UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 

FORM 10-Q/A

(Amendment No. 1)

 

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

 

For the quarterly period ended September 30, 2020March 31, 2021

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)

 

Nevada90-0578516
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
  

4235 Commerce Street

Little River, South Carolina

 

29566

(Address of principal executive offices)(Zip Code)

 

(843) 390-7900

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each classTrading Symbol(s)Name of each exchange on which registered
NoneN/AN/A

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐ The registrant does not have a Web site.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an 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 13, 2020June 21, 2021 was 689,437,846765,501,229 which does not include 309,812,154 shares of common stock reserved against default on convertible debt and 750,000 shares for vesting of executive shares.debt.

   

 

EXPLANATORY NOTE

 

Overview

Amendment No. 1 to Form 10-Q/A (this “Form 10-Q/A") amends and restates certain items noted below in the Quarterly Report on Form 10-Q for the quarter ended September 30, 2020,March 31, 2021, as originally filed with the Securities and Exchange Commission on November 16, 2020June 25, 2021 (the “Original Filing”). This Form 10-Q/A amends the Original Filing to reflect the correction of an error in the previously reported financial statements related to the accounting for the settlement of certain derivative warrants. See Note 1314 to the Condensed Consolidated Financial Statements included in Item 1 for additional information and a reconciliation of the previously reported amounts to the restated amounts.

 

For the convenience of the reader, this Form 10-Q/A sets forth the Original Filing, as amended, in its entirety; however, this Form 10-Q/A amends and restates only the following financial statements and disclosures that were impacted from the correction of the error:

• Part I, Item 1 – Financial Statements

• Part I, Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

• Part I, Item 4 – Controls and Procedures

 

Except as described above, no other changes have been made to the Original Filing. This Form 10-Q/A speaks as of the date of the Original Filing and does not reflect events that may have occurred after the date of the Original Filing, or modify or update any disclosures that may have been affected by subsequent events.

 

The Company has also filed an amended Quarterly Report for June 30, 2020 and is subsequently filing an amended Annual Report for the fiscal year ended December 31, 2020 and an amended Quarterly Report for March 31, 2021each of the quarterly periods ended June 30, 2020 and September 30, 2020 to restate the previously issued annual and interim financial statements due to the accounting error described above.

   

 

TABLE OF CONTENTS

 

Page
Explanatory Note
  
Part I – Financial Information 
   
Item 1.Condensed Consolidated Financial Statements (Unaudited, Restated)4
   
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations2729
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 3032
   
Item 4.Controls and Procedures3032
   
Part II – Other Information 
   
Item 1. Legal Proceedings 3133
   
Item 1A. Risk Factors 3233
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 3233
   
Item 3.  Defaults Upon Senior Securities 3334
  
Item 4. Mine Safety Disclosures 3334
   
Item 5.Other Information3334
   
Item 6.Exhibits3435
   
 Signatures3536

  

 
 

 

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-monththree-month periods ended September 30,March 31, 2021, and 2020 and 2019 is unaudited. This financial information, in the opinion of management, includes all adjustments consisting of normal recurring entries necessary for the fair presentation of such data. The results of operations for the three and nine-monththree-month periods ended September 30,March 31, 2021 and 2020 and 2019 are not necessarily indicative of results to be expected for any subsequent period.

 

 4 

 

PCT LTD

Condensed Consolidated Balance Sheets

(Unaudited)

  

September 30,

2020

 December 31,
2019
   

(Unaudited)

(Restated - see note 13) 

     
         
ASSETS        
CURRENT ASSETS        
Cash and cash equivalents $161,248  $67,613 
Accounts receivable, net  268,991   111,915 
Prepaid expenses  276,864   43,100 
Other current assets  6,236   2,110 
Total current assets  713,339   224,738 
         
PROPERTY AND EQUIPMENT        
Property and equipment, net  513,567   440,109 
        ��
OTHER ASSETS        
Intangible assets, net  3,476,146   3,704,429 
Deposits  5,226   5,499 
Total other assets  3,481,372   3,709,928 
         
TOTAL ASSETS $4,708,278  $4,374,775 
         
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' DEFICIT        
CURRENT LIABILITIES        
Accounts payable $227,859  $315,228 
Accrued expenses – related parties  111,609   84,538 
Accrued expenses  857,071   890,104 
Notes payable – related parties, net  798,214   826,957 
Notes payable, net  434,344   468,153 
Current portion of convertible notes payable, net  1,134,190   1,187,633 
Derivative liability  10,494,416   10,517,873 
Total current liabilities  14,057,703   14,290,486 
         
LONG-TERM LIABILITIES        
    Convertible notes payable, net of current portion  53,500   —   
TOTAL LIABILITIES  14,111,203   14,290,486 
         
MEZZANINE EQUITY        
Preferred series A stock, $0.001 par value; 1,000,000 authorized; 500,000 and 500,000 issued and outstanding at September 30, 2020 and December 31, 2019, respectively  60,398   60,398 
Preferred series B stock, $0.001 par value; 1,000,000 authorized; 1,000,000 and 1,000,000 issued and outstanding at September 30, 2020 and December 31, 2019, respectively  158,247   158,247 
Preferred series C stock, $0.001 par value; 5,500,000 authorized; 90,000 and nil issued and outstanding at September 30, 2020 and December 31, 2019, respectively  90,000   —   
TOTAL MEZZANINE EQUITY  308,645   218,645 
         
STOCKHOLDERS’ DEFICIT        
Common stock, $0.001 par value; 1,000,000,000 authorized; 674,937,846 and 498,880,300 issued and outstanding at September 30, 2020 and December 31, 2019, respectively  674,938   498,881 
Additional paid-in-capital  23,457,582   15,872,330 
Accumulated deficit  (33,844,090)  (26,505,567)
TOTAL STOCKHOLDERS’ DEFICIT  (9,711,570)  (10,134,356)
         
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' DEFICIT $4,708,278  $4,374,775 

  

March 31,

2021

 December 31,
2020
   (Unaudited)   (Restated - see 
   (Restated - see note 14)   note 14) 
ASSETS        
CURRENT ASSETS        
Cash and cash equivalents $53,853  $115,196 
Accounts receivable, net  198,443   349,526 
Inventory  7,029   6,188 
Prepaid expenses  192,333   274,736 
Other current assets  —     2,110 
Total current assets  451,658   747,756 
         
PROPERTY AND EQUIPMENT        
Property and equipment, net  346,716   358,719 
         
OTHER ASSETS        
Intangible assets, net  3,323,902   3,400,024 
Operating lease, right of use asset  110,236   118,385 
Deposits  15,226   9,726 
Total other assets  3,449,364   3,528,135 
         
TOTAL ASSETS $4,247,738  $4,634,610 
         
LIABILITIES AND STOCKHOLDERS' DEFICIT        
CURRENT LIABILITIES        
Accounts payable $231,439  $272,978 
Accrued expenses – related parties  80,951   139,280 
Accrued expenses  611,155   622,040 
Deferred revenue  1,075   1,075 
Operating lease liability  36,607   34,965 
Notes payable – related parties, net  183,034   789,214 
Notes payable, net  413,130   384,380 
Convertible notes payable, net  1,935,017   1,554,503 
Derivative liability  7,044,319   7,102,801 
Total current liabilities  10,536,727   10,901,236 
         
     Convertible notes payable, net of current portion and discount  —     53,500 
     Operating lease liability, net of current portion  77,499   83,420 
TOTAL LIABILITIES  10,614,226   11,038,156 
         
MEZZANINE EQUITY        
Preferred series A stock, $0.001 par value; 1,000,000 authorized; 500,000 and 500,000 issued and outstanding at March 31, 2021 and December 31, 2020, respectively  60,398   60,398 
Preferred series B stock, $0.001 par value; 1,000,000 authorized; 1,000,000 and 1,000,000 issued and outstanding at March 31, 2021 and December 31, 2020, respectively  158,247   158,247 
Preferred series C stock, $0.001 par value; 5,500,000 authorized; nil and 490,000 issued and outstanding at March 31, 2021 and December 31, 2020, respectively  —     40,000 
TOTAL MEZZANINE EQUITY  218,645   258,645 
         
STOCKHOLDERS’ DEFICIT        
Common stock, $0.001 par value; 1,000,000,000 authorized; 758,454,354 and 722,487,846 issued and outstanding at March 31, 2021 and December 31, 2020, respectively  758,454   722,488 
Additional paid-in-capital  23,962,053   23,202,933 
Accumulated deficit  (31,305,640)  (30,587,612)
TOTAL STOCKHOLDERS’ DEFICIT  (6,585,133)  (6,662,191)
         
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $4,247,738  $4,634,610 

 

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

 

 5 

 

PCT LTD

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

For the Three Months Ended 

September 30,

 

For the Nine Months Ended

September 30,

 

For the Three Months Ended

March 31,

 2020 2019 2020 2019 2021 2020
 (Restated - see note 13)   (Restated - see note 13)   (Restated - see note 14)  
REVENUES            
Product $488,021  $110,739  $1,233,058  $209,578  $89,263  $162,648 
Licensing  119,000   29,500   203,000   108,000   31,750   7,000 
Equipment leases  177,067   79,794   501,384   217,274   274,506   102,534 
Total Revenues  784,088   220,033   1,937,442   534,852   395,519   272,182 
                        
OPERATING EXPENSES                        
General and administrative  614,667   468,694   1,755,495   1,550,997   893,451   548,786 
Research and development  15,547   203   20,547   3,995   9,199   —   
Cost of product, licensing and equipment leases  54,901   51,483   619,606   148,214 
Costs of product, licensing and equipment leases  52,901   148,850 
Depreciation and amortization  90,999   84,467   255,368   253,568   88,122   83,021 
Total operating expenses  776,114   604,847   2,651,016   1,956,774   1,043,673   780,657 
                        
Income (Loss) from operations  7,974   (384,814)  (713,574)  (1,421,922)
Loss from operations  (648,154)  (508,475)
                        
OTHER INCOME (EXPENSE)                        
Gain (loss) on change in fair value of derivative liability  57,054   (4,169,978)  (15,253,543)  (7,121,619)
Gain on change in fair value of preferred series A stock liability  —     —     —     72,473 
Gain on sale of intangible assets  —     —     —     52,498 
Gain (loss) on settlement of debt  (3,670,393)  16,706   9,993,528  (67,703)
Gain/(Loss) on change in fair value of derivative liability  (257,919)  (9,294,762)
Gain/(Loss) on settlement of debt  316,401   (44,000)
Interest expense  (200,593)  (1,225,906)  (1,094,934)  (1,728,189)  (178,356)  (434,411)
Misc. income  50,000     
Total other income (expense)  (3,813,932)  (5,379,178)  (6,354,949)  (8,792,540)  (69,874)  (9,773,173)
                        
Loss before Income taxes  (3,805,958)  (5,763,992)  (7,068,523)  (10,214,462)
Loss before income taxes  (718,028)  (10,281,648)
                        
Income taxes  —     —     —     —     —     —   
                        
NET LOSS $(3,805,958) $(5,763,992) $(7,068,523) $(10,214,462) $(718,028) $(10,281,648)
Preferred series C stock deemed dividends  —     —     (270,000)  —     —    (270,000)
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS’ $(3,805,958) $(5,763,992) $(7,338,523) $(10,214,462) $(718,028) $(10,551,648)
                        
Basic and diluted net loss per share $(0.01) $(0.03) $(0.01) $(0.10) $(0.00) $(0.02)
                        
Basic and diluted weighted average shares outstanding  608,601,357   206,524,228   575,094,639   102,223,061   751,832,583   545,843,212 

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

6

 PCT LTD

Consolidated Statements of Stockholders’ Equity (Deficit)
For the Three-Months Ended March 31, 2021 and 2020
(Unaudited)
   
         Total
  Common Stock Additional Paid-in Accumulated Stockholders’ Equity
  Shares Amount Capital Deficit (Deficit)
Balance – December 31, 2019  498,880,300  $498,881  $15,872,330  $(26,505,567) $(10,134,356)
Common stock issued for services  15,525,000   15,525   103,538   —     119,063 
Common stock issued in settlement of debt  250,000   250   7,975   —     8,225 
Common stock issued in conversion of convertible notes payable  36,050,000   36,050   360,660   —     396,710 
Beneficial conversion feature on preferred series C stock  —     —     270,000   (270,000)  —   
Net loss for the three-months ended March 31, 2020  —     —     —     (10,281,648)  (10,281,648)
Balance – March 31, 2020  550,705,300  $550,706  $16,614,503  $(37,057,215) $(19,892,006)
                     
Balance – December 31, 2020 (restated - see note 14)  722,487,846  $722,488  $23,202,933  $(30,587,612) $(6,662,191)
Common stock issued for services  2,500,000   2,500   74,276   —     76,776 
Common stock issued in settlement of debt, related parties  4,466,508   4,466   648,844   —     653,310 
Common stock issued in conversion of convertible notes payable  25,000,000   25,000   —     —     25,000 
Conversion of preferred series C stock  4,000,000   4,000   36,000   —     40,000 
Net loss for the three-months ended March 31, 2021  —     —     —     (718,028)  (718,028)
Balance – March 31, 2021 (restated - see note 14)  758,454,354  $758,454  $23,962,053  $(31,305,640) $(6,585,133)

 

  

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

 

 67 

 

PCT LTD

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)Cash Flows

(Unaudited)

 

  Common Stock   Additional Paid-in   Accumulated   

Total Stockholder’s Equity

 
  Shares  Amount  Capital  Deficit  (Deficit) 
Balance – December 31, 2019  498,880,300  $498,881  $15,872,330  $(26,505,567) $(10,134,356)
Common stock issued for services  15,525,000   15,525   103,538   —     119,063 
Common stock issued in settlement of debt  250,000   250   7,975   —     8,225 
Common stock issued in conversion of convertible notes payable  36,050,000   36,050   360,660   —     396,710 
Beneficial conversion feature on preferred series C stock  —     —     270,000   (270,000)  —   
Net loss for the three-months ended March 31, 2020  —     —     —     (10,281,648)  (10,281,648)
Balance – March 31, 2020  550,705,300  $550,706  $16,614,503  $(37,057,215) $(19,892,006)
Common stock issued for cash  4,250,000   4,250   135,750   —     140,000 
Stock-based compensation  —     —     14,182   —     14,182 
Common stock issued in settlement of debt  15,000,000   15,000   826,500   —     841,500 
Common stock issued in cashless exercise of warrants  9,246,186   9,246   420,702   —     429,948 
Common stock issued in conversion of preferred series C stock  5,000,000   5,000   45,000   —     50,000 
Net income for the three-months ended June 30, 2020  —     —     —     7,019,083  7,019,083
Balance – June 30, 2020 (restated - see note 13)  584,201,486  $584,202  $18,056,637  $(30,038,132) $(11,397,293)
Common stock issued for services  10,000,000   10,000   384,038   —     394,038 
Common stock issued in conversion of convertible notes payable  45,736,360   45,736   497,222   —     542,958 
Common stock issued in conversion of preferred series C stock  35,000,000   35,000   359,000   —     394,000 
Premium related to conversion feature on note payable  —     —     4,160,685   —     4,160,685 
Net loss for the three-months ended September 30, 2020  —     —     —     (3,805,958)  (3,805,958)
Balance – September 30, 2020 (restated - see note 13)  674,937,846  $674,938  $23,457,582  $(33,844,090) $(9,711,570)
  

For the Three-Months Ended

March 31,

  2021 2020
  (Restated - see note 14)  
Cash Flows from Operating Activities        
Net loss $(718,028) $(10,281,648)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  88,122   83,021 
Amortization of debt discount  78,804   73,588 
Common stock issued for services  14,027   119,063 
Loss on change in fair value of derivative liability  257,919   9,294,762 
Amortization of right of use asset  8,149   —   
Amortization of prepaid expense  146,465   —   
Loss on settlement of debt  (316,401)  44,000 
Default penalties on convertible notes  15,172   13,762 
Changes in operating assets and liabilities:        
Accounts receivable  151,083   (15,745)
Inventory  (841)  26,669 
Prepaid expenses  —     33,024 
Deposits  (5,500)  (12,027)
Operating lease liability  (4,279)  —   
Accrued expenses  (10,885)  377,306 
Accrued expenses – related party  13,900   5,430 
Accounts payable  (41,639)  44,573 
Net cash used in operating activities  (323,932)  (194,222)
         
