OTC Pink and high order volume and communication risks may prevent or delay the execution of one’s OTC Pink trading orders. This lack of automated order processing may affect the timeliness of order execution reporting and the availability of firm quotes for shares of our common stock. Heavy market volume may lead to a delay in the processing of OTC Pink security orders for shares of our common stock, due to the manual nature of the market. Consequently, one may not be able to sell shares of our common stock at the optimum trading prices.

 

There is a risk of market fraud on the OTC Pink.

 

OTC Pink securities are frequent targets of fraud or market manipulation. Not only because of their generally low price, but also because the OTC reporting requirements for these securities are less stringent than for listed or NASDAQ traded securities, and no exchange requirements are imposed. Dealers may dominate the market and set prices that are not based on competitive forces. Individuals or groups may create fraudulent markets and control the sudden, sharp increase of price and trading volume and the equally sudden collapse of the market price for shares of our common stock.

 

There is a limitation in connection with the editing and canceling of orders on the OTC Pink.

 

Orders for OTC Pink securities may be canceled or edited like orders for other securities. All requests to change or cancel an order must be submitted to, received and processed by the OTC Pink. Due to the manual order processing involved in handling OTC Pink trades, order processing and reporting may be delayed, and one may not be able to cancel or edit one’s order. Consequently, one may not able to sell their shares of our common stock at the optimum trading prices.

 

Increased dealer compensation could adversely affect our stock price.

 

The dealer’s spread (the difference between the bid and ask prices) may be large and may result in substantial losses to the seller of shares of our common stock may incur an immediate “paper” loss due to the price spread.  Moreover, dealers trading on the OTC Pink may not have a bid price for shares of our common stock on the OTC Pink.  Due to the foregoing, demand for shares of our common stock on the OTC Pink may be decreased or eliminated.

 

Additional Risks and Uncertainties

 

If any of the risks that we face actually occur, irrespective of whether those risks are described in this section or elsewhere in this report, our business, financial condition and operating results could be materially adversely affected.

 

  24  

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

 

ITEM 2. PROPERTIES

 

The Company re-negotiated an annual lease on the Little River, SC facility for $7,500 per month, retroactive from July 1, 2020, which was renewed for another year, effective July 1, 2021, at $7,650 per month. In addition, a three-year lease for 9,600 s.f. of warehouse space in Fort Wayne, Indiana was added, effective November 1, 2020, for $4,500 per month. The Company also committed to a two-year building lease for additional office space in Little River, SC, effective April 1, 2021, for $2,750 per month, which was terminated effective October 14, 2021.

 

 

ITEM 3. LEGAL PROCEEDINGS

 

Auctus Fund Litigation

 

In March of 2019, we entered into a Securities Purchase Agreement with Auctus Fund, LLC (“Auctus”), whereby we borrowed $75,000 from Auctus under the terms of a convertible promissory note and included the issuance to 187,500 warrants to Auctus. Adjustment provisions in the Securities Purchase Agreement and the note required PCTL to adjust the number of warrants and exercise price based upon future financings. 

 

In late 2019, we defaulted on the Auctus note, which triggered a number of default provisions of the note. We disputed the amounts claimed to be owed to Auctus, the number of shares of common stock to be reserved for conversion of the note and the number and exercise price of the warrants held by Auctus. Negotiations of these disputes lasted for several months.

 

In October of 2020, we entered into a Conditional Settlement Agreement with Auctus to settle all disputes and claims between the parties. A material dispute between the parties was the warrants, which according to Auctus had ballooned to 107,142,857 shares at an exercise price of $0.00035. Pursuant to the settlement agreement, Auctus agreed to settle such disputes and claims based upon the payment of $145,000 in cash and the issuance of 8,000,000 shares of common stock.

 

On September 1, 2021, we issued 8,000,000 common shares and paid the remaining cash balance to Auctus under the terms of the settlement. We fully complied with all payments required under the settlement agreement and issued the shares of common stock to Auctus, which triggered the mutual release of all disputes and claims between us and Auctus. Despite our compliance with the terms of the settlement agreement, Auctus has refused to execute the mutual release required by the settlement agreement and acknowledge the cancellation of the warrants as part of the settlement.

 

On January 14, 2022, we filed a complaint in the United States District Court for the District of Massachusetts (Case 1:22-cv-10053), against Auctus seeking damages for:

 

  1. Breach of Contract;

  2. Breach of Implied Covenant of Good Faith and Fair Dealing;

  3. Reformation of Mutual Release;

  4. Fraud;

  5. Conversion; and

  6. Unjust Enrichment.

 

The case is currently ongoing. 

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable to our operations.

 

  25  

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

PCT LTD’s common stock is quoted on the OTC Pink market under the symbol “PCTL.” Our common stock has traded infrequently on the OTC Pink.

 

On March 24, 2022, the closing price of shares of common stock of the Company was $0.016.  However, we consider our common stock to be thinly traded and, as a result, any reported sales prices may not be a true market-based valuation of the common stock.

  

(b) Holders of Common Stock

 

We had 271 stockholders of record as of March 24, 2022 and 790,924,690 shares outstanding, which does not include 209,075,310 shares of common stock reserved against default on convertible debt.

 

(c) Dividends

 

In the future we intend to follow a policy of retaining earnings, if any, to finance the growth of the business and do not anticipate paying any cash dividends in the foreseeable future. The declaration and payment of future dividends on the Common Stock will be the sole discretion of board of directors and will depend on our profitability and financial condition, capital requirements, statutory and contractual restrictions, future prospects and other factors deemed relevant.

 

(d) Securities Authorized for Issuance under Equity Compensation Plans

 

None. 

 

Recent Sales of Unregistered Securities

 

On September 1, 2021, the Company issued 8,000,000 common shares and paid $21,000 to settle the remaining outstanding principal on a convertible note payable with Auctus Fund, LLC, of $88,795 and accrued interest of $26,153.

 

On September 10, 2021, the Company issued 2,000,000 common shares pursuant to a general release agreement dated July 23, 2021 with a former employee of the Company.

 

On October 12, 2021, the Company issued 15,000,000 common shares to settle a convertible note with a remaining balance of $0.

 

On December 14, 2021, the Company issued 2,548,461 common shares pursuant to a cashless exercise of 2,593,999 warrants to Auctus Fund, LLC.

 

All of the above-described issuances were exempt from registration pursuant to Section 4(a)(2) and/or Regulation D of the Securities Act as transactions not involving a public offering. With respect to each transaction listed above, no general solicitation was made by either the Company or any person acting on its behalf. All such securities issued pursuant to such exemptions are restricted securities as defined in Rule 144(a)(3) promulgated under the Securities Act, appropriate legends have been placed on the documents evidencing the securities and may not be offered or sold absent registration or pursuant to an exemption therefrom.

 

  26  

 

Issuer Purchase of Securities

 

We did not repurchase any of our equity securities during the year ended December 31, 2021.

 

Defaults Upon Senior Securities

 

We have entered into a number of promissory notes, some of which are in default as of December 31, 2021, or went into default before the filing of this Annual Report (See Note 6 to the financial statements).

 

A portion of our current debt is in default, which may subject us to litigation by the debt holders.

 

As of December 31, 2021, we had cash and cash equivalents of $116,497 and had a portion of short-term debt in default. Management's plan is to raise additional funds in the form of debt or equity in order to continue to fund losses until such time as revenues are able to sustain the Company. To date, the main source of funding has been through the issuance of Preferred C stock and the issuance of convertible notes with provisions that allow the holder to convert the debt and accrued and unpaid interest at substantial discounts to the trading price of our common stock. The effect of the conversions in the year ended December 31, 2021 and the year ended December 31, 2020 for the convertible notes has been to substantially dilute existing holders of common stock of our Company. However, there is no assurance that management will be successful in being able to continue to obtain additional funding or defend potential litigation by note holders.

 

ITEM 6. [RESERVED]

 

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Executive Overview

 

On August 31, 2016, PCT LTD entered into a Securities Exchange Agreement (the "Exchange Agreement") with Paradigm Convergence Technologies Corporation, a Nevada corporation ("Paradigm"). Pursuant to the terms of the Exchange Agreement, Paradigm became the wholly-owned subsidiary of PCT LTD after the exchange transaction. PCT LTD is a holding company, which through Paradigm is engaged in the business of marketing new products and technologies through licensing and joint ventures.

 

PCT LTD had not recorded revenues for the two fiscal years prior to its acquisition of Paradigm and was dependent upon financing to continue basic operations. Paradigm has recorded revenue since it initiated operations in 2012; however, those revenues have not been sufficient to finance operations. The Company recorded a net income of $988,619 for the year ended December 31, 2021 and accumulated losses of $29,598,993 from inception through December 31, 2021.

 

PCT LTD remains dependent upon additional financing to continue operations. The Company intends to raise additional financing through private placements of its common stock and note payable issuances. We expect that we would issue such stock pursuant to exemptions to the registration requirements provided by federal and state securities laws. The purchasers and manner of issuance will be determined according to our financial needs, as discussed below, and the available exemptions to the registration requirements of the Securities Act of 1933. We also note that if we issue more shares of our common stock, then our stockholders may experience dilution in the value per share of their common stock.

