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 June 30, 2020
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 000-31549
PCT LTD
(Exact name of registrant as specified in its charter)
Nevada | 90-0578516 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
4235 Commerce Street Little River, South Carolina |
29566 |
(Address of principal executive offices) | (Zip Code) |
(843) 390-7900
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
None | N/A | N/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 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 August 27, 2020 was 598,982,574 which does not include 400,267,426 shares of common stock reserved against default on convertible debt and 750,000 shares for vesting of executive shares.
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 June 30, 2020, as originally filed with the Securities and Exchange Commission on August 31, 2020 (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 13 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 is also filing an amended Annual Report for the fiscal year ended December 31, 2020 and an amended Quarterly Report for each of the quarterly periods ended September 30, 2020 and March 31, 2021 to restate the previously issued annual and interim financial statements due to the accounting error described above.
TABLE OF CONTENTS
Part I – Financial Information | Page | |
Explanatory Note | 3 | |
Item 1. | Condensed Consolidated Financial Statements (Unaudited) | 4 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 27 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 30 |
Item 4. | Controls and Procedures | 30 |
Part II – Other Information | 31 | |
Item 1. | Legal Proceedings | 31 |
Item 1A. | Risk Factors | 32 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 32 |
Item 3. | Defaults Upon Senior Securities | 33 |
Item 4. | Mine Safety Disclosures | 33 |
Item 5. | Other Information | 33 |
Item 6. | Exhibits | 34 |
Signatures | 35 |
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 six-month periods ended June 30, 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 six-month periods ended June 30, 2020 and 2019 are not necessarily indicative of results to be expected for any subsequent period.
4 |
PCT LTD
Consolidated Balance Sheets
June 30, 2020 | December
31, 2019 | |||||||
(Unaudited) | ||||||||
(Restated - See note 13) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 29,260 | $ | 67,613 | ||||
Accounts receivable, net | 319,128 | 111,915 | ||||||
Prepaid expenses | 51,395 | 43,100 | ||||||
Other current assets | 17,110 | 2,110 | ||||||
Total current assets | 416,893 | 224,738 | ||||||
PROPERTY AND EQUIPMENT | ||||||||
Property and equipment, net | 401,233 | 440,109 | ||||||
OTHER ASSETS | ||||||||
Intangible assets, net | 3,552,267 | 3,704,429 | ||||||
Deposits | 2,526 | 5,499 | ||||||
Total other assets | 3,554,793 | 3,709,928 | ||||||
TOTAL ASSETS | $ | 4,372,919 | $ | 4,374,775 | ||||
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' DEFICIT | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 447,805 | $ | 315,228 | ||||
Accrued expenses – related parties | 98,311 | 84,538 | ||||||
Accrued expenses | 912,393 | 890,104 | ||||||
Notes payable – related parties, net | 826,214 | 826,957 | ||||||
Notes payable, net | 408,617 | 468,153 | ||||||
Convertible notes payable, net | 980,254 | 1,187,633 | ||||||
Derivative liability | 11,393,973 | 10,517,873 | ||||||
Total current liabilities | 15,067,567 | 14,290,486 | ||||||
TOTAL LIABILITIES | 15,067,567 | 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 June 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 June 30, 2020 and December 31, 2019, respectively | 158,247 | 158,247 | ||||||
Preferred series C stock, $0.001 par value; 5,500,000 authorized; 440,000 and nil issued and outstanding at June 30, 2020 and December 31, 2019, respectively | 484,000 | — | ||||||
TOTAL MEZZANINE EQUITY | 702,645 | 218,645 | ||||||
STOCKHOLDERS’ DEFICIT | ||||||||
Common stock, $0.001 par value; 1,000,000,000 authorized; 584,201,486 and 498,880,300 issued and outstanding at June 30, 2020 and December 31, 2019, respectively | 584,202 | 498,881 | ||||||
Additional paid-in-capital | 18,056,637 | 15,872,330 | ||||||
Accumulated deficit | (30,038,132 | ) | (26,505,567 | ) | ||||
TOTAL STOCKHOLDERS’ DEFICIT | (11,397,293 | ) | (10,134,356 | ) | ||||
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' DEFICIT | $ | 4,372,919 | $ | 4,374,775 |
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 June 30, | For the Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(Restated - See note 13) | (Restated - See note 13) | |||||||||||||||
REVENUES | ||||||||||||||||
Product | $ | 582,389 | $ | 11,745 | $ | 745,037 | $ | 98,839 | ||||||||
Licensing | 77,000 | 34,000 | 84,000 | 78,500 | ||||||||||||
Equipment leases | 221,783 | 73,117 | 324,317 | 137,480 | ||||||||||||
Total Revenues | 881,172 | 118,862 | 1,153,354 | 314,819 | ||||||||||||
OPERATING EXPENSES | ||||||||||||||||
General and administrative | 592,042 | 415,339 | 1,140,828 | 1,082,303 | ||||||||||||
Research and development | 5,000 | 3,792 | 5,000 | 3,792 | ||||||||||||
Cost of product, licensing and equipment leases | 415,855 | 24,077 | 564,705 | 96,731 | ||||||||||||
Depreciation and amortization | 81,348 | 84,189 | 164,369 | 169,101 | ||||||||||||
Total operating expenses | 1,094,245 | 527,397 | 1,874,902 | 1,351,927 | ||||||||||||
Loss from operations | (213,073 | ) | (408,535 | ) | (721,548 | ) | (1,037,108 | ) | ||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||
Loss on change in fair value of derivative liability | (6,015,835 | ) | (2,789,342 | ) | (15,310,597 | ) | (2,951,641 | ) | ||||||||
Gain (loss) on change in fair value of preferred series A stock liability | — | (3,004 | ) | — | 72,473 | |||||||||||
Gain on sale of intangible assets | — | 52,498 | — | 52,498 | ||||||||||||
Gain (loss) on settlement of debt | 13,707,921 | — | 13,663,921 | (84,409 | ) | |||||||||||
Interest expense | (459,930 | ) | (381,764 | ) | (894,341 | ) | (502,283 | ) | ||||||||
Total other income (expense) | 7,232,156 | (3,121,612 | ) | (2,541,017 | ) | (3,413,362 | ) | |||||||||
Income (loss) before income taxes | 7,019,083 | (3,530,147 | ) | (3,262,565 | ) | (4,450,470 | ) | |||||||||
Income taxes | — | — | — | — | ||||||||||||
NET INCOME (LOSS) | $ | 7,019,083 | $ | (3,530,147 | ) | $ | (3,262,565 | ) | $ | (4,450,470 | ) | |||||
Preferred series C stock deemed dividends | — | — | (270,000 | ) | — | |||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS’ | $ | 7,019,083 | $ | (3,530,147 | ) | $ | (3,532,565 | ) | $ | (4,450,470 | ) | |||||
Basic net income (loss) per share | $ | 0.01 | $ | (0.07 | ) | $ | (0.01 | ) | $ | (0.09 | ) | |||||
Diluted net income (loss) per share | $ | (0.00 | ) | (0.07 | ) | (0.01 | ) | (0.09 | ) | |||||||
Basic weighted average shares outstanding | 569,964,666 | 52,755,139 | 557,809,456 | 49,208,103 | ||||||||||||
Diluted weighted average shares outstanding | 774,463,424 | 52,755,139 | 557,809,456 | 49,208,103 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6 |
PCT LTD
Condensed Consolidated Statements of Stockholders’ Equity (deficit)
For the Three and Six Months Ended June 30, 2020 and 2019
(Unaudited)
Additional | Total Stockholders’ | |||||||||||||||||||
Common Stock | Paid-in | Accumulated | 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, 2020 | — | — | — | (3,530,147 | ) | (3,530,147 | ) | |||||||||||||
Balance – June 30, 2019 | 76,859,961 | $ | 76,860 | $ | 12,770,553 | $ | (14,377,473 | ) | $ | (1,530,060 | ) |
Additional | Total Stockholders’ | |||||||||||||||||||
Common Stock | Paid-in | Accumulated | 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 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7 |
PCT LTD
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
(Restated - See Note 13) | ||||||||
Cash Flows from Operating Activities | ||||||||
Net loss | $ | (3,262,565 | ) | $ | (4,450,470 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 164,369 | 169,101 | ||||||
Amortization of debt discounts | 280,188 | 300,703 | ||||||
Amortization of operating lease right-of-use asset | — | 23,635 | ||||||
Common stock issued for services | 133,245 | 122,052 | ||||||
Loss on change in fair value of derivative liability | 15,310,597 | 2,951,641 | ||||||
Gain on change in fair value of preferred series A stock liability | — | (72,473 | ) | |||||
(Gain) loss on settlement of debt | (13,663,921 | ) | 84,409 | |||||
Gain on sale of intangible assets | — | (52,498 | ) | |||||
Default penalties on convertible notes payable | 13,762 | 87,500 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (207,213 | ) | (81,166 | ) | ||||
Inventory | 26,669 | 644 | ||||||
Prepaid expenses | (8,295 | ) | 177,475 | |||||
Other assets | (12,027 | ) | — | |||||
Operating lease liability | — | (21,626 | ) | |||||
Accounts payable | 132,577 | 59,265 | ||||||
Accrued expenses – related party | 13,773 | 8,245 | ||||||
Accrued expenses | 620,188 | 215,811 | ||||||
Contract liabilities | — | 24,532 | ||||||
Net cash used in operating activities | (458,653 | ) | (453,220 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Proceeds from sale of intangible assets | — | 57,500 | ||||||
Purchases of property and equipment | — | (2,516 | ) | |||||
Purchase of intangible assets | — | (5,000 | ) | |||||
Net cash provided by investing activities | — | 49,984 | ||||||
Cash Flows from Financing Activities | ||||||||
Proceeds from notes payable – related parties | 3,500 | 2,544 | ||||||
Proceeds from notes payable | 155,525 | 88,600 | ||||||
Proceeds from convertible notes payable | 413,000 | 460,750 | ||||||
Proceeds from common stock subscriptions | 140,000 | — | ||||||
Proceeds from preferred series C stock subscriptions | 270,000 | — | ||||||
Repayments of notes payable – related parties | (4,286 | ) | (16,044 | ) | ||||
Repayments of notes payable | (245,551 | ) | (9,209 | ) | ||||
Repayments of convertible notes payable | (311,888 | ) | (91,000 | ) | ||||
Net cash provided by financing activities | 420,300 | 435,641 | ||||||
Net change in cash | (38,353 | ) | 32,405 | |||||
Cash and cash equivalents at beginning of period | 67,613 | 4,893 | ||||||
Cash and cash equivalents at end of period | $ | 29,260 | $ | 37,298 | ||||
Supplemental Cash Flow Information | ||||||||
Cash paid for interest | $ | 53,645 | $ | 51,639 | ||||
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 | $ | 23,917 | $ | 10,204 | ||||
Original debt discounts against convertible notes payable | $ | 197,888 | $ | 395,125 | ||||
Modification of notes payable | $ | — | $ | 20,590 | ||||
Common stock issued in conversion of convertible notes payable | $ | 396,710 | $ | 287,376 | ||||
Common stock issued in cashless exercise of warrants | $ | 429,948 | $ | — | ||||
Common stock issued in conversion of preferred series C stock | $ | 50,000 | $ | — | ||||
Accounts receivable netted against notes payable | $ | — | $ | 18,000 | ||||
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 | $ | — |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8 |
PCT LTD
Notes to the Unaudited
Condensed Consolidated Financial Statements
June 30, 2020
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, 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, 2019 audited financial statements as reported in its Form 10-K, filed on August 3, 2020.
