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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
|
|
☑ |
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the quarterly period ended
September 30, 2022
or
| |
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number:
000-31549
PCT LTD
(Exact name of registrant as specified in its charter)
|
Nevada |
90-0578516 |
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) |
| |
|
|
4235 Commerce Street
Little River,
South Carolina
|
29566
|
| (Address
of principal executive offices) |
(Zip
Code) |
(843)
390-7900
(Registrant’s
telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted
electronically 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 is a shell company
(as defined in Rule 12b-2 of the Exchange Act) Yes ☐
No ☑
The number of shares outstanding of the registrant's common stock
as of November 14, 2022 was
805,596,961 which does not include 192,431,164 common stock
reserved against default on convertible debt.
TABLE OF CONTENTS
| Part I - Financial
Information |
Page |
| |
|
|
| Item 1. |
Condensed Consolidated Financial
Statements (Unaudited) |
3 |
| |
|
|
| Item 2. |
Management's Discussion and
Analysis of Financial Condition and Results of
Operations |
25 |
| |
|
|
| Item 3. |
Quantitative and Qualitative
Disclosures About Market Risk |
28 |
| |
|
|
| Item 4. |
Controls and
Procedures |
29 |
| |
|
|
| Part II - Other
Information |
|
| |
|
|
| Item 1. |
Legal
Proceedings |
30 |
| |
|
|
| Item 1A. |
Risk Factors |
30 |
| |
|
|
| Item 2. |
Unregistered Sales of Equity
Securities and Use of Proceeds |
31 |
| |
|
|
| Item 3. |
Defaults Upon Senior
Securities |
31 |
| |
|
|
| Item 4. |
Mine Safety
Disclosures |
31 |
| |
|
|
| Item 5. |
Other Information |
31 |
| |
|
|
| Item 6. |
Exhibits |
32 |
| |
|
|
| |
Signatures |
33 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial information set forth below with respect to our
statements of operations, stockholders' equity (deficit), and cash
flows for the three and nine-month periods ended September 30, 2022
and 2021 is unaudited. This financial information, in the opinion
of management, includes all adjustments consisting of normal
recurring entries necessary for the fair presentation of such data.
The results of operations for the three and nine-month periods
ended September 30, 2022 and 2021 are not necessarily indicative of
results to be expected for any subsequent period.
PCT LTD
Condensed Consolidated Balance Sheets
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
PCT LTD
Condensed Consolidated Statements of Operations
(Unaudited)
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
PCT LTD
Condensed Consolidated Statements of Stockholders' Equity
(deficit)
For the Three and Nine Months Ended September 30, 2022 and
2021
(Unaudited)
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
PCT LTD
Condensed Consolidated Statements of Cash Flows
(Unaudited)
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
PCT LTD
Notes to the
Unaudited
Condensed Consolidated
Financial Statements
September 30,
2022
NOTE 1.
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The unaudited interim condensed consolidated financial statements
of PCT LTD (the “Company”) have been prepared in accordance with
United States generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
reflect all adjustments which, in the opinion of management, are
necessary for a fair presentation of our balance sheet, statements
of operations, stockholders’ equity (deficit), and cash flows for
the periods presented. All such adjustments are of a normal
recurring nature. The results of operations for the
interim period are not necessarily indicative of the results to be
expected for a full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have
been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the Company’s
December 31, 2021 audited financial statements as reported in its
Form 10-K, filed on March 31, 2022.
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, but
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 associates 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®.
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 53.75%
interest in Disruptive in consideration for the assignment of
certain patents to Disruptive and realized no gain or loss on the
sale. On April 12, 2022, the Company incorporated two wholly-owned
subsidiaries, 21st Century Healthcare, Inc. and
21st Century Energy, Inc., both in the State of Nevada,
and neither have commenced operations to September 30, 2022.
Significant
Accounting Policies
There have been no changes to the significant accounting policies
of the Company from the information provided in Note 1 of the Notes
to the Consolidated Financial Statements in the Company's most
recent Form 10-K.
Basic and Diluted Loss
Per Share
Basic 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 three months and nine months ended September
30, 2022, there were outstanding common share equivalents which
amounted to 331,667,447 and 231,733,160 shares of common stock,
respectively, 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.
| |
|
Three months ended September 30,
2022
$ |
|
Three months ended September 30,
2021
$ |
|
Nine months
ended September 30, 2022
$ |
|
Nine months
ended September 30, 2021
$ |
| Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(498,463 |
) |
|
|
(146,187 |
) |
|
|
220,544 |
|
|
|
3,207,572 |
|
|
(Gain) loss on change in fair value
of derivative liability |
|
|
— |
|
|
|
— |
|
|
|
(1,835,014 |
) |
|
|
(1,641,616 |
) |
|
Gain on settlement of
debt |
|
|
— |
|
|
|
— |
|
|
|
(69,270 |
) |
|
|
(3,792,104 |
) |
|
Interest expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
30,617 |
|
|
Adjusted net income
(loss) |
|
|
(498,463 |
) |
|
|
(146,187 |
) |
|
|
(1,683,740 |
) |
|
|
(2,195,531 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: Weighted average shares
outstanding used in computing net income (loss) per
share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
806,882,966 |
|
|
|
773,082,751 |
|
|
|
797,708,252 |
|
|
|
760,229,694 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive
warrants |
|
|
— |
|
|
|
— |
|
|
|
101,723,677 |
|
|
|
203,745,854 |
|
|
Effect of convertible note weighted
shares |
|
|
— |
|
|
|
— |
|
|
|
516,700 |
|
|
|
60,456,989 |
|
|
Diluted |
|
|
806,882,966 |
|
|
|
773,082,751 |
|
|
|
899,948,629 |
|
|
|
1,024,432,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
applicable to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
Diluted |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(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.
NOTE 2.
GOING CONCERN
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. The Company has limited assets, has an accumulated deficit
of $29,378,449 and has
negative cash flows from operations. As of September 30, 2022, the
Company had a working capital deficit of $4,123,267. The
Company has relied on raising debt and equity capital in order to
fund its ongoing day-to-day operations and its corporate overhead.
The Company will require additional working capital from either
cash flow from operations, from debt or equity financing, or from a
combination of these sources. These factors raise substantial doubt
about the ability of the Company to continue as a going concern for
a period of one year from the issuance of these financial
statements. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
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 September 30, 2022 and December 31, 2021
consisted of the following:
| |
|
September 30, 2022 |
|
December 31, 2021 |
|
Leasehold improvements |
|
$ |
61,846 |
|
|
$ |
61,580 |
|
|
Machinery and leased
equipment |
|
|
433,417 |
|
|
|
365,483 |
|
|
Machinery and equipment not yet in
service |
|
|
732,572 |
|
|
|
440,150 |
|
|
Office equipment and
furniture |
|
|
99,296 |
|
|
|
57,913 |
|
|
Website |
|
|
2,760 |
|
|
|
2,760 |
|
| |
|
|
|
|
|
|
|
|
|
Total property and
equipment |
|
$ |
1,329,891 |
|
|
$ |
927,886 |
|
|
Less: Accumulated
Depreciation |
|
|
(297,748 |
) |
|
|
(165,832 |
) |
| |
|
|
|
|
|
|
|
|
|
Property and equipment,
net |
|
$ |
1,032,143 |
|
|
$ |
762,054 |
|
Depreciation expense was $131,916
and $66,726
for the nine months ended September 30, 2022 and 2021,
respectively. During the nine months ended September 30, 2022, the
Company added $292,422
of machinery and equipment not yet in service.
NOTE 4.
INTANGIBLE ASSETS
Intangible assets at September 30, 2022 and December 31, 2021
consisted of the following:
| |
|
September 30, 2022 |
|
December 31, 2021 |
|
Patents |
|
$ |
4,505,489 |
|
|
$ |
4,505,489 |
|
|
Technology rights |
|
|
200,000 |
|
|
|
200,000 |
|
|
Intangibles, at cost |
|
|
4,705,489 |
|
|
|
4,705,489 |
|
|
Less: Accumulated
amortization |
|
|
(1,833,351 |
) |
|
|
(1,607,468 |
) |
|
Net Carrying Amount |
|
$ |
2,872,138 |
|
|
$ |
3,098,021 |
|
Amortization expense was $225,883
and $228,366
for the nine months ended September 30, 2022 and 2021,
respectively.
Estimated Future Amortization Expense:
| |
|
$ |
| |
For year
ending December 31, 2022 |
|
|
|
75,501 |
|
| |
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 |
|
|
|
1,588,625 |
|
| |
Total |
|
|
|
2,872,138 |
|
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/month.
The Company renewed the lease for another year, effective July 1,
2022, at $7,803/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
$13,500
during the nine-month period ended September 30, 2022.
At September 30, 2022, the weighted average remaining operating
lease term was 1.08 years and the weighted average discount rate
associated with operating leases was 18.5%.