 

The expected costs for the next twelve months include:

 

  continuation of commercial launch of non-toxic sanitizing, disinfecting and sterilizing products and technologies with a strong emphasis on health care facilities, including hospitals, nursing homes, assisted living facilities, clinics and medical, dental and veterinarian offices;

 

  27  

 

  continued research and development on product generation units including those designed for on-site deployment at customers' facilities;

 

  accelerated research and development and initial commercialization on applications of the products in the agricultural sector, most specifically with respect to abatement of a specific crop disease crisis caused by a bacterium in the U.S. and elsewhere;

 

  acquiring available complementary technology rights;

 

  payment of short-term debt;

 

  hiring of additional personnel in 2022; and

 

  general and administrative operating costs.

 

Management projects these costs to total approximately $2,580,000. To minimize these costs, the Company intends to maintain its practice of controlling operating overheads with efficient facilities commitments, generally below market salaries and consulting fees, and rigorous prioritization of expenditure requirements. Based on its understanding of the commercial readiness of its products and technologies, the capabilities of its personnel (current and being hired), established business relationships and the general market conditions, management believes that the Company expects to be covering its fixed operating expenses ("burn rate") by the end of the third quarter of 2022.

 

Liquidity and Capital Resources

 

A critical component of our operating plan impacting our continued existence is the ability to obtain additional capital through additional equity and/or debt financing. We do not anticipate generating sufficient positive internal operating cash flow until such time as we can deliver our products to market and generate substantial revenues, which may take the next full year to fully realize, if ever. In the event we cannot obtain the necessary capital to pursue our strategic plan, we may have to significantly curtail our operations. This would materially impact our ability to continue operations.

 

SUMMARY OF BALANCE SHEET   December 31,
2021
  December 31,
2020
Cash and cash equivalents   $ 116,497     $ 115,196  
Total current assets     310,763       747,756  
Total assets     4,254,258       4,634,610  
Total liabilities     6,283,637       11,038,156  
Accumulated deficit     (29,598,993 )     (30,587,612 )
Total stockholders' deficit   $ (4,498,024 )   $ (6,662,191 )

 

For the year ended December 31, 2021, the Company recorded net income of $988,619 and at December 31, 2021 had a working capital deficit of $4,466,106. Since inception we had not established an ongoing source of revenue sufficient to cover our operating costs. During the years ended December 31, 2021 and 2020 we primarily relied upon equity issuances and advances and loans from stockholders and third parties to fund our operations. The Company has relied on raising debt and equity capital in order to fund its ongoing day-to-day operations and its corporate overhead. We had $116,497 in cash at December 31, 2021, compared to $115,196 in cash at December 31, 2020. We had total liabilities of $6,283,637 at December 31, 2021 compared to $11,038,156 at December 31, 2020.

 

Total assets decreased by $380,352 to $4,254,258 at December 31, 2021 compared to $4,634,610 at December 31, 2020. This decrease is primarily from a decrease in accounts receivable and prepaid expenses and from depreciation and amortization recorded on intangible assets and right-of-use assets during the year ended December 31, 2021.

 

  28  

 

Total liabilities decreased by $4,754,519 to $6,283,637 at December 31, 2021 compared to $11,038,156 at December 31, 2020. This decrease is primarily from a decrease in derivative liabilities of $4,058,767 and a decrease in notes payable, notes payable – related party, and convertible notes payable of $616,995.

 

Our current cash flow is not sufficient to meet our monthly expenses of approximately $215,000 and to fund future research and development adequately. We intend to rely on additional debt financing, loans from existing stockholders and private placements of common stock for additional funding in addition to the increasing our recognized revenue from the leasing and/or sale of products; however, there is no assurance that additional funding will be available. We do not have material commitments for future capital expenditures. However, we cannot assure you that we will be able to obtain short-term financing, or that sources of such financing, if any, will continue to be available, and if available, that they will be on favorable terms.

 

During the next 12 months we anticipate incurring additional costs related to the filing of Exchange Act reports. We believe we will be able to meet these costs through funds provided by management, significant stockholders and/or third parties. We may also rely on the issuance of our common stock in lieu of cash to convert debt or pay for expenses.

 

The table below presents information regarding cash flows:

 

SUMMARY OF CASH FLOWS   Year ended
December 31, 2021
  Year ended
December 31, 2020
Net cash used in operating activities   $ (1,508,640 )   $ (830,664 )
Net cash used in investing activities   $ (468,866 )   $ (163,133 )
Net cash provided by operating activities   $ 1,978,807     $ 1,041,380  
Net change in cash   $ 1,301     $ 47,583  

 

Commitments and Obligations

 

At December 31, 2021 the Company recorded notes payable totaling approximately $2,165,102 (related, non-related and convertible, net of debt discount) compared to notes payable totaling $2,781,597 (related, non-related and convertible, net of debt discount) at December 31, 2020. These notes payable represent cash advances received and expenses paid from third parties and related parties. At December 31, 2021, all of the notes payable carry effective interest from 0% to 12% and are due ranging from on demand to November 30, 2023.

 

The Company headquarters and operations are located in Little River, South Carolina. The Company re-negotiated an annual lease on the Little River, SC facility for $7,500 per month, retroactive to July 1, 2020, which is renewable for an additional four years (with a 2% increase annually). Effective July 1, 2021 through June 30, 2022, the monthly lease payment is $7,650. The Company added a three-year lease for 9,600 sf. of warehouse space in Fort Wayne, Indiana, effective November 1, 2020, for $4,500/month. Effective April 1, 2021, the Company entered into a 2-year lease for additional office space in Little River, SC, for $2,750 per month, which was terminated effective October 14, 2021.

 

Results of Operations

 

SUMMARY OF OPERATIONS   Year Ended December 31
     
      2021       2020  
Revenues   $ 1,281,177     $ 2,519,914  
Total operating expenses     3,773,257       3,921,143  
Total other income (expense)     3,480,699       (2,410,816 )
Net income (loss)     988,619       (3,812,045 )
Net income (loss) attributable to common stockholders'     988,619       (4,082,045 )
Basic income (loss) per share     0.00       (0.01 )
Diluted income (loss) per share   $ (0.00 )   $ (0.01 )

 

  29  

 

Revenues decreased to $1,281,177 for the year ended December 31, 2021 compared to $2,519,914 for the year ended December 31, 2020. The revenue decrease for the period was primarily due to the decreased volume of fluids sold as a result of the decreased need for an effective US EPA-registered disinfectant as the country came out of the COVID-19 pandemic. Accordingly, product sales decreased to $233,147 during the year ended December 31, 2021 compared to $1,527,465 during the year ended December 31, 2020. However, revenue for equipment leases increased to $894,786 during the year ended December 31, 2021 compared to $750,496 during the year ended December 31, 2020.

  

Total operating expenses decreased to $3,773,257 during the year ended December 31, 2021 compared to $3,921,143 during the year ended December 31, 2020. The decrease during the period was primarily due to a decrease in cost of product, licensing, and equipment leases of $884,456 partially offset by an increase in general and administrative expenses of $719,543.

 

General and administrative expenses increased to $3,204,922 for the year ended December 31, 2021 compared to $2,485,379 during the year ended December 31, 2020. General and administrative increased due to stock-based compensation for consulting services, salaries and wages, and professional and accounting fees.

 

Depreciation and amortization expenses increased to $367,534 during the year ended December 31, 2021 compared to $348,708 during the year ended December 31, 2020.

 

Total other income was $3,480,699 for the year ended December 31, 2021 compared to other expense of $2,410,816 during the year ended December 31, 2020. The overall change was a primarily due to a gain on change in fair value of derivative liability of $22,861 and a gain on settlement of debt of $3,930,402 during the year ended December 31, 2021 versus a loss on change in fair value of derivative liability of $13,046,832 and a gain settlement of debt of $12,020,966 during the year ended December 31, 2020.

 

As a result of the changes described above, net income was $988,619 during the year ended December 31, 2021 compared to a net loss of $3,812,045 during the year ended December 31, 2020.

 

Off-Balance Sheet Arrangements

 

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.

 

Critical Accounting Policies

 

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

 

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable to smaller reporting companies.

 

  30  

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

PCT LTD

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
Report of Independent Registered Public Accounting Firm (PCAOB ID: 3627) 32
   
Consolidated Balance Sheets 33
   
Consolidated Statements of Operations 34
   
Consolidated Statements of Stockholders’ Deficit 35
   
Consolidated Statements of Cash Flows 36
   
Notes to the Consolidated Financial Statements 37

 

 

  31  

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders of PCT LTD:

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of PCT LTD ("the Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders' deficit, and cash flows for each of the years in the two-year period ended December 31, 2021 and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

 

Explanatory Paragraph Regarding Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has recurring losses, negative cash flows from operations, and negative working capital, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) related to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Determination and Valuation of Derivative Liabilities

 

Critical Audit Matter Description

 

As described further in Notes 6, 7, and 10 of the financial statements, during the year ended December 31, 2021 and in prior periods, the Company issued convertible notes and warrants that required management to assess whether the conversion features of the convertible notes required bifurcation and separate valuation as a derivative liability, and whether the warrants required accounting treatment as derivative liabilities. The Company determined that the conversion features of certain of its convertible notes and certain warrants issued in financing arrangements required to be accounted for as derivative liabilities due to: (1) the inclusion of embedded put options within the fundamental transaction clause of certain warrants; and (2) certain instruments containing variable conversion rates with no explicit limit on the number of shares that may be required to be issued; and (3) in some cases the Company could not assert it had sufficient authorized but unissued shares available to settle instruments considering all other stock-based commitments. The derivative liabilities were recorded at fair value when issued and subsequently re-measured to fair value upon settlement or at the end of each reporting period. The Company utilized a binomial option pricing model to determine the fair value of the derivative liabilities, which uses certain assumptions related to exercise price, term, expected volatility, and risk-free interest rate.