COVID-19
In December 2019 COVID-19 emerged in Wuhan, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to almost all other countries, including the United States, and infections have been reported globally. Because COVID-19 infections have been reported throughout the United States, certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive proclamations and/or directives may be issued in the future.
The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak. Any resulting financial impact cannot be reasonably estimated at this time but may have a material impact on our business, financial condition and results of operations. The significance of the impact of the COVID-19 outbreak on the Company’s businesses and the duration for which it may have an impact cannot be determined at this time. At a minimum, the COVID-19 pandemic caused the Company to restrict travel of its personnel and to initiate distributor installations of certain of the Company’s equipment, as possible. The Company adapted to the immediate need for its US EPA registered disinfectant at the end of March and beginning of April, 2020, by installing greater storage reserves and by assembling more of it higher-volume equipment to produce the hospital grade disinfectant known as Hydrolyte®. There were hard costs associated with these adaptations to the Little River, SC facility, but the Company continues to benefit from its fluid production capacities over the longer term. As the Federal, state and other restrictions associated with the pandemic have lessened, the Company is able to act more effectively in obtaining new contracts for its healthcare equipment, the Annihilyzer® and other equipment.
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.
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.”).
9 |
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 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 June 30, 2020, consisted of the following:
Total fair value at June 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) | 11,393,973 | — | — | 11,393,973 | ||||||||||||
Total | 11,393,973 | — | — | 11,393,973 |
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.
10 |
Basic and Diluted Income (Loss) Per Share
Basic income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period and, if dilutive, potential common shares outstanding during the period. Potentially dilutive securities consist of the incremental common shares issuable upon exercise of common stock equivalents such as options, warrants, convertible notes payable, preferred series A stock and preferred series C stock. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. As a result, for the three months ended June 30, 2020, there were outstanding common share equivalents which amounted to 319,106,192 (restated) shares of common stock that were not included in the calculation as their effect is anti-dilutive. For fiscal periods with net losses, these common share equivalents were not included in the computation of diluted loss per share as their effect would have been anti-dilutive.
Three months ended June 30, 2020 $ | Three months ended June 30, 2019 $ | Six months ended June 30, 2020 $ | Six months ended June 30, 2019 $ | |||||||||||||
Numerator: | ||||||||||||||||
Net income (loss) | 7,019,083 | (3,530,147 | ) | (3,532,565 | ) | (4,450,470 | ) | |||||||||
Loss on change in fair value of derivative liability | 4,463,852 | — | — | — | ||||||||||||
Gain on settlement of debt | (13,794,438 | ) | — | — | — | |||||||||||
Amortization of debt discount | 176,381 | — | — | — | ||||||||||||
Interest expense | 52,146 | — | — | — | ||||||||||||
Adjusted net income (loss) | (2,082,976 | ) | (3,530,147 | ) | (3,532,565 | ) | (4,450,470 | ) | ||||||||
Denominator: Weighted average shares outstanding used in computing net income (loss) per share | ||||||||||||||||
Basic | 569,964,666 | 52,755,139 | 557,809,456 | 49,208,103 | ||||||||||||
Effect of dilutive warrants | 81,681,300 | — | — | — | ||||||||||||
Effect of convertible note weighted shares | 122,817,458 | — | — | — | ||||||||||||
Diluted | 774,463,424 | 52,755,139 | 557,809,456 | 49,208,103 | ||||||||||||
Net income (loss) per share applicable to common shareholders: | ||||||||||||||||
Basic | 0.01 | (0.07 | ) | (0.01 | ) | (0.09 | ) | |||||||||
Diluted | (0.00 | ) | (0.07 | ) | (0.01 | ) | (0.09 | ) |
Recent Accounting Pronouncements
In August 2018, the FASB issued Accounting Standards Update No. 2018-13 (“ASU 2018-13”), Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements relating to fair value measurements as outlined 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. The amendments outlined in ASU 2018-13 are effective for all entities for fiscal years, 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. The Company adopted ASU 2018-13 on January 1, 2020 and the adoption of ASU 2018-13 did not have a material effect on the consolidated 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 an accumulated deficit of $30,038,132 (restated) and has negative cash flows from operations. As of June 30, 2020, the Company had a working capital deficit of $14,650,674 (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.
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NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2020 and December 31, 2019 consisted of the following:
June 30, 2020 | December 31, 2019 | |||||||
Machinery and leased equipment | $ | 151,719 | $ | 151,719 | ||||
Machinery and equipment not yet in service | 294,896 | 321,565 | ||||||
Office equipment and furniture | 20,064 | 20,064 | ||||||
Website | 2,760 | 2,760 | ||||||
Total property and equipment | $ | 469,439 | $ | 496,108 | ||||
Less: Accumulated Depreciation | (68,206 | ) | (55,999 | ) | ||||
Property and equipment, net | 401,233 | 440,109 |
Depreciation expense was $12,207 and $12,701 for the six-months ended June 30, 2020 and 2019, respectively.
NOTE 4. INTANGIBLE ASSETS
Intangible assets at June 30, 2020 and December 31, 2019 consisted of the following:
June 30, 2020 | December 31, 2019 | |||||||
Patents | $ | 4,505,489 | $ | 4,505,489 | ||||
Technology rights | 200,000 | 200,000 | ||||||
Intangibles, at cost | 4,705,489 | 4,705,489 | ||||||
Less: Accumulated amortization | (1,153,222 | ) | (1,001,060 | ) | ||||
Net Carrying Amount | $ | 3,552,267 | $ | 3,704,429 |
Amortization expense was $152,162 and $156,400 for the six-months ended June 30, 2020 and 2019, respectively.
Estimated Future Amortization Expense:
$ | ||||
For year ending December 31, 2020 - remaining | 151,002 | |||
For year ending December 31, 2021 | 302,003 | |||
For year ending December 31, 2022 | 302,003 | |||
For year ending December 31, 2023 | 302,003 | |||
For year ending December 31, 2024 | 302,003 | |||
Thereafter | 2,193,253 | |||
Total | 3,552,267 |
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NOTE 5. Notes Payable
The following tables summarize notes payable as of June 30, 2020 and December 31, 2019:
Type | Original Amount | Origination Date | Maturity Date | Annual Interest Rate | Balance at June 30, 2020 | Balance at December 31, 2019 | ||||||||||||||
Note Payable ** | $ | 25,000 | 05/08/2017 | 06/30/2018 | 0 | % | $ | 27,500 | $ | 27,500 | ||||||||||
Note Payable ** | $ | 130,000 | 06/20/2018 | 01/02/2020 | 8 | % | $ | 112,500 | $ | 130,000 | ||||||||||
Note Payable ** | $ | 8,700 | 11/15/2018 | 06/30/2019 | 10 | % | $ | 8,700 | $ | 8,700 | ||||||||||
Note Payable (e) | $ | 90,596 | 09/15/2019 | 05/28/2020 | 8 | % | $ | — | $ | 90,596 | ||||||||||
Note Payable (k) | $ | 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 | % | $ | 38,491 | $ | 80,192 | ||||||||||
Note Payable | $ | 148,362 | 12/20/2019 | 11/27/2020 | 80 | % | $ | 68,496 | $ | 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 | % | $ | 50,000 | $ | — | ||||||||||
Note Payable (e) | $ | 118,644 | 05/05/2020 | 05/05/2021 | 8 | % | $ | 118,644 | $ | — | ||||||||||
Subtotal | $ | 424,331 | $ | 537,392 | ||||||||||||||||
Debt discount | $ | (15,714 | ) | $ | (69,239 | ) | ||||||||||||||
Balance, net | $ | 408,617 | $ | 468,153 | ||||||||||||||||
Less current portion | $ | (408,617 | ) | $ | (468,153 | ) | ||||||||||||||
Total long-term | $ | — | $ | — | ||||||||||||||||
** Currently in default |
a) | On January 8, 2020, the Company sold future receivables with a non-related party for up to $87,540. During the period $25,782 was sold, of which $10,207 was loan fees and original issue discount resulting in cash proceeds to the Company of $15,575. The advance was repaid through $1,450 weekly payments. In connection with the advance, the Company granted the lender a security interest in all accounts, equipment, intangibles and inventory. This note was repaid during the period. |
b) | On February 19, 2020, the Company sold future receivables with a non-related party for $33,660, of which $13,710 was loan fees and original issue discount resulting in cash proceeds to the Company of $19,950. The advance was repaid through $660 daily payments. In connection with the advance, the Company granted the lender a security interest in all accounts, equipment, intangibles and inventory. This note was repaid during the period. |
c) | On February 28, 2020, 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 6(e). |
d) | On 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 shares of the Company’s common stock with a fair market value of $8,225 as additional consideration for the loan. During the period, the Company repaid $50,000 of the note. |
e) | On May 5, 2020, the Company consolidated three notes with principal amounts 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. |
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The following table summarizes notes payable, related parties as of June 30, 2020 and December 31, 2019:
Type | Original Amount | Origination Date | Maturity Date | Annual Interest Rate | Balance at June 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 | % | $ | 322,214 | $ | 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 (f) | $ | 1,500 | 02/11/2020 | Demand | 0 | % | $ | — | $ | — | ||||||||||
Note Payable, RP (g) | $ | 2,000 | 02/11/2020 | Demand | 0 | % | $ | 2,000 | $ | — | ||||||||||
Subtotal | $ | 826,214 | $ | 827,000 | ||||||||||||||||
Debt discount | $ | — | $ | (43 | ) | |||||||||||||||
Balance, net | $ | 826,214 | $ | 826,957 | ||||||||||||||||
Less current portion | $ | (826,214 | ) | $ | (826,957 | ) | ||||||||||||||
Total long-term | $ | — | $ | — | ||||||||||||||||
** Currently in default |
f) | On February 11, 2020, the Company entered into a promissory note with the Chairman and CEO of the Company for $1,500. The note is due on demand, is unsecured and bears an interest rate of 0% per annum. The note was repaid during the period. |
