The unaudited interim condensed consolidated financial
statements of PCT LTD (the “Company”) have been prepared in accordance with United States generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and reflect all adjustments which, in the opinion of management,
are necessary for a fair presentation of our balance sheet, statements of operations, stockholders’ equity (deficit), and cash flows
for the periods presented. All such adjustments are of a normal recurring nature. The results of operations for the interim
period are not necessarily indicative of the results to be expected for a full year.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America
have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the Company’s December 31, 2021 audited financial statements as reported in its
Form 10-K, filed on March 31, 2022.
In December 2019 COVID-19 emerged in Wuhan, China.
While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to
almost all other countries, including the United States, and infections have been reported globally. Because COVID-19 infections have
been reported throughout the United States, certain federal, state and local governmental authorities have issued stay-at-home orders,
proclamations and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive proclamations and/or directives
may be issued in the future.
The ultimate impact of the COVID-19 pandemic on the
Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with
confidence, including the duration of the COVID-19 outbreak. Any resulting financial impact cannot be reasonably estimated at this time
but may have a material impact on our business, financial condition and results of operations. The significance of the impact of the COVID-19
outbreak on the Company’s businesses and the duration for which it may have an impact cannot be determined at this time. At a minimum,
the COVID-19 pandemic caused the Company to restrict travel of its personnel and to initiate distributor installations of certain of the
Company’s equipment, as possible. The Company adapted to the immediate need for its US EPA registered disinfectant at the end of
March and beginning of April, 2020, but installing greater storage reserves and by assembling more of it higher-volume equipment to produce
the hospital grade disinfectant known as Hydrolyte®. There were hard costs associates with these adaptations to the Little River,
SC facility, but the Company continues to benefit from its fluid production capacities over the longer term. As the Federal, state and
other restrictions associated with the pandemic have lessened, the Company is able to act more effectively in obtaining new contracts
for its healthcare equipment, the Annihilyzer®.
PCT LTD (the “Company” or “PCT
LTD”), a Delaware corporation, was formed on February 27, 1986. The Company changed its domicile to Nevada on August 26, 1998. The
Company acquires, develops and provides sustainable, environmentally safe disinfecting, cleaning and tracking technologies. The Company
specializes in providing cleaning, sanitizing, and disinfectant fluid solutions and fluid-generating equipment that creates environmentally
safe solutions for global sustainability.
On August 31, 2016, the Company entered into
a Securities Exchange Agreement with Paradigm Convergence Technologies Corporation (“Paradigm,” or “PCT Corp.”)
to effect the acquisition of Paradigm as a wholly-owned subsidiary. Paradigm is located in Little River, SC, was formed June 6, 2012,
and is a technology licensing company specializing in environmentally safe solutions for global sustainability. Paradigm holds a patent,
intellectual property and/or distribution rights to innovative products and technologies. Paradigm provides innovative products and technologies
for eliminating biocidal contamination from water supplies, industrial fluids, hard surfaces, food-processing equipment and medical devices.
Paradigm’s overall strategy is to market new products and technologies through the use of equipment leasing, joint ventures, licensing,
distributor agreements and partnerships.
Effective on February 29, 2018, the Company
changed its name from Bingham Canyon Corporation to PCT LTD. to more accurately identify the Company’s direction and to develop
the complementary relationship and association with its wholly-owned operating company, Paradigm.
On July 11, 2021, the Company incorporated two
wholly-owned subsidiaries, Disruptive Oil and Gas Technologies Corp. (“Disruptive”) and Technologies Development Corp.,
both in the State of Nevada. On October 20, 2021, the Company sold a 53.75% interest in Disruptive in consideration for the
assignment of certain patents to Disruptive and realized no gain or loss on the sale. On April 12, 2022, the Company incorporated
two wholly-owned subsidiaries, 21st Century Healthcare, Inc. and 21st Century Energy, Inc., both in the State
of Nevada, and neither have commenced operations to June 30, 2022.