 

We identified auditing the determination and valuation of the derivative liabilities as a critical audit matter due to the significant judgements used by the Company in determining whether the embedded conversion features and warrants required derivative accounting treatment and the significant judgements used in determining the fair value of the derivative liabilities. Auditing the determination and valuation of the derivative liabilities involved a high degree of auditor judgement, and specialized skills and knowledge were needed.

 

How the Critical Audit Matter Was Addressed in the Audit

 

Our audit procedures included the following, among others:

 

· We inspected and reviewed debt agreements, warrant agreements, conversion notices, and settlement agreements to evaluate the Company's determination of whether derivative accounting was required, including assessing and evaluating management's application of relevant accounting standards to such transactions.
· We tested the reasonableness of the assumptions used by the Company in the binomial option model, including exercise price, expected term, expected volatility, and risk-free interest rate.
· We tested the accuracy and completeness of data used by the Company in developing the assumptions used in the binomial option model.
· We developed an independent expectation for comparison to the Company's estimate, which included developing our own binomial option model and assumptions.
· We evaluated the accuracy and completeness of the Company's presentation of these instruments in the financial statements and related disclosures in Notes 6, 7, and 10, including evaluating whether such disclosures were in accordance with relevant accounting standards.

 

Professionals with specialized skill and knowledge were utilized by the Firm to assist in the evaluation of the Company estimate of fair value and the development of our own independent expectation.

 

 

 

/s/ Sadler, Gibb & Associates, LLC

 

We have served as the Company's auditor since 2015.

 

Draper, UT

March 31, 2022

  

  32  

 

 

PCT LTD

Consolidated Balance Sheets

 

   

December 31,

2021

  December 31,
2020
         
ASSETS                
CURRENT ASSETS                
Cash and cash equivalents   $ 116,497     $ 115,196  
Accounts receivable, net     96,022       349,526  
Inventory     36,954       6,188  
Prepaid expenses     53,090       274,736  
Other current assets     8,200       2,110  
Total current assets     310,763       747,756  
                 
PROPERTY AND EQUIPMENT, net     762,054       358,719  
                 
OTHER ASSETS                
Intangible assets, net     3,098,021       3,400,024  
Operating lease right-of-use asset     83,420       118,385  
Deposits              9,726  
Total other assets     3,181,441       3,528,135  
                 
TOTAL ASSETS   $ 4,254,258     $ 4,634,610  
                 
LIABILITIES, MEZZANINE EQUITY, AND STOCKHOLDERS' DEFICIT                
CURRENT LIABILITIES                
Accounts payable   $ 72,873     $ 272,978  
Accrued expenses – related parties     226,844       139,280  
Accrued expenses     691,364       622,040  
Deferred revenue              1,075  
Operating lease liability     42,012       34,965  
Current portion of notes payable – related parties, net     85,850       789,214  
Current portion of notes payable, net     133,144       384,380  
Current portion of convertible notes payable, net     480,808       1,554,503  
Derivative liability     3,044,034       7,102,801  
Total current liabilities     4,776,929       10,901,236  
                 
LONG-TERM LIABILITIES                
Convertible notes payable, net of current portion and discounts     1,465,300       53,500  
Operating lease liability, net of current portion     41,408       83,420  
TOTAL LIABILITIES     6,283,637       11,038,156  
                 
MEZZANINE EQUITY                
Preferred stock series A, $0.001 par value; 1,000,000 authorized; 500,000 issued and outstanding at December 31, 2021 and 2020, respectively     60,398       60,398  
Preferred stock series B, $0.001 par value; 1,000,000 authorized; 1,000,000 issued and outstanding at December 31, 2021 and 2020, respectively     158,247       158,247  
Preferred stock series C, $0.001 par value; 1,500,000 (December 31, 2020 - 5,500,000) authorized; 1,500,000 and 40,000 issued and outstanding at December 31, 2021 and 2020, respectively     2,250,000       40,000  
TOTAL MEZZANINE EQUITY     2,468,645       258,645  
STOCKHOLDERS’ DEFICIT                
Common stock, $0.001 par value; 1,000,000,000 authorized; 790,924,690 and 722,487,846 issued and outstanding at December 31, 2021 and 2020, respectively     790,924       722,488  
Additional paid-in-capital     24,310,045       23,202,933  
Accumulated deficit     (29,598,993 )     (30,587,612 )
TOTAL STOCKHOLDERS’ DEFICIT     (4,498,024 )     (6,662,191 )
                 
TOTAL LIABILITIES, MEZZANINE EQUITY, AND STOCKHOLDERS' DEFICIT   $ 4,254,258     $ 4,634,610  

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

  33  

 

PCT LTD

Consolidated Statements of Operations 

     
    For the years ended December 31,
    2021   2020
         
REVENUES                
  Product   $ 233,147     $ 1,527,465  
  Licensing     153,244       241,953  
  Equipment leases     894,786       750,496  
  Total revenues     1,281,177       2,519,914  
                 
OPERATING EXPENSES                
  General and administrative     3,204,922       2,485,379  
  Research and development     38,630       40,429  
  Costs of product, licensing, and equipment leases     162,171       1,046,627  
  Depreciation and amortization     367,534       348,708  
   Total operating expenses     3,773,257       3,921,143  
                 
Loss from operations     (2,492,080 )     (1,401,229 )
                 
OTHER INCOME (EXPENSE)                
Interest expense     (472,775 )     (1,384,950 )
Gain (loss) on change in fair value of derivative liability     22,861       (13,046,832 )
Gain on settlement of debt     3,930,401       12,020,966  
Other income     212           
Total other income (expense)     3,480,699       (2,410,816 )
                 
Income (loss) before income taxes     988,619       (3,812,045 )
                 
Income taxes                  
                 
NET INCOME (LOSS)   $ 988,619     $ (3,812,045 )
Preferred series C stock deemed dividends              (270,000 )
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS’   $ 988,619     $ (4,082,045 )
                 
Basic income (loss) per share   $ 0.00     $ (0.01 )
Diluted income (loss) per share   $ (0.00 )   $ (0.01 )
                 
Basic weighted average shares outstanding     765,752,715       609,029,869  
Diluted weighted average shares outstanding     821,476,062       609,029,869  

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

  34  

 

PCT LTD

Consolidated Statements of Stockholders’ Deficit

For the years ended December 31, 2021 and 2020 

                     
    Common Stock   Additional Paid-in   Accumulated   Total Stockholders’
    Shares   Amount   Capital   Deficit   Deficit
                     
Balance – December 31, 2019     498,880,300     $ 498,881     $ 15,872,330     $ (26,505,567 )   $ (10,134,356 )
Common stock issued for services     30,525,000       30,525       645,594                676,119  
Common stock issued from subscriptions     9,800,000       9,800       220,700                230,500  
Common stock issued in settlement of debt     30,250,000       30,250       1,128,475               1,158,725  
Common stock issued in conversion of convertible notes payable     98,786,360       98,786       897,382                996,168  
Common stock issued in cashless exercise of warrants     9,246,186       9,246       420,702                429,948  
Common stock issued in conversion of series C preferred stock     45,000,000       45,000       449,000                494,000  
Deemed dividend from beneficial conversion feature on series C preferred stock     —                  270,000       (270,000 )         
Deemed premium from conversion feature on note payable     —                  3,298,750                3,298,750  
Net loss     —                           (3,812,045 )     (3,812,045 )
Balance – December 31, 2020     722,487,846     $ 722,488     $ 23,202,933     $ (30,587,612 )   $ (6,662,191 )
Common stock issued for cash     3,750,000       3,750       71,250                75,000  
Common stock issued for services     3,750,000       3,750       100,525                104,275  
Common stock issued in cashless exercise of warrants     4,470,336       4,470       30,124                34,594  
Common stock issued in settlement of debt, related party     4,466,508       4,466       648,844                653,310  
Common stock issued in conversion of convertible notes payable     48,000,000       48,000       116,000                164,000  
Common stock issued in conversion of series C preferred stock     4,000,000       4,000       36,000                40,000  
Stock-based compensation     —                  104,369                104,369  
Net income     —                           988,619       988,619  
Balance – December 31, 2021     790,924,690       790,924       24,310,045       (29,598,993 )     (4,498,024 )

 

 

 The accompanying notes are an integral part of these consolidated financial statements

 

  35  

 

PCT LTD

Consolidated Statements of Cash Flows

     
   