g) | On February 11, 2020, the Company entered into a promissory note with 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. |
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The following table summarizes convertible notes payable as of June 30, 2020 and December 31, 2019:
Type | Original Amount | Origination Date | Maturity Date | Annual Interest Rate | Balance at June 30, 2020 | Balance at December 31, 2019 | ||||||||||||||
Convertible Note Payable (h) * ** | $ | 50,000 | 12/06/2018 | 12/06/2019 | 12 | % | $ | 5,685 | $ | 22,777 | ||||||||||
Convertible Note Payable * ** | $ | 65,000 | 12/06/2018 | 12/06/2019 | 12 | % | $ | 46 | $ | 46 | ||||||||||
Convertible Note Payable (i) * ** | $ | 100,000 | 01/18/2019 | 01/16/2020 | 24 | % | $ | 105,041 | $ | 95,492 | ||||||||||
Convertible Note Payable (r) | $ | 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 (o) | $ | 60,000 | 02/21/2019 | 02/14/2022 | 0 | % | $ | — | $ | 74,000 | ||||||||||
Convertible Note Payable (j) * ** | $ | 55,125 | 02/21/2019 | 02/20/2020 | 24 | % | $ | 46,338 | $ | 42,125 | ||||||||||
Convertible Note Payable * ** | $ | 75,000 | 03/18/2019 | 12/13/2019 | 24 | % | $ | 232,814 | $ | 232,814 | ||||||||||
Convertible Note Payable (o) | $ | 26,000 | 09/16/2019 | 09/11/2022 | 0 | % | $ | — | $ | 26,000 | ||||||||||
Convertible Note Payable (k) | $ | 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 (l) | $ | 8,888 | 02/19/2020 | 02/18/2021 | 12 | % | $ | — | $ | — | ||||||||||
Convertible Note Payable (m) * ** | $ | 30,000 | 03/06/2020 | 03/05/2021 | 12 | % | $ | 30,000 | $ | — | ||||||||||
Convertible Note Payable (n) | $ | 45,000 | 03/09/2020 | 03/02/2021 | 12 | % | $ | 45,000 | $ | — | ||||||||||
Convertible Note Payable (p) * ** | $ | 150,000 | 04/10/2020 | 04/09/2021 | 12 | % | $ | 150,000 | $ | — | ||||||||||
Convertible Note Payable (q) | $ | 128,000 | 04/16/2020 | 04/09/2021 | 12 | % | $ | 128,000 | $ | — | ||||||||||
Convertible Note Payable (s) | $ | 83,000 | 05/12/2020 | 11/08/2021 | 12 | % | $ | 83,000 | $ | — | ||||||||||
Subtotal | $ | 980,254 | $ | 1,192,448 | ||||||||||||||||
Debt discount | $ | — | $ | (4,815 | ) | |||||||||||||||
Balance, net | $ | 980,254 | $ | 1,187,633 | ||||||||||||||||
Less current portion | $ | (980,254 | ) | $ | (1,187,633 | ) | ||||||||||||||
Total long-term | $ | — | $ | — | ||||||||||||||||
* Embedded conversion feature accounted for as a derivative liability at period end ** Currently in default |
h) | During the period ended June 30, 2020, $17,092 of principal and $3,507 of interest of the convertible note payable was converted into 36,050,000 shares of the Company’s common stock. |
i) | During the period ended June 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 $118,295 of which $9,549 was recorded as a principal addition and $108,746 was recorded in accrued interest. to the note. |
j) | During the period ended June 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. |
k) | 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. |
l) | 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 June 30, 2020, the entire amount was repaid. |
15 |
m) | 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. |
n) | 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. As the note isn’t convertible until 180 days following issuance, no derivative liability was recognized as of June 30, 2020. |
o) | On April 1, 2020, the Company entered into a settlement agreement to settle convertible notes with principal amounts of convertible notes. The Company agreed to pay $100,000 to settle the principal and accrued interest and penalties relating to the two convertible notes. The Company recorded a gain on settlement of debt of $312,269. As part of the settlement, the Company cancelled 197,190,272 warrants. |
p) | 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, an additional 15% is applied if the Company fails to
comply with its reporting requirements. During the period, this additional discount was
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. |
q) | 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 isn’t convertible until 180 days following issuance, no derivative liability was recognized as of June 30, 2020. |
r) | On May 11, 2020, the Company entered into a settlement agreement to settle the $60,000 convertible note. The Company agreed to pay $100,000 to settle the principal and accrued interest and penalties relating the convertible note. The Company recorded a gain on settlement of debt of $2,273,770. |
s) | 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 isn’t convertible until 180 days following issuance, no derivative liability was recognized as of June 30, 2020. |
16 |
NOTE 6. DERIVATIVE LIABILITIES
The embedded conversion option of (1) the convertible notes payable described in Note 5; (2) warrants; contain conversion features that qualify for embedded derivative classification. The fair value of the liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments.
Upon the issuance of the convertible notes payable described in Note 5, 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, 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.
June 30, 2020 | December 31, 2019 | |||||||
(restated) | ||||||||
Balance at the beginning of period | $ | 10,517,873 | $ | 322,976 | ||||
Original discount limited to proceeds of notes | 166,000 | 540,750 | ||||||
Fair value of derivative liabilities in excess of notes proceeds received | 804,403 | 1,653,887 | ||||||
Settlement of derivative instruments | (14,600,497 | ) | (3,258,054 | ) | ||||
Change in fair value of embedded conversion option | 14,506,194 | 11,258,314 | ||||||
Balance at the end of the period | $ | 11,393,973 | $ | 10,517,873 |
The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option and warrant liabilities as their fair values were determined by using the Binomial Model based on various assumptions.
Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:
Expected Volatility | Risk-free Interest Rate | Expected Dividend Yield | Expected Life (in years) | |||||||||
At issuance during the period | 336-358% | 0.25-1.47% | 0 | % | 1.00 | |||||||
At June 30, 2020 | 236-320% | 0.16-0.18% | 0 | % | 0.68-3.70 |
The Company uses Level 3 inputs for its valuation methodology for the preferred series A stock liability as their fair values were determined by using the Binomial Model based on various assumptions.
17 |
NOTE 7. STOCKHOLDERS’ DEFICIT
Preferred Stock
On February 7, 2020, the Company extinguished a promissory note and convertible note, including accrued interest 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.
During the period ended June 30, 2020, the Company sold 270,000 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 six-months ended June 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.
On June 24, 2020, 50,000 shares of preferred series C stock was converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 5,000,000 shares of common stock.
Common Stock
On January 1, 2019, the Company entered into a four-year employment agreement with F. Jody Read in his role as Chief Executive Officer. The employment agreement awards the CEO 1,500,000 restricted shares of 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 June 30, 2020, 750,000 shares were issued and the Company had recognized $145,093 of stock-based compensation.
During the period ended June 30, 2020, $17,092 of principal and $3,507 of interest of a convertible note payable was converted into 36,050,000 shares of the Company’s common stock as further described in Note 5(h).
During the period ended June 30, 2020, the Company issued 9,246,186 shares of common stock upon the cashless exercise of 9,280,742 warrants.
On January 1, 2020, 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 150,000 shares of common stock to a consultant. The Company recorded the fair value of the common shares of $5,880 in consulting expense.
On March 31, 2020, 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 1,000,000 shares of common stock to an employee of the Company for cash proceeds of $10,000.
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 June 24, 2020, 50,000 shares of preferred series C stock was converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 5,000,000 shares of common stock.
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NOTE 8. STOCK OPTIONS
Below is a table summarizing the options issued and outstanding as of June 30, 2020:
Number of options | Weighted average exercise price $ | |||||||||
Balance, December 31, 2019 | 200,000 | 2.00 | ||||||||
Granted | — | — | ||||||||
Expired | — | — | ||||||||
Settled | — | — | ||||||||
Balance, June 30, 2020 | 200,000 | 2.00 |
As at June 30, 2020, the following share stock options were outstanding:
Date | Number | Number | Exercise | Weighted Average Remaining Contractual | Expiration | Proceeds to Company if | ||||||||||||||||||||
Issued | Outstanding | Exercisable | Price $ | Life (Years) | Date | Exercised | ||||||||||||||||||||
01/26/2017 | 200,000 | 200,000 | 2.00 | 1.58 | 01/26/2022 | 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 June 30, 2020 was $nil.
NOTE 9. 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, June 30, 2020 | 250,500,000 | 0.00049 |
As at June 30, 2020, the following share purchase warrants were outstanding:
Date | Number | Number | Exercise | Weighted Average Remaining Contractual | Expiration | Proceeds to Company if | ||||||||||||||||||||
Issued | Outstanding | Exercisable | Price $ | Life (Years) | Date | Exercised | ||||||||||||||||||||
(restated) | (restated) | (restated) | ||||||||||||||||||||||||
11/28/2018 | 142,857,143 | * | 142,857,143 | * | 0.00035 | * | 1.41 | 11/28/2021 | $ | 50,000 | ||||||||||||||||
12/3/2018 | 500,000 | 500,000 | 0.10 | 3.43 | 12/3/2023 | 50,000 | ||||||||||||||||||||
3/13/2019 | 107,142,857 | * | 107,142,857 | * | 0.00035 | * | 3.70 | 3/13/2024 | 37,500 | |||||||||||||||||
250,500,000 | 250,500,000 | $ | 137,500 |
*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(o).
The intrinsic value of warrants outstanding at June 30, 2020 was $8,825,000 (restated).
19 |
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. COMMITMENTS AND CONTINGENCIES
Consulting Agreements –
On October 1, 2019, the Company entered into a consulting agreement for investor relations services through March 31, 2020. The agreement called for a cash payment of $25,000 and 12,000,000 restricted shares of common stock to be issued to the consultant. As of December 31, 2019, the Company recorded the fair value of the shares of $61,200 for the consulting expense related to the consulting services provided. The expense was recognized over the service period, ending on March 31, 2020.