Cash Flows from Financing Activities        
Proceeds from notes payable  207,575   155,525 
Proceeds from notes payable – related parties      3,500 
Proceeds from convertible notes payable  555,000   76,000 
Proceeds from preferred series C stock subscriptions      270,000 
Repayment of convertible notes payable  (218,500)  (8,888)
Repayment of notes payable  (256,486)  (102,414)
Repayment of notes payable – related parties  (25,000)  (12,286)
Net cash provided by financing activities  262,589   381,437 
         
Net change in cash  (61,343)  187,215 
Cash and cash equivalents at beginning of period  115,196   67,613 
Cash and cash equivalents at end of period $53,853  $254,828 
         
Supplemental Cash Flow Information        
Cash paid for interest $43,339  $147 
Cash paid for income taxes $—    $—   
         
Non-cash investing and financing activities:        
Preferred series C stock deemed dividend $—    $270,000 
Original debt discount against convertible notes $—    $41,888 
Original debt discount against notes payable $—    $25,068 
Common stock issued in conversion of convertible notes payable $25,000  $396,710 
         
Common stock issued in settlement of debt $—    $8,225 
Property and equipment transferred to inventory $—    $26,669 
Common stock issued for prepaid expenses $62,750  $—   
Preferred series C converted to common stock $40,000  $—   
Common stock issued in settlement of notes payable to related parties $653,309  $—   
Common stock issued in conversion of preferred series C stock $77,998  $—   

 

7

PCT LTD

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

  Common Stock Additional Paid-in Accumulated Total Stockholder’s Equity
  Shares Amount Capital Deficit (Deficit)
Balance – December 31, 2018  44,559,238  $44,560  $11,588,030  $(9,927,003) $1,705,587 
Common stock issued for services  575,000   575   98,352   —     98,927 
Common stock issued in settlement of debt  5,383,810   5,383   800,012   —     805,395 
Net loss for the three-months ended March 31, 2019  —     —     —     (920,323)  (920,323)
Balance – March 31, 2019  50,518,048  $50,518  $12,486,394  $(10,847,326) $1,689,586 
Stock-based compensation  —     —     23,125   —     23,125 
Common stock issued in conversion of convertible notes payable  26,341,913   26,342   261,034   —     287,376 
Net loss for the three-months ended June 30, 2019  —     —     —     (3,530,147)  (3,530,147)
Balance – June 30, 2019  76,859,961  $76,860  $12,770,553  $(14,377,473) $(1,530,060)
Common stock issued for services  1,000,000   1,000   28,339   —     29,339 
Common stock issued in cashless exercise of warrants  12,030,881   12,031   220,803   —     232,834 
Common stock issued in conversion of convertible notes payable  172,469,200   172,470   1,951,645   —     2,124,115 
Net loss for the three-months ended September 30, 2019  —     —     —     (5,763,992)  (5,763,992)
Balance – September 30, 2019  262,360,042  $262,361  $14,971,340  $(20,141,465) $(4,907,764)

 

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

 

 8 

 

PCT LTD

Condensed Consolidated Statements of Cash Flows

(Unaudited)

  

For the Nine Months Ended

September 30,

  2020 2019
  (Restated - see note 13)  
Cash Flows from Operating Activities        
Net loss $(7,068,523) $(10,214,462)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  255,368   253,568 
Amortization of debt discounts  353,012   735,582 
Amortization of operating lease right-of-use asset  —     35,452 
Common stock issued for services  527,283   151,391 
Loss on change in fair value of derivative liability  15,253,543   7,121,619 
Gain on change in fair value of preferred series A stock liability  —     (72,473)
Series B preferred stock issued for services  —     155,000 
Loss on settlement of debt  (9,993,528)  67,703 
    Gain on sale of intangible assets  —     (52,498)
Default penalties on convertible notes payable  13,762   665,731 
Changes in operating assets and liabilities:        
Accounts receivable  (157,076)  (137,092)
Inventory  26,669   21,707 
Prepaid expenses  (241,764)  173,514 
Other assets  (3,853)  —   
Operating lease liability  —     (34,205)
Accounts payable  (87,369)  66,737 
Accrued expenses – related party  27,071   18,104 
Accrued expenses  807,049   447,921 
Contract liabilities  —     —   
Net cash used in operating activities  (288,356)  (596,701)
         
Cash Flows from Investing Activities        
Proceeds from sale of intangible assets  —     111,323 
Purchases of property and equipment  (127,212)  (2,516)
Purchase of intangible assets  —     (5,000)
Net cash provided by investing activities  (127,212)  103,807 
         
Cash Flows from Financing Activities        
Proceeds from notes payable – related parties  3,500   17,544 
Proceeds from notes payable  428,030   138,600 
Proceeds from convertible notes payable  613,000   480,750 
Proceeds from the sale of common stock  140,000   —   
Proceeds from preferred series C stock subscriptions  270,000   —   
Repayments of notes payable – related parties  (32,286)  (20,044)
Repayments of notes payable  (556,153)  (31,180)
Repayments of convertible notes payable  (356,888)  (91,000)
Net cash provided by financing activities  509,203   494,670 
         
Net change in cash  93,635   1,776 
Cash and cash equivalents at beginning of period  67,613   4,893 
Cash and cash equivalents at end of period $161,248  $6,669 
         
Supplemental Cash Flow Information        
Cash paid for interest $77,687  $40,914 
Cash paid for income taxes $—    $—   
         
Non-Cash Investing and Financing Activities:        
Preferred series C stock deemed dividend $270,000  $—   
Original debt discounts against notes payable $95,562  $10,204 
Original debt discounts against convertible notes payable $201,388  $610,125 
Modification of notes payable $—    $20,590 
Common stock issued in conversion of convertible notes payable $939,668  $2,411,491 
Common stock issued in cashless exercise of warrants $429,948  $232,834 
Common stock issued in conversion of preferred series C stock $444,000  $—   
Accounts receivable netted against notes payable $—    $28,090 
Initial operating lease right-of-use asset and liability $—    $43,330 
Preferred series A stock reclassification from liability to mezzanine equity $—    $60,398 
Property plant and equipment transferred to inventory $26,669  $19,405 
Extinguishment of notes payable $—    $175,814 

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

9

PCT LTD

Notes to the Unaudited

Condensed Consolidated Financial Statements

September 30, 2020March 31, 2021

 

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 sheets,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, 20192020 audited financial statements as reported in its Form 10-K, filed on August 3, 2020.April 13, 2021.

 

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

 

The Company has one wholly-owned subsidiary, Paradigm Convergence Technologies Corporation (“Paradigm” or “PCT Corp.”). Paradigm is located in Little River, SC and was formed June 6, 2012 under the name of EUR-ECA, Ltd. On September 11, 2015, its Board of Directors authorized EUR-ECA Ltd to file with the Nevada Secretary of State to change its name to Paradigm Convergence Technologies Corp. Paradigm is a technology licensing company specializing in environmentally safe solutions for global sustainability. The company holds a patent, intellectual property and/or distribution rights to innovative products and technologies. Paradigm provides innovative products and technologies for eliminating biocidal contamination from water supplies, industrial fluids, hard surfaces, food processing equipment, and medical devices. Paradigm’s overall strategy is to market new products and technologies through the use of equipment leasing, joint ventures, licensing, distributor agreements and partnerships.

 

Effective on February 29, 2018, the Company changed its name from Bingham Canyon Corporation to PCT LTD to more accurately identify the Company’s direction and to develop the complimentary relationship and association with its wholly-owned operating company, Paradigm Convergence Technologies Corporation (“Paradigm” or “PCT Corp.”).

 

10

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.

 

Reclassification

Certain balances on the previously issued statements of operations and cash flows have been reclassified to be consistent with the current period presentation. The reclassification had no impact on total financial position, net loss, or stockholders’ equity (deficit).

Fair Value Measurements

The Company follows ASC 820, “Fair Value Measurements and Disclosures”, which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last is considered unobservable, is used to measure fair value: 

Level 1 - Valuations for assets and liabilities traded in active markets from readily available pricing sources such as quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

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

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

Our financial assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2020, consisted of the following:

  Total fair value at
September 30,
2020
$
 Quoted prices in active markets
(Level 1)
$
 Significant other observable inputs
(Level 2)
$
 Significant unobservable inputs
(Level 3)
$
  (restated)     (restated)
Description:                
Derivative liability (1)  10,494,416   —     —     10,494,416 
Total  10,494,416   —     —     10,494,416 

Our financial assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2019, consisted of the following:

  Total fair value at
December 31,
2019
$
 Quoted prices in active markets
(Level 1)
$
 Significant other observable inputs
(Level 2)
$
 Significant unobservable inputs
(Level 3)
$
Description:                
Derivative liability (1)  10,517,873   —     —     10,517,873 
Total  10,517,873   —     —     10,517,873 

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

 119 

 

Basic and Diluted Loss Per Share

 

Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period.  Diluted loss per share is computed by dividing net loss by the weighted-average number of common shares and dilutive potential common shares outstanding during the period. As September 30, 2020,March 31, 2021, there were outstanding common share equivalents (options, warrants, convertible notes payable,debt, and preferred series A stock and preferred series C stock) which amounted to 425,004,503359,763,629 (restated) shares of common stock. These common share equivalents were not included in the computation of diluted loss per share as their effect would have been anti-dilutive.

Recent Accounting Pronouncements

ASU 2019-12 amends the requirements related to the accounting for “hybrid” tax regimes. Such regimes are tax jurisdictions that impose the greater of two taxes — one based on income, or one based on items other than income. Although ASC 740 does not apply to taxes based on items other than income, ASC 740-10-15-4(a) originally specified that if there is a tax based on income that is greater than a franchise tax based on capital, only that excess is subject to the guidance in ASC 740. In feedback to the FASB, stakeholders indicated that the guidance on hybrid tax regimes increased the cost and complexity of applying ASC 740, particularly when the tax amount deemed to be a non-income tax was insignificant. Further, such guidance made it more difficult for entities to determine the appropriate tax rate to use when recording deferred taxes.

Accordingly, the FASB amended ASC 740-10-15-4(a) to state that an entity should include the amount of tax based on income in the tax provision and should record any incremental amount recorded as a tax not based on income. This amendment effectively reverses the order in which an entity determines the type of tax under current U.S. GAAP. In addition, the ASU amends the illustrative examples referred to and included in ASC 740-10-55-26 and ASC 740-10-55-139 through 55-144. The FASB notes that such amendments are consistent with the accounting for other incremental taxes, such as the base erosion anti-abuse tax. Moreover, in paragraph BC12 of the ASU, the FASB concluded that subjecting these taxes to the disclosure requirements in ASC 740 will result in greater transparency of franchise tax amounts.

 

In August 2018,2020, the FASB issued Accounting Standards Update No. 2018-13ASU 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 2018-13”2020-06”), Fair Value Measurement (Topic 820): Disclosure Framework – Changes. 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 the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements relating to fair value measurements as outlinedreduce unnecessary complexity in Topic 820, Fair Value Measurement. ASU 2018-13 is applicable to all entities that are required, under GAAP, to make disclosures about recurring or nonrecurring fair value measurements.U.S. GAAP. The ASU’s amendments outlined in ASU 2018-13 are effective for all entities for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for any removed or modified disclosures upon issuance of ASU 2018-13.years. The Company adoptedis currently evaluating the impact ASU 2018-132020-06 will have on January 1, 2020 and the adoption of ASU 2018-13 did not have a material effect on the consolidatedits financial statements.

 

 

NOTE 2. GOING CONCERN

 

The accompanying consolidated condensed 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 $33,844,090$31,305,640 (restated) and has negative cash flows from operations. As of September 30, 2020,March 31, 2021, the Company had a working capital deficit of $13,344,364$10,085,069 (restated). 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.

 

 1210 

 

NOTE 3. PROPERTY AND EQUIPMENT

 

Property and equipment at September 30, 2020March 31, 2021 and December 31, 20192020 consisted of the following: 

 

 September 30, 2020 December 31, 2019 March 31, 2021 December 31, 2020
Leasehold improvements  18,840   18,840 
Machinery and leased equipment $151,719  $151,719  $365,483  $365,483 
Machinery and equipment not yet in service  294,896   321,565   32,580   32,580 
Office equipment and furniture  147,276   20,064   39,356   39,357 
Website  2,760   2,760   2,760   2,760 
                
Total property and equipment $596,651  $496,108  $459,020  $459,020 
Less: Accumulated Depreciation  (83,084)  (55,999)  (112,304)  (100,301)
                
Property and equipment, net  513,567   440,109   346,716   358,719 

 

Depreciation expense was $27,085$12,000 and $18,947$6,153 for the nine-monthsthree-months ended September 30,March 31, 2021 and 2020, and 2019, respectively.

 

NOTE 4. INTANGIBLE ASSETS

 

Intangible assets at September 30, 2020March 31, 2021 and December 31, 20192020 consisted of the following:

 

 September 30, 2020 December 31, 2019 March 31, 2021 December 31, 2020
Patents $4,505,489  $4,505,489  $4,505,489  $4,505,489 
Technology rights  200,000   200,000   200,000   200,000 
Intangibles, at cost  4,705,489   4,705,489 
Intangible, at cost  4,705,489   4,705,489 
Less: Accumulated amortization  (1,229,343)  (1,001,060)  (1,381,587)  (1,305,465)
Net Carrying Amount $3,476,146  $3,704,429  $3,323,902  $3,400,024 

 

Amortization expense was $228,283$76,122 and $234,621$76,868 for the nine-monthsthree-months ended September 30,March 31, 2021 and 2020, and 2019, respectively.

 

Estimated Future Amortization Expense:

 

  $
 For year ending December 31, 2020 - remaining75,501
For year ending December 31, 2021   302,003228,366 
 For year ending December 31, 2022   302,003304,488 
 For year ending December 31, 2023   302,003304,488��
 For year ending December 31, 2024   302,003304,488
For year ending December 31, 2025304,488 
 Thereafter   2,041,6311,877,584 
 Total   3,325,1443,323,902 

 1311 

 

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.

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 period ended March 31, 2021.

At March 31, 2021, the weighted average remaining operating lease term was 2.58 years and the weighted average discount rate associated with operating leases was 18.5%.

On March 15, 2021, the Company entered into a building lease with a two-year term and an effective date of April 1, 2021. The lease requires the Company to make payments of $2,750 per month.