For the years ended

December 31,

    2021   2020
         
Cash Flows from Operating Activities:                
Net income (loss)   $ 988,619     $ (3,812,045 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:                
Depreciation and amortization     367,534       348,708  
Amortization of debt discounts     249,171       436,352  
Amortization of operating lease right-of-use asset     48,534       5,229  
Loss on disposal of property and equipment              173,551  
Bad debt expense              45,575  
Common stock issued for services     521,101       676,119  
(Gain) loss on change in fair value of derivative liability     (22,861 )     13,046,832  
(Gain) loss on settlement of debt     (3,930,401 )     (12,020,966 )
Stock-based compensation     104,369           
Default penalties on convertible notes     26,227       28,762  
Changes in operating assets and liabilities:                
Accounts receivable     210,118       (283,186 )
Inventory     (30,766 )     20,481  
Prepaid expenses and deposits     (52,151 )     (243,863 )
Other Assets     (6,090 )         
Deposits     9,726           
Operating lease liability     (48,534 )     (5,229 )
Deferred revenue     (1,075 )     1,075  
Accounts payable     (200,105 )     (42,250 )
Accrued expenses – related party     16,663       54,742  
Accrued expenses     241,281       739,449  
Net cash used in operating activities     (1,508,640 )     (830,664 )
                 
Cash Flows from Investing Activities:                
Purchase of property and equipment     (468,866 )     (163,133 )
Net cash used in investing activities     (468,866 )     (163,133 )
                 
Cash Flows from Financing Activities:                
Proceeds from notes payable – related parties              3,500  
Proceeds from notes payable     419,575       695,470  
Proceeds from convertible notes payable     1,121,250       1,463,000  
Proceeds from series C preferred stock subscriptions              270,000  
Proceeds from the sale of series C preferred stock     2,250,000           
Proceeds from common stock subscriptions     75,000       230,500  
Repayments of notes payable – related parties     (78,798 )     (41,286 )
Repayments of notes payable     (904,341 )     (716,897 )
Repayments of convertible notes payable     (903,879 )     (862,907 )
Net cash provided by financing activities     1,978,807       1,041,380  
                 
Net change in cash     1,301       47,583  
Cash and cash equivalents at beginning of year     115,196       67,613  
Cash and cash equivalents at end of year   $ 116,497     $ 115,196  
                 
Supplemental Cash Flow Information:                
Cash paid for interest   $ 75,251     $ 219,194  
Cash paid for income taxes   $        $     
                 
Non-Cash Investing and Financing Activities:                
Original debt discounts against notes payable   $ 174,435     $ 223,942  
Original debt discounts against convertible notes   $ 34,412     $ 201,388  
Deemed dividend from beneficial conversion feature on preferred series C stock   $        $ 270,000  
Common stock issued in cashless exercise of warrants   $        $ 429,948  
Common stock issued in conversion of convertible notes payable   $ 158,594     $ 996,168  
Common stock issued in conversion of notes payable   $ 40,000     $     
Common stock issued to settle notes payable – related parties   $ 653,310     $     
Initial operating lease right-of-use asset and liability   $        $ 123,614  
Common stock issued in conversion of preferred series C stock   $ 40,000     $ 494,000  
Property and equipment transferred to inventory   $        $ 26,669  
Right of use assets and liabilities   $ 52,599     $     
Settlement of debt with accounts receivable form related party   $ 43,386     $     

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

  36  

 

PCT LTD

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021 AND 2020 

 

NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations

 

PCT LTD., (the “Company” or “PCT LTD”), a Delaware corporation, was formed on February 27, 1986. The Company changed its domicile to Nevada on August 26, 1998. The Company acquires, develops and provides sustainable, environmentally safe disinfecting, cleaning and tracking technologies. The Company specializes in providing cleaning, sanitizing and disinfectant fluid solutions and fluid-generating equipment that creates environmentally safe solutions for global sustainability.

 

On August 31, 2016, the Company entered into a Securities Exchange Agreement with Paradigm Convergence Technologies Corporation (“Paradigm,” or “PCT Corp.”) to effect the acquisition of Paradigm as a wholly-owned subsidiary. Paradigm is located in Little River, SC, was formed June 6, 2012, and is a technology licensing company specializing in environmentally safe solutions for global sustainability. Paradigm holds a patent, intellectual property and/or distribution rights to innovative products and technologies. Paradigm provides innovative products and technologies for eliminating biocidal contamination from water supplies, industrial fluids, hard surfaces, food-processing equipment and medical devices. Paradigm’s overall strategy is to market new products and technologies through the use of equipment leasing, joint ventures, licensing, distributor agreements and partnerships.

 

Effective on February 29, 2018, the Company changed its name from Bingham Canyon Corporation to PCT LTD. to more accurately identify the Company’s direction and to develop the complementary relationship and association with its wholly-owned operating company, Paradigm.

 

On July 11, 2021, the Company incorporated two wholly-owned subsidiaries, Disruptive Oil and Gas Technologies Corp. (“Disruptive”) and Technologies Development Corp., both in the State of Nevada. On October 20, 2021, the Company sold a 53.25% interest in Disruptive in consideration for the assignment of certain patents to Disruptive and realized no gain or loss on the sale. 

 

COVID-19

 

In December 2019 COVID-19 emerged in Wuhan, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to almost all other countries, including the United States, and infections have been reported globally. Because COVID-19 infections have been reported throughout the United States, certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive proclamations and/or directives may be issued in the future.

 

The ultimate impact of the COVID-19 pandemic on the Company's operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak. Any resulting financial impact cannot be reasonably estimated at this time but may have a material impact on our business, financial condition and results of operations. The significance of the impact of the COVID-19 outbreak on the Company's businesses and the duration for which it may have an impact cannot be determined at this time. At a minimum, the COVID-19 pandemic caused the Company to restrict travel of its personnel and to initiate distributor installations of certain of the Company's equipment, as possible. The Company adapted to the immediate need for its US EPA registered disinfectant at the end of March and beginning of April, 2020, by installing greater storage reserves and by assembling more of it higher-volume equipment to produce the hospital grade disinfectant known as Hydrolyte®. There were hard costs associated with these adaptations to the Little River, SC facility, but the Company continues to benefit from its fluid production capacities over the longer term. As the Federal, state and other restrictions associated with the pandemic have lessened, the Company is able to act more effectively in obtaining new contracts for its healthcare equipment, the Annihilyzer® and other equipment.

  37  

 

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of PCT LTD (“Parent”) and its two wholly-owned subsidiaries, Paradigm Convergence Technologies Corporation and Technologies Development Corp. All intercompany accounts have been eliminated upon consolidation. At December 31, 2021, the Company owns a 46.25% interest in Disruptive Oil and Gas Technologies Corp., which had no material assets, liabilities or operations.

  

Use of Estimates

 

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting periods. Estimates are based on historical experience and on various other market-specific and other relevant assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from those estimates.

 

Cash and Cash Equivalents

 

Cash and cash equivalents are considered to be cash and highly liquid securities with original maturities of three months or less. The cash of $116,497 and $115,196 as of December 31, 2021 and December 31, 2020, respectively, represents cash on deposit in various bank accounts. There were no cash equivalents as of December 31, 2021 and December 31, 2020.

 

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 cashflow methodologies and similar techniques.

 

The carrying values of our financial instruments, including cash and cash equivalents, accounts receivable, inventory, prepaid expenses, accounts payable and accrued expenses approximate their fair value due to the short maturities of these financial instruments.

 

Derivative liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

 

  38  

 

Our financial assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2021, consisted of the following:

 

    Total fair value at
December 31, 2021
$
  Quoted prices in active markets
(Level 1)
$
  Significant other observable inputs
(Level 2)
$
  Significant unobservable inputs
(Level 3)
$
Description:                                
Derivative liability (1)     3,044,034                         3,044,034  
Total     3,044,034                         3,044,034  

 

Our financial assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2020, consisted of the following:

 

    Total fair value at
December 31,
2020
$
  Quoted prices in active markets
(Level 1)
$
  Significant other observable inputs
(Level 2)
$
  Significant unobservable inputs
(Level 3)
$
Description:                                
Derivative liability (1)     7,102,801                         7,102,801  
Total     7,102,801                         7,102,801  

 

(1) The Company has estimated the fair value of these liabilities using the Binomial Model.

 

Derivative 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, 2021, and December 31, 2020, the Company had a $3,044,034 and $7,102,801 derivative liability, 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.

 

  39  

 

Sequencing Policy

 

Under ASC 815-40-35, the Company has adopted a sequencing policy whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuance of securities to the Company’s employees or directors is not subject to the sequencing policy.

 

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 basis 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 $61,825 at December 31, 2021 and December 31, 2020, 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, 2021 and December 31, 2020, 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 as of December 31, 2021 and December 31, 2020, respectively. The Company has determined that some of the supplies inventory is necessary to be placed into service, after assembly into equipment to be used in product manufacturing and classified as lease equipment in property and equipment. The balance at December 31, 2021 and December 31, 2020 of such supplies and equipment not yet placed in service amounted to $450,151 and $32,580, respectively.

 

Property and Equipment

 

Property and equipment are stated at purchased cost and depreciated utilizing a straight-line method over estimated useful lives ranging from 3 to 7 years after the asset has been placed in service. Upon selling equipment that had been under a lease agreement, the Company discontinues the depreciation on that piece of equipment, as it transfers ownership to another entity. Additions and major improvements that extend the useful lives of property and equipment are capitalized. Maintenance and repairs are charged to operations as incurred. Upon trade-in, sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts, and any related gains or losses are recorded in the results of operations.