In addition to contracts for service, the Company also regularly uses the professional services of securities attorneys, a US EPA specialist, professional accountants and other public-company specialists.
Employment Agreements –
On January 1, 2019, the Company entered into a four-year employment agreement with F. Jody Read in his role as Chief Executive Officer. The terms of the contract call for an annual salary of $90,000 for the first year, effective March 1, 2019 and increasing to $120,000 once the Company’s revenue exceeds monthly expenses, then incrementally over time and with certain operation results, up to $200,000/year. The salary may be paid, at the employee’s discretion, either in cash or in common stock. A $1,000 per month allowance will be granted to the executive for housing near the Company’s South Carolina facility. The employment agreement awards the CEO 1,500,000 restricted shares of the Company’s restricted stock, which shall vest in the following manner: 375,000 shares on March 1, 2019, 375,000 shares on March 1, 2020, 375,000 shares on March 1, 2021 and the final 375,000 shares on March 1, 2022. 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.
Other Obligations and Commitments –
On March 20, 2020, the Company entered into a consulting agreement. Pursuant to the agreement the consultant will provide investor relations services for a period of six months. The Company had issued the consultant 150,000 shares of common stock with a fair value of $5,880 for services received.
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NOTE 12. SUBSEQUENT EVENTS
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 common shares of the Company.
On July 7, 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 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 common shares of the Company and a 5% commission, paid in shares, for any investments brokered.
On July 15, 2020, the Company entered into a promissory note with a non-related party for $119,200. The note is repayable in $7,450 weekly payments.
On August 11, 2020, 75,000 shares of preferred series C stock was converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 7,500,000 shares of common stock.
On August 18, 2020, the Company settled the $100,000 note described in Note 5(i). Pursuant to the settlement agreement, the Company will issue the lender 5,281,088 shares of common stock and pay the lender $140,000 in four monthly installments of $35,000 commencing August 19, 2020 and ending November 19, 2020.
On August 21, 2020, the Company sold future receivables with a non-related party for $50,000. The advance is repayable through daily payments of $1,071 totaling $74,950.
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.
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The table below sets forth changes to the unaudited consolidated balance sheet:
June 30, 2020 | ||||||||||||
As Previously Reported | Adjustments | As Restated | ||||||||||
ASSETS | ||||||||||||
Total current assets | $ | 416,893 | $ | — | $ | 416,893 | ||||||
Total property and equipment, net | 401,233 | — | 401,233 | |||||||||
Total other assets | 3,554,793 | — | 3,554,793 | |||||||||
TOTAL ASSETS | 4,372,919 | — | 4,372,919 | |||||||||
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY | ||||||||||||
CURRENT LIABILITIES | ||||||||||||
Accounts payable | 447,805 | — | 447,805 | |||||||||
Accrued expenses – related parties | 98,311 | — | 98,311 | |||||||||
Accrued expenses | 912,393 | — | 912,393 | |||||||||
Notes payable – related parties | 826,214 | — | 826,214 | |||||||||
Notes payable, net | 408,617 | — | 408,617 | |||||||||
Convertible notes payable, net | 980,254 | — | 980,254 | |||||||||
Derivative liability | 18,419,365 | (7,025,392 | ) | 11,393,973 | ||||||||
Total current liabilities | 22,092,959 | (7,025,392 | ) | 15,067,567 | ||||||||
TOTAL LIABILITIES | 22,092,959 | (7,025,392 | ) | 15,067,567 | ||||||||
TOTAL MEZZANINE EQUITY | 702,645 | — | 702,645 | |||||||||
STOCKHOLDERS’ DEFICIT | ||||||||||||
Common stock | 584,202 | — | 584,202 | |||||||||
Additional paid-in capital | 18,056,637 | — | 18,056,637 | |||||||||
Accumulated deficit | (37,063,524 | ) | 7,025,392 | (30,038,132 | ) | |||||||
(18,422,685 | ) | 7,025,392 | (11,397,293 | ) | ||||||||
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY | $ | 4,372,919 | $ | — | $ | 4,372,919 |
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The table below sets forth changes to the unaudited condensed consolidated statements of operations for the three months ended June 30, 2020:
For the three months ended June 30, 2020 | ||||||||||||
As Previously Reported | Adjustments | As Restated | ||||||||||
REVENUES | ||||||||||||
Total revenues | $ | 881,172 | $ | — | $ | 881,172 | ||||||
OPERATING EXPENSES | ||||||||||||
Total operating expenses | 1,094,245 | — | 1,094,245 | |||||||||
LOSS FROM OPERATIONS | (213,073 | ) | — | (213,073 | ) | |||||||
OTHER INCOME (EXPENSE) | ||||||||||||
Loss on change in fair value of derivative liability | (1,092,845 | ) | (4,922,990 | ) | (6,015,835 | ) | ||||||
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 | 1,759,539 | 11,948,382 | 13,707,921 | |||||||||
Interest expense | (459,930 | ) | — | (459,930 | ) | |||||||
Total other income (expense) | 206,764 | 7,025,392 | 7,232,156 | |||||||||
Income (loss) before income taxes | (6,309 | ) | 7,025,392 | 7,019,083 | ||||||||
Income taxes | — | — | — | |||||||||
NET INCOME (LOSS) | (6,309 | ) | 7,025,392 | 7,019,083 | ||||||||
Preferred series C stock deemed dividends | — | — | — | |||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS’ | $ | (6,309 | ) | $ | 7,025,392 | $ | 7,019,083 | |||||
Basic net income (loss) per share | $ | (0.00 | ) | $ | 0.01 | $ | 0.01 | |||||
Diluted net income (loss) per share | $ | (0.00 | ) | $ | — | $ | (0.00 | ) | ||||
Basic weighted average shares outstanding | 569,964,666 | 569,964,666 | ||||||||||
Diluted weighted average shares outstanding | 569,964,666 | 774,463,424 |
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The table below sets forth changes to the unaudited condensed consolidated statements of operations for the six months ended June 30, 2020:
For the six months ended June 30, 2020 | ||||||||||||
As Previously Reported | Adjustments | As Restated | ||||||||||
REVENUES | ||||||||||||
Total revenues | $ | 1,153,354 | $ | — | $ | 1,153,354 | ||||||
OPERATING EXPENSES | ||||||||||||
Total operating expenses | 1,874,902 | — | 1,874,902 | |||||||||
LOSS FROM OPERATIONS | (721,548 | ) | — | (721,548 | ) | |||||||
OTHER INCOME (EXPENSE) | ||||||||||||
Loss on change in fair value of derivative liability | (10,387,607 | ) | (4,922,990 | ) | (15,310,597 | ) | ||||||
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 | 1,715,539 | 11,948,382 | 13,663,921 | |||||||||
Interest expense | (894,341 | ) | — | (894,341 | ) | |||||||
Total other income (expense) | (9,566,409 | ) | 7,025,392 | (2,541,017 | ) | |||||||
Income (loss) before income taxes | (10,287,957 | ) | 7,025,392 | (3,262,565 | ) | |||||||
Income taxes | — | — | — | |||||||||
NET INCOME (LOSS) | (10,287,957 | ) | 7,025,392 | (3,262,565 | ) | |||||||
Preferred series C stock deemed dividends | (270,000 | ) | — | (270,000 | ) | |||||||
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS’ | $ | (10,557,957 | ) | $ | 7,025,392 | $ | (3,532,565 | ) | ||||
Basic and diluted net income (loss) per share | $ | (0.02 | ) | $ | 0.01 | $ | (0.01 | ) | ||||
Basic and diluted weighted average shares outstanding | 557,809,456 | 557,809,456 |
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The table below sets forth changes to the unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2020:
For the six months ended June 30, 2020 | ||||||||||||
As Previously Reported | Adjustments | As Restated | ||||||||||
Cash Flows from Operating Activities | ||||||||||||
Net loss | $ | (10,287,957 | ) | $ | 7,025,392 | $ | (3,262,565 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
Depreciation and amortization | 164,369 | — | 164,369 | |||||||||
Amortization of debt discounts | 280,188 | — | 280,188 | |||||||||
Common stock issued for services | 133,245 | — | 133,245 | |||||||||
Loss on change in fair value of derivative liability | 10,387,607 | 4,922,990 | 15,310,597 | |||||||||
(Gain) loss on settlement of debt | (1,715,539 | ) | (11,948,382 | ) | (13,663,921 | ) | ||||||
Default penalties on convertible notes payable | 13,762 | 13,762 | ||||||||||
Change in operating assets and liabilities | ||||||||||||
Accounts receivable | (207,213 | ) | — | (207,213 | ) | |||||||
Inventory | 26,669 | — | 26,669 | |||||||||
Prepaid expenses | (8,295 | ) | — | (8,295 | ) | |||||||
Other assets | (12,027 | ) | — | (12,027 | ) | |||||||
Accounts payable | 132,577 | — | 132,577 | |||||||||
Accrued expenses – related party | 13,773 | — | 13,773 | |||||||||
Accrued expenses | 620,188 | — | 620,188 | |||||||||
Net cash used in operating activities | (458,653 | ) | — | (458,653 | ) | |||||||
Net cash provided by investing activities | — | — | — | |||||||||
Net cash provided by financing activities | 420,300 | — | 420,300 | |||||||||
Net change in cash | (38,353 | ) | — | (38,353 | ) | |||||||
Cash and cash equivalents at beginning of period | 67,613 | — | 67,613 | |||||||||
Cash and cash equivalents at end of period | $ | 29,260 | $ | — | $ | 29,260 |
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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 take to contain it or treat its impact.
26 |
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 $3,262,565 (restated) for the six-months ended June 30, 2020 and accumulated losses of $30,038,132 (restated) from inception through June 30, 2020.
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 |
• | 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 third quarter of 2020.
27 |
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 | June 30, 2020 | December 31, 2019 | ||||||
(restated) | ||||||||
Cash and cash equivalents | $ | 29,260 | $ | 67,613 | ||||
Total current assets | 416,893 | 224,738 | ||||||
Total assets | 4,372,919 | 4,374,775 | ||||||
Total liabilities | 15,067,567 | 14,290,486 | ||||||
Accumulated deficit | (30,038,132 | ) | (26,505,567 | ) | ||||
Total stockholders’ deficit | $ | (11,397,293 | ) | $ | (10,134,356 | ) |
At June 30, 2020, the Company recorded a net loss of $3,262,565 (restated) and a working capital deficit of $14,650,674 (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 six-months ended June 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 $29,260 in cash at June 30, 2020, compared to $67,613 in cash at December 31, 2019. We had total liabilities of $15,067,567 (restated) at June 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.