The components of lease expenses for the nine-month period ended
September 30, 2022 and 2021 were as follows:
|
|
|
2022
$ |
|
2021
$
|
| |
|
|
|
|
|
Total operating lease
cost |
|
|
40,500 |
|
|
|
59,750 |
|
| |
|
|
|
|
|
|
|
|
The following table provides supplemental cashflow and other
information related to leases for the nine-month period ended
September 30, 2022 and 2021:
|
|
|
2022
$ |
|
2021
$
|
| |
|
|
|
|
|
Lease payments |
|
|
109,809 |
|
|
|
127,700 |
|
| |
|
|
|
|
|
|
|
|
Supplemental balance sheet information related to leases as of
September 30, 2022 and 2021 are as below:
|
|
|
2022
$ |
|
2021
$
|
| |
|
|
|
|
| Cost |
|
|
123,614 |
|
|
|
176,213 |
|
|
Accumulated amortization |
|
|
(70,969 |
) |
|
|
(44,411 |
) |
|
Impairment |
|
|
— |
|
|
|
(39,030 |
) |
|
Net carrying value |
|
|
52,645 |
|
|
|
92,772 |
|
Future minimum lease payments related to lease obligations are as
follows as of September 30, 2022:
|
|
|
$ |
| 2022 |
|
|
13,500 |
|
|
2023 |
|
|
45,000 |
|
| Total
minimum lease payments |
|
|
58,500 |
|
| |
|
|
|
|
|
Less: amount of lease payments
representing effects of discounting |
|
|
(5,855 |
) |
| |
|
|
|
|
| Present value of future minimum lease
payments |
|
|
52,645 |
|
| |
|
|
|
|
|
Less: current obligations under
leases |
|
|
(48,213 |
) |
| |
|
|
|
|
|
Lease liabilities, net of current
portion |
|
|
4,432 |
|
NOTE 6. Notes
Payable
The following tables summarize notes payable as of September 30,
2022 and December 31, 2021:
|
Type |
|
Original Amount |
|
Origination
Date
|
|
Maturity
Date
|
|
Effective Annual
Interest
Rate
|
|
Balance at
September 30, 2022
|
|
Balance at
December 31, 2021
|
|
Note Payable ** |
|
$ |
25,000 |
|
|
05/08/2017 |
|
06/30/2018 |
|
|
0 |
% |
|
$ |
20,000 |
|
|
$ |
22,500 |
|
|
Note Payable ** |
|
$ |
118,644 |
|
|
05/05/2020 |
|
05/05/2021 |
|
|
8 |
% |
|
$ |
110,644 |
|
|
$ |
110,644 |
|
|
Note Payable (a) |
|
$ |
199,000 |
|
|
02/04/2022 |
|
02/03/2023 |
|
|
0 |
% |
|
$ |
— |
|
|
$ |
— |
|
|
Note Payable (b) |
|
$ |
131,100 |
|
|
03/04/2022 |
|
12/16/2022 |
|
|
83 |
% |
|
$ |
40,457 |
|
|
$ |
— |
|
|
Note Payable (c) |
|
$ |
81,600 |
|
|
04/13/2022 |
|
01/05/2023 |
|
|
87 |
% |
|
$ |
32,063 |
|
|
|
— |
|
|
Note Payable (d) |
|
$ |
200,000 |
|
|
7/13/2022 |
|
7/11/2023 |
|
|
70 |
% |
|
$ |
177,439 |
|
|
|
— |
|
|
Note Payable (e) |
|
$ |
57,600 |
|
|
8/15/2022 |
|
2/13/2023 |
|
|
171 |
% |
|
$ |
44,308 |
|
|
|
— |
|
|
Sub-total |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
424,911 |
|
|
$ |
133,144 |
|
|
Debt discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(20,862 |
) |
|
$ |
— |
|
|
Balance, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
404,049 |
|
|
$ |
133,144 |
|
|
Less current portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(404,049 |
) |
|
$ |
(133,144 |
) |
|
Total long-term |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
** Currently in default |
| |
a) |
On
February 4, 2022, the Company entered into a loan agreement with a
non-related party for $199,000,
of which $2,985
was an original issue discount resulting in cash proceeds to the
Company of $196,015.
The loan is to be repaid through fifty-two weekly payments of
$5,013.
On July 13, 2022, the Company entered into a second loan agreement
with the non-related party (Note 6 (d)) whereby $122,900 of the new
loan was to be paid through the extinguishment of the February 4,
2022 loan. As at July 13, 2022, $2,985
of the discount was amortized to expense, $117,312
was repaid in cash, and $122,900
was repaid through the issuance of a new loan, which resulted in a
gain on settlement of debt of $1,011
and a note balance of $0. |
| |
b) |
On
March 4, 2022, the Company sold future receivables with a
non-related party for $131,100,
of which $36,100
was loan fees and original issue discount resulting in cash
proceeds to the Company of $95,000.
The advance is to be repaid through weekly payments of $3,121.
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 nine months ended September 30, 2022,
$32,518
of the discount was amortized to expense, and $90,643
was repaid leaving a note balance of $40,457
(discount balance of $3,582). |
| |
c) |
On
April 13, 2022, the Company sold future receivables with a
non-related party for $81,600,
of which $21,600
was loan fees and original issue discount resulting in cash
proceeds to the Company of $60,000.
The advance is to be repaid through weekly payments of $2,147.
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 nine months ended September 30, 2022,
$18,133
of the discount was amortized to expense, and $49,537
was repaid leaving a note balance of $32,063
(discount balance of $3,467). |
| |
d) |
On
July 13, 2022, the Company entered into a loan agreement with a
non-related party for $200,000,
of which $2,500
was an original issue discount and $122,900
was paid through the extinguishment of a prior loan (Note 6 (a))
resulting in cash proceeds to the Company of $74,600.
The loan is to be repaid through fifty-two weekly payments of
$5,308.
During the nine months ended September 30, 2022, $878
of the discount was amortized to expense, and $42,462
was repaid leaving a note balance of $177,439
(discount balance of $1,622). |
| |
e) |
On
August 15, 2022, the Company sold future receivables with a
non-related party for $57,600,
of which $17,600
was loan fees and original issue discount resulting in cash
proceeds to the Company of $40,000.
The advance is to be repaid through weekly payments of $2,215.
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 nine months ended September 30, 2022,
$8,113
of the discount was amortized to expense, and $13,292
was repaid leaving a note balance of $44,308
(discount balance of $12,191). |
The following table summarizes notes payable, related parties as of
September 30, 2022 and December 31, 2021:
|
Type |
|
Original Amount |
|
Origination
Date
|
|
Maturity
Date
|
|
Annual
Interest
Rate
|
|
Balance at
September 30, 2022
|
|
Balance at
December 31, 2021
|
|
Note Payable, RP ** |
|
$ |
17,000 |
|
|
06/20/2018 |
|
01/02/2020 |
|
|
5 |
% |
|
$ |
10,000 |
|
|
$ |
10,000 |
|
|
Note Payable, RP ** |
|
$ |
50,000 |
|
|
07/27/2018 |
|
11/30/2018 |
|
|
8 |
% |
|
$ |
10,850 |
|
|
$ |
10,850 |
|
|
Note Payable, RP ** |
|
$ |
15,000 |
|
|
08/16/2019 |
|
02/16/2020 |
|
|
8 |
% |
|
$ |
15,000 |
|
|
$ |
15,000 |
|
|
Note Payable, RP (f) |
|
$ |
84,034 |
|
|
02/16/2021 |
|
Demand |
|
|
5 |
% |
|
$ |
45,000 |
|
|
$ |
50,000 |
|
|
Note Payable, RP (g) |
|
$ |
9,000 |
|
|
06/15/2022 |
|
12/31/2022 |
|
|
0 |
% |
|
$ |
9,000 |
|
|
$ |
— |
|
|
Note Payable, RP (g) |
|
$ |
5,000 |
|
|
06/24/2022 |
|
12/31/2022 |
|
|
0 |
% |
|
$ |
5,000 |
|
|
$ |
— |
|
|
Note Payable, RP (g) |
|
$ |
41,300 |
|
|
06/29/2022 |
|
12/31/2022 |
|
|
0 |
% |
|
$ |
41,300 |
|
|
$ |
— |
|
|
Note Payable, RP (h) |
|
$ |
15,500 |
|
|
07/07/2022 |
|
12/31/2022 |
|
|
0 |
% |
|
|
15,500 |
|
|
|
— |
|
|
Note Payable, RP (i) |
|
$ |
3,500 |
|
|
08/19/2022 |
|
12/31/2022 |
|
|
0 |
% |
|
|
3,500 |
|
|
|
— |
|
|
Note Payable, RP (j) |
|
$ |
22,500 |
|
|
09/02/2022 |
|
12/31/2022 |
|
|
0 |
% |
|
|
22,500 |
|
|
|
— |
|
|
Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
177,650 |
|
|
$ |
85,850 |
|
|
Debt discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
|
$ |
— |
|
|
Balance, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
177,650 |
|
|
$ |
85,850 |
|
|
Less current portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(177,650 |
) |
|
$ |
(85,850 |
) |
|
Total long-term |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
** Currently in default |
| |
f) |
On
March 7, 2022, the Company repaid the principal amount of
$5,000
leaving a note principal balance of $45,000. |
| |
g) |
During June 2022, the Company entered into three
promissory notes with the CFO of the Company for an aggregate
principal amount of $55,300,
bearing interest of
0%, repayable on or before July 31, 2022. Subsequently, the
maturity date was extended to December 31, 2022. |
| |
h) |
On
July 7, 2022, the Company entered into a promissory note with the
CFO of the Company for a principal amount of $15,500,
bearing interest of
0%, repayable on or before August 31, 2022. Subsequently,