The Components of lease expenses were as follows:

  2021
$
 

2020

$

     
Total operating lease cost  13,500   —   

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

  2021
$
 

2020

$

     
Lease payments  38,750   17,940   

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

  2021
$
 

2020

$

     
Cost  123,614   —   
Accumulated amortization  (13,378)  —   
Net carrying value  110,236   —   

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

  $
2021  40,500 
2022  54,000 
2023  45,000 
     
Total minimum lease payments  139,500 
     
Less: amount of lease payments representing effects of discounting  (25,394)
     
Present value of future minimum lease payments  114,106 
     
Less: current obligations under leases  (36,607)
     
Lease liabilities, net of current portion  77,499 

12

NOTE 5.6. Notes Payable

 

The following tables summarizetable summarizes notes payable as of September 30, 2020March 31, 2021 and December 31, 2019:2020:

  

TypeOriginal Amount

Origination

Date

Maturity

Date

Annual

Interest

Rate

Balance at

September 30,

2020

Balance at

December 31, 2019

 Original Amount 

Origination

Date

 

Maturity

Date

 

Effective Annual

Interest

Rate

 

Balance at

March 31,

2021

 

Balance at

December 31, 2020

Note Payable ** $25,000  05/08/2017 06/30/2018  0% $27,500  $27,500  $25,000  05/08/2017 06/30/2018  0% $27,500  $27,500 
Note Payable (aa) $130,000  06/20/2018 01/02/2020  8% $—    $130,000 
Note Payable ** $8,700  11/15/2018 06/30/2019  10% $8,700  $8,700  $8,700  11/15/2018 06/30/2019  10% $8,700  $8,700 
Note Payable $118,644  05/05/2020 05/05/2021  8% $110,644  $110,644 
Note Payable (a) $199,500  10/01/2020 09/28/2021  66% $95,805  $149,573 
Note Payable (n)(b) $126,000  11/03/2020 04/23/2021  168% $21,000  $85,050 
Note Payable (c) $113,980  11/04/2020 03/15/2021  210% $—    $65,988 
Note Payable (d) $177,800  01/02/2021 07/12/2021  116% $115,957  $—   
Note Payable (e) $90,596  09/15/2019 05/28/2020  8% $—    $90,596  $111,920  03/03/2021 05/21/2021  220% $90,935  $—   
Note Payable (n)(b) $50,000  10/03/2019 04/03/2020  12% $—    $37,500 
Note Payable (e) $17,500  11/12/2019 11/12/2020  8% $—    $17,500 
Note Payable ** $83,400  12/20/2019 06/19/2020  150% $19,245  $80,192 
Note Payable(e) $148,362  12/20/2019 11/27/2020  80% $33,000  $145,404 
Note Payable (a) $25,782  01/08/2020 05/13/2020  313% $—    $—   
Note Payable (b) $33,660  02/19/2020 04/30/2020  585% $—    $—   
Note Payable (c)(e) $20,000  02/28/2020 05/28/2020  8% $—    $—   
Note Payable (d) ** $100,000  03/31/2020 08/01/2020  30% $25,000  $—   
Note Payable (e) $118,644  05/05/2020 05/05/2021  8% $110,644  $—   
Note Payable (f)(x) $150,000  07/08/2020 10/05/2021  10% $—    $—   
Note Payable (g) $119,200  07/15/2020 11/04/2020  23% $37,250  $—   
Note Payable (w) $140,000  08/18/2020 11/19/2020  0% $70,000  $—   
Note Payable (h) $74,950  08/21/2020 11/28/2020  343% $46,040  $—   
Note Payable (y) $100,000  09/03/2020 12/08/2020  0% $75,000  $—   
Subtotal             $452,379  $537,392              $470,542  $447,455 
Debt discount             $(18,035) $(69,239)             $(57,412) $(63,075)
Balance, net             $434,344  $468,153              $413,130  $384,380 
Less current portion             $(434,344) $(468,153)             $(413,130) $(384,380)
Total long-term             $—    $—                $—    $—   
                                        
** Currently in default                                        

 

a)On January 8,October 1, 2020, the Company sold future receivables with a non-related party for up to $87,540. During the period $25,782 was sold,$199,500, of which $10,207$53,250 was loan fees and original issue discount resulting in cash proceeds to the Company of $15,575.$146,250. The advance wasis to be repaid through $1,450weekly payments of $3,841. In connection with the advance, the Company granted the lender a security interest and all past, present and future assets of the Company. During the three months ended March 31, 2021, $14,625 of the discount was amortized to expense, leaving a net note balance of $79,789 (discount balance of $16,017).

b)On November 3, 2020, the Company sold future receivables with a non-related party for $126,000, of which $39,650 was loan fees and original issue discount resulting in cash proceeds to the Company of $86,350. The advance is to be repaid through $1,050 daily payments. In connection with the advance, the Company granted the lender a security interest and all past, present and future assets of the Company. During the three months ended March 31, 2021, $17,969 of the discount was amortized to expense, leaving a net note balance of $20,025 (discount balance of $975).

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

 

b)d)On February 19, 2020,2, 2021, the Company sold future receivables with a non-related party for $33,660,$177,800, of which $13,710$39,795 was loan fees and original issue discount resulting, and $35,994 was paid to settle the loan described in Note (d) in cash proceeds to the Company of $102,011. The advance is to be repaid through $7,730 weekly payments. In connection with the advance, the Company granted the lender a security interest and all past, present and future assets of the Company. During the three months ended March 31, 2021, $21,522 of the discount was amortized to expense, leaving a net note balance of $97,684 (discount balance of $18,273).

e)On March 9, 2021, the Company sold future receivables with a non-related party for $111,920, of which $35,120 was loan fees and original issue discount resulting in cash proceeds to the Company of $19,950.$76,800. The advance wasis to be repaid through $660 daily$1,399 weekly payments. In connection with the advance, the Company granted the lender a security interest inand all accounts, equipment, intangiblespast, present and inventory. This note was repaid duringfuture assets of the period.

c)On February 28, 2020,Company. During the Company entered into a promissory note with a non-related party for $20,000. The note is due May 28, 2020, is unsecured and bears an interest rate of 8% per annum. On May 5, 2020, the Company consolidated this note with two others as described in Note 5(e).

d)Onthree months ended March 31, 2020, the Company entered into a promissory note with a non-related party for $100,000. The note is due August 1, 2020, is unsecured and bears interest at $2,500 per month, repayable in four monthly payments of $27,500 commencing May 1, 2020. Additionally, the Company issued the lender 250,000 shares2021, $12,975 of the Company’s common stock withdiscount was amortized to expense, leaving a fair market valuenet note balance of $8,225 as additional consideration for the loan.

e)On May 5, 2020, the Company consolidated three notes with principal amounts$68,790 (discount balance of $90,596, $17,500 and $20,000 as well as accrued interest into a new note with a principal amount of $118,644 and a maturity date of May 5, 2021. The note bears interest at 8% per annum and in connection with the consolidation the Company issued the lender 15,000,000 shares of the Company’s common stock with a fair value of $841,500. As the instruments were substantially different, the old notes were considered to be extinguished and the Company recognized a loss on settlement of debt of $826,500.$22,145).

 

f)On July 8, 2020, the Company entered into a promissory note with a non-related party for $150,000. The note is due October 5, 2020, is unsecured and bears an interest rate of 10% per annum. On August 27, 2020, the note was consolidated and replaced with the convertible note described in Note 5(x).

g)On July 15, 2020,March 9, 2021, the Company sold future receivables with a non-related party for $119,200,$29,686, of which $44,700$10,120 was loan fees and original issue discount resulting in cash proceeds to the Company of $74,500. The advance is repayable through $7,450 weekly payments. In connection with$19,566. During the advance,three months ended March 31, 2021, $10,120 of the discount was amortized to expense and $29,686 was repaid, leaving a net note balance of $0.

13

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

Type Original Amount 

Origination

Date

 

Maturity

Date

 

Annual

Interest

Rate

 

Balance at

March 31,

2021

 

Balance at

December 31, 2020

Note Payable, RP ** $30,000  04/10/2018 01/15/2019  3% $5,000  $30,000 
Note Payable, RP **(g) $380,000  06/20/2018 01/02/2020  8% $—    $380,000 
Note Payable, RP **(h) $350,000  06/20/2018 01/02/2020  5% $—    $285,214 
Note Payable, RP ** $17,000  06/20/2018 01/02/2020  5% $17,000  $17,000 
Note Payable, RP ** $50,000  07/27/2018 11/30/2018  8% $50,000  $50,000 
Note Payable, RP $5,000  10/09/2018 Demand  0% $5,000  $5,000 
Note Payable, RP $5,000  10/19/2018 Demand  0% $5,000  $5,000 
Note Payable, RP ** $15,000  08/16/2019 02/16/2020  8% $15,000  $15,000 
Note Payable, RP $2,000  02/11/2020 Demand  0% $2,000  $2,000 
Note Payable, RP (h) $84,034  02/16/2021 Demand  5% $84,034  $—   
Subtotal             $183,034  $789,214 
Debt discount             $—    $—   
Balance, net             $183,034  $789,214 
Less current portion             $(183,034) $(789,214)
Total long-term             $—    $—   
                     
** Currently in default                    

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

 

h)On August 21, 2020,February 16, 2021, the Company sold future receivables withissued 1,803,279 shares of common stock to settle $247,156 from a non-related party for $74,950,$275,000 note payable dated June 20, 2018, which has a balance of which $26,945 was loan fees and original issue discount resulting in cash proceeds$331,190, including interest, to the current Chairman and CEO of the Company. The Company also agreed to issue a new note for the remaining balance owed to the Chairman and CEO of $48,005.$84,034, dated February 16, 2021. The advancenote will bear interest at 5% per annum and is repayable through $1,071 daily payments. In connection withdue on June 30, 2021. The Company recognized the advance,fair value of the Company grantedshares issued of $50,492 and due to the lender a security interestrelated party nature of the transaction no gain was recognized for the difference between the fair value of the shares and the extinguished debt. The resulting difference was recorded as Additional Paid-in Capital in all accounts, equipment, intangibles and inventory.the amount of $194,861.

 

 14 

 

The following table summarizes convertible notes payable related parties as of September 30, 2020March 31, 2021 and December 31, 2019:2020:

 

TypeOriginal Amount

Origination

Date

Maturity

Date

Annual

Interest

Rate

Balance at

September 30,

2020

Balance at

December 31, 2019

Note Payable, RP ** $30,000  04/10/2018 01/15/2019  3% $30,000  $30,000 
Note Payable, RP ** $380,000  06/20/2018 01/02/2020  8% $380,000  $380,000 
Note Payable, RP ** $350,000  06/20/2018 01/02/2020  5% $294,214  $325,000 
Note Payable, RP ** $17,000  06/20/2018 01/02/2020  5% $17,000  $17,000 
Note Payable, RP ** $50,000  07/27/2018 11/30/2018  8% $50,000  $50,000 
Note Payable, RP $5,000  10/09/2018 Demand  0% $5,000  $5,000 
Note Payable, RP $5,000  10/19/2018 Demand  0% $5,000  $5,000 
Note Payable, RP ** $15,000  08/16/2019 02/16/2020  8% $15,000  $15,000 
Note Payable, RP (i) $1,500  02/11/2020 Demand  0% $—    $—   
Note Payable, RP (j) $2,000  02/11/2020 Demand  0% $2,000  $—   
Subtotal             $798,214  $827,000 
Debt discount             $—    $(43)
Balance, net             $798,214  $826,957 
Less current portion             $(798,214) $(826,957)
Total long-term             $—    $—   
** Currently in default                    

Type Original Amount 

Origination

Date

 

Maturity

Date

 

Annual

Interest

Rate

 

Balance at

March 31,

2021

 

Balance at

December 31,

2020

Convertible Note Payable * ** $65,000  12/06/2018 12/06/2019  12% $46  $46 
Convertible Note Payable * **(i) $75,000  03/18/2019 12/13/2019  24% $107,795  $177,795 
Convertible Note Payable * ** (j) $30,000  03/06/2020 03/05/2021  12% $36,834  $21,662 
Convertible Note Payable (k) * ** $150,000  04/10/2020 04/09/2021  12% $90,000  $165,000 
Convertible Note Payable ** (l) $300,000  08/27/2020 07/31/2021  12% $280,000  $300,000 
Convertible Note Payable (m) $53,500  09/22/2020 03/21/2022  12% $—    $53,500 
Convertible Note Payable (n) $87,500  09/24/2020 Demand  8% $15,000  $40,000 
Convertible Note Payable  (o) $200,000  10/07/2020 10/06/2021  5% $200,000  $200,000 
Convertible Note Payable (p) $200,000  10/16/2020 10/15/2021  5% $200,000  $200,000 
Convertible Note Payable  (q) $300,000  11/11/2020 11/10/2021  5% $300,000  $300,000 
Convertible Note Payable (r) $150,000  12/29/2020 12/28/2021  5% $150,000  $150,000 
Convertible Note Payable (s) $150,000  01/27/2021 01/27/2022  5% $150,000  $—   
Convertible Note Payable (t) $128,000  02/22/2021 02/22/2022  12% $128,000  $—   
Convertible Note Payable (u) $200,000  03/18/2021 03/18/2022  5% $200,000  $—   
Convertible Note Payable (v) $83,000  03/26/2021 03/26/2022  12% $83,000  $—   
Subtotal             $1,940,675  $1,608,003 
Debt discount             $(5,658) $—   
Balance, net             $1,935,017  $1,608,003 
 Less current portion             $(1,935,017) $(1,554,503)
Total long-term             $—    $53,500 

 

i)On February 11, 2020,During the three months ended March 31, 2021 the Company entered into a promissory note with the Chairman and CEOrepaid $70,000 of the Company for $1,500. Theconvertible note is due on demand, is unsecured and bears an interest rate of 0% per annum. The note was repaid during the period.payable.

 

j)On February 11, 2020,During the three months ended March 31, 2021 the Company entered into a promissory note withincurred additional default penalties of $15,174 on the COO and Director of the Company for $2,000. The note is due on demand, is unsecured and bears an interest rate of 0% per annum.convertible note.

15

The following table summarizes convertible notes payable as of September 30, 2020 and December 31, 2019:

TypeOriginal Amount

Origination

Date

Maturity

Date

Annual

Interest

Rate

Balance at

September 30,

2020

Balance at

December 31, 2019

Convertible Note Payable (k) $50,000  12/06/2018 12/06/2019  12% $—    $22,777 
Convertible Note Payable * ** $65,000  12/06/2018 12/06/2019  12% $46  $46 
Convertible Note Payable (l)(w) $100,000  01/18/2019 01/16/2020  24% $—    $95,492 
Convertible Note Payable (u) $60,000  01/29/2019 01/22/2020  18% $—    $266,050 
Convertible Note Payable * ** $50,000  02/01/2019 10/22/2019  24% $154,330  $154,330 
Convertible Note Payable (r) $60,000  02/21/2019 02/14/2022  0% $—    $74,000 
Convertible Note Payable (m)(y) $55,125  02/21/2019 02/20/2020  24% $—    $42,125 
Convertible Note Payable * ** $75,000  03/18/2019 12/13/2019  24% $232,814  $232,814 
Convertible Note Payable (r) $26,000  09/16/2019 09/11/2022  0% $—    $26,000 
Convertible Note Payable (n) $175,814  09/27/2019 09/25/2020  8% $—    $175,814 
Convertible Note Payable $53,000  10/08/2019 10/07/2020  12% $—    $53,000 
Convertible Note Payable $50,000  10/31/2019 10/29/2020  12% $—    $50,000 
Convertible Note Payable (o) $8,888  02/19/2020 02/18/2021  12% $—    $—   
Convertible Note Payable (p) * ** $30,000  03/06/2020 03/05/2021  12% $30,000  $—   
Convertible Note Payable (q) $45,000  03/09/2020 03/02/2021  12% $—    $—   
Convertible Note Payable (s) * ** $150,000  04/10/2020 04/09/2021  12% $150,000  $—   
Convertible Note Payable (t) $128,000  04/16/2020 04/09/2021  12% $128,000  $—   
Convertible Note Payable (v) $83,000  05/12/2020 11/08/2021  12% $83,000  $—   
Convertible Note Payable (x) $300,000  08/27/2020 07/31/2021  10% $300,000  $—   
Convertible Note Payable (z) $53,500  09/22/2020 03/21/2022  12% $53,500  $—   
Convertible Note Payable (aa) $87,500  09/24/2020 Demand  8% $56,000  $—   
Subtotal             $1,187,690  $1,192,448 
Debt discount             $—    $(4,815)
Balance, net             $1,187,690  $1,187,633 
Less current portion             $(1,134,190) $(1,187,633)
Total long-term             $53,500  $—   
* Embedded conversion feature accounted for as a derivative liability at period end
** Currently in default

 

k)During the period ended September 30, 2020, $22,777 of principal and $4,007 of interest of the convertible note payable was converted into 37,005,272 shares of the Company’s common stock.

l)During the period ended September 30, 2020, the Company was further assessed default penalties and interest on this convertible note as the note reached maturity. Additional default and penalties were assessed in the amount of $142,795 of which $9,549 was recorded as a principal addition and $133,246 was recorded in accrued interest.
During the period ended September 30, 2020, $4,562 of principal and $191 of interest of the convertible note payable was converted into 5,281,088 shares of the Company’s common stock.

m)During the period ended September 30, 2020, the Company was further assessed default penalties and interest on this convertible note as the note reached maturity. Additional default and penalties were assessed in the amount of $4,213 was recorded as a principal addition.
During the period ended September 30, 2020, $7,168 of principal of the convertible note payable was converted into 8,000,000 shares of the Company’s common stock.