There have been no changes to the significant accounting
policies of the Company from the information provided in Note 1 of the Notes to the Consolidated Financial Statements in the Company's
most recent Form 10-K.
Basic income (loss) per share is computed by dividing
net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted income (loss) per share
is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period and, if dilutive,
potential common shares outstanding during the period. Potentially dilutive securities consist of the incremental common shares issuable
upon exercise of common stock equivalents such as options, warrants, convertible notes payable, preferred series A stock and preferred
series C stock. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. As a result, for the
three months and six months ended June 30, 2022 and 2021, there were outstanding common share equivalents which amounted to 188,039,278
and 24,637,488 shares of common stock, respectively, that were not included in the calculation as their effect is anti-dilutive. For fiscal
periods with net losses, these common share equivalents were not included in the computation of diluted loss per share as their effect
would have been anti-dilutive.
In August 2020, the FASB issued ASU 2020-06, “Debt
– Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity
(Subtopic 815 – 40)” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments
with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU
is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU’s amendments
are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently
evaluating the impact ASU 2020-06 will have on its financial statements.
The Company has implemented all new accounting pronouncements
that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements
that have been issued that might have a material impact on its financial position or results of operations.
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern. The Company has limited assets, has an accumulated deficit
of $28,879,986 and has negative cash flows from operations. As of June 30, 2022, the Company had a working capital deficit of $3,765,728.
The Company has relied on raising debt and equity capital in order to fund its ongoing day-to-day operations and its corporate overhead.
The Company will require additional working capital from either cash flow from operations, from debt or equity financing, or from a combination
of these sources. These factors raise substantial doubt about the ability of the Company to continue as a going concern for a period of
one year from the issuance of these financial statements. The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
The Company expects that working capital requirements
will continue to be funded through a combination of its existing funds and further issuances of securities. Working capital requirements
are expected to increase in line with the growth of the business. The Company has no lines of credit or other bank financing arrangements.
The Company has financed operations to date through the proceeds of private placement of equity and debt instruments. In connection with
the Company’s business plan, management anticipates additional increases in operating expenses and capital expenditures relating
to: (i) developmental expenses associated with business growth and (ii) marketing expenses. The Company intends to finance these expenses
with further issuances of securities, and debt issuances. Thereafter, the Company expects it will need to raise additional capital and
generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities will result
in dilution to current stockholders. Further, such securities might have rights, preferences or privileges senior to common stock. Additional
financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable
terms, the Company may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly
and materially restrict business operations.
On August 26, 2020, the Company signed a new one-year
lease for the Company headquarters and operations located in Little River, South Carolina. The lease was effective retroactively from
July 1, 2020, ending on June 30, 2021, for $7,500 per month. The Company re-negotiated an annual lease on the Little River, SC facility
for $7,500 per month, retroactive to July 1, 2020, which is renewable for an additional four years (with a 2% increase annually). The
Company renewed the lease for another year, effective July 1, 2021, at $7,650/month. The Company renewed the lease for another year, effective
July 1, 2022, at $7,803/month.
On October 19, 2020, the Company entered into a building
lease with a three-year term and an effective date of November 1, 2020. The lease requires the Company to make payments of $4,500 per
month. The Company recognized operating lease expense of $27,000 during the six month period ended June 30, 2022.
At June 30, 2022, the weighted average remaining operating
lease term was 1.34 years and the weighted average discount rate associated with operating leases was 18.5%.
The components of lease expenses for the six
month period ended June 30, 2022 and 2021 were as follows:
The following table provides supplemental
cashflow and other information related to leases for the six month period ended June 30, 2022 and 2021:
Supplemental balance sheet information related
to leases as of June 30, 2021 and 2020 are as below:
Future minimum lease payments related
to lease obligations are as follows as of June 30, 2022:
NOTE 6.