the maturity date was extended to December 31, 2022. |
| i) |
On
August 19, 2022, the Company entered into a promissory note with
the CFO of the Company for a principal amount of $3,500,
bearing interest of
0%, repayable on or before September 30, 2022. Subsequently,
the maturity date was extended to December 31, 2022. |
| j) |
On
September 2, 2022, the Company entered into a promissory note with
the CFO of the Company for a principal amount of $22,500,
bearing interest of
0%, repayable on or before September 30, 2022. Subsequently,
the maturity date was extended to December 31, 2022. |
The following table summarizes convertible notes payable as of
September 30, 2022 and December 31, 2021:
|
Type |
|
Original Amount |
|
Origination
Date
|
|
Maturity Date
|
|
Annual
Interest
Rate
|
|
Balance at
September 30,
2022
|
|
Balance at
December 31, 2021
|
|
Convertible Note Payable (k) *
** |
|
$ |
150,000 |
|
|
04/10/2020 |
|
04/09/2021 |
|
|
12 |
% |
|
$ |
— |
|
|
$ |
25,000 |
|
|
Convertible Note Payable (l)
** |
|
$ |
300,000 |
|
|
08/27/2020 |
|
07/31/2021 |
|
|
12 |
% |
|
$ |
265,000 |
|
|
$ |
270,000 |
|
|
Convertible Note Payable
(m) |
|
$ |
226,162 |
|
|
11/04/2021 |
|
11/04/2022 |
|
|
19 |
% |
|
$ |
— |
|
|
$ |
203,546 |
|
|
Convertible Note Payable |
|
$ |
1,465,300 |
|
|
11/30/2021 |
|
11/30/2023 |
|
|
5 |
% |
|
$ |
1,465,300 |
|
|
$ |
1,465,300 |
|
|
Convertible Note Payable (n) ** |
|
$ |
128,000 |
|
|
03/29/2022 |
|
03/29/2023 |
|
|
12 |
% |
|
$ |
128,000 |
|
|
$ |
— |
|
|
Convertible Note Payable (o) |
|
$ |
53,000 |
|
|
06/01/2022 |
|
06/01/2023 |
|
|
12 |
% |
|
$ |
53,000 |
|
|
$ |
— |
|
|
Convertible Note Payable (p) |
|
$ |
53,000 |
|
|
06/14/2022 |
|
06/14/2023 |
|
|
12 |
% |
|
$ |
53,000 |
|
|
$ |
— |
|
| Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,964,300 |
|
|
$ |
1,963,846 |
|
|
Debt discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(68,066 |
) |
|
$ |
(17,738 |
) |
|
Balance, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,896,234 |
|
|
$ |
1,946,108 |
|
|
Less current portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(430,934 |
) |
|
$ |
(480,808 |
) |
|
Total long-term |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,465,300 |
|
|
$ |
1,465,300 |
|
|
|
|
* Embedded conversion feature accounted for as a
derivative liability at period end
** Currently in default
|
| |
k) |
During the nine months ended September 30, 2022,
the Company repaid $25,000
of the note, leaving a note principal balance of $0. |
| |
l) |
During the nine months ended September 30, 2022,
the Company repaid $5,000
of the note, leaving a note principal balance of $265,000. |
| |
m) |
During the nine months ended September 30, 2022,
$17,738
of the discount was amortized to expense, and $90,465
was repaid. During the nine months ended September 30,
2022, the Company issued
16,644,146 common shares upon the conversion of the
remaining balance of the convertible note and unpaid interest,
leaving a note principal balance of $0. |
| |
n) |
On
March 29, 2022, the Company entered into a convertible promissory
note with a non-related party for $128,000,
of which $500
was an original issue discount and $2,500
was issue costs resulting in cash proceeds to the Company of
$125,000. The Company received the cash proceeds on April 4, 2022.
The note is due on March 29, 2023 and bears interest on the unpaid
principal balance at a rate of
12% per annum. Stringent pre-payment terms apply (from 15%
to 40%, dependent upon the timeframe of repayment during the note's
term) and any part of the note which is not paid when due shall
bear interest at the rate of 22% per annum from the due date until
paid. The Note may be converted by the Lender at any time after 180
days of the date of issuance into shares of Company's common stock
at a conversion price equal to 61% of the lowest trading price
during the 15-trading day period prior to the conversion date. On
September 25, 2022 the Note became convertible and the Company
recognized a further discount of $113,348
relating to the initial fair value of the derivative conversion
feature. During the nine months ended September 30, 2022,
$52,436
of the discount was amortized to expense. |
| |
o) |
On
June 1, 2022, the Company entered into a convertible promissory
note with a non-related party for $53,000,
of which $500
was an original issue discount and $2,500
was issue costs resulting in cash proceeds to the Company of
$50,000.
The note is due on June 1, 2023 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 six months ended September 30, 2022, $976
of the discount was amortized to expense. |
| |
p) |
On
June 14, 2022, the Company entered into a convertible promissory
note with a non-related party for $53,000,
of which $500
was an original issue discount and $2,500
was issue costs resulting in cash proceeds to the Company of
$50,000.
The note is due on June 14, 2023 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 six months ended September 30, 2022, $870
of the discount was amortized to expense. |
NOTE 7.
DERIVATIVE LIABILITIES
The embedded conversion option of (1) the convertible debentures
described in Note 6 and (2) warrants, containing 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.
| |
|
September 30,
2022 |
|
December 31,
2021 |
|
Balance at the beginning of
period |
|
$ |
3,044,034 |
|
|
$ |
7,102,801 |
|
| Discount upon recognition of conversion
feature |
|
|
113,348 |
|
|
|
— |
|
| Settlement of derivative instruments |
|
|
(69,270 |
) |
|
|
(4,035,906 |
) |
|
Change in fair value of embedded
conversion option |
|
|
(2,061,774 |
) |
|
|
(22,861 |
) |
|
Balance at the end of the
period |
|
$ |
1,026,338 |
|
|
$ |
3,044,034 |
|
The Company uses Level 3 inputs for its valuation methodology for
the embedded conversion option and warrant liabilities as their
fair values were determined by using the Binomial Model based on
various assumptions.
Significant changes in any of these inputs in isolation would
result in a significant change in the fair value measurement. As
required, these are classified based on the lowest level of input
that is significant to the fair value measurement. The following
table shows the assumptions used in the calculations:
| |
|
Expected Volatility |
|
Risk-free Interest Rate |
|
Expected Dividend Yield |
|
Expected Life (in years) |
| At September
30, 2022 |
|
108-199% |
|
3.92-4.25% |
|
|
0 |
% |
|
|
0.49-2.91 |
|
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 more classes or series,
as summarized below.
Series A Preferred
Shares
On December 1, 2018, the Company’s Board of Directors authorized an
offering for
1,000,000 Preferred Series “A” stock at $0.10
per share and with 100% regular or cashless exercise at $0.10 per
share of common stock warrant coverage. At December 31, 2018, the
Company received $60,000
of subscriptions for the issuance of
600,000 shares of Preferred Series “A” stock to three
accredited investors who are related parties. The Company was
unable to issue the subscriber the preferred shares until the
Company filed a Certificate of Designation and the Preferred Series
“A” stock has been duly validly authorized. Resulting in a
preferred stock liability related to the Company’s commitment to
issue shares of Series A stock upon the designation.
On April 12, 2019, the Company filed a Certificate of Designation
with the Nevada Secretary of State designating
1,000,000 shares of its authorized preferred stock as Series
A Convertible Preferred Stock. The principal terms of the Series A
Preferred Shares are as follows:
Issue Price
The stated price for the Series A Preferred shall be $0.10 per
share.
Redemption
This Company may at any time following the first anniversary date
of issuance (the “Redemption Date”), at the option of the Board of
Directors, redeem in whole or in part the Shares by paying in cash
in exchange for the Shares to be redeemed a price equal to the
Original Series A Issue Price ($0.10) (the “Redemption Price”). Any
redemption affected pursuant to this provision shall be made on a
pro rata basis among the holders of the Shares in proportion to the
number of the shares then held by them.
Dividends
None.