Commitments and Obligations
At June 30, 2020 the Company recorded notes payable totaling approximately $2,215,085 (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 November 8, 2021.
The Company headquarters and operations is located in Little River, South Carolina. The South Carolina lease payment was to $4,800 per month through November 30, 2019. The building was sold and the Company is on a month-to-month lease with the new Landlord, while negotiating a new annual lease, which will likely include monthly lease payments of $7,500/month.
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Results of Operations
Three Months Ended June 30, 2020
SUMMARY OF OPERATIONS | Three-month period ended June 30, | |||||||
(Unaudited) | ||||||||
2020 | 2019 | |||||||
(restated) | ||||||||
Revenues | $ | 881,172 | $ | 118,862 | ||||
Total operating expenses | 1,094,245 | 527,397 | ||||||
Total other income (expense) | 7,232,156 | (3,121,612 | ) | |||||
Net income (loss) | 7,019,083 | (3,530,147 | ) | |||||
Preferred series C stock deemed dividends | — | — | ||||||
Net income (loss) attributable to common stockholders’ | 7,019,083 | (3,530,147 | ) | |||||
Basic income (loss) per share | $ | 0.01 | $ | (0.07 | ) | |||
Diluted income (loss) per share | $ | (0.00 | ) | $ | (0.07 | ) |
Revenues increased to $881,172, for the three-months ended June 30, 2020 (the “2020 second quarter”) compared to $118,862 for the three-months ended June 30, 2019 (the “2019 second 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 $1,094,245 during the 2020 second quarter compared to $527,397 during the 2019 second quarter. The increase during the second 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 $592,042 for the 2020 second quarter compared to $415,339 during the 2019 second quarter. The increase during the second quarter of 2020 was primarily due to hiring new employees and expenses related to legal and accounting work.
Depreciation and amortization expenses decreased slightly to $81,348 during the 2020 second quarter compared to $84,189 during the 2019 second quarter. Depreciation and amortization was comparable between the two periods.
Total other income was $7,232,156 (restated) for the 2020 second quarter compared to other expense of $3,121,612 during the 2019 second quarter. The overall change was a result of a gain on settlement of debt and an increase in the gain on change in fair value of derivatives during the second quarter of 2020.
As a result of the changes described above, net income increased to $7,019,083 (restated) during the 2020 second quarter compared to a net loss of $3,530,147 during the 2019 second quarter.
Six Months Ended June 30, 2020
SUMMARY OF OPERATIONS | Six months period ended June 30, | |||||||
(Unaudited) | ||||||||
2020 | 2019 | |||||||
(restated) | ||||||||
Revenues | $ | 1,153,354 | $ | 314,819 | ||||
Total operating expense | $ | 1,874,902 | $ | 1,351,927 | ||||
Total other expense | $ | 2,541,017 | $ | 3,413,362 | ||||
Net loss | $ | (3,262,565 | ) | $ | (4,450,470 | ) | ||
Preferred series C stock deemed dividends | (270,000 | ) | — | |||||
Net loss attributable to common stockholders’ | (3,532,565 | ) | (4,450,470 | ) | ||||
Basic and diluted loss per share | $ | (0.01 | ) | $ | (0.09 | ) |
Revenues increased to $1,153,354 for the six months ended June 30, 2020 compared to $314,819 for the six months ended June 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 $1,874,902 during the six months ended June 30, 2020 compared to $1,351,927 during the six months ended June 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 slightly to $1,140,828 for the six months ended June 30, 2020 compared to $1,082,303 during the six months ended June 30, 2019. General and administrative was comparable between the two periods.
Depreciation and amortization expenses decreased slightly to $164,369 during the six months ended June 30, 2020 compared to $169,101 during the six months ended June 30, 2019. Depreciation and amortization was comparable between the two periods.
Total other expenses decreased to $2,541,017 (restated) for six months ended June 30, 2020 compared to $3,413,362 during the six months ended June 30, 2019. The overall decrease was a result of a gain of settlement of debt during the six months ended June 30, 2020, offset by an increase in interest expense, and loss on change in fair value of derivatives.
As a result of the changes described above, net loss decreased to $3,262,565 (restated) during the six months ended June 30, 2020 compared to $4,450,470 during the six months ended June 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. F. Jody Read, our Chief Executive Officer, who serves as our principal executive 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 concluded that as of June 30, 2020, our disclosure controls and procedures were not effective.
Notwithstanding this finding of ineffective disclosure controls and procedures, we concluded that the consolidated financial statements included in this Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States. Changes have been made to internal controls since the original 2nd Quarter 2020 10-Q. The new reporting process will help prevent future financial oversights.
Changes in Internal Control Over Financial Reporting
During the quarter ended June 30, 2020, 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 implemented controls around its financial reporting process that will help prevent future financial oversights from occurring again.
30 |
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, and
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.
These claims arise from several consulting agreements and an acquisition agreements between us and the Defendants surrounding the purchase of Annihilyzer® Intellectual property by us and subsequent infringement of the intellectual properties. The case is currently ongoing.
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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On April 27, 2020, the Company issued 1,000,000 shares of common stock to an employee of the Company for cash proceeds of $10,000.
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 June 24, 2020, 50,000 shares of preferred series C stock was converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 5,000,000 shares of common stock.
Subsequent Issuances After Quarter-End
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 common shares of the Company.
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 common shares of the Company and a 5% commission, paid in shares, for any investments brokered.
On August 11, 2020, 75,000 shares of preferred series C stock was converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 7,500,000 shares of common stock.
On August 18, 2020, the Company settled the $100,000 note described in Note 5(i). Pursuant to the settlement agreement, the Company will issue the lender 5,281,088 shares of common stock and pay the lender $140,000 in four monthly installments of $35,000 commencing August 19, 2020 and ending November 19, 2020.
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 June 30, 2020.
32 |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
We have entered into a number of promissory notes, some of which are in default as of June 30, 2020, or went into default before the filing of this Quarterly Report (See Note 5 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 June 30, 2020, we only had cash and cash equivalents of $29,260 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 Annual Report none of the lenders have pursued their legal remedies, although several lenders have sent us demand letters. 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 June 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
Not applicable.
33 |
ITEM 6. EXHIBITS
Exhibit No. | Description |
3(i) | Amended and Restated Articles of Incorporation, as currently in effect (Incorporated by reference to Exhibit 3.1 of Form 8-K, filed April 13, 2018) |
3.1 | Amended Articles of Incorporation increasing authorized shares (Incorporated by reference to Exhibit 3.1 of Form 8-K, filed on October 25, 2019) |
3(ii) | Amended and Restated Bylaws, as currently in effect (Incorporated by reference to Exhibit 3.2 of Form 8-K, filed April 13, 2018) |
4.1 | Certificate of Designation of Series A Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 of Form 10-Q, filed on September 16, 2019) |
4.2 | Certificate of Designation of Series B – Super Voting Convertible Preferred Stock (Incorporated by reference to Exhibit 4.2 of Form 10-Q, filed on September 16, 2019) |
4.3 | Certificate of Designation of Series C Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 of Form 8-K, filed on October 25, 2019) |
4.4 | Power Up Note dated June 5, 2018 (Incorporated by reference to Exhibit 4.1 of Form 10-Q, filed August 20, 2018) |
4.5 | Second Power Up Note dated July 25, 2018 (Incorporated by reference to Exhibit 4.2 of Form 10-Q, filed August 20, 2018) |
4.6 | Third Power Up Note dated August 27, 2018 (Incorporated by reference to Exhibit 4.3 of Form 10-Q, filed November 21, 2019) |
4.7 | Fourth Power Up Note dated December 5, 2018 (Incorporated by reference to Exhibit 4.6 of Form 10-Q, filed on September 16, 2019) |
4.8 | Fifth Power Up Note dated January 15, 2019 (Incorporated by reference to Exhibit 4.7 of Form 10-Q, filed on September 16, 2019) |
4.9 | Sixth Power Up Note dated February 22, 2019 (Incorporated by reference to Exhibit 4.8 of Form 10-Q, filed on September 16, 2019) |
4.10 | GS Capital Note dated January 16, 2019 (Incorporated by reference to Exhibit 4.9 of Form 10-Q, filed on September 16, 2019) |
4.11 | JSJ Note dated January 22, 2019 (Incorporated by reference to Exhibit 4.10 of Form 10-Q, filed on September 16, 2019) |
4.12 | EMA Note dated January 22, 2019 (Incorporated by reference to Exhibit 4.11 of Form 10-Q, filed on September 16, 2019) |
4.13 | Adar Note dated February 20, 2019 (Incorporated by reference to Exhibit 4.12 of Form 10-Q, filed on September 16, 2019) |
4.14 | Peak One Note dated February 21, 2019 (Incorporated by reference to Exhibit 4.13 of Form 10-Q, filed on September 16, 2019) |
4.15 | Auctus Note dated March 13, 2019 (Incorporated by reference to Exhibit 4.14 of Form 10-Q, filed on September 16, 2019) |
4.16 | Peak One Opportunity Fund Note dated September 16, 2019 (Incorporated by reference to Exhibit 4.16 of Form 10-Q, filed on August 14, 2020) |
4.17 | Power-Up #8 Note dated October 8, 2019 (Incorporated by reference to Exhibit 4.17 of Form 10-Q, filed on August 14, 2020) |
4.18 | Power-Up #9 Note dated October 31, 2019 (Incorporated by reference to Exhibit 4.18 of Form 10-Q, filed on August 14, 2020) |
4.19 | Power-Up #10 Note dated March 2, 2020 (Incorporated by reference to Exhibit 4.19 of Form 10-Q, filed on August 14, 2020) |
4.20 | TFK Investments Note dated April 10, 2020 (Incorporated by reference to Exhibit 4.20 of Form 10-Q, filed on August 14, 2020) |
4.21 | Power-Up #11 Note dated April 16, 2020 (Incorporated by reference to Exhibit 4.21 of Form 10-Q, filed on August 14, 2020) |
4.22 | Herschbach 2005 Trust Consolidated Note dated May 5, 2020 (Incorporated by reference to Exhibit 4.22 of Form 10-Q, filed on August 14, 2020) |