 

Impairment of Long-lived Assets 

 

The carrying values of the Company’s long-lived assets are reviewed for impairment annually and whenever events or changes in circumstances indicate that they may not be recoverable. When projections indicate that the carrying value of the long-lived asset is not recoverable, the carrying value is reduced by the estimated excess of the carrying value over the fair value. An impairment charge is recognized if the carrying amount is not recoverable and the carrying amount exceeds the fair value of the long-lived assets as determined by projected discounted net future cashflows. The recorded impairment expense was $0 for the years ended December 31, 2021 and December 31, 2020, respectively.

 

  40  

 

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.  

 

Research and Development 

 

Research and development costs are recognized as an expense during the period incurred, which is until the conceptual formulation, design and testing of a process is completed and the process has been determined to be commercially viable.

 

Leases 

 

The Company accounts for leases in accordance with ASC 842, “Leases”, which requires lessees to recognize right-of-use ("ROU") assets and related lease liabilities on the balance sheet for all leases greater than one year in duration. The Company records the associated lease liability and corresponding right-of-use asset upon commencement of the lease using the implicit rate or a discount rate based on a credit-adjusted secured borrowing rate commensurate with the term of the lease. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option, if any. As the Company’s leases do not typically provide an implicit rate, the Company utilizes the appropriate incremental borrowing rate, determined as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and in a similar economic environment. The Company has elected to adopt the following lease policies: (i) for leases that have lease terms of 12 months or less and does not include a purchase option that is reasonably certain to exercise, the Company elected not to apply ASC 842 recognition requirements; and (ii) the Company elected to apply the package of practical expedients for existing arrangements entered into prior to January 1, 2019 to not reassess (a) whether an arrangement is or contains a lease, (b) the lease classification applied to existing leases, and(c) initial direct costs. The Company has also elected the practical expedient to not separate between lease and non-lease components. During the year ended December 31, 2021, the Company recognized an initial operating lease right-of-use asset of $83,420 and operating lease liability of $83,420. During the year ended December 31, 2020, the Company recognized an initial operating lease right-of-use asset of $118,385 and operating lease liability of $118,385. See Note 5 for further details.

 

ASC 842 requires lessors to expense costs that are not direct leasing costs, to continually assess collectability of lessee payments, and if operating lease payments are not probable of collection, to only recognize into income equal to the lesser of (i) straight-line rental income or (ii) lease payments received to date.

 

Revenue Recognition  

 

The Company accounts for revenue in accordance with ASC 606, “Revenue from Contracts with Customers”, which provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle 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 recognizes revenue based on the following five criteria: 1) identify the contract, 2) identify separate performance obligations, 3) determine the transaction price, 4) allocate the transaction price among the performance obligations, and 5) recognize revenue as the performance obligations are satisfied.

 

The Company has the following three revenue streams:

 

  1) Product sales (equipment and/or fluid solutions): Contracts for product sales consist of invoices that specify the transaction price. The only performance commitment is the provision of products and the transaction price is allocated to the products specified on the invoice. The Company recognizes revenue from the sale of products when the performance obligation is satisfied by transferring control of the product to a customer.

 

  41  

 

  2) Licensing: The Company licenses a 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. The Contract specifies the term, fees and/or royalty. Performance obligations include the provision of a sub-registration to use the US EPA Product Registration and/or the provision of a license to use the product for a period of time. The Company allocates the transaction price based on the relative standalone, selling price of each performance 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.

 

  3) Equipment leases: Contracts for equipment leases are 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 has elected to use the practical expedient under ASC 842 and account for each separate lease component and non-lease components associated with the systems service agreements as a single combined component and as a single performance obligation entirely under ASC 606. The performance obligation consists of the provision of leased equipment and all other services under the systems service agreements. The Company recognizes revenue from the leasing of equipment and services as the entity provides the equipment and the customer simultaneously receives and consumes the benefits through the use of the equipment and services. 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. Additionally, under ASC 842, lessors are required to continually assess collectability of lessee payments, and if operating lease payments are not probable of collection, to only recognize into income equal to the lesser of (i) straight-line rental income or (ii) lease payments received to date.

 

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, 2021 or 2020, respectively.

 

For the year ended December 31, 2021, one customer accounted for 68% of consolidated revenues for the year. For the year ended December 31, 2020, three customers accounted for 41%, 19% and 10%, respectively, of consolidated revenues for the year.

 

Stock Based Compensation

 

The Company records stock-based compensation in accordance with ASC 718 “Compensation – Stock Compensation”. Under the provisions of ASC 718, stock-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized over the requisite service period, which is generally the vesting period. The fair value of our stock options and warrants is estimated using a Black-Scholes option valuation model. Refer to Notes 9 and 10 for further details.

  

Income Taxes

 

Deferred income taxes are provided on a liability method, whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards. Deferred tax liabilities are recognized for taxable temporary differences, which are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

  42  

 

 

Basic and Diluted Loss Per Share

 

Basic income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period.  Diluted income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period and, if dilutive, potential common shares outstanding during the period. Potentially dilutive securities consist of the incremental common shares issuable upon exercise of common stock equivalents such as options, warrants, convertible notes payable, preferred series A stock and preferred series C stock. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. As a result, for the year ended December 31, 2021, there were outstanding common share equivalents which amounted to 266,287,933 shares of common stock that were not included in the calculation as their effect is anti-dilutive. For fiscal periods with net losses, these common share equivalents were not included in the computation of diluted loss per share as their effect would have been anti-dilutive.

 

    Year ended
December 31, 2021
  Year ended December 31, 2020
Numerator:                
Net income (loss)   $ 988,619     $ (4,082,045 )
(Gain) / Loss on change in fair value of derivative liability     (728,188 )         
(Gain) / Loss on settlement of debt     (3,342,759 )         
Interest expense     18,167           
Adjusted net income (loss)   $ (3,064,161 )   $ (4,082,045 )
                 
Denominator: Weighted average shares outstanding used in computing net income (loss) per share                
Basic     765,752,715       609,029,869  
                 
Effect of dilutive warrants     49,706,458           
Effect of convertible note weighted shares     6,016,889           
Diluted     821,476,062       609,029,869  
                 
Net income (loss) per share applicable to common shareholders:                
Basic   $ 0.00     $ (0.00 )
Diluted   $ (0.00 )   $ (0.00 )

 

 

Recent Accounting Pronouncements 

 

In August 2020, the FASB issued ASU 2020-06, "Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815- 40)" ("ASU 2020-06"). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity. The ASU is part of the FASB's simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU's amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the impact ASU 2020-06 will have on its financial statements. 

 

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

  

 

  43  

 

NOTE 2. GOING CONCERN

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has recurring losses, an accumulated deficit of $29,598,993, and negative cashflows from operations. As of December 31, 2021, the Company had a negative working capital of $4,466,166. 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 cashflow from operations, from debt or equity financing or from a combination of these sources. These factors raise substantial doubt about the ability of the Company to continue as a going concern for a period of one year from the issuance of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The Company expects that working capital requirements will continue to be funded through a combination of its existing funds and further issuances of securities. Working capital requirements are expected to increase in line with the growth of the business. The Company has no lines of credit or other bank financing arrangements. The Company has financed operations to date through the proceeds of private placement of equity and debt instruments. In connection with the Company’s business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) developmental expenses associated with business growth and (ii) marketing expenses. The Company intends to finance these expenses with further issuances of securities, and debt issuances. Thereafter, the Company expects it will need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities will result in dilution to current stockholders. Further, such securities might have rights, preferences or privileges senior to common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict business operations.

 

 

NOTE 3. PROPERTY AND EQUIPMENT

 

Property and equipment at December 31, 2021 and December 31, 2020 consisted of the following: 

 

    December 31, 2021   December 31, 2020
Leasehold improvements   $ 61,580     $ 18,840  
Machinery and leased equipment     365,483       365,483  
Leased equipment not yet in service     440,150       32,580  
Office equipment and furniture     57,913       39,357  
Website     2,760       2,760  
                 
Total property and equipment   $ 927,886     $ 459,020  
Less: Accumulated Depreciation     (165,832 )     (100,301 )
                 
Property and equipment, net     762,054       358,719  

 

Depreciation expense was $65,531 and $44,303 for the year ended December 31, 2021 and 2020, respectively of which $52,212 (2020 - $39,413) related to leased equipment. During the year ended December 31, 2021, the Company recorded a loss on disposal of equipment of $0 (2020 - $173,551).

 

 

  44  

 

NOTE 4. INTANGIBLE ASSETS

 

Intangible assets at December 31, 2021 and December 31, 2020 consisted of the following:

 

    December 31, 2021   December 31, 2020
Patents   $ 4,505,489     $ 4,505,489  
Technology rights     200,000       200,000  
Intangible, at cost     4,705,489       4,705,489  
Less: Accumulated amortization     (1,607,468 )     (1,305,465 )
Net Carrying Amount   $ 3,098,021     $ 3,400,024  

 

Amortization expense was $302,003 for the year ended December 31, 2021, of which $293,670 relates to patents and $8,333 relates to technology rights. Amortization expense was $304,405 for the year ended December 31, 2020, of which $294,474 relates to patents and $9,931 relates to technology rights. No impairment was recognized during the years ended December 31, 2021 and 2020.