Preference of Liquidation
In the event of any liquidation, dissolution or winding up of the
Company, the holders of Shares shall be entitled to receive, prior
and in preference to any distribution of any of the assets of this
Company, to the holders of Common Stock by reason of their
ownership thereof, an amount per share equal to the sum of (i)
$0.10 for each outstanding Share (the “Original Series A Issue
Price”) and (ii) an amount equal to 6% of the Original Series A
Issue Price for each 12 months that has passed since the date of
issuance of any Shares (such amount being referred to herein as the
“Premium”).
For purposes of this provision, a liquidation, dissolution or
winding up of this Company shall be deemed to be occasioned by, or
to include, (A) the acquisition of the Company by another entity by
means of any transaction or series of related transactions
(including, without limitation, any reorganization, merger or
consolidation but, excluding any merger effected exclusively for
the purpose of changing the domicile of the Company); or (B) a sale
of all or substantially all of the assets of the Company; unless
the Company’s stockholders of record as constituted immediately
prior to such acquisition or sale will, immediately after such
acquisition or sale (by virtue of securities issued as
consideration for the Company’s acquisition or sale or otherwise),
hold at least 50% of the voting power of the surviving or acquiring
entity.
If upon the occurrence of such liquidation, dissolution or winding
up event, the assets and funds thus distributed among the holders
of the Shares shall be insufficient to permit the payment to such
holders of the full aforesaid preferential amounts, then, subject
to the rights of series of preferred stock that may from time to
time come into existence, the entire assets and funds of the
Company legally available for distribution shall be distributed
ratably among the holders of the Shares in proportion to the
preferential amount each such holder is otherwise entitled to
receive.
In any of such liquidation, dissolution or winding up event, if the
consideration received by the Company is other than cash, its value
will be deemed its fair market value. Any securities shall be
valued as follows:
| |
A. |
Securities not subject to investment
letter or other similar restrictions on free marketability (covered
by (B) below): |
| |
1) |
If traded on a securities exchange (NASDAQ, AMEX,
NYSE, etc.), the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the
thirty-day period ending three (3) days prior to the
closing; |
| |
2) |
If traded on a quotation system, such as the
OTC:QX, OTC:QB or OTC Pink Sheets, the value shall be deemed to be
the average of the closing bid or sale prices (whichever is
applicable) over the thirty-day period ending three (3) days prior
to the closing; and |
| |
3) |
If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by
the Company and the holders of at least a majority of the voting
power of all then outstanding shares of Preferred
Stock. |
| |
B. |
The method of valuation of securities
subject to investment letter or other restrictions on free
marketability (other than restrictions arising solely by virtue of
a stockholder's status as an affiliate or former affiliate) shall
be to make an appropriate discount from the market value determined
as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by the Company and the
holders of at least a majority of the voting power of all then
outstanding shares of such Preferred Stock: |
Voting
The holder of each Share shall not have any voting rights, except
in the case of voting on a change in the preferences of Shares.
Conversion
Each Share shall be convertible into shares of the Company’s Common
Stock at a price per share of $0.10 (1 Share converts into 1 share
of Common Stock), at the option of the holder thereof, at any time
following the date of issuance of such Share and on or prior to the
fifth day prior to the Redemption Date, if any, as may have been
fixed in any Redemption Notice with respect to the Shares, at the
office of this Company or any transfer agent for such stock. Each
Share shall automatically be converted into shares of Common Stock
on the first day of the thirty-sixth (36th) month following the
original issue date of the shares at the Conversion Price per
share. To date, the Shares have not yet been converted into Common
Stock.
The Company was unable to issue the subscribers the preferred
shares until the Company filed a Certificate of Designation and the
Preferred Series “A” stock had been duly validly authorized. As the
Company had not filed the Certificate of Designation and as the
Company could not issue the preferred shares to settle the proceeds
received, it was determined the subscriptions were settleable in
cash. As a result, the Company classified the subscriptions
received as a liability in accordance with ASC 480 Distinguishing
Liabilities from Equity. The filing of the Certificate of
Designation and issuance of the preferred shares in 2019 resulted
in the reclassification of the Series A Preferred Shares from a
liability to temporary equity or “mezzanine” because the preferred
shares include the liquidation preferences described above. The
fair value of the preferred series A stock on April 12, 2019 was
$60,398 and was valued by using the Binomial Model based on various
assumptions and was reclassified from a liability to mezzanine
equity.
As of September 30, 2022, and December 31, 2021, there were
500,000 shares of Series A Convertible Preferred
Stock issued and outstanding, respectively. The Series A
Convertible Preferred Stock are currently in default as they were
subject to automatic conversion to shares of Common Stock on April
19, 2022, which did not occur due to the Company not having the
sufficient number of common shares available for conversion. The
Company is continuing to negotiate an extension of the conversion
date with the Series A Convertible Preferred Stock
shareholders.
Series B Preferred
Shares
Effective August 13, 2019, the Company filed a Certificate of
Designation with the Nevada Secretary of State thereby designating
1,000,000 shares of its authorized preferred stock as Series
B –Preferred Stock. The principal terms of the Series B Preferred
Shares are as follows:
Voting Rights
Holders of the Series B Preferred Stock shall be entitled to cast
five hundred (500) votes for each share held of the Series B
Preferred Stock on all matters presented to the stockholders of the
Corporation for stockholder vote which shall vote along with
holders of the Corporation’s Common Stock on such matters.
Redemption Rights
The Series B Preferred Stock shall be redeemed by the Corporation
upon the successful receipt by the Corporation of at least
$1,000,000 in equity capital following the issuance of the Series B
Preferred Stock. The Company has received in excess of $1,000,000
of equity capital during the year ended December 31, 2021, and the
redemption right has been triggered. However, to date the Company
has not exercised the redemption rights to redeem the Series B
Preferred Stock and currently has no plans to do so.
Conversion Rights
The Series B Preferred Stock is not convertible into shares of
Common Stock of the Corporation.
Protective Provisions
So long as any shares of Series B Preferred Stock are outstanding,
this Corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the Holders of the
Series B Preferred Stock which is entitled, other than solely by
law, to vote with respect to the matter, and which Preferred Stock
represents at least a majority of the voting power of the then
outstanding shares of such Series B Preferred Stock:
| |
a) |
sell,
convey, or otherwise dispose of or encumber all or substantially
all of its property or business or merge into or consolidate with
any other corporation (other than a wholly owned subsidiary
corporation) or effect any transaction or series of related
transactions in which more than fifty percent (50%) of the voting
power of the Corporation is disposed of; |
| |
b) |
alter
or change the rights, preferences or privileges of the shares of
Series B Preferred Stock so as to affect adversely the
shares; |
| |
c) |
increase or decrease (other than by redemption or
conversion) the total number of authorized shares of preferred
stock; |
| |
d) |
authorize or issue, or obligate itself to issue,
any other equity security, including any other security convertible
into or exercisable for any equity security (i) having a preference
over, or being on a parity with, the Series B Preferred Stock with
respect to dividends or upon liquidation, or (ii) having rights
similar to any of the rights of the Series B Preferred Stock;
or |
| |
e) |
amend
the Corporation’s Articles of Incorporation or bylaws. |
Dividends
None.
Preference of Liquidation
None.
Upon designation, the Company issued shares of the Series B preferred stock to each of
its current CEO/Chairman and COO/Director (
shares in total) pursuant to their employment agreements. As the
Series B Preferred Shares represent share-based payments that are
not classified as liabilities but that could require the employer
to redeem the equity instruments for cash or other assets, the
Company classified the initial redemption amount of the shares of
$158,247
as temporary equity or “mezzanine”.
As of September 30, 2022, and December 31, 2021, there were
1,000,000 shares of Series B Preferred Stock issued
and outstanding, respectively.
Series C Preferred
Shares
Pursuant to the September 18, 2019, the Company filed a Certificate
of Designation with the Nevada Secretary of State designating
5,500,000 shares of its authorized preferred stock as Series
C Convertible Preferred Stock. The Registrant is awaiting the file
stamped Certificate of Designation from the Nevada Secretary of
State. The rights and preferences of such preferred stock are as
follows:
The number of shares constituting the Series C Convertible
Preferred Stock shall be
5,500,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors, provided that no
decrease shall reduce the number of shares of Series C Convertible
Preferred Stock to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon
the exercise of outstanding options, rights or warrants or upon the
conversion of any outstanding securities issued by the Company
convertible into Series C Convertible Preferred Stock.
Conversion Rights
Each Share shall be convertible into shares of the Company’s Common
Stock at a price per share of $0.01 (1 Share converts into 100
shares of Common Stock) (the “Conversion Price”), at the option of
the holder thereof, at any time following the date of issuance of
such Share and on or prior to the fifth (5th) day prior to the
redemption Date, if any, as may have been fixed in any redemption
notice with respect to the Shares, at the office of this Company or
any transfer agent for such stock.
Voting Rights
The holder of each Share shall not have any voting rights, except
in the case of voting on a change in the preferences of Shares.