16

n)On February 7, 2020, the Company extinguished both promissory note (totaling $39,000) and convertible note (totaling $181,000), including accrued interest with a non-related party through the issuance of 220,000 shares of preferred series C stock. The Company recorded the difference between the fair value of the preferred series C stock of $264,000 and the debt outstanding of $220,000 as a loss on extinguishment of debt of $44,000.

o)On February 19, 2020, the Company received another tranche on a convertible note originally dated December 6, 2018. The new tranche had a principal amount of $8,888, with an original issue discount of $888. The convertible note is due 365 days from issuance, bears interest at 12% per annum and is convertible into common shares of the Company at 65% multiplied by the lowest traded price or lowest closing bid price during the 25 days the Company’s stock is tradable prior to the conversion date. Further, if at any time the stock price is less than $0.30 an additional 20% discount is applied and if at any time the conversion price is less than $0.01 and additional 10% is applied. Further, an additional 15% is applied if the Company fails to comply with its reporting requirements. During the period, all these additional discounts were triggered.
The embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15. The initial fair value of the conversion feature was $70,719 and resulted in a discount to the note payable of $8,000 and an initial derivative expense of $62,719.
During the period ended September 30, 2020, the entire amount was repaid.

p)On March 6, 2020, the Company received another tranche on a convertible note originally dated December 6, 2018. The new tranche had a principal amount of $30,000, with an original issue discount of $4,000. The convertible note is due 365 days from issuance, bears interest at 12% per annum and is convertible into common shares of the Company at 65% multiplied by the lowest traded price or lowest closing bid price during the 25 days the Company’s stock is tradable prior to the conversion date. Further, if at any time the stock price is less than $0.30 an additional 20% discount is applied and if at any time the conversion price is less than $0.01 and additional 10% is applied. Further, an additional 15% is applied if the Company fails to comply with its reporting requirements. During the period, all these additional discounts were triggered.
The embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15. The initial fair value of the conversion feature was $391,837 and resulted in a discount to the note payable of $26,000 and an initial derivative expense of $365,837.

q)On March 9, 2020, the Company entered into a convertible promissory with a non-related party for $45,000 of which $3,000 was an original issue discount resulting in cash proceeds to the Company of $42,000. The note is due on March 2, 2021 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note’s term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company’s common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date. The note was repaid prior to becoming convertible and no derivative liability was recorded.

r)On April 1, 2020, the Company entered into a settlement agreement to settle two convertible notes with remaining principal amounts $74,000 and $26,000. Pursuant to the settlement agreement, the Company agreed to pay $100,000 to settle the principal and accrued interest and penalties relating to the two convertible notes. As a result, the Company recorded a gain on settlement of debt of $312,269. As part of the settlement, the Company cancelled 197,190,272 warrants.

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

The embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15. The initial fair value of the conversion feature was $507,847 and resulted in a discount to the note payable of $132,000 and an initial derivative expense of $375,847. During the year ended December 31, 2020, the Company incurred $15,000 of penalties which increased the principal amount of the note to $165,000. During the three months ended March 31, 2021, the Company repaid $75,000 of the note.

l)During the three months ended March 31, 2021, the Company repaid $20,000 of the note.

 

t)On April 16, 2020, the Company entered into a convertible promissory with a non-related party for $128,000 of which $3,000 was an original issue discount resulting in cash proceeds to the Company of $125,000. The note is due on April 9, 2021 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note’s term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company’s common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date. As the note is not convertible until 180 days following issuance, no derivative liability was recognized as of September 30, 2020.

u)On May 11, 2020, the Company entered into a settlement agreement to settle the $60,000 convertible note. Pursuant to the settlement agreement, the Company agreed to pay $100,000 to settle the principal and accrued interest and penalties relating the convertible note. As a result, the Company recorded a gain on settlement of debt of $2,273,770.

17

v)On May 12, 2020, the Company entered into a convertible promissory with a non-related party for $83,000 of which $3,000 was an original issue discount resulting in cash proceeds to the Company of $80,000. The note is due on November 8, 2021 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note’s term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company’s common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date. As the note is not convertible until 180 days following issuance, no derivative liability was recognized as of September 30, 2020.

w)On August 18, 2020, the Company entered into a settlement agreement to settle the $100,000 convertible note. Pursuant to the settlement agreement, the Company agreed to pay $140,000 in four monthly installments of $35,000 commencing August 19, 2020 and ending November 19, 2020 to settle the principal and accrued interest and penalties relating the convertible note. As a result, the Company recorded a gain on extinguishment of debt of $500,565. As of September 30, 2020, $70,000 was remaining to be paid pursuant to the settlement agreement has been recorded in notes payable.

x)On August 27, 2020, the Company executed a new, consolidated convertible note with a non-related party by extinguishing the promissory note in the amount of $150,000 with interest due of $2,055. The new convertible note is in the amount of $300,000 (an additional $150,000 received), is due on or before July 31, 2021, has an 10% per annum interest rate and may be converted into shares of the Company’s common stock at $0.075 per share.

y)On September 3, 2020, the Company entered into a settlement agreement to settle the $55,125 convertible note. Pursuant to the settlement agreement, the Company agreed to pay $100,000 in four monthly installments of $25,000 commencing September 8, 2020 and ending December 8, 2020 to settle the principal and accrued interest and penalties relating the convertible note. As a result, the Company recorded a loss on extinguishment of debt of $10,273. As of September 30, 2020, $75,000 was remaining to be paid pursuant to the settlement agreement has been recorded in notes payable.

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

n)During the three months ended March 31, 2021 the Company issued 25,000,000 common shares upon the conversion of $25,000 of the convertible note payable.

o)On October 7, 2020, the Company entered into a convertible promissory note with a non-related party for $200,000. The note is due on October 6, 2021 and bears interest on the unpaid principal balance at a rate of 5% per annum. The Note may be converted by the Lender at any time after 6-months of the date of issuance into shares of Company’s common stock at a conversion price of $0.20.

p)On October 16, 2020, the Company entered into a convertible promissory note with a non-related party for $200,000. The note is due on October 15, 2021 and bears interest on the unpaid principal balance at a rate of 5% per annum. The Note may be converted by the Lender at any time after 6-months of the date of issuance into shares of Company’s common stock at a conversion price of $0.20.

q)On November 11, 2020, the Company entered into a convertible promissory note with a non-related party for $300,000. The note is due on November 10, 2021 and bears interest on the unpaid principal balance at a rate of 5% per annum. The Note may be converted by the Lender at any time after 6-months of the date of issuance into shares of Company’s common stock at a conversion price of $0.15.

r)On December 29, 2020, the Company entered into a convertible promissory note with a non-related party for $150,000. The note is due on December 28, 2021 and bears interest on the unpaid principal balance at a rate of 5% per annum. The Note may be converted by the Lender at any time after 6-months of the date of issuance into shares of Company’s common stock at a conversion price of $0.10.

s)On January 27, 2021, the Company entered into a convertible promissory note with a non-related party for $150,000. The note is due on January 26, 2022 and bears interest on the unpaid principal balance at a rate of 5% per annum. The note may be converted by the lender at any time within 6-months of the date of issuance into shares of Company’s common stock at a conversion price equal to $0.10.

t)On February 23, 2021, the Company entered into a convertible promissory note with a non-related party for $128,000, of which $3,000 was an original issue discount resulting in cash proceeds to the Company of $125,000. The note is due on February 22, 2022 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note’s term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company’s common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date. As the note is not convertible until 180 days following issuance, no derivative liability was recognized as of September 30, 2020.March 31, 2021.

 

aa)u)On September 25, 2020,March 18, 2021, the Company amendedentered into a convertible promissory note to addwith a non-related party for $200,000. The note is due on March 17, 2022 and bears interest on the unpaid principal balance at a rate of 5% per annum. The note may be converted by the lender at any time within 6-months of the date of issuance into shares of Company’s common stock at a conversion feature makingprice equal to $0.10.

v)On March 26, 2021, the Company entered into a convertible promissory note with a non-related party for $83,000, of which $3,000 was an original issue discount resulting in cash proceeds to the Company of $80,000. The note is due on March 24, 2022 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note’s term) and any part of the note convertiblewhich is not paid when due shall bear interest at $0.001the rate of 22% per share, with all other terms remainingannum from the same.due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company’s common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date. As the instruments were substantially different, the promissory note is not convertible until 180 days following issuance, no derivative liability was considered to be extinguished. As a result, the Company recorded a loss on extinguishmentrecognized as of debt of $4,160,685.
During the period ended September 30, 2020, $31,500 of principal of the convertible note payable was converted into 31,500,000 shares of the Company’s common stock.March 31, 2021.

 1815 

 

NOTE 6.7 – DERIVATIVE LIABILITIES

 

The embedded conversion option of (1) the convertible notes payabledebentures described in Note 5;6 and (2) warrants; containwarrants, 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 5,6, 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 9,10, 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,
2020
 December 31,
2019
 

March 31,

2021

 December 31,
2020
 (restated)   (restated) (restated)
Balance at the beginning of period $10,517,873  $322,976  $7,102,801  $10,517,873 
Original discount limited to proceeds of notes  166,000   540,750 
Original discount limited to proceeds of convertible notes  —     166,000 
Fair value of derivative liabilities in excess of notes proceeds received  804,403   1,653,887   —     1,128,966 
Settlement of derivative instruments  (15,443,000)  (3,258,054)  (316,401)  (16,824,669)
Change in fair value of embedded conversion option  14,449,140   11,258,314   257,919   12,114,631 
Balance at the end of the period $10,494,416  $10,517,873  $7,044,319  $7,102,801 

 

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

 

Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:

 

  Expected Volatility  Risk-free Interest Rate  Expected Dividend Yield  Expected Life (in years) 
At issuance during the period  336-358%  0.25-1.47%  0%  1.00 
At September 30, 2020  127-256%  0.11-0.16%  0%  0.43-3.45 
Expected VolatilityRisk-free Interest RateExpected Dividend YieldExpected Life (in years)
At March 31, 2021116 - 262%0.07-0.92%0%0.66-4.41

 

 1916 

 

NOTE 7.8 - STOCKHOLDERS’ DEFICIT

 

Preferred Stock

 

On February 7, 2020,Effective March 23, 2018, the Company extinguishedamended the articles of incorporation and authorized 10,000,000 shares of preferred stock with a promissory notepar 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

Effective March 23, 2018, the Company amended the articles of incorporation and convertible note, including accrued interest throughauthorized 10,000,000 shares of preferred stock with a par value of $0.001 per share, of which 1,000,000 shares were designated as Series A Convertible Preferred Stock as of December 31, 2019. The preferred stock may be issued from time to time by the Board of Directors as shares of one or more classes or series.

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 220,000600,000 shares of preferred series C stock.Preferred Series “A” stock to three accredited investors who are related parties. The Company recordedwas unable to issue the difference betweensubscriber 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:

  1. 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.
  1. 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.

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 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 CA 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 $264,000March 31, 2021, and December 31, 2020, there were 500,000 shares of Series A Convertible Preferred Stock issued and outstanding, respectively.

17

Series B Preferred Shares

Effective August 13, 2019, the debtCompany 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. To date the Company has received $500,500 of equity capital, and upon the receipt of an additional $499,500 in equity capital the redemption right will be triggered.

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 $220,000 asthe 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 loss on extinguishmentmajority of debtthe voting power of $44,000.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.

 

During the period ended September 30, 2020,Upon designation, the Company sold 270,000issued 500,000 shares of the Series B preferred stock to each of its current CEO/Chairman and COO/Director (1,000,000 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 March 31, 2021, and December 31, 2020, there were 1,000,000 shares of Series B Preferred Stock issued and outstanding, respectively.

18

Series C Preferred Shares

Pursuant to the September 18, 2019 majority consent of stockholders in lieu of an annual meeting (including the consent of the Series A Convertible Preferred Stockholders), the Registrant 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”.

At December 31, 2020, there were 40,000 Series C Preferred Shares issued and outstanding, valued at $1 per share or $40,000.

On February 15, 2021, 40,000 shares of preferred series C stock for proceeds of $270,000.

The preferred series C stock sold during the period contained a beneficial conversion feature as the conversion price was less than the fair value of the common stock which the instrument is convertible at the commitment date. During the nine-months ended September 30, 2020, the intrinsic value of the 270,000 shares sold was $270,000. As the preferred series C stock are have no stated maturity date and are convertible at any time, the discount created in the preferred series C stock is fully amortized at issuance as a deemed dividend.

During the period ended September 30, 2020, 400,000 shares of preferred series C stock with a value of $444,000 was converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 40,000,0004,000,000 shares of common stock. At March 31, 2021, no Series C Preferred Shares were outstanding

19

Common Stock

 

On January 1, 2019,Effective March 23, 2018, the Company entered into a four-year employment agreement with F. Jody Read in his role as Chief Executive Officer. The employment agreement awardsamended the CEO 1,500,000 restricted sharesArticles of Incorporation and increased the Company’s restricted stock valued at $240,000, which shall vest in the following manner: 375,000 shares on March 1, 2019, 375,000 shares on March 1, 2020, 375,000 shares on March 1, 2021 and the final 375,000 shares on March 1, 2022. On October 4, 2019, F. Jody Read resigned from the position of CEO and moved back into the role of COO. The terms of his employment agreement remained unchanged. As of September 30, 2020, 750,000 shares were issued and the Company had recognized $159,431 of stock-based compensation.

During the period ended September 30, 2020, $22,777 of principal and $4,007 of interest of the convertible note payable was converted into 37,005,272 shares of the Company’s common stock as further described in Note 5(h).

During the period ended September 30, 2020, the Company issued 9,246,186authorized shares of common stock uponwith a par value of $0.001 per share from 100,000,000 to 300,000,000 shares. Effective October 4, 2019, the cashless exerciseCompany amended the Articles of 9,280,742 warrants.Incorporation and increased the authorized shares of common stock with a par value of $0.001 per share from 300,000,000 to 1,000,000,000 shares. The number of shares outstanding of the registrant’s common stock as of March 31, 2021 and December 31, 2020 was 758,454,354 and 722,487,846, respectively.

 

DuringOn January 4, 2021, the period ended September 30, 2020, 400,000Company issued 25,000,000 common shares to settle a convertible note described in Note 6(o), with a remaining balance of $40,000.

On February 15, 2021, 40,000 shares of preferred series C stock with a value of $444,000 was converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 40,000,0004,000,000 shares of common stock.

On January 1, 2020,February 16, 2021, the Company issued 15,000,000 fully vested shares of the Company’s common stock to Gary J. Grieco, its President and CEO, pursuant to an employment agreement. The Company recorded the fair value of the common shares of $99,000 as stock-based compensation.

On March 20, 2020, the Company issued 150,0001,803,279 shares of common stock to settle $247,270 from a consultant. The Company recorded$275,000 note payable dated June 20, 2018, which has a balance of $331,304, including interest, to the fair valuecurrent Chairman and CEO of the common shares of $5,880 in consulting expense.Company.

 

On March 31, 2020,February 16, 2021, the Company issued 250,000 shares of common stock pursuant to a loan agreement. The Company recorded the fair value of the common shares of $8,225 in interest expense.

On April 27, 2020, the Company issued 1,000,0002,663,299 shares of common stock to an employeesettle a June 20, 2018 note payable of $380,000 and accrued interest of $26,153 owed to the current COO and Director of the Company for cash proceeds of $10,000.Company.

 

On April 27, 2020, the Company issued 2,750,000 shares of common stock for cash proceeds of $110,000.