 

Estimated Future Amortization Expense:

 

    $  
For year ending December 31, 2022     302,003  
For year ending December 31, 2023     302,003  
For year ending December 31, 2024     302,003  
For year ending December 31, 2025     302,003  
For year ending December 31, 2026     302,003  
Thereafter     1,588,006  
Total     3,098,021  

  

 

NOTE 5 – LEASES

 

On August 26, 2020, the Company signed a new one-year lease for the Company headquarters and operations located in Little River, South Carolina. The lease was effective retroactively from July 1, 2020, ending on June 30, 2021, for $7,500 per month. The Company re-negotiated an annual lease on the Little River, SC facility for $7,500 per month, retroactive to July 1, 2020, which is renewable for an additional four years (with a 2% increase annually). The Company renewed the lease for another year, effective July 1, 2021, at $7,650 per month.

 

On October 19, 2020, the Company entered into a building lease with a three-year term and an effective date of November 1, 2020. The lease requires the Company to make payments of $4,500 per month. The Company recognized operating lease expense of $54,000 during the year ended December 31, 2021.

 

On March 15, 2021, the Company entered into a building lease with a two-year term and an effective date of April 1, 2021. The lease required the Company to make payments of $2,750 per month. The Company recognized operating lease expense of $19,250 during the year ended December 31, 2021. The Company terminated the lease effective October 14, 2021 and recognized an impairment of $39,030 during the year ended December 31, 2021.

 

At December 31, 2021, the weighted average remaining operating lease term was 1.83 years and the weighted average discount rate associated with operating leases was 18.5%.

  45  

 

The components of lease expenses for the year ended December 31, 2021 and 2020 were as follows:

 

 

2021

$

2020

$

     
Total operating lease cost 73,250 10,458

 

The following table provides supplemental cashflow and other information related to leases for the year ended December 31, 2021 and 2020:

 

 

2021

$

2020

$

     
Lease payments 164,150 9,000

Supplemental balance sheet information related to leases as of December 31, 2021 and 2020 are as below:

 

2021

$

2020

$

     
Cost 176,213 123,614
Accumulated amortization (53,763) (5,229)
Impairment (39,030)   
Net carrying value 83,420 118,385

 

Future minimum lease payments related to lease obligations are as follows as of December 31, 2021:

 

  $
   
2022 54,000
2023 45,000
   
Total minimum lease payments 99,000
   
Less: amount of lease payments representing effects of discounting (15,580)
   
Present value of future minimum lease payments 83,420
   
Less: current obligations under leases (42,012)
   
Lease liabilities, net of current portion 41,408

 

 

  46  

 

NOTE 6. NOTES PAYABLE

 

The following tables summarize notes payable as of December 31, 2021 and December 31, 2020:

 

Type   Original Amount  

Origination

Date

 

Maturity

Date

 

Effective Annual

Interest

Rate

 

Balance at

December 31, 2021

 

Balance at

December 31, 2020

Note Payable (a)**   $ 25,000     05/08/2017   06/30/2018     0 %   $ 22,500     $ 27,500  
Note Payable (b)   $ 8,700     11/15/2018   06/30/2019     10 %   $ -       $ 8,700  
Note Payable **   $ 118,644     05/05/2020   05/05/2021     8 %   $ 110,644     $ 110,644  
Note Payable (c)   $ 199,500     10/01/2020   09/28/2021     66 %   $ -       $ 149,573  
Note Payable (d)   $ 126,000     11/03/2020   04/23/2021     166 %   $ -       $ 85,050  
Note Payable (e)   $ 113,980     11/04/2020   03/15/2021     210 %   $ -       $ 65,988  
Note Payable (f)   $ 177,800     01/02/2021   07/12/2021     116 %   $ -       $ -    
Note Payable (g)   $ 111,920     03/09/2021   05/21/2021     220 %   $ -       $ -    
Note Payable (h)   $ 29,686     03/09/2021   Demand     34 %   $ -       $ -    
Note Payable (i)   $ 222,400     06/01/2021   Demand     181 %   $ -       $ -    
Note Payable (j)   $ 87,000     06/29/2021   Demand     211 %   $ -       $ -    
Sub-total                           $ 133,144     $ 447,455  
Debt discount                           $     $ (63,075 )
Balance, net                           $ 133,144     $ 384,380  
Less current portion                           $ (133,144 )   $ (384,380 )
Total long-term                           $       $    
                                         
** Currently in default

  

  a) On July 19, 2021, the Company repaid the principal amount of $5,000 leaving a note balance of $22,500.

 

  b) On July 19, 2021, the Company repaid the principal amount of $8,700 leaving a note balance of $0.

 

  c) On October 1, 2020, the Company sold future receivables with a non-related party for $199,500, of which $53,250 was loan fees and original issue discount resulting in cash proceeds to the Company of $146,250. The advance is to be repaid through weekly payments of $3,841. In connection with the advance, the Company granted the lender a security interest and all past, present and future assets of the Company. During the year ended December 31, 2021, $30,642 of the discount was amortized to expense, and the note was repaid leaving a note balance of $0.

 

  d) On November 3, 2020, the Company sold future receivables with a non-related party for $126,000, of which $39,650 was loan fees and original issue discount resulting in cash proceeds to the Company of $86,350. The advance is to be repaid through $1,050 daily payments. In connection with the advance, the Company granted the lender a security interest and all past, present and future assets of the Company. During the year ended December 31, 2021, $18,944 of the discount was amortized to expense, and the remaining $85,050 was repaid leaving a note balance of $0.

 

  47  

 

  e) On November 4, 2020, the Company sold future receivables with a non-related party for $113,980, of which $34,440 was loan fees and original issue discount resulting in cash proceeds to the Company of $79,540. The advance is to be repaid through $5,999 weekly payments. In connection with the advance, the Company granted the lender a security interest and all past, present and future assets of the Company. During the year ended December 31, 2021, $13,489 of the discount was amortized to expense, and the remaining $65,988 was repaid leaving a note balance of $0.

 

  f) On January 2, 2021, the Company sold future receivables with a non-related party for $177,800, of which $39,795 was loan fees and original issue discount resulting, and $35,994 was paid to settle the loan described in Note (e) in cash proceeds to the Company of $102,011. The advance is to be repaid through $7,730 weekly payments. In connection with the advance, the Company granted the lender a security interest and all past, present and future assets of the Company. During the year ended December 31, 2021, $39,795 of the discount was amortized to expense, and the remaining $46,383 was settled through a payment of $43,600 resulting in a gain on settlement of debt of $2,783 and a note balance of $0.

 

  g) On March 9, 2021, the Company sold future receivables with a non-related party for $111,920, of which $35,120 was loan fees and original issue discount resulting in cash proceeds to the Company of $76,800. The advance is to be repaid through $1,399 weekly payments. In connection with the advance, the Company granted the lender a security interest and all past, present and future assets of the Company. During the year ended December 31, 2021, $35,120 of the discount was amortized to expense, and $111,920 was repaid leaving a note balance of $0.

 

h) On March 9, 2021, the Company sold future receivables with a non-related party for $29,686, of which $10,120 was loan fees and original issue discount resulting in cash proceeds to the Company of $19,566. During the year ended December 31, 2021, $10,120 of the discount was amortized to expense and $29,686 was repaid, leaving a note balance of $0.

 

i) On June 1, 2021, the Company sold future receivables with a non-related party for $222,400, of which $8,000 was attributable to loan fees and $62,400 to original issue discount resulting in cash proceeds to the Company of $152,000. The advance is to be repaid through weekly payments of $8,554. In connection with the advance, the Company granted the lender a security interest and all past, present, and future assets of the Company. During the year ended December 31, 2021, $70,400 of the discount was amortized to expense, and $222,400 was repaid leaving a net note balance of $0.

 

j) On June 29, 2021, the Company sold future receivables with a non-related party for $87,000, of which $27,000 was loan fees and original issue discount resulting in cash proceeds to the Company of $60,000. During the year ended December 31, 2021, $23,041 of the discount was amortized to expense, and $87,000 was repaid leaving a net note balance of $0.

 

  48  

 

The following table summarizes notes payable, related parties as of December 31, 2021 and December 31, 2020:

 

Type   Original Amount  

Origination

Date

 

Maturity

Date

 

Annual

Interest

Rate

 

Balance at

December 31,

2021

 

Balance at

December 31, 2020

Note Payable, RP (k)   $ 30,000     04/10/2018   01/15/2019     3 %   $ -       $ 30,000  
Note Payable, RP (l)   $ 380,000     06/20/2018   01/02/2020     8 %   $ -       $ 380,000  
Note Payable, RP (m)   $ 350,000     06/20/2018   01/02/2020     5 %   $ -       $ 285,214  
Note Payable, RP (n)**   $ 17,000     06/20/2018   01/02/2020     5 %   $ 10,000     $ 17,000  
Note Payable, RP (o)   $ 50,000     07/27/2018   11/30/2018     8 %   $ 10,850     $ 50,000  
Note Payable, RP (p)   $ 5,000     10/09/2018   Demand     0 %   $ -       $ 5,000  
Note Payable, RP (q)   $ 5,000     10/19/2018   Demand     0 %   $ -       $ 5,000  
Note Payable, RP **   $ 15,000     08/16/2019   02/16/2020     8 %   $ 15,000     $ 15,000  
Note Payable, RP (r)   $ 2,000     02/11/2020   Demand     0 %   $ -       $ 2,000  
Note Payable, RP (m)   $ 84,034     02/16/2021   Demand     5 %   $ 50,000     $ -    
Subtotal                           $ 85,850     $ 789,214  
Debt discount                           $       $    
Balance, net                           $ 85,850     $ 789,214  
Less current portion                           $ (85,850 )   $ (789,214 )
Total long-term                           $       $    
                                         
** Currently in default

  

  k) During the year ended December 31, 2021, the Company made several payments to repay the principal amount of $30,000 leaving a note balance of $0.