Notes Payable
The following tables summarize notes payable as of
June 30, 2022 and December 31, 2021:
| Type | |
Original
Amount | |
Origination Date | |
Maturity Date | |
Effective
Annual Interest Rate | |
Balance
at June 30,
2022 | |
Balance
at December
31, 2021 |
| Note
Payable ** | |
$ | 25,000 | | |
05/08/2017 | |
06/30/2018 | |
| 0 | % | |
$ | 22,500 | | |
$ | 22,500 | |
| Note
Payable ** | |
$ | 118,644 | | |
05/05/2020 | |
05/05/2021 | |
| 8 | % | |
$ | 110,644 | | |
$ | 110,644 | |
| Note
Payable (a) | |
$ | 199,000 | | |
02/04/2022 | |
02/03/2023 | |
| 59 | % | |
$ | 135,089 | | |
$ | — | |
| Note
Payable (b) | |
$ | 131,100 | | |
03/04/2022 | |
12/16/2022 | |
| 83 | % | |
$ | 78,036 | | |
$ | — | |
| Note
Payable (c) | |
$ | 81,600 | | |
04/13/2022 | |
01/05/2023 | |
| 87 | % | |
$ | 57,979 | | |
| — | |
| Sub-total | |
| | | |
| |
| |
| | | |
$ | 396,748 | | |
$ | 133,144 | |
| Debt discount | |
| | | |
| |
| |
| | | |
$ | (26,959 | ) | |
$ | — | |
| Balance,
net | |
| | | |
| |
| |
| | | |
$ | 369,789 | | |
$ | 133,144 | |
| Less current portion | |
| | | |
| |
| |
| | | |
$ | (369,789 | ) | |
$ | (133,144 | ) |
| Total long-term | |
| | | |
| |
| |
| | | |
$ | — | | |
$ | — | |
| | |
| | | |
| |
| |
| | | |
| | | |
| | |
| ** Currently in default |
| |
a) |
On February 4, 2022, the Company entered into a loan agreement with a
non-related party for $199,000,
of which $2,985
was an original issue discount resulting in cash proceeds to the Company of $196,015.
The loan is to be repaid through fifty-two weekly payments of $5,013.
During the six months ended June 30, 2022, $1,759
of the discount was amortized to expense, and $63,911
was repaid leaving a note balance of $135,089. |
| |
b) |
On March 4, 2022, the Company sold future receivables with a
non-related party for $131,100,
of which $36,100
was loan fees and original issue discount resulting in cash proceeds to the Company of $95,000.
The advance is to be repaid through weekly payments of $3,121.
In connection with the advance, the Company granted the lender a security interest and all past, present and future assets of the
Company. During the six months ended June 30, 2022, $22,016
of the discount was amortized to expense, and $53,064
was repaid leaving a note balance of $78,036. |
| |
c) |
On April 13, 2022, the Company sold future receivables with a non-related party for $81,600, of which $21,600 was loan fees and original issue discount resulting in cash proceeds to the Company of $60,000. The advance is to be repaid through weekly payments of $2,147. In connection with the advance, the Company granted the lender a security interest and all past, present and future assets of the Company. During the six months ended June 30, 2022, $9,952 of the discount was amortized to expense, and $23,621 was repaid leaving a note balance of $57,979. |
The following table summarizes notes payable, related
parties as of June 30, 2022 and December 31, 2021:
| Type | |
Original
Amount | |
Origination Date | |
Maturity Date | |
Annual Interest Rate | |
Balance
at June 30,
2022 | |
Balance
at December
31, 2021 |
| Note
Payable, RP ** | |
$ | 17,000 | | |
06/20/2018 | |
01/02/2020 | |
| 5 | % | |
$ | 10,000 | | |
$ | 10,000 | |
| Note
Payable, RP ** | |
$ | 50,000 | | |
07/27/2018 | |
11/30/2018 | |
| 8 | % | |
$ | 10,850 | | |
$ | 10,850 | |
| Note
Payable, RP ** | |
$ | 15,000 | | |
08/16/2019 | |
02/16/2020 | |
| 8 | % | |
$ | 15,000 | | |
$ | 15,000 | |
| Note
Payable, RP (d) | |
$ | 84,034 | | |
02/16/2021 | |
Demand | |
| 5 | % | |
$ | 45,000 | | |
$ | 50,000 | |
| Note
Payable, RP (e) | |