On May 5, 2020, the Company issued 15,000,000 shares of common stock as part of the note extinguishment and consolidation agreement described in Note 5(e).

On May 19, 2020, the Company issued 500,000 shares of common stock for cash proceeds of $20,000.

On JulyMarch 1, 2020,2021, the Company entered into a consulting agreement. Pursuant to the agreement, the consultant will provide advisory services through DecemberMay 31, 2021 in consideration of 8,000,0002,500,000 shares of common stock. The fair value of the common stock was $307,200$62,750, of which $49,685$20,917 was recognized in consulting expenses for the period ended September 30, 2020, with the remainder inMarch 31, 2021 and $41,833 was recorded as prepaid assets for future services.

On July 6, 2020, the Company entered into a consulting agreement. Pursuant to the agreement the consultant will provide investor relations services for a period of one year in consideration for $3,000 per month and the issuance of 1,000,000 shares of common stock. The fair value of the common stock was $36,000 of which $8,482 was recognized in consulting expenses for the period ended September 30, 2020, with the remainder in prepaid assets for future services.

On July 8, 2020, the Company entered into a consulting agreement. Pursuant to the agreement the consultant will provide operational business development and introductory services for a period of five years in consideration for the issuance of 1,000,000 shares of common stock and a 5% commission, payable in cash, for any product sales brokered. The fair value of the common stock was $36,500 which was recognized in consulting expenses.

 

On August 14, 2020, $4,562 of principal and $191 of interest of a convertible note payable was converted into 5,281,088 shares of the Company’s common stock as further described in Note 5(l).

On September 2, 2020, $7,168 of principal of a convertible note payable was converted into 8,000,000 shares of the Company’s common stock as further described in Note 5(m).

On September 29, 2020, $31,500 of principal of a convertible note payable was converted into 31,500,000 shares of the Company’s common stock as further described in Note 5(aa).

20

NOTE 8.9. STOCK OPTIONS

 

Below is a table summarizing the options issued and outstanding as of September 30, 2020:March 31, 2021:

 

  Number of
options
 Weighted average exercise price
$
Balance, December 31, 2019   200,000   2.00 
Granted   —     —   
Expired   —     —   
Settled   —     —   
Balance, September 30, 2020   200,000   2.00 
  Number of options Weighted average exercise price
$
 Balance, December 31, 2020   200,000   2.00 
 Granted   —     —   
 Expired   —     —   
 Settled   —     —   
 Balance, March 31, 2021   200,000   2.00 

 

As at September 30, 2020,March 31, 2021, the following share stock options were outstanding:

 

DateDate Number Number Exercise Weighted Average Remaining Contractual Expiration Proceeds to Company ifDate Number Number Exercise Weighted Average Remaining Contractual Expiration Proceeds to Company if
IssuedIssued Outstanding Exercisable Price $ Life (Years) Date ExercisedIssued Outstanding Exercisable Price $ Life (Years) Date Exercised
01/26/2017   200,000   200,000   2.00   1.32   01/26/2022   400,000 01/26/2017   200,000   200,000   2.00   0.82   01/26/2022   400,000 
    200,000   200,000              $400,000     200,000   200,000             $400,000 

 

The weighted average exercise prices are $2.00 for the options outstanding and exercisable, respectively. The intrinsic value of stock options outstanding at September 30, 2020March 31, 2021 was $nil.

 

20

NOTE 9.10. 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 6.

 

The following table summarizes the continuity of share purchase warrants:

 

  Number of
warrants
 Weighted average exercise price
$
  (restated)  
Balance, December 31, 2019  413,816,252   0.00053 
Adjustment to warrants outstanding  43,154,762   0.00056 
Granted  —     —   
Cancelled  (197,190,272)  0.00041 
Exercised  (9,280,742)  0.00035 
Balance, September 30, 2020  250,500,000   0.00055 
  Number of
warrants
 Weighted average exercise price
$
  (restated)  
Balance, December 31, 2020  260,500,000   0.00283 
Adjustment to warrants outstanding  —     —   
Granted  —     —   
Settled  —     —   
Balance, March 31, 2021  260,500,000   0.00283 

 

As at September 30, 2020,March 31, 2021, the following share purchase warrants were outstanding:

 

DateDate Number Number Exercise Weighted Average Remaining Contractual Expiration Proceeds to Company ifDate Number Number Exercise Weighted Average Remaining Contractual Expiration Proceeds to Company if
IssuedIssued Outstanding Exercisable Price $ Life (Years) Date ExercisedIssued Outstanding Exercisable Price $ Life (Years) Date Exercised
 (restated)   (restated)     (restated)  (restated) (restated)       (restated)
11/28/2018   142,857,143*  142,857,143*  0.00035*  1.16   11/28/2021  $50,000 11/28/2018   142,857,143*  142,857,143*  0.00035*  0.66   11/28/2021  $50,000 
12/03/2018   500,000   500,000   0.10   3.18   12/03/2023   50,000 12/3/2018   500,000   500,000   0.10   2.68   12/3/2023   50,000 
03/13/2019   107,142,857*  107,142,857*  0.00035*  3.45   03/13/2024   37,500 3/13/2019   107,142,857*  107,142,857*  0.00035*  2.95   3/13/2024   37,500 
    250,500,000   250,500,000             $137,500 8/26/2020   10,000,000   10,000,000   0.06000   4.41   8/26/2025   600,000 
    260,500,000   260,500,000             $737,500 

 

*The number of warrants outstanding and exercisable is variable based on adjustments to the exercise price of the warrant due to dilutive issuances.

 

The Company cancelled 197,190,272 warrants as part of the settlement of a convertible note as described in Note 5(r).

The intrinsic value of warrants outstanding at September 30, 2020March 31, 2021 was $11,037,500$5,912,500 (restated).

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, 9 and 11 for more details.

 

 21 

 

NOTE 10. RELATED PARTY TRANSACTIONS

The Company has agreements with related parties for consulting services, accrued rent, accrued interest, notes payable and stock options. See Notes to Financial Statements numbers 5, 7, 8 and 11 for more details.

NOTE 11.12. COMMITMENTS AND CONTINGENCIES

 

Consulting Agreements – 

 

On OctoberMarch 1, 2019,2021, the Company entered into a consulting agreement. Pursuant to the agreement, for investor relationsthe consultant will provide consulting services through March 31, 2020. The agreement calledto the Company in various marketing and management matters for a cash paymentperiod of $25,000three months. In consideration for the services performed by the consultant, the Company agreed to compensate the consultant $5,000 per month. Additionally, the Company agreed to sell to the consultant, and 12,000,000 restrictedthe consultant has the option to purchase from the Company, two and one-half million (2,500,000) shares of common stockthe Company’s Common Stock at the price of $0.0001. This option to be issued to the consultant. As of December 31, 2019, the Company recorded the fair value of the shares of $61,200purchase is valid for the consulting expense related to the consulting services provided. The expense was recognized over the service period, ending on March 31, 2020.one year.

 

In addition to contracts for service, theThe Company also regularly uses the professional services of securities attorneys, a US EPA specialist, professional accountants, and other public-company specialists.

 

Employment Agreements –

 

On January 1, 2019,No new agreements during the Company entered into a four-year employment agreement with F. Jody Read in his role as Chief Executive Officer. The terms of the contract call for an annual salary of $90,000 for the first year, effectiveperiod ending March 1, 2019 and increasing to $120,000 once the Company’s revenue exceeds monthly expenses, then incrementally over time and with certain operation results, up to $200,000/year. The salary may be paid, at the employee’s discretion, either in cash or in common stock. A $1,000 per month allowance will be granted to the executive for housing near the Company’s South Carolina facility. The employment agreement awards the CEO 1,500,000 restricted shares of the Company’s restricted stock, which shall vest in the following manner: 375,000 shares on March 1, 2019, 375,000 shares on March 1, 2020, 375,000 shares on March 1, 2021 and the final 375,000 shares on March 1, 2022. On August 12, 2019, the Company amended the Employment Contract with F. Jody Read, CEO, whereby 500,000 preferred series B stock were issued to Read. All other terms of the January 1, 2019 employment agreement remain in effect. On October 4, 2019, F. Jody Read resigned from the position of CEO and moved back into the role of COO.

On August 12, 2019, the Company entered into a four-year employment agreement with Gary J. Grieco, its President, whereby Mr. Grieco will continue to receive $24,000 per year for services to Company as its President and whereby 500,000 preferred series B stock were issued to Grieco. The employment agreement begins on August 12, 2019, is automatically renewable for two years unless terminated earlier as per the terms of the agreement. Gary Grieco entered the role of CEO of the Company upon F. Jody Read’s resignation on October 4, 2019 and entered into a four-year employment agreement with the Company on January 1, 2020. Pursuant to the agreement Mr. Grieco will receive $48,000 per year commencing April 1, 2020 and receive 15,000,000 shares of the Company’s common stock for services to the Company as its President and CEO. In addition, once monthly revenue exceeds monthly expenses the salary will be increased and Mr. Grieco will be issued an additional 10,000,000 shares of the Company’s common stock. The employment agreement begins on January 1, 2020 and is automatically renewable for two years unless terminated earlier as per the terms of the agreement.31, 2021.

 

Other Obligations and Commitments 

 

No new obligation or commitments during the period ending March 31, 2021.

NOTE 13. SUBSEQUENT EVENTS

On April 2, 2021 and April 16, 2021, the Company paid $35,000 and $19,000 respectively to a non-related party towards a $75,000 Convertible Note dated March 20, 2020,18, 2019.

On April 5, 2021, the Company entered into a consulting agreement. Pursuant toconvertible promissory note with a non-related party for $43,000. The Note is due on April 5, 2022 and bears interest on the agreementunpaid principal balance at the consultant will provide investor relations services for a periodrate of nine months.12% per annum. The Company issuedNote may be converted by the consultant 150,000lender at any time before 6-months of the date of issuance into shares of Company’s common stock.stock at the conversion price equal to 61% multiplied by the Market Price.

 

On July 1, 2020,April 14, 2021, the Company entered into a consulting agreement. Pursuant toconvertible promissory note with a non-related party for $200,000. The Note is due on April 14, 2022 and bears interest on the agreementunpaid principal balance at the consultant will provide advisory services through December 31, 2021 in considerationrate of 8,000,0005% per annum. The Note may not be converted by the lender before 6 months of the issuance date into shares of Company’s common stock.stock at a conversion price equal to $0.10.

 

On July 6, 2020,May 3, 2021, the Company entered into a consulting agreement. Pursuant toconvertible promissory note with a non-related party for $128,000. The Note is due on May 3, 2022 and bears interest on the agreementunpaid principal balance at the consultant will provide investor relations services for a periodrate of one year in consideration for $3,00012% per month andannum. The Note may be converted by the lender at any time before 6-months of the date of issuance of 1,000,000into shares of Company’s common stock.stock at the conversion price equal to 61% multiplied by the Market Price.

 

On July 8, 2020,May 5, 2021, the Company entered into an employment agreement with a consulting agreement. Pursuant to the agreement the consultant will provide operational business development and introductory services for a period of five years in consideration forrecently appointed officer, whereby it authorized the issuance of 1,000,000 shares of common stock and a 5% commission, payable in cash for any product sales brokered.to such officer (see 8-K issued May 21, 2021)

 

On August 26, 2020May 6, 2021, the Company signedaccepted the resignation of Gregory W. Albers from the position of Secretary/Treasurer of PCT LTD. Mr. Albers will continue to serve as a new 1-year lease formember of 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 has an option to renew the lease for an additional 4-years.Board as a Director (see 8-K issued May 21, 2021)

 

 22 

 

On May 7, 2021, the Company deemed in the best interest to settle any and all of the Company’s prior convertible debt with Crown Bridge Partners and allow for the cashless exercise to purchase 1,921,875 shares of PCT LTD’s common stock (par value $0.001/share) at the rate of $0.032/share, thereby reducing PCT LTD’s prior debt to Crown Bridge Partners to $0.00. In addition, Crown Bridge Partners shall release 60,072,853 shares to the agreed upon payment terms of $36,994 cash.

On May 19, 2021, the company received acknowledgement from a non-related, convertible note holder, with which the Company had previously settled its debt, that 4,623,093 warrants were extinguished at the time of the settlement (May 8, 2020); thereby returning 4,623,093 warrants to the Company’s treasury.

On June 2, 2021, the Company sold future receivables to a non-related party for $222,400, of which $8,000 was attributable to loan fees and $62,400 to original issue discount resulting in cash proceeds to the Company of $152,000. The advance is to be repaid through weekly payments of $8,554. In connection with the advance, the Company granted the lender a security interest in all past, present and future assets of the Company.

On June 2, 2021, the Company paid $25,000 to a non-related party toward a $150,000 Convertible Note dated April 9, 2020.

On June 2, 2021, the Company entered into a subscription and purchase agreement with a non-related party consisting of 3,750,000 restricted shares of common stock (aggregate) at a price per share of $0.02 for $75,000 cash.

On June 4, 2021, the Company paid $43,600 to a non-related party to extinguish any and all debt owed on a February 1, 2021 future receivables transaction.

On July 1, 2021, the Company renewed its annual lease on the Little River, SC facility for $7,650 per month, which is renewable for an additional three years (with a 2% increase annually).

NOTE 14. RESTATEMENT

As previously disclosed, the Company determined that previously issued warrants to a debt holder should have been accounted for as cancelled along with the settlement of all outstanding debt with such holder in May 2020. In May 2020, the Company entered into a debt settlement agreement with one of its debt holders which settled all debt and warrants held by such holder. However, due to a misunderstanding of the facts and circumstances related to the settlement agreement, the Company did not reflect the warrants as settled at that time. Due to the provisions of the warrants, these were accounted for as derivative liabilities. The Company concluded that the impact of recognizing the cancellation of the warrants was materially different from its previously reported results. As a result, the Company is restating its unaudited condensed consolidated financial statements for the periods impacted. The following financial tables reconcile the previously reported amounts to the restated amounts for each unaudited condensed consolidated financial statement. 