 

  l) On February 16, 2021, the Company issued 2,663,299 shares of common stock to settle a June 20, 2018, note payable of $380,000 and accrued interest of $26,153 owed to the current COO and Director of the Company.  The Company recognized the fair value of the shares issued of $74,572 and due to the related party nature of the transaction no gain was recognized for the difference between the fair value of the shares and the extinguished debt. The resulting difference was recorded as Additional Paid-in Capital in the amount of $328,919.

 

  m) On February 16, 2021, the Company issued 1,803,279 shares of common stock to settle $247,270 from a $275,000 note payable dated June 20, 2018, which has a balance of $331,304, including interest, to the current Chairman and CEO of the Company. The Company also agreed to issue a new note for the remaining balance owed to the Chairman and CEO of $84,034, dated February 16, 2021. The note will bear interest at 5% per annum and is due on June 30, 2021. The Company recognized the fair value of the shares issued of $50,492 and due to the related party nature of the transaction no gain was recognized for the difference between the fair value of the shares and the extinguished debt. The resulting difference was recorded as Additional Paid-in Capital in the amount of $194,861. During the year ended December 31, 2021, the Company made several payments to repay the principal amount of $34,034 leaving a note balance of $50,000.

 

  n) During the year ended December 31, 2021, the Company made several payments to repay the principal amount of $7,000 leaving a note balance of $10,000.

 

  o) During the year ended December 31, 2021, the Company made several payments to repay the principal amount of $39,150 leaving a note balance of $10,850.

 

  p) On September 23, 2021, the Company repaid the principal amount of $5,000 leaving a note balance of $0.

 

  q) During the year ended December 31, 2021, the Company made several payments to repay the principal amount of $5,000 leaving a note balance of $0.

 

  49  

 

 

  r) On September 23, 2021, the Company repaid the principal amount of $2,000 leaving a note balance of $0.

 

The following table summarizes convertible notes payable as of December 31, 2021 and December 31, 2020:

 

Type   Original Amount  

Origination

Date

 

Maturity

Date

 

Annual

Interest

Rate

 

Balance at

September 30,

2021

 

Balance at

December 31, 2020

Convertible Note Payable (s)   $ 65,000     12/06/2018   12/06/2019     12 %   $ -       $ 46  
Convertible Note Payable (t)   $ 75,000     03/18/2019   12/13/2019     24 %   $ -       $ 177,795  
Convertible Note Payable (u)   $ 30,000     03/06/2020   03/05/2021     12 %   $ -       $ 21,662  
Convertible Note Payable (v) $ 150,000     04/10/2020   04/09/2021     12 %   $ 25,000     $ 165,000  
Convertible Note Payable (w)   $ 300,000     08/27/2020   07/31/2021     12 %   $ 270,000     $ 300,000  
Convertible Note Payable (x)   $ 53,500     09/22/2020   03/21/2022     12 %   $ -       $ 53,500  
Convertible Note Payable (y)   $ 87,500     09/24/2020   Demand     8 %   $ -       $ 40,000  
Convertible Note Payable (z)   $ 200,000     10/07/2020   10/06/2021     5 %   $ -       $ 200,000  
Convertible Note Payable (aa)   $ 200,000     10/16/2020   10/15/2021     5 %   $ -       $ 200,000  
Convertible Note Payable (bb)   $ 300,000     11/11/2020   11/10/2021     5 %   $ -       $ 300,000  
Convertible Note Payable (cc)   $ 150,000     12/29/2020   12/28/2021     5 %   $ -       $ 150,000  
Convertible Note Payable (dd)   $ 150,000     01/27/2021   01/27/2022     5 %   $ -       $ -    
Convertible Note Payable (ee)   $ 128,000     02/22/2021   02/22/2022     12 %   $ -       $ -    
Convertible Note Payable (ff)   $ 200,000     03/18/2021   03/18/2022     5 %   $ -       $ -    
Convertible Note Payable (gg)   $ 83,000     03/26/2021   03/26/2022     12 %   $ -       $ -    
Convertible Note Payable (hh)   $ 43,000     04/05/2021   04/05/2022     12 %   $ -       $ -    
Convertible Note Payable (ii)   $ 200,000     04/14/2021   04/14/2022     5 %   $ -       $ -    
Convertible Note Payable (jj)   $ 128,000     05/03/2021   05/03/2022     12 %   $ -       $ -    
Convertible Note Payable (kk)   $ 226,162     11/04/2021   11/04/2022   19 %   $ 203,546     $ -    
Convertible Note Payable (ll)   $ 1,465,300     11/30/2021   11/30/2023     5 %   $ 1,465,300     $ -    
Subtotal                           $ 1,963,846     $ 1,608,003  
Debt discount                           $ (17,738 )   $    
Balance, net                           $ 1,946,108     $ 1,608,003  
Less current portion                           $ (480,808 )   $ (1,554,503 )
Total long-term                             1,465,300     53,500  
* Embedded conversion feature accounted for as a derivative liability at period end
** Currently in default

  

  s) During the year ended December 31, 2021, the Company settled the remaining outstanding debt of $46 and accrued interest of $1,863 through an acknowledge from the creditor that no further amounts were owing.

 

  t) During the year ended December 31, 2021, the Company repaid $70,000 of the convertible note payable and settled the remaining outstanding debt of $107,795 and accrued interest of $76,569 through a cash payment of $40,000 and the issuance of 8,000,000 shares of common stock at a fair value of $124,000 resulting in a gain on settlement of debt of $20,364.

 

  u) On May 7, 2021, the Company deemed in the best interest to settle the convertible debt with a non-related party and allow for the cashless exercise to purchase 1,921,875 shares of the Company's common stock at the rate of $0.032 per share. In addition, the non-related party shall release 60,072,853 shares to the agreed upon payment terms of $36,994 cash. During the year ended December 31, 2021, the Company incurred additional default penalties of $15,174 on the convertible note and settled the outstanding debt of $36,836 and accrued interest of $3,657 through a cash payment of $36,994 and the cashless exercise to purchase 1,921,875 shares of the Company's common stock with a fair value of $34,594 resulting in a loss on settlement of debt of $31,095.

 

  50  

 

  v)

On April 10, 2020, the Company entered into a convertible promissory note with a non-related party for $150,000, of which $18,000 was an original issue discount resulting in cash proceeds to the Company of $132,000. The note is due on April 9, 2021 and bears interest on the unpaid principal balance at a rate of 12% per annum. The Note may be converted by the Lender at any time into shares of Company's common stock at a conversion price equal to 65% of the lowest trading price during the 25-trading day period prior to the conversion date. Further, if at any time the stock price is less than $0.30, an additional 20% discount is applied and if at any time the conversion price is less than $0.01 an additional 10% is applied. Further, an additional 15% is applied if the Company fails to comply with its reporting requirements. During the year, all these additional discounts were triggered.

 

The embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15. The initial fair value of the conversion feature was $507,847 and resulted in a discount to the note payable of $132,000 and an initial derivative expense of $375,847. During the year ended December 31, 2020, the Company incurred $15,000 of penalties which increased the principal amount of the note to $165,000. During the year ended December 31, 2021, the Company settled $140,000 of outstanding debt through cash payments totaling $125,000 and the forgiveness of the $15,000 penalty, leaving a note balance of $25,000.

 

  w) During the year ended December 31, 2021, the Company repaid $30,000 of the note, leaving a note balance of $270,000.

 

  x) On September 22, 2020, the Company entered into a convertible promissory note with a non-related party for $53,500, of which $3,500 was an original issue discount resulting in cash proceeds to the Company of $50,000. The note is due on March 21, 2022 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note's term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company's common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date. During the year ended December 31, 2021 the Company repaid the $53,500 note as well as $25,882 of interest and prepayment penalties. As the note was repaid prior to becoming convertible no derivative liability was recognized.

 

  y) During the year ended December 31, 2021 the Company issued 25,000,000 common shares upon the conversion of $25,000 of the convertible note payable, leaving a note balance of $15,000. On October 11, 2021, the Company issued 15,000,000 common shares upon the conversion of the remaining $15,000 of the convertible note payable, leaving a note balance of $0.

 

  z) On October 7, 2020, the Company entered into a convertible promissory note with a non-related party for $200,000. The note is due on October 6, 2021 and bears interest on the unpaid principal balance at a rate of 5% per annum. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company's common stock at a conversion price of $0.20. As the stock price at the issuance date was lesser than the effective conversion price, it was determined that no beneficial conversion feature exists. The Company determined that there was no derivative liability associated with the debenture under ASC 815-15 Derivatives and Hedging. On November 30, 2021, the Company rolled this debt into a new convertible promissory note with the same creditor. Refer to note 6(ll).