$ | 9,000 | | |
06/15/2022 | |
07/31/2022 | |
| 0 | % | |
$ | 9,000 | | |
$ | — | |
| Note
Payable, RP (e) | |
$ | 5,000 | | |
06/24/2022 | |
07/31/2022 | |
| 0 | % | |
$ | 5,00 | | |
$ | — | |
| Note
Payable, RP (e) | |
$ | 41,300 | | |
06/29/2022 | |
07/31/2022 | |
| 0 | % | |
$ | 41,300 | | |
$ | — | |
| Subtotal | |
| | | |
| |
| |
| | | |
$ | 136,150 | | |
$ | 85,850 | |
| Debt discount | |
| | | |
| |
| |
| | | |
$ | — | | |
$ | — | |
| Balance,
net | |
| | | |
| |
| |
| | | |
$ | 136,150 | | |
$ | 85,850 | |
| Less current portion | |
| | | |
| |
| |
| | | |
$ | (136,150 | ) | |
$ | (85,850 | ) |
| Total long-term | |
| | | |
| |
| |
| | | |
$ | — | | |
$ | — | |
| | |
| | | |
| |
| |
| | | |
| | | |
| | |
| ** Currently in default |
| |
d) |
On March 7, 2022, the Company repaid the principal amount of $5,000
leaving a note principal balance of $45,000. |
| |
e) |
During June, 2022, the Company entered into three promissory notes
with the CFO of the Company for an aggregate principal amount of $55,300, bearing interest of 0%, repayable on or before July 31,
2022. Subsequently, the maturity date was extended to August 31, 2022. |
The following table summarizes convertible notes payable
as of June 30, 2022 and December 31, 2021:
| Type | |
Original
Amount | |
Origination Date | |
Maturity
Date | |
Annual Interest Rate | |
Balance
at June
30, 2022 | |
Balance
at December
31, 2021 |
| Convertible
Note Payable (f) * ** | |
$ | 150,000 | | |
04/10/2020 | |
04/09/2021 | |
| 12 | % | |
$ | — | | |
$ | 25,000 | |
| Convertible
Note Payable (g) ** | |
$ | 300,000 | | |
08/27/2020 | |
07/31/2021 | |
| 12 | % | |
$ | 265,000 | | |
$ | 270,000 | |
| Convertible
Note Payable (h) | |
$ | 226,162 | | |
11/04/2021 | |
11/04/2022 | |
| 19 | % | |
$ | — | | |
$ | 203,546 | |
| Convertible
Note Payable | |
$ | 1,465,300 | | |
11/30/2021 | |
11/30/2023 | |
| 5 | % | |
$ | 1,465,300 | | |
$ | 1,465,300 | |
| Convertible
Note Payable (i) | |
$ | 128,000 | | |
03/29/2022 | |
03/29/2023 | |
| 12 | % | |
$ | 128,000 | | |
$ | — | |
| Convertible
Note Payable (j) | |
$ | 53,000 | | |
06/01/2022 | |
06/01/2023 | |
| 12 | % | |
$ | 53,000 | | |
$ | — | |
| Convertible
Note Payable (k) | |
$ | 53,000 | | |
06/14/2022 | |
06/14/2023 | |
| 12 | % | |
$ | 53,000 | | |
$ | — | |
| Subtotal | |
| | | |
| |
| |
| | | |
$ | 1,964,300 | | |
$ | 1,963,846 | |
| Debt discount | |
| | | |
| |
| |
| | | |
$ | (7,880 | ) | |
$ | (17,738 | ) |
| Balance,
net | |
| | | |
| |
| |
| | | |
$ | 1,956,420 | | |
$ | 1,946,108 | |
| Less current
portion | |
| | | |
| |
| |
| | | |
$ | (491,120 | ) | |
$ | (480,808 | ) |
| Total long-term | |
| | | |
| |
| |
| | | |
$ | 1,465,300 | | |
$ | 1,465,300 | |
| |
* Embedded conversion feature accounted for as a derivative liability at period end
** Currently in default |
| |
f) |
During the six months ended June 30, 2022, the Company repaid $25,000
of the note, leaving a note principal balance of $0. |
| |
g) |
During the six months ended June 30, 2022, the Company repaid $5,000
of the note, leaving a note principal balance of $265,000. |
| |
h) |
During the six months ended June 30, 2022, $17,738 of the discount was amortized to expense, and $90,465 was repaid. During the six months ended June 30, 2022, the Company issued 16,644,146 common shares upon the conversion of the remaining balance of the convertible note and unpaid interest, leaving a note principal balance of $0. |
| |
i) |