Protective Provisions
So long as any Shares are outstanding, this Company shall not
without first obtaining the approval (by vote or written consent,
as provided by law) of the holders of Shares which is entitled,
other than solely by law, to vote with respect to the matter, and
which Shares represents at least a majority of the voting power of
the then outstanding Shares:
| |
a) |
sell, convey, or otherwise dispose of or encumber
all or substantially all of its property or business or merge into
or consolidate with any other corporation (other than a wholly
owned subsidiary corporation) or effect any transaction or series
of related transactions in which more than fifty percent (50%) of
the voting power of the Company is disposed of; |
| |
b) |
alter or change the rights, preferences or
privileges of the Shares so as to affect adversely the
Shares; |
| |
c) |
increase or decrease (other than by redemption or
conversion) the total number of authorized shares of preferred
stock; |
| |
d) |
authorize or issue, or obligate itself to issue,
any other equity security, including any other security convertible
into or exercisable for any equity security (i) having a preference
over, or being on a parity with, the Shares with respect to
liquidation, or (ii) having rights similar to any of the rights of
the Preferred Stock; or |
| |
e) |
amend the Company’s Articles of Incorporation or
bylaws. |
Other Rights
There are no other rights, privileges or preferences attendant or
relating to in any way the Shares, including by way of illustration
but not limitation, those concerning dividend, ranking, other
conversion, other redemption, participation or anti-dilution rights
or preferences.
As conversion of the Series C Preferred Shares is not within the
control of the Company, and it is not certain that the Company
could satisfy its obligation to deliver shares upon conversion, the
Series C Preferred Shares were classified in temporary equity or
“mezzanine”.
On February 15, 2021,
40,000 shares of preferred series C stock were converted
into common stock (1 share converts into 100 shares of common
stock), resulting in the issuance of
4,000,000 shares of common stock.
Effective December 1, 2021, the Company filed an Amended and
Restated Certificate of Designation with the Nevada Secretary of
State designating
1,500,000 shares of its authorized preferred stock as Series
C Convertible Preferred Stock. The revised rights and preferences
of such preferred stock are as follows:
The amended number of shares constituting the Series C Convertible
Preferred Stock shall be
1,500,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors, provided that no
decrease shall reduce the number of shares of Series C Convertible
Preferred Stock to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon
the exercise of outstanding options, rights or warrants or upon the
conversion of any outstanding securities issued by the Company
convertible into Series C Convertible Preferred Stock. At September
30, 2022, the Company is in default of the terms of the Series C
Convertible Preferred Stock due to not having enough reserved
common shares available for conversion of all outstanding Series C
Convertible Preferred Stock.
Amended Conversion Rights
Each Share shall be convertible into shares of the Company’s Common
Stock at a price per share of $0.015 (1 Share converts into 150
shares of Common Stock) (the “Conversion Price”), at the option of
the holder thereof, at any time following the date of issuance of
such Share and on or prior to the fifth (5th) day prior to the
redemption Date, if any, as may have been fixed in any redemption
notice with respect to the Shares, at the office of this Company or
any transfer agent for such stock.
During the year ended December 31, 2021, the Company sold
1,500,000 shares of preferred series C stock at $1.50 per
share for proceeds of $2,250,000.
As of September 30, 2022, and December 31, 2021, there were
1,500,000 shares of Series C Preferred Stock issued
and outstanding, respectively. The Company has sufficient shares of
Common Stock reserved for any potential conversion of Series C
Preferred Stock.
Common
Stock
The authorized shares of common stock consists of
1,000,000,000 shares with a par value of $0.001
per share. The number of shares of common stock outstanding as of
September 30, 2022 and December 31, 2021 was
805,596,961 and
790,924,690, respectively.
On May 26, 2022, $12,500
of principal and interest of a convertible note payable was
converted into
1,453,488 shares of the Company’s common stock as further
described in Note 6(m).
On June 1, 2022, $12,500
of principal and interest of a convertible note payable was
converted into
1,506,024 shares of the Company’s common stock as further
described in Note 6(m).
On June 2, 2022, $15,000
of principal and interest of a convertible note payable was
converted into
1,973,684 shares of the Company’s common stock as further
described in Note 6(m).
On June 6, 2022, $20,000
of principal and interest of a convertible note payable was
converted into
2,597,403 shares of the Company’s common stock as further
described in Note 6(m).
On June 8, 2022, $30,000
of principal and interest of a convertible note payable was
converted into
3,947,368 shares of the Company’s common stock as further
described in Note 6(m).
On June 13, 2022, $20,000
of principal and interest of a convertible note payable was
converted into
2,702,703 shares of the Company’s common stock as further
described in Note 6(m).
On June 21, 2022, $15,520
of principal and interest of a convertible note payable was
converted into
2,463,476 shares of the Company’s common stock as further
described in Note 6(m).
On August 31, 2022,
1,971,875 shares of the Company’s common stock were returned
for cancellation as a result of an SEC court order.
NOTE 9.
STOCK OPTIONS
Below is a table summarizing the options issued and outstanding as
of September 30, 2022:
| |
|
Number of options |
|
Weighted average exercise price
$ |
|
|
Balance, December 31,
2021 |
|
|
|
8,500,000 |
|
|
|
0.034 |
|
| |
Granted |
|
|
|
7,000,000 |
|
|
|
0.067 |
|
| |
Expired/Cancelled |
|
|
|
(6,500,000 |
) |
|
|
0.039 |
|
| |
Settled |
|
|
|
— |
|
|
|
— |
|
| |
Balance, September 30, 2022 |
|
|
|
9,000,000 |
|
|
|
0.056 |
|
| |
Exercisable |
|
|
|
3,500,000 |
|
|
|
0.021 |
|
As at September 30, 2022, the following share stock options were
outstanding:
|
Date |
|
Number |
|
Number |
|
Exercise |
|
Weighted Average Remaining Contractual |
|
Expiration |
|
Proceeds to Company if |
|
Issued |
|
Outstanding |
|
Exercisable |
|
Price $ |
|
Life (Years) |
|
Date |
|
Exercised |
|
|
09/01/2021 |
|
|
|
2,000,000 |
|
|
|
2,000,000 |
|
|
|
0.015 |
|
|
|
3.92 |
|
|
|
08/31/2026 |
|
|
|
30,000 |
|
|
|
04/01/2021 |
|
|
|
1,500,000 |
|
|
|
1,500,000 |
|
|
|
0.03 |
|
|
|
4.92 |
|
|
|
08/31/2027 |
|
|
|
45,000 |
|
|
|
04/01/2021 |
|
|
|
1,500,000 |
|
|
|
— |
|
|
|
0.05 |
|
|
|
5.92 |
|
|
|
08/31/2028 |
|
|
|
75,000 |
|
|
|
04/01/2021 |
|
|
|
2,000,000 |
|
|
|
— |
|
|
|
0.075 |
|
|
|
6.92 |
|
|
|
08/31/2029 |
|
|
|
150,000 |
|
|
|
04/01/2021 |
|
|
|
2,000,000 |
|
|
|
— |
|
|
|
0.10 |
|
|
|
7.92 |
|
|
|
08/31/2030 |
|
|
|
200,000 |
|
|
|
|
|
|
|
9,000,000 |
|
|
|
3,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
500,000 |
|
At September 30, 2022, the weighted average exercise prices are
$0.056
and $0.021
for the options outstanding and exercisable, respectively. The
intrinsic value of stock options outstanding at September 30, 2022
was $0.
During the nine months ended September 30, 2022, the Company
revised the terms of an employment agreement with the CFO to
increase the amount of unvested stock options from 4,000,000 to
7,000,000 which shall vest incrementally over four years in the
following manner: 1,500,000 stock options on September 1, 2022,
1,500,000 stock options on September 1, 2023, 2,000,000 stock
options on September 1, 2024 and the final 2,000,000 stock options
on September 1, 2025. Upon modification of the stock options, the
Company calculated the incremental compensation cost of $42,899,
which will be amortized to expense over the vesting period.
NOTE 10.
WARRANTS
The Company concluded that it only has sufficient shares to satisfy
the conversion of some but not all of the outstanding convertible
instruments. The initial fair value of the warrants issued during
the period was calculated using the Binomial Model as described in
Note 7.