 

  aa) On October 16, 2020, the Company entered into a convertible promissory note with a non-related party for $200,000. The note is due on October 15, 2021 and bears interest on the unpaid principal balance at a rate of 5% per annum. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company's common stock at a conversion price of $0.20. As the stock price at the issuance date was lesser than the effective conversion price, it was determined that no beneficial conversion feature exists. The Company determined that there was no derivative liability associated with the debenture under ASC 815-15 Derivatives and Hedging. On November 30, 2021, the Company rolled this debt into a new convertible promissory note with the same creditor. Refer to note 6(ll).

 

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  bb) On November 11, 2020, the Company entered into a convertible promissory note with a non-related party for $300,000. The note is due on November 10, 2021 and bears interest on the unpaid principal balance at a rate of 5% per annum. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company's common stock at a conversion price of $0.15. As the stock price at the issuance date was lesser than the effective conversion price, it was determined that no beneficial conversion feature exists. The Company determined that there was no derivative liability associated with the debenture under ASC 815-15 Derivatives and Hedging. On November 30, 2021, the Company rolled this debt into a new convertible promissory note with the same creditor. Refer to note 6(ll).

 

  cc) On December 29, 2020, the Company entered into a convertible promissory note with a non-related party for $150,000. The note is due on December 28, 2021 and bears interest on the unpaid principal balance at a rate of 5% per annum. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company's common stock at a conversion price of $0.10. As the stock price at the issuance date was lesser than the effective conversion price, it was determined that no beneficial conversion feature exists. The Company determined that there was no derivative liability associated with the debenture under ASC 815-15 Derivatives and Hedging. On November 30, 2021, the Company rolled this debt into a new convertible promissory note with the same creditor. Refer to note 6(ll).

 

  dd) On January 27, 2021, the Company entered into a convertible promissory note with a non-related party for $150,000. The note is due on January 26, 2022 and bears interest on the unpaid principal balance at a rate of 5% per annum. The note may be converted by the lender at any time before 180 days of the date of issuance into shares of Company's common stock at a conversion price equal to $0.10. As the stock price at the issuance date was lesser than the effective conversion price, it was determined that no beneficial conversion feature exists. The Company determined that there was no derivative liability associated with the debenture under ASC 815-15 Derivatives and Hedging. On November 30, 2021, the Company rolled this debt into a new convertible promissory note with the same creditor. Refer to note 6(ll).

 

  ee) On February 22, 2021, the Company entered into a convertible promissory note with a non-related party for $128,000, of which $3,000 was an original issue discount resulting in cash proceeds to the Company of $125,000. The note is due on February 22, 2022 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note's term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company's common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date. As the stock price at the issuance date was lesser than the effective conversion price, it was determined that no beneficial conversion feature exists. During the year ended December 31, 2021 the Company repaid the $128,000 note as well as $51,000 of interest and prepayment penalties. As the note was repaid prior to becoming convertible no derivative liability was recognized.

 

  ff) On March 18, 2021, the Company entered into a convertible promissory note with a non-related party for $200,000. The note is due on March 17, 2022 and bears interest on the unpaid principal balance at a rate of 5% per annum. The note may be converted by the lender at any time before 180 days of the date of issuance into shares of Company's common stock at a conversion price equal to $0.10. As the stock price at the issuance date was lesser than the effective conversion price, it was determined that no beneficial conversion feature exists. The Company determined that there was no derivative liability associated with the debenture under ASC 815-15 Derivatives and Hedging. On November 30, 2021, the Company rolled this debt into a new convertible promissory note with the same creditor. Refer to note 6(ll).

 

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  gg) On March 26, 2021, the Company entered into a convertible promissory note with a non-related party for $83,000, of which $3,000 was an original issue discount resulting in cash proceeds to the Company of $80,000. The note is due on March 24, 2022 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note's term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company's common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date. As the stock price at the issuance date was lesser than the effective conversion price, it was determined that no beneficial conversion feature exists. During the year ended December 31, 2021 the Company repaid the $83,000 note as well as $39,694 of interest and prepayment penalties. As the note was repaid prior to becoming convertible no derivative liability was recognized.

 

  hh) On April 5, 2021, the Company entered into a convertible promissory note with a non-related party for $43,000, of which $3,000 was an original issue discount resulting in cash proceeds to the Company of $40,000. The note is due on April 5, 2022 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note's term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company's common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date. As the stock price at the issuance date was lesser than the effective conversion price, it was determined that no beneficial conversion feature exists. During the year ended December 31, 2021 the Company repaid the $43,000 note as well as $12,270 of interest and prepayment penalties. As the note was repaid prior to becoming convertible no derivative liability was recognized.

 

  ii) On April 14, 2021, the Company entered into a convertible promissory note with a non-related party for $200,000. The note is due on April 14, 2022 and bears interest on the unpaid principal balance at a rate of 5% per annum. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company's common stock at a conversion price of $0.10. As the stock price at the issuance date was lesser than the effective conversion price, it was determined that no beneficial conversion feature exists. The Company determined that there was no derivative liability associated with the debenture under ASC 815-15 Derivatives and Hedging. On November 30, 2021, the Company rolled this debt into a new convertible promissory note with the same creditor. Refer to note 6(ll).

 

  jj) On May 3, 2021, the Company entered into a convertible promissory note with a non-related party for $128,000, of which $3,000 was an original issue discount resulting in cash proceeds to the Company of $125,000. The note is due on May 3, 2022 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note's term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company's common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date. As the stock price at the issuance date was lesser than the effective conversion price, it was determined that no beneficial conversion feature exists. On November 5, 2021, the Company repaid the $128,000 note as well as $61,952 of interest and prepayment penalties.

 

  kk) On November 4, 2021, the Company entered into a convertible promissory note with a non-related party for $226,162, of which $22,412 was an original issue discount and $2,500 was issue costs resulting in cash proceeds to the Company of $201,250. The note is due on November 4, 2022 and was subject to a one-time 19% interest charge applied on the issuance date to the principal amount. Repayment of principal and interest shall be made in ten monthly payment of $25,204 commencing December 20, 2021. The Note may only be converted by the Lender at any time after an Event of Default into shares of Company's common stock at a conversion price equal to 75% of the lowest trading price during the 5-trading day period prior to the conversion date.

 

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  ll)

On November 30, 2021, the Company issued a new convertible promissory note with a non-related party that extinguished seven previous convertible promissory notes payable with the same party with an aggregate principal balance owing of $1,400,000 and accrued interest of $65,300. Refer to notes 6(z),(aa),(bb),(cc),(dd),(ff),(ii). The new note has a principal balance of $1,465,300, is due on November 30, 2023 and bears interest on the unpaid principal balance at a rate of 5% per annum. The note may be converted by the lender at any time into shares of Company's common stock at a conversion price equal to $0.07.

 

The Company assessed the extinguishment of the seven previous convertible notes payable under ASC 470 and determined that the guidance under troubled debt restructuring should apply. Per ASC 470-60-35-5, a debtor in a troubled debt restructuring involving only modification of terms of a payable—that is, not involving a transfer of assets or grant of an equity interest—shall account for the effects of the restructuring prospectively from the time of restructuring, and shall not change the carrying amount of the payable at the time of the restructuring unless the carrying amount exceeds the total future cash payments specified by the new terms. As the future undiscounted cash flows were greater than or equal to the net carrying value of the original debt, the carrying amount of the debt at the time of the restructuring was not changed (that is, no gain recognized).

 

NOTE 7 – DERIVATIVE LIABILITIES

 

The embedded conversion option of (1) the convertible notes payable described in Note 6; (2) warrants; contain conversion features that qualify for embedded derivative classification. The fair value of the liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments.

 

Upon the issuance of the convertible notes payable described in Note 6, the Company concluded that it only has sufficient shares to satisfy the conversion of some but not all of the outstanding convertible notes, warrants and options. The Company elected to reclassify contracts from equity with the earliest inception date first. As a result, none of the Company's previously outstanding convertible instruments qualified for derivative reclassification, however, any convertible securities issued after the election, including the warrants described in Note 10, qualified for derivative classification. The Company reassesses the classification of the instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.

 

The table below sets forth a summary of changes in the fair value of the Company's Level 3 financial liabilities.

 

    December 31,
2021
  December 31,
2020
Balance at the beginning of period   $ 7,102,801     $ 10,517,873  
Original discount limited to proceeds of convertible notes              166,000  
Settlement of derivative instruments     (4,035,906 )     (16,824,669 )
Change in fair value of embedded conversion option     (22,861 )     13,243,597  
Balance at the end of the period   $ 3,044,034     $ 7,102,801  

 

The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option and warrant liabilities as their fair values were determined by using the Binomial Model based on various assumptions. 

 

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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   212-358 %     0.25-1.47 %       0 %   1.00-5.00
At December 31, 2021   117-240 %     0.39-1.12 %       0 %   1.00-3.65

 

The Company uses Level 3 inputs for its valuation methodology for the preferred series A stock liability as their fair values were determined by using the Binomial Model based on various assumptions. 

 

NOTE 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. The preferred stock may be issued from time to time by the Board of Directors as shares of one or