On March 29, 2022, the Company entered into a convertible promissory note with a non-related party for $128,000, of which $500 was an original issue discount and $2,500 was issue costs resulting in cash proceeds to the Company of $125,000. The Company received the cash proceeds on April 4, 2022. The note is due on March 29, 2023 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note's term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company's common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date. During the six months ended June 30, 2022, $758 of the discount was amortized to expense. |
| |
j) |
On June 1, 2022, the Company entered into a convertible promissory note with a non-related party for $53,000, of which $500 was an original issue discount and $2,500 was issue costs resulting in cash proceeds to the Company of $50,000. The note is due on June 1, 2023 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note's term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company's common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date. During the six months ended June 30, 2022, $233 of the discount was amortized to expense. |
| |
k) |
On June 14, 2022, the Company entered into a convertible promissory note with a non-related party for $53,000, of which $500 was an original issue discount and $2,500 was issue costs resulting in cash proceeds to the Company of $50,000. The note is due on June 14, 2023 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note's term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company's common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date. During the six months ended June 30, 2022, $129 of the discount was amortized to expense. |
NOTE 7. DERIVATIVE LIABILITIES
The embedded conversion option of (1) the convertible
debentures described in Note 6 and (2) warrants, containing conversion features that qualify for embedded derivative classification. The
fair value of the liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in
the statement of operations as a gain or loss on derivative financial instruments.
Upon the issuance of the convertible notes payable
described in Note 6, the Company concluded that it only has sufficient shares to satisfy the conversion of some but not all of the outstanding
convertible notes, warrants and options. The Company elected to reclassify contracts from equity with the earliest inception date first.
As a result, none of the Company’s previously outstanding convertible instruments qualified for derivative reclassification, however,
any convertible securities issued after the election, including the warrants described in Note 10, qualified for derivative classification.
The Company reassesses the classification of the instruments at each balance sheet date. If the classification changes as a result of
events during the period, the contract is reclassified as of the date of the event that caused the reclassification.
The table below sets forth a summary of changes in
the fair value of the Company’s Level 3 financial liabilities.
| | |
June 30,
2022 | |
December 31,
2021 |
| Balance at the beginning of period | |
$ | 3,044,034 | | |
$ | 7,102,801 | |
| Original discount limited to proceeds of notes | |
| — | | |
| — | |
| Settlement of derivative instruments | |
| (69,270 | ) | |
| (4,035,906 | ) |
| Change in fair value of embedded conversion option | |
| (2,010,766 | ) | |
| (22,861 | ) |
| Balance at the end of the period | |
$ | 963,998 | | |
$ | 3,044,034 | |
The Company uses Level 3 inputs for its valuation
methodology for the embedded conversion option and warrant liabilities as their fair values were determined by using the Binomial Model
based on various assumptions.