23

The table below sets forth changes to the unaudited consolidated balance sheet:

  March 31, 2021
  As Previously Reported Adjustments As Restated
       
ASSETS            
Total current assets $451,658  $—    $451,658 
             
Total property and equipment, net  346,716   —     346,716 
Total other assets  3,449,364   —     3,449,364 
             
TOTAL ASSETS  4,247,738   —     4,247,738 
             
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY            
CURRENT LIABILITIES            
Accounts payable  231,439   —     231,439 
Accrued expenses – related parties  80,951   —     80,951 
Accrued expenses  611,155   —     611,155 
Deferred revenue  1,075       1,075 
Operating lease liability  36,607       36,607 
Notes payable – related parties  183,034   —     183,034 
Notes payable, net  413,130   —     413,130 
Convertible notes payable, net  1,935,017   —     1,935,017 
Derivative liability  11,763,555   (4,719,236)  7,044,319 
Total current liabilities  15,255,963   (4,719,236)  10,536,727 
             
Operating lease liability, net of current portion  77,499   —     77,499 
TOTAL LIABILITIES  15,333,462   (4,719,236)  10,614,226 
             
TOTAL MEZZANINE EQUITY  218,645   —     218,645 
             
STOCKHOLDERS’ DEFICIT            
Common stock  758,454   —     758,454 
Additional paid-in capital  23,962,053   —     23,962,053 
Accumulated deficit  (36,024,876)  4,719,236   (31,305,640)
   (11,304,369)  4,719,236   (6,585,133)
             
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY $4,247,738  $—    $4,247,738 

24

The table below sets forth changes to the consolidated balance sheet:

  December 31, 2020
  As Previously Reported Adjustments As Restated
       
ASSETS            
Total current assets $747,756   —    $747,756 
             
Total property and equipment, net  358,719   —     358,719 
Total other assets  3,528,135   —     3,528,135 
             
TOTAL ASSETS  4,634,610   —     4,634,610 
             
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY            
CURRENT LIABILITIES            
Accounts payable  272,978   —     272,978 
Accrued expenses – related parties  139,280   —     139,280 
Accrued expenses  622,040   —     622,040 
Deferred revenue  1,075   —     1,075 
Operating lease liability  34,965   —     34,965 
Notes payable – related parties  789,214   —     789,214 
Notes payable, net  384,380   —     384,380 
Convertible notes payable, net  1,554,503   —     1,554,503 
Derivative liability  11,429,043   (4,326,242)  7,102,801 
Total current liabilities  15,227,478   (4,326,242)  10,901,236 
             
Convertible notes payable, net of current portions and discounts  53,500   —     53,500 
Operating lease liability, net of current portion  83,420   —     83,420 
TOTAL LIABILITIES  15,364,398   (4,326,242)  11,038,156 
             
TOTAL MEZZANINE EQUITY  258,645   —     258,645 
             
STOCKHOLDERS’ DEFICIT            
Common stock  722,488   —     722,488 
Additional paid-in capital  23,202,933   —     23,202,933 
Accumulated deficit  (34,913,854)  4,326,242   (30,587,612)
   (10,988,433)  4,326,242   (6,662,191)
             
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY $4,634,610   —    $4,634,610 

25

The table below sets forth changes to the unaudited condensed consolidated statements of operations for the three months ended March 31, 2021:

  For the three months ended March 31, 2021
  As Previously Reported Adjustments As Restated
       
REVENUES            
Total revenues $395,519  $—    $395,519 
             
OPERATING EXPENSES            
Total operating expenses  1,043,673   —     1,043,673 
             
INCOME (LOSS) FROM OPERATIONS  (648,154)  —     (648,154)
             
OTHER INCOME (EXPENSE)            
Loss on change in fair value of derivative liability  (650,913)  392,994   (257,919)
Misc. income  50,000   —     50,000 
Gain (loss) on settlement of debt  316,401   —     316,401 
Interest expense  (178,356)  —     (178,356)
Total other income (expense)  (462,868)  392,994  (69,874)
             
Income (loss) before income taxes  (1,111,022)  392,994  (718,028)
             
Income taxes  —     —     —   
             
NET INCOME (LOSS)  (1,111,022)  392,994  (718,028)
Preferred series C stock deemed dividends  —     —     —   
             
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS’ $(1,111,022) $392,994 $(718,028)
             
Basic and diluted net income (loss) per share $(0.00) $(0.00) $(0.00)
             
Basic and diluted weighted average shares outstanding  751,832,583       751,832,583 

26

The table below sets forth changes to the unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2021:

  For the three months ended March 31, 2021
  As Previously Reported Adjustments As Restated
       
Cash Flows from Operating Activities            
Net loss $(1,111,022) $392,994  $(718,028)
Adjustments to reconcile net loss to net cash used in operating activities:            
Depreciation and amortization  88,122   —     88,122 
Amortization of debt discounts  78,804   —     78,804 
Common stock issued for services  14,027   —     14,027 
Loss on change in fair value of derivative liability  650,913   (392,994)  257,919 
Amortization of right-of-use asset  8,149   —     8,149 
Amortization of prepaid expense  146,465   —     146,465 
Loss on settlement of debt  (316,401)  —     (316,401)
Default penalties on convertible notes payable  15,172   —     15,172 
Change in operating assets and liabilities            
Accounts receivable  151,083   —     151,083 
Inventory  (841)  —     (841)
Deposits  (5,500)  —     (5,500)
Operating lease liability  (4,279)  —     (4,279)
Accrued expenses  (10,885)  —     (10,885)
Accrued expenses – related party  13,900   —     13,900 
Accounts payable  (41,639)  —     (41,639)
Net cash used in operating activities  (323,932)  —     (323,932)
             
Net cash provided by investing activities  —     —     —   
             
Net cash provided by financing activities  262,589   —     262,589 
             
Net change in cash  (61,343)  —     (61,343)
Cash and cash equivalents at beginning of period  115,196   —     115,196 
Cash and cash equivalents at end of period $53,853  $—    $53,853 

27

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”).

COVID-19

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

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

28

NOTE 12. SUBSEQUENT EVENTSITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview

 

On October 1, 2020, the Company sold future receivables with a non-related party for $199,500, of which $97,950 was loan fees, original issue discount and reserve resulting in cash proceeds to the Company of $101,550. The advance is to be repaid through $3,841 weekly payments. In connection with the advance, the Company granted the lender a security interest any and all past, present and future assets of the Company.

On October 7, 2020, the CompanyAugust 31, 2016, PCT LTD entered into a convertible promissorySecurities Exchange Agreement (the “Exchange Agreement”) with Paradigm Convergence Technologies Corporation, a non-related partyNevada 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 $200,000.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 note is due on October 7,Company recorded a net loss of $1,111,022 for the three-months ended March 31, 2021 and bears interest onaccumulated losses of $36,024,876 from inception through March 31, 2021.

PCT LTD remains dependent upon additional financing to continue operations. The Company intends to raise additional financing through private placements of its common stock and note payable issuances. We expect that we would issue such stock pursuant to exemptions to the unpaid principal balance at a rateregistration requirements provided by federal and state securities laws. The purchasers and manner of 5% per annum. The Note mayissuance will be converted bydetermined according to our financial needs, as discussed below, and the Lender at any time after 180 daysavailable exemptions to the registration requirements of the dateSecurities Act of issuance into1933. We also note that if we issue more shares of Company’sour common stock, at a conversion price of $0.20.

On October 5, 2020, $8,338 of principal and $500 of interest of a convertible note payable was converted into 1,000,000 shares of the Company’s common stock as further described in Note 5(p).

On October 5, 2020, 50,000 shares of preferred series C stock was converted into common stock resultingthen our stockholders may experience dilution in the issuancevalue per share of 5,000,000 shares oftheir common stock.

  

On October 6, 2020,The expected costs for the next twelve months include:

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

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

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

acquiring available complementary technology rights;

payment of short-term debt;

hiring of additional personnel in 2021; and

general and administrative operating costs.

Management projects these costs to total approximately $2,400,000. To minimize these costs, the Company issued 3,500,000 common shares at $0.02 for proceedsintends to maintain its practice of $70,000.

On October 7, 2020,controlling operating overheads with efficient facilities commitments, generally below market salaries and consulting fees, and rigorous prioritization of expenditure requirements. Based on its understanding of the commercial readiness of its products and technologies, the capabilities of its personnel (current and being hired), established business relationships and the general market conditions, management believes that the Company entered into a Services Agreement with a consultant for services for a period of six months. In consideration for services the Company issued 5,000,000 shares of common stock.

On October 16, 2020, the Company entered into a convertible promissory with a non-related party for $200,000. The note is due on October 16, 2021 and bears interest on the unpaid principal balance at a rate of 5% per annum. The Note mayexpects to be convertedcovering its fixed operating expenses (“burn rate”) by the Lender at any time after 180 daysend of the datefourth quarter of issuance into shares of Company’s common stock at a conversion price of $0.20.

On November 11, 2020, the Company entered into a convertible promissory with a non-related party for $300,000. The note is due on November 11, 2021 and bears interest on the unpaid principal balance at a rate of 5% per annum. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company’s common stock at a conversion price of $0.15.

NOTE 13. RESTATEMENT

As previously disclosed, the Company determined that previously issued warrants to a debt holder should have been accounted for as cancelled along with the settlement of all outstanding debt with such holder in May 2020. In May 2020, the Company entered into a debt settlement agreement with one of its debt holders which settled all debt and warrants held by such holder. However, due to a misunderstanding of the facts and circumstances related to the settlement agreement, the Company did not reflect the warrants as settled at that time. Due to the provisions of the warrants, these were accounted for as derivative liabilities. The Company concluded that the impact of recognizing the cancellation of the warrants was materially different from its previously reported results. As a result, the Company is restating its unaudited condensed consolidated financial statements for the periods impacted. The following financial tables reconcile the previously reported amounts to the restated amounts for each unaudited condensed consolidated financial statement.

The table below sets forth changes to the unaudited consolidated balance sheet:

  September 30, 2020
  As Previously Reported Adjustments As Restated
       
ASSETS            
Total current assets $713,339  $—    $713,339 
             
Total property and equipment, net  513,567   —     513,567 
Total other assets  3,481,372   —     3,481,372 
             
TOTAL ASSETS  4,708,278   —     4,708,278 
             
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY            
CURRENT LIABILITIES            
Accounts payable  227,859   —     227,859 
Accrued expenses – related parties  111,609   —     111,609 
Accrued expenses  857,071   —     857,071 
Notes payable – related parties  798,214   —     798,214 
Notes payable, net  434,344   —     434,344 
Convertible notes payable, net  1,134,190   —     1,134,190 
Derivative liability  17,066,643   (6,572,227)  10,494,416 
Total current liabilities  20,629,930   (6,572,227)  14,057,703 
             
Convertible notes payable, net of current portions and discounts  53,500   —     53,500 
TOTAL LIABILITIES  20,683,430   (6,572,227)  14,111,203 
             
TOTAL MEZZANINE EQUITY  308,645   —     308,645 
             
STOCKHOLDERS’ DEFICIT            
Common stock  674,938   —     674,938 
Additional paid-in capital  23,457,582   —     23,457,582 
Accumulated deficit  (40,416,317)  6,572,227   (33,844,090)
   (16,283,797)  6,572,227   (9,711,570)
             
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY $4,708,278  $—    $4,708,278 

2021.

 

 2329 

 

Liquidity and Capital Resources

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

SUMMARY OF BALANCE SHEET March 31,
2021
 December 31,
2020
Cash and cash equivalents $53,853  $115,196 
Total current assets  451,658   747,756 
Total assets  4,247,738   4,634,610 
Total liabilities  15,333,462   15,364,398 
Accumulated deficit  (36,024,876)  (34,913,854)
Total stockholders’ deficit $(11,304,369) $(10,988,433)

At March 31, 2021, the Company recorded a net loss of $1,111,022 and a working capital deficit of $14,804,305. While we have recently recorded an increase in the amount of revenues from operations, since inception and we had not established an ongoing source of revenue sufficient to cover our operating costs. During the three-months ended March 31, 2021 and 2020 we primarily relied upon advances and loans from stockholders and third parties to fund our operations. The table below sets forth changesCompany has relied on raising debt and equity capital in order to fund its ongoing day-to-day operations and its corporate overhead. We had $53,853 in cash at March 31, 2021, compared to $115,196 in cash at December 31, 2020. We had total liabilities of $15,333,462 at March 31, 2021 compared to $15,364,398 at December 31, 2020.

Our current cash flow is not sufficient to meet our monthly expenses of approximately $200,000 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 unaudited condensed consolidated statementsincreasing our recognized revenue from the leasing and/or sale of operationsproducts; however, there is no assurance that additional funding will be available. We do not have material commitments for the three months ended September 30, 2020: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.

  

  For the three months ended September 30, 2020
  As Previously Reported Adjustments As Restated
       
REVENUES            
Total revenues $784,088  $—    $784,088 
             
OPERATING EXPENSES            
Total operating expenses  776,114   —     776,114 
             
INCOME (LOSS) FROM OPERATIONS  7,974   —     7,974 
             
OTHER INCOME (EXPENSE)            
Gain (Loss) on change in fair value of derivative liability  510,219   (453,165)  57,054 
Gain (loss) on change in fair value of preferred series A stock liability  —     —     —   
Gain on sale of intangible assets  —     —     —   
Gain (loss) on settlement of debt  (3,670,393)  —     (3,670,393)
Interest expense  (200,593)  —     (200,593)
Total other income (expense)  (3,360,767)  (453,165)  (3,813,932)
             
Income (loss) before income taxes  (3,352,793)  (453,165)  (3,805,958)
             
Income taxes  —     —     —   
             
NET INCOME (LOSS)  (3,352,793)  (453,165)  (3,805,958)
Preferred series C stock deemed dividends  —     —     —   
             
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS’ $(3,352,793) $(453,165) $(3,805,958)
             
Basic and diluted net income (loss) per share $(0.01) $—    $(0.01)
             
Basic and diluted weighted average shares outstanding  608,601,357       608,601,357 

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

Commitments and Obligations

At March 31, 2021 the Company recorded notes payable totaling approximately $2,531,181 (related, non-related and convertible, net of debt discount) compared to notes payable totaling $2,781,597 (related, non-related and convertible, net of debt discount) at December 31, 2020. These notes payable represent cash advances received and expenses paid from third parties and related parties. All of the notes payable carry effective interest from 0% to 220% and are due ranging from on demand to March 26, 2022.

The Company headquarters and operations is 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) and added a three-year lease for 9,600 sf. of warehouse space in Fort Wayne, Indiana on November 1, 2020, for $4,500/month.The Company also began leasing additional office space in Little River, SC, for $2,750 a month, on an annual lease, effective March 15, 2021.

  

 2430 

 

Results of Operations

SUMMARY OF OPERATIONS Three-month period ended
March 31,
  (Unaudited)
  2021 2020
Revenues $395,519  $272,182 
Total operating expenses  1,043,673   780,657 
Total other expenses  462,868   9,773,173 
Net loss  (1,111,022)  (10,281,648)
Preferred series C stock deemed dividends  —     270,000 
Net loss attributable to common stockholders’  (1,111,022)  (10,551,648)
Basic and diluted loss per share $(0.00) $(0.02)

Revenues increased to $395,519, for the three-months ended March 31, 2021 (the “2021 first quarter”) compared to $272,182 for the three-months ended March 31, 2020 (the “2020 first quarter”). The table below sets forth changesrevenue increase for the period was due to the unaudited condensed consolidated statementsincreased volume of fluids sold and the additional revenue from recurring leased-equipment income.

Total operating expenses increased to $1,043,673 during the 2021 first quarter compared to $780,657 during the 2020 first quarter. The increase during the first quarter of 2021 was primarily due to an increase in salaries and wages, legal, consulting fees and rent.

General and administrative expenses increased to $893,451 for the 2021 first quarter compared to $548,786 during the 2020 first quarter. The increase during the first quarter of 2021 was primarily due to an increase in salaries and wages, legal, consulting fees and rent.

Depreciation and amortization expenses increased slightly to $88,122 during the 2021 first quarter compared to $83,021 during the 2020 first quarter. Depreciation and amortization was comparable between the two periods.

Total other expenses decreased to $462,868 for the 2021 first quarter compared to $9,773,173 during the 2020 first quarter. The overall decrease in other expenses was primarily due to the $9.2M loss in derivatives incurred during 2020 which did not occur in 2021. There was also a gain on the settlement of debt of $316,401 in 2021 vs. a $44,000 loss on the settlement of debt in 2020.

As a result of the changes described above, net loss from operations after income taxes decreased to $1,111,022 during the 2021 first quarter compared to $10,281,648 during the 2020 first quarter.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, forliquidity, 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 nine months ended September 30, 2020: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.

 

  For the nine months ended September 30, 2020
  As Previously Reported Adjustments As Restated
       
REVENUES            
Total revenues $1,937,442  $—    $1,937,442 
             
OPERATING EXPENSES            
Total operating expenses  2,651,016   —     2,651,016 
             
LOSS FROM OPERATIONS  (713,574)  —     (713,574)
             
OTHER INCOME (EXPENSE)            
Loss on change in fair value of derivative liability  (9,877,388)  (5,376,155)  (15,253,543)
Gain (loss) on change in fair value of preferred series A stock liability  —     —     —   
Gain on sale of intangible assets  —     —     —   
Gain (loss) on settlement of debt  (1,954,854)  11,948,382   9,993,528 
Interest expense  (1,094,934)  —     (1,094,934)
Total other income (expense)  (12,927,176)  6,572,227   (6,354,949)
             
Income (loss) before income taxes  (13,640,750)  6,572,227   (7,068,523)
             
Income taxes  —     —     —   
             
NET INCOME (LOSS)  (13,640,750)  6,572,227   (7,068,523)
Preferred series C stock deemed dividends  (270,000)  —     (270,000)
             
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS’ $(13,910,750) $6,572,227  $(7,338,523)
             
Basic and diluted net income (loss) per share $(0.02) $0.01  $(0.01)
             
Basic and diluted weighted average shares outstanding  575,094,639       575,094,639 

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.