4.23 | Power-Up #12 Note dated May 12, 2020 (Incorporated by reference to Exhibit 4.23 of Form 10-Q, filed on August 14, 2020) |
4.24 | Digital Ally Note dated July 7, 2020 (Incorporated by reference to Exhibit 4.24 of Form 10-Q, filed on August 14, 2020) |
4.25 | Reserve Capital Management Note dated July 15, 2020 (Incorporated by reference to Exhibit 4.25 of Form 10-Q, filed on August 14, 2020) |
10.1 | Agreement with Annihilyzer, Inc. dated November 29, 2016 (Incorporated by reference to Exhibit 10.1 of Form 8-K, filed April 20, 2017) |
10.2 | Amendment to Agreement with Annihilyzer, Inc. dated April 6, 2017 (Incorporated by reference to Exhibit 10.2 of Form 8-K, filed April 20, 2017) |
10.3 | Read 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) |
10.5 | Strategic Planning Services Agreement dated March 15, 2018 |
10.6 | Power 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) |
10.7 | Second 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 |
10.8 | Third 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) |
10.9 | Fourth Power Up Agreement dated December 15, 2018 (Incorporated by reference to Exhibit 10.9 of Form 10-Q, filed on September 16, 2019) |
10.10 | Fifth Power Up Agreement dated January 15, 2019 (Incorporated by reference to Exhibit 10.10 of Form 10-Q, filed on September 16, 2019) |
10.11 | Sixth Power Up Agreement dated February 22, 2019 (Incorporated by reference to Exhibit 10.11 of Form 10-Q, filed on September 16, 2019) |
10.12 | GS Capital Agreement dated January 16, 2019 (Incorporated by reference to Exhibit 10.12 of Form 10-Q, filed on September 16, 2019) |
10.13 | JSJ Agreement dated January 22, 2019 (Incorporated by reference to Exhibit 10.13 of Form 10-Q, filed on September 16, 2019) |
10.14 | EMA Agreement dated January 22, 2019 (Incorporated by reference to Exhibit 10.14 of Form 10-Q, filed on September 16, 2019) |
10.15 | Adar Agreement dated February 20, 2019 (Incorporated by reference to Exhibit 10.15 of Form 10-Q, filed on September 16, 2019) |
10.16 | Peak One Agreement dated February 21, 2019 (Incorporated by reference to Exhibit 10.16 of Form 10-Q, filed on September 16, 2019) |
10.17 | Auctus 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† | Read Addendum to Employment Agreement (Incorporated by reference to Exhibit 10.19 of Form 10-Q, filed on September 16, 2019) |
10.20† | Grieco 2019 Employment Agreement (Incorporated by reference to Exhibit 10.20 of Form 10-Q, filed on September 16, 2019) |
10.21† | Grieco 2020 Employment Agreement Incorporated by reference to Exhibit 10.21 of Form 10-Q, filed on April 13, 2020) |
10.22 | Peak One Opportunity Fund Agreement dated September 16, 2019 (Incorporated by reference to Exhibit 10.22 of Form 10-Q, filed on August 14, 2020) |
10.23 | Power-Up #8 Agreement dated October 8, 2019 (Incorporated by reference to Exhibit 10.23 of Form 10-Q, filed on August 14, 2020) |
10.24 | Power-Up #9 Agreement dated October 31, 2019 (Incorporated by reference to Exhibit 10.24 of Form 10-Q, filed on August 14, 2020) |
10.25 | Power-Up #10 Agreement dated March 2, 2020 (Incorporated by reference to Exhibit 10.25 of Form 10-Q, filed on August 14, 2020) |
10.26 | TFK Investments Agreement dated April 10, 2020 (Incorporated by reference to Exhibit 10.26 of Form 10-Q, filed on August 14, 2020) |
10.27 | Power-Up #11 Agreement dated April 16, 2020 (Incorporated by reference to Exhibit 10.27 of Form 10-Q, filed on August 14, 2020) |
10.28 | Herschbach 2005 Trust Agreement dated May 12, 2020 (Incorporated by reference to Exhibit 10.28 of Form 10-Q, filed on August 14, 2020) |
31.1 | Principal Executive Officer Certification |
31.2 | Principal Financial Officer Certification |
32.1 | Section 1350 Certification |
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Label Linkbase Document |
101.PRE | XBRL Taxonomy Presentation Linkbase Document |
† Indicates management contract or compensatory plan or arrangement.
34 |
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 3, 2021 | By: | /s/ Gary Grieco |
Gary Grieco, Chief Executive Officer and Chairman | ||
/s/ Arthur Abraham Arthur Abraham, Chief Financial Officer |
35
Exhibit 31.1
PRINCIPAL EXECUTIVE OFFICER CERTIFICATION
I, Gary Grieco, certify that:
1. | I have reviewed this quarterly report on Form 10-Q/A (Amendment No. 1) of PCT LTD; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: September 3, 2021 |
/s/ Gary Grieco Gary Grieco, Principal Executive Officer, Chief Executive Officer and Chairman |
Exhibit 31.2
PRINCIPAL FINANCIAL OFFICER CERTIFICATION
I, Arthur Abraham, certify that:
1. | I have reviewed this quarterly report on Form 10-Q/A (Amendment No. 1) of PCT LTD; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: September 3, 2021 |
/s/ Arthur Abraham Arthur Abraham Principal Financial Officer and Chief Financial Officer |
Exhibit 32.1
PCT LTD
CERTIFICATION OF PERIODIC REPORT
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
18 U.S.C. Section 1350
The undersigned executive officer of PCT LTD certifies pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:
a. | the quarterly report on Form 10-Q/A (Amendment No. 1) of PCT LTD for the period ended June 30, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
b. | the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of PCT LTD. |
Date: September 3, 2021 |
/s/ Gary Grieco Gary Grieco Chief Executive Officer, Principal Executive Officer |
Exhibit 32.2
PCT LTD
CERTIFICATION OF PERIODIC REPORT
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
18 U.S.C. Section 1350
The undersigned executive officer of PCT LTD certifies pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:
a. | the quarterly report on Form 10-Q/A (Amendment No. 1) of PCT LTD for the period ended June 30, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
b. | the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of PCT LTD. |
Date: September 3, 2021 |
/s/ Arthur Abraham Arthur Abraham Chief Financial Officer, Principal Financial Officer |
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2020 |
Aug. 27, 2020 |
|
Document And Entity Information | ||
Entity Registrant Name | PCT LTD | |
Entity Central Index Key | 0001119897 | |
Document Type | 10-Q/A | |
Document Period End Date | Jun. 30, 2020 | |
Entity Incorporation, State or Country Code | NV | |
Amendment Flag | true | |
Amendment Description | 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 June 30, 2020, as originally filed with the Securities and Exchange Commission on August 31, 2020 (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 13 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 is also filing an amended Annual Report for the fiscal year ended December 31, 2020 and an amended Quarterly Report for each of the quarterly periods ended September 30, 2020 and March 31, 2021 to restate the previously issued annual and interim financial statements due to the accounting error described above. | |
Current Fiscal Year End Date | --12-31 | |
Entity File Number | 000-31549 | |
Is Entity's Reporting Status Current? | Yes | |
Entity Interactive Data Current | Yes | |
Is Entity Emerging Growth Company? | false | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Common Stock, Shares Outstanding | 598,982,574 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2020 | |
Entity Shell Company | false |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
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REVENUES | ||||
Product | $ 582,389 | $ 11,745 | $ 745,037 | $ 98,839 |
Licensing | 77,000 | 34,000 | 84,000 | 78,500 |
Equipment leases | 221,783 | 73,117 | 324,317 | 137,480 |
Total Revenues | 881,172 | 118,862 | 1,153,354 | 314,819 |
OPERATING EXPENSES | ||||
General and administrative | 592,042 | 415,339 | 1,140,828 | 1,082,303 |
Research and development | 5,000 | 3,792 | 5,000 | 3,792 |
Costs of product, licensing and equipment leases | 415,855 | 24,077 | 564,705 | 96,731 |
Depreciation and amortization | 81,348 | 84,189 | 164,369 | 169,101 |
Total operating expenses | 1,094,245 | 527,397 | 1,874,902 | 1,351,927 |
Loss from operations | (213,073) | (408,535) | (721,548) | (1,037,108) |
OTHER INCOME (EXPENSE) | ||||
Loss on change in fair value of derivative liability | (6,015,835) | (2,789,342) | (15,310,597) | (2,951,641) |
Gain (loss) on change in fair value of preferred series A stock liability | (3,004) | 72,473 | ||
Gain on sale of intangible assets | 52,498 | 52,498 | ||
Gain (loss) on settlement of debt | 13,707,921 | 13,663,921 | (84,409) | |
Interest expense | (459,930) | (381,764) | (894,341) | (502,283) |
Total other income (expense) | 7,232,156 | (3,121,612) | (2,541,017) | (3,413,362) |
Income (loss) before income taxes | 7,019,083 | (3,530,147) | (3,262,565) | (4,450,470) |
Income taxes | ||||
NET INCOME (LOSS) | 7,019,083 | (3,530,147) | (3,262,565) | (4,450,470) |
Preferred series C stock deemed dividends | (270,000) | |||
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS’ | $ 7,019,083 | $ (3,530,147) | $ (3,532,565) | $ (4,450,470) |
Basic net income (loss) per share | $ 0.01 | $ (0.07) | $ (0.01) | $ (0.09) |
Diluted net income (loss) per share | $ 0.00 | $ (0.07) | $ (0.01) | $ (0.09) |
Basic weighted average shares outstanding | 569,964,666 | 52,755,139 | 557,809,456 | 49,208,103 |
Diluted weighted average shares outstanding | 774,463,424 | 52,755,139 | 557,809,456 | 49,208,103 |
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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, 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, 2019 audited financial statements as reported in its Form 10-K, filed on August 3, 2020. COVID-19 In December 2019 COVID-19 emerged in Wuhan, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to almost all other countries, including the United States, and infections have been reported globally. Because COVID-19 infections have been reported throughout the United States, certain federal, state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive proclamations and/or directives may be issued in the future. The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak. Any resulting financial impact cannot be reasonably estimated at this time but may have a material impact on our business, financial condition and results of operations. The significance of the impact of the COVID-19 outbreak on the Company’s businesses and the duration for which it may have an impact cannot be determined at this time. At a minimum, the COVID-19 pandemic caused the Company to restrict travel of its personnel and to initiate distributor installations of certain of the Company’s equipment, as possible. The Company adapted to the immediate need for its US EPA registered disinfectant at the end of March and beginning of April, 2020, by installing greater storage reserves and by assembling more of it higher-volume equipment to produce the hospital grade disinfectant known as Hydrolyte®. There were hard costs associated with these adaptations to the Little River, SC facility, but the Company continues to benefit from its fluid production capacities over the longer term. As the Federal, state and other restrictions associated with the pandemic have lessened, the Company is able to act more effectively in obtaining new contracts for its healthcare equipment, the Annihilyzer® and other equipment. 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.