Significant changes in any of these inputs in isolation
would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input
that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:
| |
|
Expected Volatility |
|
Risk-free Interest Rate |
|
Expected Dividend Yield |
|
Expected Life (in years) |
| At June 30, 2022 |
|
103-224% |
|
2.80-2.99% |
|
|
0 |
% |
|
|
1.00-3.16 |
|
NOTE 8. STOCKHOLDERS' DEFICIT
Preferred Stock
Effective March 23, 2018, the Company amended the
articles of incorporation and authorized 10,000,000
shares of preferred stock with a par value of $0.001
per share. The preferred stock may be issued from time to time by the Board of Directors as shares of one or more classes or series,
as summarized below.
Series A Preferred Shares
On December 1, 2018, the Company’s Board of
Directors authorized an offering for 1,000,000 Preferred Series “A” stock at $0.10 per share and with 100% regular or cashless
exercise at $0.10 per share of common stock warrant coverage. At December 31, 2018, the Company received $60,000 of subscriptions for
the issuance of 600,000 shares of Preferred Series “A” stock to three accredited investors who are related parties. The Company
was unable to issue the subscriber the preferred shares until the Company filed a Certificate of Designation and the Preferred Series
“A” stock has been duly validly authorized. Resulting in a preferred stock liability related to the Company’s commitment
to issue shares of Series A stock upon the designation.
On April 12, 2019, the Company filed a Certificate
of Designation with the Nevada Secretary of State designating 1,000,000
shares of its authorized preferred stock as Series A Convertible Preferred Stock. The principal terms of the Series A Preferred
Shares are as follows:
Issue Price
The stated price for the Series A Preferred
shall be $0.10 per share.
Redemption
This Company may at any time following
the first anniversary date of issuance (the “Redemption Date”), at the option of the Board of Directors, redeem in whole or
in part the Shares by paying in cash in exchange for the Shares to be redeemed a price equal to the Original Series A Issue Price ($0.10)
(the “Redemption Price”). Any redemption affected pursuant to this provision shall be made on a pro rata basis among the holders
of the Shares in proportion to the number of the shares then held by them.
Dividends
None.
Preference of Liquidation
In the event of any liquidation, dissolution
or winding up of the Company, the holders of Shares shall be entitled to receive, prior and in preference to any distribution of any of
the assets of this Company, to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the sum
of (i) $0.10 for each outstanding Share (the “Original Series A Issue Price”) and (ii) an amount equal to 6% of the Original
Series A Issue Price for each 12 months that has passed since the date of issuance of any Shares (such amount being referred to herein
as the “Premium”).
For purposes of this provision, a liquidation,
dissolution or winding up of this Company shall be deemed to be occasioned by, or to include, (A) the acquisition of the Company by another
entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation
but, excluding any merger effected exclusively for the purpose of changing the domicile of the Company); or (B) a sale of all or substantially
all of the assets of the Company; unless the Company’s stockholders of record as constituted immediately prior to such acquisition
or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Company’s acquisition
or sale or otherwise), hold at least 50% of the voting power of the surviving or acquiring entity.
If upon the occurrence of such liquidation,
dissolution or winding up event, the assets and funds thus distributed among the holders of the Shares shall be insufficient to permit
the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of series of preferred stock that
may from time to time come into existence, the entire assets and funds of the Company legally available for distribution shall be distributed
ratably among the holders of the Shares in proportion to the preferential amount each such holder is otherwise entitled to receive.
In any of such liquidation, dissolution
or winding up event, if the consideration received by the Company is other than cash, its value will be deemed its fair market value.
Any securities shall be valued as follows:
| |
A. |
Securities not subject to investment letter or other similar restrictions on free marketability (covered by (B) below): |
| |
1) |
If traded on a securities exchange (NASDAQ, AMEX, NYSE, etc.), the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty-day period ending three (3) days prior to the closing; |
| |
2) |
If traded on a quotation system, such as the OTC:QX, OTC:QB or OTC Pink Sheets, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty-day period ending three (3) days prior to the closing; and |
| |
3) |
If there is no active public market, the value shall be the fair market value thereof, as mutually determined by the Company and the holders of at least a majority of the voting power of all then outstanding shares of Preferred Stock. |
| |
B. |
The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as mutually determined by the Company and the holders of at least a majority of the voting power of all then outstanding shares of such Preferred Stock: |
Voting
The holder of each Share shall not
have any voting rights, except in the case of voting on a change in the preferences of Shares.