The following table summarizes the continuity of share purchase
warrants:
| |
|
Number of
warrants |
|
Weighted average exercise price
$ |
|
|
Balance, December 31,
2021 |
|
|
|
115,048,858 |
|
|
|
0.00597 |
|
| |
Cancelled |
|
|
|
— |
|
|
|
— |
|
| |
Granted |
|
|
|
— |
|
|
|
— |
|
| |
Exercised |
|
|
|
— |
|
|
|
— |
|
| |
Balance, September 30, 2022 |
|
|
|
115,048,858 |
|
|
|
0.00597 |
|
As at September 30, 2022, the following share purchase warrants
were outstanding:
|
Date |
|
Number |
|
Number |
|
Exercise |
|
Weighted Average Remaining
Contractual |
|
Expiration |
|
Proceeds to Company if |
|
Issued |
|
Outstanding |
|
Exercisable |
|
Price $ |
|
Life (Years) |
|
Date |
|
Exercised |
|
|
12/3/2018 |
|
|
|
500,000 |
|
|
|
500,000 |
* |
|
|
0.10 |
|
|
|
1.18 |
|
|
|
12/3/2023 |
|
|
|
50,000 |
|
| |
3/31/2019 |
|
|
|
104,548,858 |
* |
|
|
104,548,858 |
* |
|
|
0.00035 |
* |
|
|
1.45 |
|
|
|
03/13/2024 |
|
|
|
36,592 |
|
| |
8/26/2020 |
|
|
|
10,000,000 |
|
|
|
10,000,000 |
|
|
|
0.06 |
|
|
|
2.91 |
|
|
|
8/26/2025 |
|
|
|
600,000 |
|
| |
|
|
|
|
115,048,858 |
|
|
|
115,048,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
686,592 |
|
*The number of warrants outstanding and exercisable is variable
based on adjustments to the exercise price of the warrant due to
dilutive issuances.
The intrinsic value of warrants outstanding at September 30, 2022
was $737,069.
NOTE 11.
RELATED PARTY TRANSACTIONS
The Company has agreements with related parties for consulting
services, accrued rent, accrued interest, notes payable and stock
options. See Notes to Financial Statements numbers 6, 8, and 9 for
more details.
NOTE 12.
COMMITMENTS AND CONTINGENCIES
Consulting Agreements -
On March 1, 2021, the Company entered into a consulting agreement.
Pursuant to the agreement, the consultant will provide consulting
services to the Company in various marketing and management matters
for a period of three months. In consideration for the services
performed by the consultant, the Company agreed to compensate the
consultant $5,000
per month. The Company also granted stock options to purchase
2,500,000 common shares exercisable at $0.0001
per share for one year. The options expired in full without
exercise on March 1, 2022.
The Company also uses the professional services of securities
attorneys, a US EPA specialist, professional accountants, and other
public-company specialists.
Employment Agreements -
On April 1, 2022, the Company entered into an amended and restated
four-year employment agreement with Arthur E. Abraham, replacing
the former employment agreement dated September 1, 2021, to add the
role of President. The terms of the revised agreement increases the
amount of unvested stock options from 4,000,000 to 7,000,000 which
shall vest incrementally over four years in the following manner:
1,500,000 stock options on September 1, 2022, 1,500,000 stock
options on September 1, 2023, 2,000,000 stock options on September
1, 2024 and the final 2,000,000 stock options on September 1, 2025.
All other terms of the former employment agreement remain the
same.
Other Obligations and Commitments -
No new obligation or commitments during the period ending September
30, 2022.
NOTE 13.
SUBSEQUENT EVENTS
On October 4, 2022, the Company entered into a convertible
promissory note with a non-related party for $50,000.
The note is due on October 4, 2024 and bears interest on the unpaid
principal balance at a rate of
7% 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 equal to $0.05 per
share.
On November 7, 2022, the Company entered into a promissory note
with a non-related party for $250,000.
The note is due on January 30, 2023 and bears interest on the
unpaid principal balance at a rate of
8% per annum. The Note is repayable by four bi-monthly
payments of $67,500
on the 15th and 30th of every month beginning
on December 15, 2022. The Note is secured by
75,000,000 shares of restricted common stock, which will not
be issued until ten days after the due date of the loan has passed
and payment has not been received by the lender. If the Company
fails to make a payment due within ten days after the due date, a
late payment fee of 10% of the principal amount due or $25,000
is applicable.
FORWARD-LOOKING STATEMENTS
This document contains “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995.
All statements other than statements of historical fact are
“forward-looking statements” for purposes of federal and state
securities laws, including, but not limited to, any projections of
earnings, revenue or other financial items; any statements of the
plans, strategies and objectives of management for future
operations; any statements concerning proposed new services or
developments; any statements regarding future economic conditions
or performance; any statements or belief; and any statements of
assumptions underlying any of the foregoing.
Forward-looking statements may include the words “may,” “could,”
“estimate,” “intend,” “continue,” “believe,” “expect” or
“anticipate” or other similar words. These forward-looking
statements present our estimates and assumptions only as of the
date of this report. Accordingly, readers are cautioned not to
place undue reliance on forward-looking statements, which speak
only as of the dates on which they are made. We do not undertake to
update forward-looking statements to reflect the impact of
circumstances or events that arise after the dates they are made.
You should, however, consult further disclosures we make in this
Quarterly Report on Form 10-Q, future Quarterly Reports on Form
10-Q, our Annual Report on Form 10-K and Current Reports on Form
8-K.
Although we believe that the expectations reflected in any of our
forward-looking statements are reasonable, actual results could
differ materially from those projected or assumed in any of our
forward-looking statements. Our future financial condition and
results of operations, as well as any forward-looking statements,
are subject to change and inherent risks and uncertainties. The
factors impacting these risks and uncertainties include, but are
not limited to:
|
• |
our ability to efficiently manage and repay our
debt obligations; |
| • |
our
inability to raise additional financing for working
capital; |
| • |
our
ability to generate sufficient revenue in our targeted markets to
support operations; |
| • |
significant dilution resulting from our financing
activities; |
| • |
actions and initiatives taken by both current and
potential competitors; |
| • |
supply chain disruptions for components used in
our products; |
| • |
manufacturers inability to deliver components or
products on time; |
| • |
our
ability to diversify our operations; |
| • |
the
fact that our accounting policies and methods are fundamental to
how we report our financial condition and results of operations,
and they may require management to make estimates about matters
that are inherently uncertain; |
| • |
adverse state or federal legislation or
regulation that increases the costs of compliance, or adverse
findings by a regulator with respect to existing
operations; |
| • |
changes in U.S. GAAP or in the legal, regulatory
and legislative environments in the markets in which we
operate; |
| • |
deterioration in general or global economic,
market and political conditions; |
| • |
inability to efficiently manage our
operations; |
| • |
inability to achieve future operating
results; |
| • |
the
unavailability of funds for capital expenditures; |
| • |
our
ability to recruit, hire and retain key employees; |
| • |
the
global impact of COVID-19 on the United States economy and out
operations; |
| • |
the
inability of management to effectively implement our strategies and
business plans; and |
| • |
the other risks and uncertainties
detailed in this report. |
In this form 10-Q references to “PCT LTD”, “the Company”, “we,”
“us,” “our” and similar terms refer to PCT LTD and its wholly-owned
operating subsidiary, Paradigm Convergence Technologies Corporation
(“Paradigm”) and recently formed subsidiaries 21st
Century Energy Solutions, Inc. and 21st Century
Healthcare, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Executive Overview
On August 31, 2016, PCT LTD entered into a Securities Exchange
Agreement (the “Exchange Agreement”) with Paradigm Convergence
Technologies Corporation, a Nevada corporation (“Paradigm”).
Pursuant to the terms of the Exchange Agreement, Paradigm became
the wholly-owned subsidiary of PCT LTD after the exchange
transaction. PCT LTD is a holding company, which through Paradigm
is engaged in the business of marketing new products and
technologies through licensing and joint ventures.
PCT LTD had not recorded revenues for the two fiscal years prior to
its acquisition of Paradigm and was dependent upon financing to
continue basic operations. Paradigm has recorded revenue since it
initiated operations in 2012; however, those revenues have not been
sufficient to finance operations. The Company recorded net income
of $220,544 for the nine-months ended September 30, 2022 and
accumulated losses of $29,378,449 from inception through September
30, 2022.
PCT LTD remains dependent upon additional financing to continue
operations. The Company intends to raise additional financing
through private placements of its common stock and note payable
issuances. We expect that we would issue such stock pursuant to
exemptions to the registration requirements provided by federal and
state securities laws. The purchasers and manner of issuance will
be determined according to our financial needs, as discussed below,
and the available exemptions to the registration requirements of
the Securities Act of 1933. We also note that if we issue more
shares of our common stock, then our stockholders may experience
dilution in the value per share of their common stock.
The expected costs for the next twelve months include:
| |
• |
continuation of commercial launch of non-toxic
sanitizing, disinfecting and sterilizing products and technologies
with a strong emphasis on health care facilities, including
hospitals, nursing homes, assisted living facilities, clinics and
medical, dental and veterinarian offices; |
| |
• |
continued research and development on product
generation units including those designed for on-site deployment at
customers’ facilities; |
| |
• |
accelerated research and development and initial
commercialization on applications of the products in the
agricultural sector, most specifically with respect to abatement of
a specific crop disease crisis caused by a bacterium in the U.S.
and elsewhere; |
| |
• |
acquiring available complementary technology
rights; |
| |
• |
payment of short-term debt; |
| |
• |
general and administrative operating
costs. |
Management projects these costs to total approximately $2,580,000
in 2023. 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
current personnel, 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 second quarter of 2023.