 

 2531 

 

The table below sets forth changes to the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2020:

  For the nine months ended September 30, 2020
  As Previously Reported Adjustments As Restated
       
Cash Flows from Operating Activities            
Net loss $(13,640,750) $6,572,227  $(7,068,523)
Adjustments to reconcile net loss to net cash used in operating activities:            
Depreciation and amortization  255,368   —     255,368 
Amortization of debt discounts  353,012   —     353,012 
Common stock issued for services  527,283   —     527,283 
Loss on change in fair value of derivative liability  9,877,388   5,376,155   15,253,543 
(Gain) loss on settlement of debt  1,954,854   (11,948,382)  (9,993,528)
Default penalties on convertible notes payable  13,762       13,762 
Change in operating assets and liabilities            
Accounts receivable  (157,076)  —     (157,076)
Inventory  26,669   —     26,669 
Prepaid expenses  (241,764)  —     (241,764)
Other assets  (3,853)  —     (3,853)
Accounts payable  (87,369)  —     (87,369)
Accrued expenses – related party  27,071   —     27,071 
Accrued expenses  807,049   —     807,049 
Net cash used in operating activities  (288,356)  —     (288,356)
             
Net cash provided by investing activities  (127,212)  —     (127,212)
             
Net cash provided by financing activities  509,203   —     509,203 
             
Net change in cash  93,635   —     93,635 
Cash and cash equivalents at beginning of period  67,613   —     67,613 
Cash and cash equivalents at end of period $161,248  $—    $161,248 

26

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”).

COVID-19

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

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

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview

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

PCT LTD had not recorded revenues for the two fiscal years prior to its acquisition of Paradigm and was dependent upon financing to continue basic operations. Paradigm has recorded revenue since it initiated operations in 2012; however, those revenues have not been sufficient to finance operations. The Company recorded a net loss of $7,068,523 (restated) for the nine-months ended September 30, 2020 and accumulated losses of $33,844,090 (restated) from inception through September 30, 2020.

27

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

The expected costs for the next twelve months include:

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

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

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

acquiring available complementary technology rights;

payment of short-term debt;

hiring of additional personnel in 2020 and 2021; and

general and administrative operating costs.

Management projects these costs to total approximately $2,700,000. To minimize these costs, the Company intends to maintain its practice of controlling operating overheads with efficient facilities commitments, generally below market salaries and consulting fees, and rigorous prioritization of expenditure requirements. Based on its understanding of the commercial readiness of its products and technologies, the capabilities of its personnel (current and being hired), established business relationships and the general market conditions, management believes that the Company expects to be covering its fixed operating expenses (“burn rate”) by the end of the first quarter of 2021.

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,
2020
 December 31,
2019
  (restated)  
Cash and cash equivalents $161,248  $67,613 
Total current assets  713,339   224,738 
Total assets  4,708,278   4,374,775 
Total liabilities  14,111,203   14,290,486 
Accumulated deficit  (33,844,090)  (26,505,567)
Total stockholders’ deficit $(9,711,570) $(10,134,356)

At September 30, 2020, the Company recorded a net loss of $7,068,523 (restated) and a working capital deficit of $13,344,364 (restated). While we have recently recorded an increase in the amount of revenues from operations, since inception and we had not established an ongoing source of revenue sufficient to cover our operating costs. During the nine-months ended September 30, 2020 and 2019 we primarily relied upon advances and loans from stockholders and third parties to fund our operations. The Company has relied on raising debt and equity capital in order to fund its ongoing day-to-day operations and its corporate overhead. We had $161,248 in cash at September 30, 2020, compared to $67,613 in cash at December 31, 2019. We had total liabilities of $14,111,203 (restated) at September 30, 2020 compared to $14,290,486 at December 31, 2019.

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.

28

Commitments and Obligations

At September 30, 2020 the Company recorded notes payable totaling approximately $2,420,248 (related, non-related and convertible, net of debt discount) compared to notes payable totaling $2,482,743 (related, non-related and convertible, net of debt discount) at December 31, 2019. These notes payable represent cash advances received and expenses paid from third parties and related parties. All of the notes payable carry effective interest from 0% to 585% and are due ranging from on demand to March 21, 2022.

The Company headquarters and operations is located in Little River, South Carolina. The South Carolina lease payment was $4,800 per month through November 30, 2019. The building was sold, and the Company was on a month-to-month lease with the new Landlord through June 30, 2020. On August 26, 2020 the Company signed a new 1-year lease, retroactive to July 1, 2020, ending on June 30, 2021, for $7,500 per month. The Company has an option to renew the lease for an additional 4-years.

Results of Operations

Three Months Ended September 30, 2020

SUMMARY OF OPERATIONS Three-month period ended
September 30,
  (Unaudited)
  2020 2019
  (restated)  
Revenues $784,088  $220,033 
Total operating expenses  776,114   604,847 
Total other income (expense)  (3,813,932)  (5,379,178)
Net loss  (3,805,958)  (5,763,992)
Preferred series C stock deemed dividends  —     —   
Net loss attributable to common stockholders’  (3,805,958)  (5,763,992)
Basic and diluted loss per share $(0.01) $(0.03)

Revenues increased to $784,088, for the three-months ended September 30, 2020 (the “2020 third quarter”) compared to $220,033 for the three-months ended September 30, 2019 (the “2019 third quarter”). The revenue increase for the period was due to the increased volume of fluids sold, as a result of the Company adapting to the COVID-19 pandemic and heightened need for an effective US EPA-registered disinfectant, as well as the additional revenue from recurring leased-equipment income.

Total operating expenses increased to $776,114 during the 2020 third quarter compared to $604,847 during the 2019 third quarter. The increase during the third quarter of 2020 was primarily due to an increase in general and administrative expenses and an increase in cost of product, licensing, and equipment leases associated with increased revenue.

General and administrative expenses increased to $614,667 for the 2020 third quarter compared to $468,694 during the 2019 third quarter. The increase during the third quarter of 2020 was primarily due to hiring new employees and expenses related to legal and accounting work.

Depreciation and amortization expenses increased slightly to $90,999 during the 2020 third quarter compared to $84,467 during the 2019 third quarter. Depreciation and amortization was comparable between the two periods.

Total other expenses was $3,813,932 (restated) for the 2020 third quarter compared to other expenses of $5,379,178 during the 2019 third quarter. The overall decrease was a result of a decrease in the loss on change in fair value of derivatives during the third quarter of 2020 offset by an increase in loss on settlement of debt.

As a result of the changes described above, net loss decreased to $3,805,958 (restated) during the 2020 third quarter compared to $5,763,992 during the 2019 third quarter.

Nine months Ended September 30, 2020

SUMMARY OF OPERATIONS Nine months period ended
September 30,
  (Unaudited)
  2020 2019
  (restated)  
Revenues $1,937,442  $534,852 
         
Total operating expense $2,651,016  $1,956,774 
Total other expense $(6,354,949) $(8,792,540)
Net loss $(7,068,523) $(10,214,462)
Preferred series C stock deemed dividends  (270,000)  —   
Net loss attributable to common stockholders’  (7,338,523)  (10,214,462)
Basic and diluted loss per share $(0.01) $(0.10)

Revenues increased to $1,937,442 for the nine months ended September 30, 2020 compared to $534,852 for the nine months ended September 30, 2019. The revenue increase for the period was due to the increased volume of fluids sold as a result of the Company adapting to the COVID-19 pandemic and heightened need for an effective US EPA-registered disinfectant, as well as the additional revenue from recurring leased-equipment income.

Total operating expenses increased to $2,651,016 during the nine months ended September 30, 2020 compared to $1,956,774 during the nine months ended September 30, 2019. The increase during the period was primarily due to an increase in cost of product, licensing, and equipment leases associated with increased revenue.

General and administrative expenses increased to $1,755,495 for the nine months ended September 30, 2020 compared to $1,550,997 during the nine months ended September 30, 2019. The increase during the period was primarily due to hiring new employees and expenses related to legal and accounting work.

Depreciation and amortization expenses increased slightly to $255,368 during the nine months ended September 30, 2020 compared to $253,568 during the nine months ended September 30, 2019. Depreciation and amortization was comparable between the two periods.

Total other expenses decreased to $6,354,949 (restated) for nine months ended September 30, 2020 compared to $8,792,540 during the nine months ended September 30, 2019. The overall decrease was a result of a gain of settlement of debt during the nine months ended September 30, 2020, offset by an increase in loss on change in fair value of derivatives.

As a result of the changes described above, net loss decreased to $7,338,523 (restated) during the nine months ended September 30, 2020 compared to $10,214,462 during the nine months ended September 30, 2019.

29

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 J. Grieco, our Chief Executive Officer, who serves as ourPresident and principal executive officer, and Arthur Abraham, our Chief Financial Officer and principal financial officer, has, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. The disclosure controls and procedures ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rule and forms; and (ii) accumulated and communicated to our principal executive officer as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive officer and principal financial officer concluded that as of September 30, 2020,March 31, 2021, our disclosure controls and procedures were not effective.effective for the reasons discussed in our 10-K filing.  

 

Our management is responsible to establish and maintain adequate internal control over financial reporting. Our principal executive officer is responsible to design or supervise a process that provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The policies and procedures include:

For the prior ended March 31, 2021, management has relied on the Committee of Sponsoring Organizations of the Treadway Commission (COSO), “Internal Control - Integrated Framework (2013),” to evaluate the effectiveness of our internal control over financial reporting. Based upon that framework, our President has determined that our internal control over financial reporting for the period ended March 31, 2020, was not effective.

The material weaknesses relate to the limited number of persons responsible for the recording and reporting of financial information, the lack of separation of financial reporting duties, and the limited size of our management team in general. We are in the process of evaluating methods of improving our internal control over financial reporting, including the possible addition of financial reporting staff and the increased separation of financial reporting responsibility, and intend to implement such steps as are necessary and possible to correct these material weaknesses.

Our management determined that there were no changes made in our internal controls over financial reporting during the first quarter of 2021 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Notwithstanding this finding of ineffective disclosure controls and procedures, weour certifying officers 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.

 

During the quarter ended September 30, 2020,March 31, 2021, internal financial controls were not sufficient to detect material events, such as the settled debt and cancelled warrants which occurred in the 2nd Quarter 2020 which resulted in a $7 million liability reduction on the Balance Sheet, whereby creating the restatement of the 10-Q for Quarters 2 and 3 in 2020 and Quarter 1 in 2021, along with the 2020 10-K. The Company has since implemented controls around its financial reporting process that will help prevent future financial oversights from occurring again.

 

Changes in Internal Control Over Financial Reporting

During the quarter ended September 30, 2020,March 31, 2021, 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).

   

 3032 

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We may become involved in various routine legal proceedings incidental to our business. To our knowledge as of the date of this report, other than described below, there are no material pending legal proceedings to which we are a party or to which any of our property is subject.

 

Annihilare Litigation

 

On August 8, 2019, we received notice from Annihilare Medical Systems, Inc (“Annihilare”) that certain intellectual properties developed jointly between us and Annihilare were to be discontinued from use by us and our customers. We dispute the claims from Annihilare that the intellectual properties are exclusively Annihilare’s, andAnnihilare’s.

 

In May of 2020, we filed a complaint in the United States District Court for the Western District of North Carolina (Charlotte Divisions – Civil Action No. 3:20-cv-00287), against Annihilare, Marion E. Paris, Jr. and Clay Parker Sipes. Seeking damages for:

1. Two counts of Patent infringement;

2. Trademark infringement;

3. Federal unfair competition, false designation of origin, and false and misleading description of representation;

4. Trademark dilution;

5. Federal cybersquatting;

6. Violation of Defend Trade Secrets Act;

7. Violation of North Carolina’ Trade Secrets Protection Act;

8. Violation of North Carolina and common law unfair competition

9. Breach of fiduciary duty;

10. Breach of duty of loyalty and faithless service;

11. Breach of consulting agreements;

12. Breach of employment agreements;

13. Tortious interference with prospective business relationships;

14. Unjust enrichment;

15. Conversion;

16. Civil conspiracy; and

17. Injunctive relief.Sipes, seeking damages.

 

These claims arisearose from several consulting agreements and an acquisition agreementsagreement between usthe Company and the Defendants surrounding the purchase of Annihilyzer® Intellectual property by usthe Company and subsequent infringement of the intellectual properties. The case is currently ongoing.settled in the quarter ended March 31, 2021.

31

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item. However, we detailed significant business risks in Item 1A to our Form 10-K for the year ended December 31, 2019.2020.

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

DuringOn January 4, 2021, the quarter ended SeptemberCompany issued 25,000,000 common shares to settle a convertible note described in Note 6(bb), with a remaining balance of $40,000.

On February 16, 2021, the Company issued 1,803,279 shares of common stock to settle $247,270 from a $275,000 note payable dated June 20, 2018, which has a balance of $331,304, including interest, to the current Chairman and CEO of the Company. The Company also agreed to issue a new note for the remaining balance owed to the Chairman and CEO of $84,034, dated February 16, 2021. The note will bear interest at 5% per annum and is due on June 30, 2020, 350,0002021.

On February 16, 2021, the Company issued 2,663,299 shares of common stock to settle a June 20, 2018 note payable of $380,000 and accrued interest of $26,153 owed to the current COO and Director of the Company.

On February 15, 2021, 40,000 shares of preferred series C stock with a value of $394,000 was converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 35,000,0004,000,000 shares of common stock.

On JulyMarch 1, 2020,2021, the Company released an additional vested 375,000 shares of common stock to its current COO and Director, as per the Company employment agreement with the executive. 

On March 1, 2021, the Company entered into a consulting agreement. Pursuant to the agreement, the consultant will provide advisory services through December 31, 2021for a period of three months in consideration of 8,000,000$5,000 per month and an option to purchase 2,500,000 shares of common stock. The fair value of the common stock was $307,200 of which $49,685 was recognized in consulting expensesat $0.0001 for the period ended September 30, 2020, with the remainder in prepaid assets for future services.one year, exercisable on issuance.

33

Subsequent Issuances After Quarter-End

On July 6, 2020,April 5, 2021, the Company entered into a consulting agreement. Pursuant toconvertible promissory note with a non-related party for $43,000. The Note is due on April 5, 2022 and bears interest on the agreementunpaid principal balance at the consultant will provide investor relations services for a periodrate of one year in consideration for $3,00012% per month andannum. The Note may be converted by the lender at any time before 6-months of the date of issuance of 1,000,000into shares of common stock. The fair value of theCompany’s common stock was $36,000 of which $8,482 was recognized in consulting expenses forat the period ended September 30, 2020, withconversion price equal to 61% multiplied by the remainder in prepaid assets for future services.Market Price.

 

On July 8, 2020,April 14, 2021, the Company entered into a consulting agreement. Pursuantconvertible promissory note with a non-related party for $200,000. The Note is due on April 14, 2022 and bears interest on the unpaid principal balance at the rate of 5% per annum. The Note may not be converted by the lender before 6 months of the issuance date into shares of Company’s common stock at a conversion price equal to $0.10.

On May 3, 2021, the Company entered into a convertible promissory note with a non-related party for $128,000. The Note is due on May 3, 2022 and bears interest on the unpaid principal balance at the rate of 12% per annum. The Note may be converted by the lender at any time before 6-months of the date of issuance into shares of Company’s common stock at the conversion price equal to 61% multiplied by the Market Price.

On May 5, 2021, the Company entered into an employment agreement the consultant will provide operational business development and introductory services forwith a period of five years in consideration forrecently appointed officer, whereby it authorized the issuance of 1,000,000 shares of common stock and a 5% commission, paid in cash, for any product sales brokered. The fair value of the common stock was $36,500 which was recognized in consulting expenses.to such officer (see 8-K issued May 21, 2021)

 

On August 14, 2020, $4,562 of principalMay 7, 2021, the Company deemed in the best interest to settle any and $191 of interest of a convertible note payable was converted into 5,281,088 sharesall of the Company’s prior convertible debt with Crown Bridge Partners and allow for the cashless exercise to purchase 1,921,875 shares of PCT LTD’s common stock as further described in Note 5(l).(par value $0.001/share) at the rate of $0.032/share, thereby reducing PCT LTD’s prior debt to Crown Bridge Partners to $0.00. In addition, Crown Bridge Partners shall release 60,072,853 shares to the agreed upon payment terms of $36,994 cash.