Conversion
Each Share shall be convertible into
shares of the Company’s Common Stock at a price per share of $0.10 (1 Share converts into 1 share of Common Stock), at the option
of the holder thereof, at any time following the date of issuance of such Share and on or prior to the fifth day prior to the Redemption
Date, if any, as may have been fixed in any Redemption Notice with respect to the Shares, at the office of this Company or any transfer
agent for such stock. Each Share shall automatically be converted into shares of Common Stock on the first day of the thirty-sixth (36th)
month following the original issue date of the shares at the Conversion Price per share. To date, the Shares have not yet been converted
into Common Stock.
The Company was unable to issue the subscribers
the preferred shares until the Company filed a Certificate of Designation and the Preferred Series “A” stock had been duly
validly authorized. As the Company had not filed the Certificate of Designation and as the Company could not issue the preferred shares
to settle the proceeds received, it was determined the subscriptions were settleable in cash. As a result, the Company classified the
subscriptions received as a liability in accordance with ASC 480 Distinguishing Liabilities from Equity. The filing of the Certificate
of Designation and issuance of the preferred shares in 2019 resulted in the reclassification of the Series A Preferred Shares from a liability
to temporary equity or “mezzanine” because the preferred shares include the liquidation preferences described above. The fair
value of the preferred series A stock on April 12, 2019 was $60,398 and was valued by using the Binomial Model based on various assumptions
and was reclassified from a liability to mezzanine equity.
As of June 30, 2022, and December 31, 2021,
there were 500,000 shares of Series A Convertible Preferred Stock issued and outstanding, respectively. The Series A Convertible Preferred Stock are currently in default as they
were subject to automatic conversion to shares of Common Stock on April 19, 2022, which did not occur due to the Company not having the sufficient number of common shares available
for conversion. The Company is continuing to negotiate an extension of the conversion date with the Series A Convertible Preferred Stock
shareholders.
Series B Preferred Shares
Effective August 13, 2019, the Company filed
a Certificate of Designation with the Nevada Secretary of State thereby designating 1,000,000
shares of its authorized preferred stock as Series B –Preferred Stock. The principal terms of the Series B Preferred Shares
are as follows:
Voting Rights
Holders of the Series B Preferred Stock
shall be entitled to cast five hundred (500) votes for each share held of the Series B Preferred Stock on all matters presented to the
stockholders of the Corporation for stockholder vote which shall vote along with holders of the Corporation’s Common Stock on such
matters.
Redemption Rights
The Series B Preferred Stock shall be
redeemed by the Corporation upon the successful receipt by the Corporation of at least $1,000,000 in equity capital following the issuance
of the Series B Preferred Stock. The Company has received in excess of $1,000,000 of equity capital during the year ended December 31,
2021, and the redemption right has been triggered. However, to date the Company has not exercised the redemption rights to redeem the
Series B Preferred Stock and currently has no plans to do so.
Conversion Rights
The Series B Preferred Stock is not convertible
into shares of Common Stock of the Corporation.
Protective Provisions
So long as any shares of Series B Preferred
Stock are outstanding, this Corporation shall not without first obtaining the approval (by vote or written consent, as provided by law)
of the Holders of the Series B Preferred Stock which is entitled, other than solely by law, to vote with respect to the matter, and which
Preferred Stock represents at least a majority of the voting power of the then outstanding shares of such Series B Preferred Stock:
| |
a) |
sell, convey, or otherwise dispose of or encumber all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly owned subsidiary corporation) or effect any transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Corporation is disposed of; |
| |
b) |
alter or change the rights, preferences or privileges of the shares of Series B Preferred Stock so as to affect adversely the shares; |
| |
c) |
increase or decrease (other than by redemption or conversion) the total number of authorized shares of preferred stock; |
| |
d) |
authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security (i) having a preference over, or being on a parity with, the Series B Preferred Stock with respect to dividends or upon liquidation, or (ii) having rights similar to any of the rights of the Series B Preferred Stock; or |
| |
e) |
amend the Corporation’s Articles of Incorporation or bylaws. |
Dividends
None.