In August of 2022, we announced that we are in the process of
segregating te Healthcare and Oil & Gas technologies into
separate wholly-owned subsidiaries to capitalize on marketing
opportunities. The PCT Healthcare division is being rebranded with
assets transferred into 21st Century Healthcare, Inc.
while the PCT Oil & Gas division will be rebranded with assets
transferred into 21st Century Energy Solutions, Inc.
21st Century Healthcare, Inc. intends to build and
market equipment and fluids specifically to the healthcare
industry. 21st Century Energy Solutions, Inc. intends to
market oil and gas technologies and services to the Oil & Gas
industry. Both new entities anticipate marketing directly to their
customer base and form strategic partnerships with companies that
are heavily engaged in both Healthcare and Oil & Gas,
respectively.
PCT believes that this will open additional investment and
strategic alliance opportunities. PCT has found there is much more
opportunity to attract the necessary investment and alliances to
assure the funds will be used in the areas of investment interest
while each company focuses on their specific market.
Liquidity and Capital Resources
A critical component of our operating plan impacting our continued
existence is the ability to obtain additional capital through
additional equity and/or debt financing. We do not anticipate
generating sufficient positive internal operating cash flow until
such time as we can deliver our products to market and generate
substantial revenues, which may take the next full year to fully
realize, if ever. In the event we cannot obtain the necessary
capital to pursue our strategic plan, we may have to significantly
curtail our operations. This would materially impact our ability to
continue operations.
|
SUMMARY OF BALANCE SHEET |
|
September 30,
2022 |
|
December 31,
2021 |
|
Cash and cash equivalents |
|
$ |
31,458 |
|
|
$ |
116,497 |
|
| Total current assets |
|
|
101,986 |
|
|
|
310,763 |
|
| Total assets |
|
|
4,058,912 |
|
|
|
4,254,258 |
|
| Total liabilities |
|
|
5,694,985 |
|
|
|
6,283,637 |
|
| Accumulated deficit |
|
|
(29,378,449 |
) |
|
|
(29,598,993 |
) |
| Total stockholders' deficit |
|
$ |
(4,104,718 |
) |
|
$ |
(4,498,024 |
) |
For the nine months ended September 30, 2022, the Company recorded
a net income of $220,544 and at September 30, 2022, had a working
capital deficit of $4,123,267. Since inception we had not
established an ongoing source of revenue sufficient to cover our
operating costs. During the nine-months ended September 30, 2022,
we primarily relied upon advances and loans from stockholders and
third parties to fund our operations. The Company has relied on
raising debt and equity capital in order to fund its ongoing
day-to-day operations and its corporate overhead. We had $31,458 in
cash at September 30, 2022, compared to $116,497 in cash at
December 31, 2021. We had total liabilities of $5,694,985 at
September 30, 2022 compared to $6,283,637 at December 31, 2021.
Our current cash flow is not sufficient to meet our monthly
expenses of approximately $250,000 and to fund future research and
development adequately. We intend to rely on additional debt
financing, loans from existing stockholders and private placements
of common stock for additional funding in addition to the
increasing our recognized revenue from the leasing and/or sale of
products; however, there is no assurance that additional funding
will be available. We do not have material commitments for future
capital expenditures. However, we cannot assure you that we will be
able to obtain short-term financing, or that sources of such
financing, if any, will continue to be available, and if available,
that they will be on favorable terms.
During the next 12 months we anticipate incurring additional costs
related to the filing of Exchange Act reports. We believe we will
be able to meet these costs through funds provided by management,
significant stockholders and/or third parties. We may also rely on
the issuance of our common stock in lieu of cash to convert debt or
pay for expenses.
Commitments and Obligations
At September 30, 2022 the Company recorded notes payable totaling
approximately $2,477,933 (related, non-related and convertible, net
of debt discount) compared to notes payable totaling $2,165,102
(related, non-related and convertible, net of debt discount) at
December 31, 2021. These notes payable represent cash advances
received and expenses paid from third parties and related parties.
All of the notes payable carry effective interest from 0% to 171%
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 was $7,650. Effective July 1, 2022
through June 30, 2023, the monthly lease payment is $7,803. 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.
Results of Operations
Three Months Ended September 30, 2022
|
SUMMARY OF OPERATIONS |
|
Three-month period ended
September 30, |
| |
|
(Unaudited) |
| |
|
2022 |
|
2021 |
| Revenues |
|
$ |
289,497 |
|
|
$ |
366,730 |
|
| Total operating
expenses |
|
|
683,775 |
|
|
|
1,229,810 |
|
| Total other income
(expense) |
|
|
(104,185 |
) |
|
|
716,893 |
|
| Net income (loss) |
|
|
(498,463 |
) |
|
|
(146,187 |
) |
| Net
income (loss) attributable to common stockholders' |
|
|
(498,463 |
) |
|
|
(146,187 |
) |
| Basic income per share |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
| Diluted income (loss) per share |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
Revenues decreased to $289,497 for the three months ended September
30, 2022 (the "2022 third quarter") compared to $366,730 for the
three months ended September 30, 2021 (the "2021 third quarter").
The revenue decrease for the period was 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 comes out of the
COVID-19 pandemic.
Total operating expenses decreased to $683,775 during the 2022
third quarter compared to $1,229,810 during the 2021 third quarter.
The decrease during the third quarter of 2022 was primarily due to
a decrease in general and administrative expenses and cost of
product, licensing, and equipment leases associated with decreased
revenue, offset by an increase in depreciation and
amortization.
General and administrative expenses decreased to $551,921 for the
2022 third quarter compared to $1,031,072 during the 2021 third
quarter. The decrease during the third quarter of 2022 was
primarily due to a decrease in payroll expenses and professional
fees and due to effective cost controls.
Depreciation and amortization expenses increased to $125,414 during
the 2022 third quarter compared to $98,364 during the 2021 third
quarter.
Total other expense was $104,185 for the 2022 third quarter
compared to other income of $716,893 during the 2021 third quarter.
The overall change was a result of a decrease in gain on settlement
of debt of $362,368 and a decrease in the gain on change in fair
value of derivatives of $406,108 when compared to the third quarter
of 2022.
As a result of the changes described above, net loss increased to
$498,463 during the 2022 third quarter compared to $146,187 during
the 2021 third quarter.
Nine Months Ended September 30, 2022
|
SUMMARY OF OPERATIONS |
|
Nine-month period ended
September 30, |
| |
|
(Unaudited) |
| |
|
2022 |
|
2021 |
| Revenues |
|
$ |
874,072 |
|
|
$ |
1,231,392 |
|
| Total
operating expense |
|
$ |
2,453,137 |
|
|
$ |
3,133,929 |
|
| Total
other income (expense) |
|
$ |
1,799,609 |
|
|
$ |
5,110,109 |
|
| Net
income |
|
$ |
220,544 |
|
|
$ |
3,207,572 |
|
| Net income attributable to common
stockholders' |
|
$ |
220,544 |
|
|
|
3,207,572 |
|
| Basic income per share |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
| Diluted income (loss) per share |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
Revenues decreased to $874,072 for the nine months ended September
30, 2022, compared to $1,231,392 for the nine months ended
September 30, 2021. The revenue decrease for the period was due to
the decreased volume of fluids sold as a result of the country
coming out of the COVID-19 pandemic.
Total operating expenses decreased to $2,453,137 during the nine
months ended September 30, 2022, compared to $3,133,929 during the
nine months ended September 30, 2021. The decrease during the
period was primarily due to a decrease in general and
administrative expenses and cost of product, licensing, and
equipment leases associated with decreased revenue, offset by an
increase in depreciation and amortization.
General and administrative expenses decreased to $2,008,782 for the
nine months ended September 30, 2022, compared to $2,583,139 during
the nine months ended September 30, 2021. General and
administrative expenses were reduced due to effective cost
controls.
Depreciation and amortization expenses increased to $357,799 during
the nine months ended September 30, 2022, compared to $295,092
during the nine months ended September 30, 2021.
Total other income decreased to $1,799,609 for the nine months
ended September 30, 2022, compared to $5,110,109 of expenses during
the nine months ended September 30, 2021. The overall decrease in
income was a result of a decrease in gain on the settlement of debt
of $3,620,796 offset by the increase in gain on change in the fair
value of derivatives of $312,497 when compared to the third quarter
of 2022.
As a result of the changes described above, a net income of
$220,544 was realized during the nine months ended September 30,
2022, compared to a net income of $3,207,572 during the nine months
ended September 30, 2021.