 

On September 1, 2020, $5,685 of principal and $500 of interest ofJune 2, 2021, the convertible note payable was converted into 955,272 shares of the Company’s common stock as further described inCompany paid $25,000 to a non-related party toward a $150,000 Convertible Note 5(k).dated April 9, 2020.

 

On SeptemberOne June 2, 2020, $7,168 of principal of a convertible note payable was converted into 8,000,000 shares of the Company’s common stock as further described in Note 5(m).

On September 29, 2020, $31,500 of principal of a convertible note payable was converted into 31,500,000 shares of the Company’s common stock as further described in Note 5(aa).

Subsequent Issuances After Quarter-End

On October 5, 2020, 50,000 shares of preferred series C stock was converted into common stock resulting in the issuance of 5,000,000 shares of common stock.

On October 5, 2020, $8,338 of principal and $500 of interest of a convertible note payable was converted into 1,000,000 shares of the Company’s common stock as further described in Note 5(p).

On October 6, 2020, the Company issued 3,500,000 common shares at $0.02 for proceeds of $70,000.

On October 7, 2020,2021, the Company entered into a Services Agreementsubscription and purchase agreement with a consultant for services for a periodnon-related party consisting of six months. In consideration for services the Company issued 5,000,0003,750,000 restricted shares of common stock.stock (aggregate) at a price per share of $0.02 for $75,000 cash.

 

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, 2020.March 31, 2021.

32

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, 2020,March 31, 2021, or went into default before the filing of this Quarterly Report (See Note 56 to the financial statements).

 

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

 

As of September 30, 2020, we onlyMarch 31, 2021, had cash and cash equivalents of $161,248 and had a significant amount of short-term debt in default. The short-term debt agreements provide legal remedies for satisfaction of defaults, including increased interest rates, default fees and other financial penalties. As of the date of this Quarterly Report none of the lenders have pursued their legal remedies, although several lenders have sent us demand letters.$53,853. Management’s plan is to raise additional funds in the form of debt or equity in order to continue to fund losses until such time as revenues are able to sustain the Company. To date, the main source of funding has been through the issuance of convertible notes with provisions that allow the holder to convert the debt and accrued and unpaid interest at substantial discounts to the trading price of our common stock. The effect of the conversions in the year ended December 31, 2019 and the period ended September 30, 2020 for the convertible notes has been to substantially dilute existing holders of common stock of our Company. However, there is no assurance that management will be successful in being able to continue to obtain additional funding or defend potential litigation by note holders.

 

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

ITEM 5. OTHER INFORMATION

 

RB Capital Financing

In September of 2020, the Company negotiated a financing transaction with RB Capital Partners, Inc. (“RB Capital”), whereby RB Capital would provide the Company with up to $400,000 in financing. As a condition to the financing, the Company was required to reduce the conversion price of a $31,500 promissory note RB Capital acquired from a third-party down to $0.001 and immediately convert the note into 31,500,000 shares of unrestricted common stock. Such shares were issued on or about October 7, 2020.

On October 7, 2020, the Company received an initial $200,000 in the form of a 12-month convertible promissory note bearing interest at 5% per annum and convertible into shares of the Company’s common stock at $0.20 per share. A copy of the promissory note is attached hereto as Exhibit 10.29.

On October 16, 2020, the Company received an additional $200,000 in the form of a second 12-month convertible promissory note bearing interest at 5% per annum and convertible into shares of the Company’s common stock at $0.20 per share. A copy of the promissory note is attached hereto as Exhibit 10.30.

On October 20, 2020, the Company issued a press release announcing the financing. A copy of the press release is attached hereto as Exhibit 99.1.Not applicable.

 

 3334 

 

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)
3.1Amended 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)
4.1Certificate of Designation of Series A Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 of Form 10-Q, filed on September 16, 2019)
4.2Certificate 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)
4.3Certificate of Designation of Series C Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 of Form 8-K, filed on October 25, 2019)
4.4Power Up Note dated June 5, 2018 (Incorporated by reference to Exhibit 4.1 of Form 10-Q, filed August 20, 2018)
4.5Second Power Up Note dated July 25, 2018 (Incorporated by reference to Exhibit 4.2 of Form 10-Q, filed August 20, 2018)
4.6Third Power Up Note dated August 27, 2018 (Incorporated by reference to Exhibit 4.3 of Form 10-Q, filed November 21, 2019)
4.7Fourth Power Up Note dated December 5, 2018 (Incorporated by reference to Exhibit 4.6 of Form 10-Q, filed on September 16, 2019)
4.8Fifth Power Up Note dated January 15, 2019 (Incorporated by reference to Exhibit 4.7 of Form 10-Q, filed on September 16, 2019)
4.9Sixth Power Up Note dated February 22, 2019 (Incorporated by reference to Exhibit 4.8 of Form 10-Q, filed on September 16, 2019)
4.10GS Capital Note dated January 16, 2019 (Incorporated by reference to Exhibit 4.9 of Form 10-Q, filed on September 16, 2019)
4.11JSJ Note dated January 22, 2019 (Incorporated by reference to Exhibit 4.10 of Form 10-Q, filed on September 16, 2019)
4.12EMA Note dated January 22, 2019 (Incorporated by reference to Exhibit 4.11 of Form 10-Q, filed on September 16, 2019)
4.13Adar Note dated February 20, 2019 (Incorporated by reference to Exhibit 4.12 of Form 10-Q, filed on September 16, 2019)
4.14Peak One Note dated February 21, 2019 (Incorporated by reference to Exhibit 4.13 of Form 10-Q, filed on September 16, 2019)
4.15Auctus Note dated March 13, 2019 (Incorporated by reference to Exhibit 4.14 of Form 10-Q, filed on September 16, 2019)
4.16Peak One Opportunity Fund Note dated September 16, 2019 (Incorporated by reference to Exhibit 4.16 of Form 10-Q, filed on August 14, 2020)
4.174.5Power-Up #8 Note dated October 8, 2019 (Incorporated by reference to Exhibit 4.17 of Form 10-Q, filed on August 14, 2020)
4.184.6Power-Up #9 Note dated October 31, 2019 (Incorporated by reference to Exhibit 4.18 of Form 10-Q, filed on August 14, 2020)
4.194.7Power-Up #10 Note dated March 2, 2020 (Incorporated by reference to Exhibit 4.19 of Form 10-Q, filed on August 14, 2020)
4.204.8TFK Investments Note dated April 10, 2020 (Incorporated by reference to Exhibit 4.20 of Form 10-Q, filed on August 14, 2020)
4.214.9Power-Up #11 Note dated April 16, 2020 (Incorporated by reference to Exhibit 4.21 of Form 10-Q, filed on August 14, 2020)
4.224.10Herschbach 2005 Trust Consolidated Note dated May 5, 2020 (Incorporated by reference to Exhibit 4.22 of Form 10-Q, filed on August 14, 2020)
4.234.11Power-Up #12 Note dated May 12, 2020 (Incorporated by reference to Exhibit 4.23 of Form 10-Q, filed on August 14, 2020)
4.244.12Digital Ally Note dated July 7, 2020 (Incorporated by reference to Exhibit 4.24 of Form 10-Q, filed on August 14, 2020)
4.254.13Reserve Capital Management Note dated July 15, 2020 (Incorporated by reference to Exhibit 4.25 of Form 10-Q, filed on August 14,November 16, 2020)
4.264.14Digital Ally Note #2 dated July 28, 2020
4.274.15Signature Note dated October 1, 2020 (Incorporated by reference to Exhibit 4.27 of Form 10-Q, filed on November 16, 2020)
10.1Agreement with Annihilyzer, Inc. dated November 29, 2016 (Incorporated by reference to Exhibit 10.1 of Form 8-K, filed April 20, 2017)
10.2Amendment to Agreement with Annihilyzer, Inc. dated April 6, 2017 (Incorporated by reference to Exhibit 10.2 of Form 8-K, filed April 20, 2017)
10.3Read Consolidated Promissory Note dated September 27, 2017 (Incorporated by reference to Exhibit 10.1 of Form 8-K, filed October 4, 2017)
10.4†Paris Employment Agreement (Incorporated by reference to Exhibit 10.5 of Form 10-Q, filed November 14, 2017)
10.5Strategic Planning Services Agreement dated March 15, 2018
10.6Power Up Agreement dated June 5, 2018 (Included in Exhibit 4.1, which is incorporated by reference to Exhibit 4.1 of Form 10-Q, filed August 20, 2018)
10.7Second Power Up Agreement dated July 25, 2018 (Included in Exhibit 4.2, which is incorporated by reference to Exhibit 4.2 of Form 10-Q, filed August 20, 2018
10.8Third Power Up Agreement dated August 27, 2018 (Included in Exhibit 4.3, which is incorporated by reference to Exhibit 4.3 of Form 10-Q, filed November 21, 2019)
10.9Fourth Power Up Agreement dated December 15, 2018 (Incorporated by reference to Exhibit 10.9 of Form 10-Q, filed on September 16, 2019)
10.10Fifth Power Up Agreement dated January 15, 2019 (Incorporated by reference to Exhibit 10.10 of Form 10-Q, filed on September 16, 2019)
10.11Sixth Power Up Agreement dated February 22, 2019 (Incorporated by reference to Exhibit 10.11 of Form 10-Q, filed on September 16, 2019)
10.12GS Capital Agreement dated January 16, 2019 (Incorporated by reference to Exhibit 10.12 of Form 10-Q, filed on September 16, 2019)
10.13JSJ Agreement dated January 22, 2019 (Incorporated by reference to Exhibit 10.13 of Form 10-Q, filed on September 16, 2019)
10.14EMA Agreement dated January 22, 2019 (Incorporated by reference to Exhibit 10.14 of Form 10-Q, filed on September 16, 2019)
10.15Adar Agreement dated February 20, 2019 (Incorporated by reference to Exhibit 10.15 of Form 10-Q, filed on September 16, 2019)
10.16Peak One Agreement dated February 21, 2019 (Incorporated by reference to Exhibit 10.16 of Form 10-Q, filed on September 16, 2019)
10.17Auctus Agreement dated March 13, 2019 (Incorporated by reference to Exhibit 10.17 of Form 10-Q, filed on September 16, 2019)
10.18†Read Employment Agreement (Incorporated by reference to Exhibit 10.18 of Form 10-Q, filed on September 16, 2019)
10.19†10.5†Read Addendum to Employment Agreement (Incorporated by reference to Exhibit 10.19 of Form 10-Q, filed on September 16, 2019)
10.20†10.6†Grieco 2019 Employment Agreement (Incorporated by reference to Exhibit 10.20 of Form 10-Q, filed on September 16, 2019)
10.21†10.7†Grieco 2020 Employment Agreement (Incorporated by reference to Exhibit 10.21 of Form 10-Q, filed on April 13, 2020)
10.2210.8Peak One Opportunity Fund Agreement dated September 16, 2019 (Incorporated by reference to Exhibit 10.22 of Form 10-Q, filed on August 14, 2020)
10.2310.9Power-Up #8 Agreement dated October 8, 2019 (Incorporated by reference to Exhibit 10.23 of Form 10-Q, filed on August 14, 2020)
10.2410.10Power-Up #9 Agreement dated October 31, 2019 (Incorporated by reference to Exhibit 10.24 of Form 10-Q, filed on August 14, 2020)
10.2510.11Power-Up #10 Agreement dated March 2, 2020 (Incorporated by reference to Exhibit 10.25 of Form 10-Q, filed on August 14, 2020)
10.2610.12TFK Investments Agreement dated April 10, 2020 (Incorporated by reference to Exhibit 10.26 of Form 10-Q, filed on August 14, 2020)
10.2710.13Power-Up #11 Agreement dated April 16, 2020 (Incorporated by reference to Exhibit 10.27 of Form 10-Q, filed on August 14, 2020)
10.2810.14Herschbach 2005 Trust Agreement dated May 12, 2020 (Incorporated by reference to Exhibit 10.28 of Form 10-Q, filed on August 14, 2020)
10.2910.15RB Capital $200,000 Note dated October 7, 2020 (Incorporated by reference to Exhibit 10.29 of Form 10-Q, filed on November 16, 2020)
10.3010.16RB Capital $200,000 Note dated October 16, 2020 (Incorporated by reference to Exhibit 10.30 of Form 10-Q, filed on November 16, 2020)
10.17October 1, 2020 $199,500 Future Receivables Note (Incorporated by reference to Exhibit 10.17 of Form 10-K, filed on April 13, 2021)
10.18November 3, 2020 $126,000 Future Receivables Note(Incorporated by reference to Exhibit 10.18 of Form 10-K, filed on April 13, 2021)
10.19November 4, 2020 $113,980 Future Receivables Note (Incorporated by reference to Exhibit 10.19 of Form 10-K, filed on April 13, 2021)
10.20RB Capital $300,000 Note dated November 11, 2020 (Incorporated by reference to Exhibit 10.20 of Form 10-K, filed on April 13, 2021)
10.21RB Capital $150,000 Note dated December 29, 2020 (Incorporated by reference to Exhibit 10.21 of Form 10-K, filed on April 13, 2021)
10.22RB Capital $150,000 Note dated January 26, 2021 (Incorporated by reference to Exhibit 10.22 of Form 10-K, filed on April 13, 2021)
10.23February 2, 2021 $177,800 Future Receivables Note (Incorporated by reference to Exhibit 10.23 of Form 10-K, filed on April 13, 2021)
10.24February 22, 2021 $128,000 Convertible Promissory Note (Incorporated by reference to Exhibit 10.24 of Form 10-K, filed on April 13, 2021)
10.25March 5, 2021 $522,640 Future Receivables Note (Incorporated by reference to Exhibit 10.25 of Form 10-K, filed on April 13, 2021)
10.26March 9, 2021 $111,920 Future Receivables Note (Incorporated by reference to Exhibit 10.26 of Form 10-K, filed on April 13, 2021)
10.27March 18, 2021 $200,000 Convertible Promissory Note (Incorporated by reference to Exhibit 10.27 of Form 10-K, filed on April 13, 2021)
10.28March 23, 2021 Amended Convertible Note (Incorporated by reference to Exhibit 10.28 of Form 10-K, filed on April 13, 2021)
31.1Principal Executive Officer Certification
31.2Principal Financial Officer Certification
32.1PEO Section 1350 Certification
99.132.2RB Capital FinancingPFO Section 1350 Certification
99.15New Website and Investor Relations Press Release dated October 20,January 26, 2021 (Incorporated by reference to Exhibit 99.8 of Form 10-K, filed on April 13, 2021)
99.2UK Updated Press Release dated January 28, 2021 (Incorporated by reference to Exhibit 99.9 of Form 10-K, filed on April 13, 2021)
99.3Litigation Settlement Press Release dated March 4, 2021 (Incorporated by reference to Exhibit 99.10 of Form 10-K, filed on April 13, 2021)
99.4Fiscal 2020 Results Press Release dated April 15, 2021
99.5Oilfield Testing Press Release dated April 30, 2021
99.6Current Status of OTC QB Uplisting Press Release dated May 4, 2021
99.7New Financial Officer Press Release dated May 14, 2021
99.8ProtectX Joint Business Venture Press Release dated May 27, 2021
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Label Linkbase Document
101.PREXBRL Taxonomy Presentation Linkbase Document

 

† Indicates management contract or compensatory plan or arrangement.

 

 3435 

 

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: September 9,13, 2021By:  /s/ Gary Grieco                    
  Gary Grieco, Chief Executive Officer and Chairman
  

 

 

/s/ Arthur Abraham               

Arthur Abraham, Chief Financial Officer

 

35

36