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.”).
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:
The carrying values of our financial instruments, including, cash and cash equivalents, accounts receivable, inventory, prepaid expenses, accounts payable and accrued expenses approximate their fair value due to the short maturities of these financial instruments.
Derivative liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
Our financial assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2020, consisted of the following:
Our financial assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2019, consisted of the following:
(1) The Company has estimated the fair value of these liabilities using the Binomial Model.
Basic and Diluted Income (Loss) Per Share
Basic income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period and, if dilutive, potential common shares outstanding during the period. Potentially dilutive securities consist of the incremental common shares issuable upon exercise of common stock equivalents such as options, warrants, convertible notes payable, preferred series A stock and preferred series C stock. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. As a result, for the three months ended June 30, 2020, there were outstanding common share equivalents which amounted to 319,106,192 (restated) shares of common stock that were not included in the calculation as their effect is anti-dilutive. For fiscal periods with net losses, these common share equivalents were not included in the computation of diluted loss per share as their effect would have been anti-dilutive.
Recent Accounting Pronouncements
In August 2018, the FASB issued Accounting Standards Update No. 2018-13 (“ASU 2018-13”), Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements relating to fair value measurements as outlined 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. The amendments outlined in ASU 2018-13 are effective for all entities for fiscal years, 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. The Company adopted ASU 2018-13 on January 1, 2020 and the adoption of ASU 2018-13 did not have a material effect on the consolidated financial statements. |
GOING CONCERN |
6 Months Ended |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
GOING CONCERN | 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 an accumulated deficit of $30,038,132 (restated) and has negative cash flows from operations. As of June 30, 2020, the Company had a working capital deficit of $14,650,674 (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. |
PROPERTY AND EQUIPMENT |
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PROPERTY AND EQUIPMENT | NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2020 and December 31, 2019 consisted of the following:
Depreciation expense was $12,207 and $12,701 for the six-months ended June 30, 2020 and 2019, respectively.
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INTANGIBLE ASSETS |
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INTANGIBLE ASSETS | NOTE 4. INTANGIBLE ASSETS
Intangible assets at June 30, 2020 and December 31, 2019 consisted of the following:
Amortization expense was $152,162 and $156,400 for the six-months ended June 30, 2020 and 2019, respectively.
Estimated Future Amortization Expense:
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NOTES PAYABLE |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTES PAYABLE | NOTE 5. Notes Payable
The following tables summarize notes payable as of June 30, 2020 and December 31, 2019:
The following table summarizes notes payable, related parties as of June 30, 2020 and December 31, 2019:
The following table summarizes convertible notes payable as of June 30, 2020 and December 31, 2019:
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DERIVATIVE LIABILITIES |
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Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DERIVATIVE LIABILITIES | NOTE 6. DERIVATIVE LIABILITIES
The embedded conversion option of (1) the convertible notes payable described in Note 5; (2) warrants; contain conversion features that qualify for embedded derivative classification. The fair value of the liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments.
Upon the issuance of the convertible notes payable described in Note 5, 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, 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.
The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option and warrant liabilities as their fair values were determined by using the Binomial Model based on various assumptions.
Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:
The Company uses Level 3 inputs for its valuation methodology for the preferred series A stock liability as their fair values were determined by using the Binomial Model based on various assumptions. |
STOCKHOLDERS' DEFICIT AND STOCK OPTIONS |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCKHOLDERS' DEFICIT AND STOCK OPTIONS | NOTE 7. STOCKHOLDERS’ DEFICIT
Preferred Stock
On February 7, 2020, the Company extinguished a promissory note and convertible note, including accrued interest 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.
During the period ended June 30, 2020, the Company sold 270,000 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 six-months ended June 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.
On June 24, 2020, 50,000 shares of preferred series C stock was converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 5,000,000 shares of common stock. Common Stock
On January 1, 2019, the Company entered into a four-year employment agreement with F. Jody Read in his role as Chief Executive Officer. The employment agreement awards the CEO 1,500,000 restricted shares of 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 June 30, 2020, 750,000 shares were issued and the Company had recognized $145,093 of stock-based compensation.
During the period ended June 30, 2020, $17,092 of principal and $3,507 of interest of a convertible note payable was converted into 36,050,000 shares of the Company’s common stock as further described in Note 5(h).
During the period ended June 30, 2020, the Company issued 9,246,186 shares of common stock upon the cashless exercise of 9,280,742 warrants.
On January 1, 2020, 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 150,000 shares of common stock to a consultant. The Company recorded the fair value of the common shares of $5,880 in consulting expense.
On March 31, 2020, 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 1,000,000 shares of common stock to an employee of the Company for cash proceeds of $10,000.
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 June 24, 2020, 50,000 shares of preferred series C stock was converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 5,000,000 shares of common stock. NOTE 8. STOCK OPTIONS
Below is a table summarizing the options issued and outstanding as of June 30, 2020:
As at June 30, 2020, the following share stock options were outstanding:
The weighted average exercise prices are $2.00 for the options outstanding and exercisable, respectively. The intrinsic value of stock options outstanding at June 30, 2020 was $nil. |
WARRANTS |
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WARRANTS | NOTE 9. 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:
As at June 30, 2020, the following share purchase warrants were outstanding:
*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(o).
The intrinsic value of warrants outstanding at June 30, 2020 was $8,825,000 (restated). |
RELATED PARTY TRANSACTIONS |
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Jun. 30, 2020 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | 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. |
COMMITMENTS AND CONTINGENCIES |
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Jun. 30, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | NOTE 11. COMMITMENTS AND CONTINGENCIES
Consulting Agreements –
On October 1, 2019, the Company entered into a consulting agreement for investor relations services through March 31, 2020. The agreement called for a cash payment of $25,000 and 12,000,000 restricted shares of common stock to be issued to the consultant. As of December 31, 2019, the Company recorded the fair value of the shares of $61,200 for the consulting expense related to the consulting services provided. The expense was recognized over the service period, ending on March 31, 2020.
In addition to contracts for service, the Company also regularly uses the professional services of securities attorneys, a US EPA specialist, professional accountants and other public-company specialists.
Employment Agreements –
On January 1, 2019, the Company entered into a four-year employment agreement with F. Jody Read in his role as Chief Executive Officer. The terms of the contract call for an annual salary of $90,000 for the first year, effective March 1, 2019 and increasing to $120,000 once the Company’s revenue exceeds monthly expenses, then incrementally over time and with certain operation results, up to $200,000/year. The salary may be paid, at the employee’s discretion, either in cash or in common stock. A $1,000 per month allowance will be granted to the executive for housing near the Company’s South Carolina facility. The employment agreement awards the CEO 1,500,000 restricted shares of the Company’s restricted stock, which shall vest in the following manner: 375,000 shares on March 1, 2019, 375,000 shares on March 1, 2020, 375,000 shares on March 1, 2021 and the final 375,000 shares on March 1, 2022. 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.
Other Obligations and Commitments –
On March 20, 2020, the Company entered into a consulting agreement. Pursuant to the agreement the consultant will provide investor relations services for a period of six months. The Company had issued the consultant 150,000 shares of common stock with a fair value of $5,880 for services received. |
SUBSEQUENT EVENTS |
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Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | NOTE 12. SUBSEQUENT EVENTS
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 common shares of the Company.
On July 7, 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 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 common shares of the Company and a 5% commission, paid in shares, for any investments brokered.
On July 15, 2020, the Company entered into a promissory note with a non-related party for $119,200. The note is repayable in $7,450 weekly payments.
On August 11, 2020, 75,000 shares of preferred series C stock was converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 7,500,000 shares of common stock. On August 18, 2020, the Company settled the $100,000 note described in Note 5(i). Pursuant to the settlement agreement, the Company will issue the lender 5,281,088 shares of common stock and pay the lender $140,000 in four monthly installments of $35,000 commencing August 19, 2020 and ending November 19, 2020.
On August 21, 2020, the Company sold future receivables with a non-related party for $50,000. The advance is repayable through daily payments of $1,071 totaling $74,950. |
RESTATEMENT |
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RESTATEMENT | 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:
The table below sets forth changes to the unaudited condensed consolidated statements of operations for the three months ended June 30, 2020:
The table below sets forth changes to the unaudited condensed consolidated statements of operations for the six months ended June 30, 2020:
The table below sets forth changes to the unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2020:
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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nature of Operations and Significant Accounting Policies | 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.
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.”).
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. |
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Reclassification | 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). |
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Fair Value Measurements | 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:
The carrying values of our financial instruments, including, cash and cash equivalents, accounts receivable, inventory, prepaid expenses, accounts payable and accrued expenses approximate their fair value due to the short maturities of these financial instruments.
Derivative liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
Our financial assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2020, consisted of the following:
Our financial assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2019, consisted of the following:
(1) The Company has estimated the fair value of these liabilities using the Binomial Model. |
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Basic and Diluted Income (Loss) Per Share |
Basic and Diluted Income (Loss) Per Share
Basic income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period and, if dilutive, potential common shares outstanding during the period. Potentially dilutive securities consist of the incremental common shares issuable upon exercise of common stock equivalents such as options, warrants, convertible notes payable, preferred series A stock and preferred series C stock. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. As a result, for the three months ended June 30, 2020, there were outstanding common share equivalents which amounted to 319,106,192 (restated) shares of common stock that were not included in the calculation as their effect is anti-dilutive. For fiscal periods with net losses, these common share equivalents were not included in the computation of diluted loss per share as their effect would have been anti-dilutive.