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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not applicable to smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule
13a-15(e) or 15d-15(e) under the Exchange Act) that are designed to
ensure that information required to be disclosed in our filings
under the Exchange Act is recorded, processed, summarized and
reported within the periods specified in the rules and forms of the
SEC. This information is accumulated to allow our management to
make timely decisions regarding required disclosure. Gary Grieco,
our Chief Executive Officer, who serves as our principal executive
officer, and Arthur Abraham, our Chief Financial Officer, who
serves as our principal accounting officer, have evaluated the
effectiveness of our disclosure controls and procedures (as defined
in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the
end of the period covered by this report. The disclosure controls
and procedures ensure that all information required to be disclosed
by us in the reports that we file or submit under the Exchange Act
is: (i) recorded, processed, summarized and reported, within the
time periods specified in the SEC's rule and forms; and (ii)
accumulated and communicated to our principal executive officer as
appropriate to allow timely decisions regarding required
disclosure. Based on that evaluation, our principal executive and
principal accounting officers concluded that as of September 30,
2022, our disclosure controls and procedures were not effective.
Notwithstanding this finding of ineffective disclosure controls and
procedures, we concluded that the consolidated financial statements
included in this Form 10-Q present fairly, in all material
respects, our financial position, results of operations and cash
flows for the periods presented in conformity with accounting
principles generally accepted in the United States.
Changes in Internal Control Over Financial
Reporting
During the quarter ended September 30, 2022, there were no changes
in our internal control over financial reporting that materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act
of 1934).
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Auctus Fund
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 and even though Auctus’s Managing
Director signed the Mutual Release on January 19, 2022 Auctus
continues to dispute its scope.
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:
| |
2. |
Breach of Implied Covenant of Good Faith and Fair
Dealing; |
| |
3. |
Reformation of Mutual Release; |
In June of 2022, Auctus filed its answers to the complaint and
asserted counterclaims for Declaratory Judgment and Breach of
Contract.
The case is currently ongoing.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934 and, as such, are not required to
provide the information under this Item. However, we detailed
significant business risks in Item 1A to our Form 10-K for the
year ended December 31, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
On August 30, 2022, 1,971,875 shares of common stock were returned
for cancellation due to an SEC court order.
All of the above-described issuances were exempt from registration
pursuant to Section 4(a)(2) and/or Regulation D of the Securities
Act as transactions not involving a public offering. With respect
to each transaction listed above, no general solicitation was made
by either the Company or any person acting on its behalf. All such
securities issued pursuant to such exemptions are restricted
securities as defined in Rule 144(a)(3) promulgated under the
Securities Act, appropriate legends have been placed on the
documents evidencing the securities and may not be offered or sold
absent registration or pursuant to an exemption therefrom.
Issuer Purchases of Equity Securities
We did not repurchase any of our equity securities during the
quarter ended September 30, 2022.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
We have entered into a number of promissory notes, some of which
are in default as of September 30, 2022, or went into default
before the filing of this Quarterly 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 September 30, 2022, we had cash and cash equivalents of
$31,458 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 Common stock, Preferred
C stock, the issuance of notes payable 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. However, there is no
assurance that management will be successful in being able to
continue to obtain additional funding or defend potential
litigation by note holders.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
|
Exhibit No. |
Description |
| 3(i) |
Amended
and Restated Articles of Incorporation, as currently in effect
(Incorporated by reference to Exhibit 3.1 of Form 8-K, filed April
13, 2018) |
| 3.1 |
Amended
Articles of Incorporation increasing authorized shares
(Incorporated by reference to Exhibit 3.1 of Form 8-K, filed on
October 25, 2019) |
| 3(ii) |
Amended
and Restated Bylaws, as currently in effect (Incorporated by
reference to Exhibit 3.2 of Form 8-K, filed April 13,
2018) |
| 4.2 |
Certificate of Designation of Series A
Convertible Preferred Stock (Incorporated by reference to Exhibit
4.1 of Form 10-Q, filed on September 16, 2019) |
| 4.3 |
Certificate of Designation of Series B – Super
Voting Convertible Preferred Stock (Incorporated by reference to
Exhibit 4.2 of Form 10-Q, filed on September 16,
2019) |
| 4.4 |
Certificate of Designation of Series C
Convertible Preferred Stock (Incorporated by reference to Exhibit
3.1 of Form 8-K, filed on October 25, 2019) |
| 4.5 |
Amended
and Restated Series C Convertible Preferred Stock Certificate of
Designation effective on December 7, 2021 (Incorporated by
reference to Exhibit 4.1 of Form 8-K, filed on December 29,
2021) |
| 4.6 |
Auctus Note dated March 13, 2019
(Incorporated by reference to Exhibit 4.14 of Form 10-Q, filed on
September 16, 2019) |
| 10.1 |
Auctus Agreement dated March 13, 2019
(Incorporated by reference to Exhibit 10.17 of Form 10-Q, filed on
September 16, 2019) |
| 10.2† |
Read
Employment Agreement (Incorporated by reference to Exhibit 10.18 of
Form 10-Q, filed on September 16, 2019) |
| 10.3† |
Read
Addendum to Employment Agreement (Incorporated by reference to
Exhibit 10.19 of Form 10-Q, filed on September 16,
2019) |
| 10.4† |
Grieco
2019 Employment Agreement (Incorporated by reference to Exhibit
10.20 of Form 10-Q, filed on September 16, 2019) |
| 10.5† |
Grieco
2020 Employment Agreement Incorporated by reference to Exhibit
10.20 of Form 10-Q, filed on April 13, 2020) |
| 10.6† |
Amended and Restated Abraham Employment Agreement
dated April 1, 2022 (Incorporated by reference to Exhibit 10.6 of
Form 10-Q, filed on May 16, 2022) |
| 10.7 |
Disruptive Oil and Gas Contribution Agreement
dated October 26, 2021(Incorporated by reference to Exhibit 10.7 of
Form 10-K filed on March 31, 2022) |
| 10.8 |
$199,000 Note dated February 4, 2022
(Incorporated by reference to Exhibit 10.8 of Form 10-Q, filed on
May 16, 2022) |
| 10.9 |
$131,000 Note dated March 4, 2022 (Incorporated
by reference to Exhibit 10.9 of Form 10-Q, filed on May 16,
2022) |
| 10.10 |
$81,600 Note dated April 14, 2022 (Incorporated
by reference to Exhibit 10.10 of Form 10-Q, filed on May 16,
2022) |
| 10.11# |
June 1, 2022
$53,000 promissory note |
| 10.12# |
June 14, 2022
$53,000 promissory note |
| 10.13# |
July 13, 2022
$200,000 loan agreement |
| 10.14 |
August 15, 2022 $57,600 inventory finance
note |
| 10.15# |
October 4,
2022 $50,000 promissory note |
| 10.16# |
November 7,
2022 $250,000 promissory note |
| 31.1# |
Principal
Executive Officer Certification |
| 31.2# |
Principal
Financial Officer Certification |
| 32.1‡ |
Section 1350
Certification, Principal Executive Officer |
| 32.2‡ |
Section 1350
Certification, Principal Financial Officer |
| 99.1# |
PCT Corp Simplifies Hospital Disinfectant
Sourcing press release dated June 27, 2022 |
| 99.2# |
Hydrolyte An Ideal Disinfecting Solution for Schools press release
dated July 25, 2022 |
| 99.3# |
Monkeypox Illustrates need for Constant Infection Control press
release dated August 18, 2022 |
| 99.4# |
PCT LTD Announces Rebranding of Two Product Lines press release
dated August 19, 2022 |
| 99.5# |
PCT Announces 21st Century
Energy Inc Contract press release dated September 29,
2022 |
| 99.6# |
PCTL/21st Century
Announce New Hospital Contract press release dated October 18,
2022 |
| 99.7# |
21st Century
Healthcare, Inc. Congratulates Crothall Healthcare on BIG
Sustainability Award press release dated November 2,
2022 |
| 101.INS |
Inline XBRL Instance Document** |
| 101.SCH |
Inline XBRL Taxonomy Extension
Schema** |
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation
Linkbase** |
| 101.DEF |
Inline XBRL Taxonomy Extension Definition
Linkbase** |
| 101.LAB |
Inline XBRL Taxonomy Extension Labels
Linkbase** |
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation
Linkbase** |
| 104 |
Cover Page Interactive Data File (embedded within
the Inline XBRL document) |
#
Filed herewith.
‡ Furnished herewith.
†
Indicates management contract or compensatory plan or
arrangement.
** The XBRL related information in Exhibit 101 shall not be deemed
“filed” for purposes of Section 18 of the Securities Exchange Act
of 1934, as amended, or otherwise subject to liability of that
section and shall not be incorporated by reference into any filing
or other document pursuant to the Securities Act of 1933, as
amended, except as shall be expressly set forth by specific
reference in such filing or document.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
| |
|
PCT
LTD |
| |
|
|
| |
|
|
| Date: November 14,
2022 |
By: |
/s/ Gary
Grieco |
| |
|
Gary
Grieco
Principal Executive Officer
|
| |
|
Chief Executive Officer and
Chairman |
| Date:
November 14, 2022 |
By: |
/s/ Arthur
Abraham |
| |
|
Arthur Abraham |
| |
|
Chief Financial Officer
Principal Financial Officer
|
33
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