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Recent Accounting Pronouncements | Recent Accounting Pronouncements
In August 2018, the FASB issued Accounting Standards Update No. 2018-13 (“ASU 2018-13”), Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements relating to fair value measurements as outlined 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. The amendments outlined in ASU 2018-13 are effective for all entities for fiscal years, 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. The Company adopted ASU 2018-13 on January 1, 2020 and the adoption of ASU 2018-13 did not have a material effect on the consolidated financial statements. |
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial assets and liabilities carried at fair value |
(1) The Company has estimated the fair value of these liabilities using the Binomial Model. |
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Basic and diluted income (loss) per share |
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PROPERTY AND EQUIPMENT (Tables) |
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Property and equipment |
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INTANGIBLE ASSETS (Tables) |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of intangible assets |
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Estimated future amortization expense of intangible assets |
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NOTES PAYABLE (Tables) |
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Notes payable | The following tables summarize notes payable as of June 30, 2020 and December 31, 2019:
The following table summarizes notes payable, related parties as of June 30, 2020 and December 31, 2019:
The following table summarizes convertible notes payable as of June 30, 2020 and December 31, 2019:
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DERIVATIVE LIABILITIES (Tables) |
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Summary of changes in the fair value of the Company's Level 3 financial liabilities |
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Assumptions used in the calculations for fair value of derivative liabilities |
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STOCKHOLDERS' DEFICIT AND STOCK OPTIONS (Tables) |
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Summary of options issued and outstanding |
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WARRANTS (Tables) |
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Summary of the continuity of share purchase warrants |
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Share purchase warrants outstanding |
|
RESTATEMENT (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes to the unaudited consolidated balance sheet |
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Changes to the unaudited condensed consolidated statements of operations |
The table below sets forth changes to the unaudited condensed consolidated statements of operations for the six months ended June 30, 2020:
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Changes to the unaudited condensed consolidated statements of cash flows |
|
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Financial assets and liabilities carried at fair value (Details) - USD ($) |
Jun. 30, 2020 |
Dec. 31, 2019 |
Dec. 31, 2018 |
---|---|---|---|
Derivative liability | $ 11,393,973 | $ 10,517,873 | $ 322,976 |
Total | 11,393,973 | 10,517,873 | |
Quoted prices in active markets (Level 1) | |||
Derivative liability | |||
Total | |||
Significant other observable inputs (Level 2) | |||
Derivative liability | |||
Total | |||
Significant unobservable inputs (Level 3) | |||
Derivative liability | 11,393,973 | 10,517,873 | |
Total | $ 11,393,973 | $ 10,517,873 |
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Basic and diluted income (loss) per share (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 30, 2020 |
Mar. 31, 2020 |
Jun. 30, 2019 |
Mar. 31, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
Numerator | ||||||
Net income (loss) | $ 7,019,083 | $ (10,281,648) | $ (3,530,147) | $ (920,323) | $ (3,262,565) | $ (4,450,470) |
Loss on change in fair value of derivative liability | 4,463,852 | |||||
Gain on settlement of debt | (13,794,438) | |||||
Amortization of debt discount | 176,381 | |||||
Interest expense | 52,146 | |||||
Adjusted net income (loss) | $ (2,082,976) | $ (3,530,147) | $ (3,532,565) | $ (4,450,470) | ||
Denominator: Weighted average shares outstanding used in computing net income (loss) per share | ||||||
Basic | 569,964,666 | 52,755,139 | 557,809,456 | 49,208,103 | ||
Effect of dilutive warrants | 81,681,300 | |||||
Effect of convertible note weighted shares | 122,817,458 | |||||
Diluted | 774,463,424 | 52,755,139 | 557,809,456 | 49,208,103 | ||
Net income (loss) per share applicable to common shareholders: | ||||||
Basic | $ 0.01 | $ (0.07) | $ (0.01) | $ (0.09) | ||
Diluted | $ 0.00 | $ (0.07) | $ (0.01) | $ (0.09) |
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) |
6 Months Ended |
---|---|
Jun. 30, 2020
shares
| |
Accounting Policies [Abstract] | |
Antidilutive securities excluded from calculation of earnings per share | 573,019,281 |
GOING CONCERN (Details Narrative) - USD ($) |
Jun. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Losses incurred since inception | $ (30,038,132) | $ (26,505,567) |
Working capital deficit | $ (14,650,674) |
PROPERTY AND EQUIPMENT - Property and equipment (Details) - USD ($) |
Jun. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
Property, Plant and Equipment [Abstract] | ||
Machinery and leased equipment | $ 151,719 | $ 151,719 |
Machinery and equipment not yet in services | 294,896 | 321,565 |
Office equipment and furniture | 20,064 | 20,064 |
Website | 2,760 | 2,760 |
Total Property and equipment | 469,439 | 496,108 |
Less: Accumulated depreciation | (68,206) | (55,999) |
Property and equipment, net | $ 401,233 | $ 440,109 |
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) |
6 Months Ended | |
---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
|
Property, Plant and Equipment [Abstract] | ||
Depreciation expense | $ (12,207) | $ (12,701) |
INTANGIBLE ASSETS - Components of intangible assets (Details) - USD ($) |
Jun. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Patents | $ 4,505,489 | $ 4,505,489 |
Technology rights | 200,000 | 200,000 |
Intangible, at cost | 4,705,489 | 4,705,489 |
Less: Accumulated amortization | (1,153,222) | (1,001,060) |
Net Carrying Amount | $ 3,552,267 | $ 3,704,429 |
INTANGIBLE ASSETS - Estimated future amortization expense of intangible assets (Details) |
Jun. 30, 2020
USD ($)
|
---|---|
Intangible Assets - Estimated Future Amortization Expense Of Intangible Assets | |
For year ending December 31, 2020 - remaining | $ 151,002 |
For year ending December 31, 2021 | 302,003 |
For year ending December 31, 2022 | 302,003 |
For year ending December 31, 2023 | 302,003 |
For year ending December 31, 2024 | 302,003 |
Thereafter | 2,193,046 |
Total | $ 3,552,267 |
INTANGIBLE ASSETS (Details Narrative) - USD ($) |
6 Months Ended | |
---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
|
Intangible Assets | ||
Amortization expense | $ (152,162) | $ (156,400) |
DERIVATIVE LIABILITIES - Summary of changes in the fair value of the Company's Level 3 financial liabilities (Details) - USD ($) |
6 Months Ended | 12 Months Ended |
---|---|---|
Jun. 30, 2020 |
Dec. 31, 2019 |
|
Notes to Financial Statements | ||
Balance at the beginning of period | $ 10,517,873 | $ 322,976 |
Original discount limited to proceeds of notes | 166,000 | 540,750 |
Fair value of derivative liabilities in excess of notes proceeds received | 804,403 | 1,653,887 |
Settlement of derivative instruments | (14,600,497) | (3,258,054) |
Change in fair value of embedded conversion option | 14,506,194 | 11,258,314 |
Balance at the end of the period | $ 11,393,973 | $ 10,517,873 |
DERIVATIVE LIABILITIES - Assumptions used in the calculations for fair value of derivative liabilities (Details) |
6 Months Ended |
---|---|
Jun. 30, 2020 | |
Derivative liabilities - At Issuance | |
Expected price volatility, minimum | 336.00% |
Expected price volatility, maximum | 358.00% |
Expected dividend yield | 0.00% |
Expected option life, maximum | 1 year |
Risk-free interest rate, minimum | 0.25% |
Risk-free interest rate, maximum | 1.47% |
Derivative liabilities | |
Expected price volatility, minimum | 236.00% |
Expected price volatility, maximum | 320.00% |
Expected dividend yield | 0.00% |
Expected option life, minimum | 8 months 5 days |
Expected option life, maximum | 3 years 8 months 12 days |
Risk-free interest rate, minimum | 0.16% |
Risk-free interest rate, maximum | 0.18% |
STOCKHOLDERS' DEFICIT AND STOCK OPTIONS - Summary of options issued and outstanding (Details) |
6 Months Ended |
---|---|
Jun. 30, 2020
$ / shares
shares
| |
Stockholders Deficit And Stock Options - Summary Of Options Issued And Outstanding | |
Number of options, beginning balance | shares | 200,000 |
Number of options, granted | shares | |
Number of options, expired | shares | |
Number of options, settled | shares | |
Number of options, ending balance | shares | 200,000 |
Weighted average exercise price, beginning balance | $ / shares | $ 2.00 |
Weighted average exercise price, granted | $ / shares | |
Weighted average exercise price, expired | $ / shares | |
Weighted average exercise price, settled | $ / shares | |
Weighted average exercise price, ending balance | $ / shares | $ 2.00 |
STOCKHOLDERS' DEFICIT AND STOCK OPTIONS - Stock options outstanding (Details) - Options issued and outstanding |
6 Months Ended |
---|---|
Jun. 30, 2020
USD ($)
$ / shares
shares
| |
Number outstanding | 200,000 |
Number exercisable | 200,000 |
Exercise price | $ / shares | $ 2.00 |
Weighted average remaining contractual life | 1 year 6 months 29 days |
Expiration date | Jan. 26, 2022 |
Proceeds to Company if exercised | $ | $ 400,000 |
WARRANTS - Summary of the continuity of share purchase warrants (Details) |
6 Months Ended |
---|---|
Jun. 30, 2020
$ / shares
shares
| |
Guarantees and Product Warranties [Abstract] | |
Number of warrants, beginning balance | shares | 413,816,252 |
Number of warrants, adjustments to warrants outstanding | shares | 43,154,762 |
Number of warrants, granted | shares | |
Number of warrants, cancelled | shares | (197,190,272) |
Number of warrants, exercised | shares | (9,280,742) |
Number of warrants, ending balance | shares | 250,500,000 |
Weighted average exercise price, beginning balance | $ / shares | $ 0.00053 |
Weighted average exercise price, adjustments to warrants outstanding | $ / shares | 0.00056 |
Weighted average exercise price, granted | $ / shares | |
Weighted average exercise price, cancelled | $ / shares | 0.00041 |
Weighted average exercise price, exercised | $ / shares | 0.00035 |
Weighted average exercise price, ending balance | $ / shares | $ 0.00049 |
WARRANTS - Share purchase warrants outstanding (Details) - Share purchase warrants outstanding - USD ($) |
6 Months Ended | |||
---|---|---|---|---|
Mar. 14, 2019 |
Dec. 04, 2018 |
Nov. 29, 2018 |
Jun. 30, 2020 |
|
Number outstanding | 107,142,857 | 500,000 | 142,857,143 | 250,500,000 |
Number exercisable | 107,142,857 | 500,000 | 142,857,143 | 250,500,000 |
Exercise price | $ 0.00035 | $ 0.10 | $ 0.00035 | |
Weighted average remaining contractual life | 3 years 8 months 12 days | 3 years 5 months 5 days | 1 year 4 months 28 days | |
Expiration date | Mar. 13, 2024 | Dec. 03, 2023 | Nov. 28, 2021 | |
Proceeds to Company if exercised | $ 37,500 | $ 50,000 | $ 50,000 | $ 137,500 |
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