Preference of Liquidation
None.
Upon designation, the Company issued shares of the Series B preferred stock to each of its current CEO/Chairman and COO/Director (shares in total) pursuant to their employment agreements. As the Series B Preferred Shares represent share-based payments that
are not classified as liabilities but that could require the employer to redeem the equity instruments for cash or other assets, the
Company classified the initial redemption amount of the shares of $158,247
as temporary equity or “mezzanine”.
As of June 30, 2022, and December 31, 2021, there
were 1,000,000 shares of Series B Preferred Stock issued and outstanding, respectively.
Series C Preferred Shares
Pursuant to the September 18, 2019, the Company filed
a Certificate of Designation with the Nevada Secretary of State designating 5,500,000 shares of its authorized preferred stock as Series
C Convertible Preferred Stock. The Registrant is awaiting the file stamped Certificate of Designation from the Nevada Secretary of State.
The rights and preferences of such preferred stock are as follows:
The number of shares constituting the Series C Convertible
Preferred Stock shall be 5,500,000.
Such number of shares may be increased or decreased by resolution of the Board of Directors, provided that no decrease shall reduce the
number of shares of Series C Convertible Preferred Stock to a number less than the number of shares then outstanding plus the number
of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding
securities issued by the Company convertible into Series C Convertible Preferred Stock.
Conversion Rights
Each Share shall be convertible into
shares of the Company’s Common Stock at a price per share of $0.01 (1 Share converts into 100 shares of Common Stock) (the “Conversion
Price”), at the option of the holder thereof, at any time following the date of issuance of such Share and on or prior to the fifth
(5th) day prior to the redemption Date, if any, as may have been fixed in any redemption notice with respect to the Shares, at the office
of this Company or any transfer agent for such stock.
Voting Rights
The holder of each Share shall not have
any voting rights, except in the case of voting on a change in the preferences of Shares.
Protective Provisions
So long as any Shares are outstanding,
this Company shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of Shares
which is entitled, other than solely by law, to vote with respect to the matter, and which Shares represents at least a majority of the
voting power of the then outstanding Shares:
| |
a) |
sell, convey, or otherwise dispose of or encumber all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly owned subsidiary corporation) or effect any transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of; |
| |
b) |
alter or change the rights, preferences or privileges of the Shares so as to affect adversely the Shares; |
| |
c) |
increase or decrease (other than by redemption or conversion) the total number of authorized shares of preferred stock; |
| |
d) |
authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security (i) having a preference over, or being on a parity with, the Shares with respect to liquidation, or (ii) having rights similar to any of the rights of the Preferred Stock; or |
| |
e) |
amend the Company’s Articles of Incorporation or bylaws. |
Other Rights
There are no other rights, privileges
or preferences attendant or relating to in any way the Shares, including by way of illustration but not limitation, those concerning dividend,
ranking, other conversion, other redemption, participation or anti-dilution rights or preferences.
As conversion of the Series C Preferred Shares
is not within the control of the Company, and it is not certain that the Company could satisfy its obligation to deliver shares upon conversion,
the Series C Preferred Shares were classified in temporary equity or “mezzanine”.
On February 15, 2021, 40,000 shares of preferred
series C stock were converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 4,000,000
shares of common stock.
Effective December 1, 2021, the Company filed
an Amended and Restated Certificate of Designation with the Nevada Secretary of State designating 1,500,000
shares of its authorized preferred stock as Series C Convertible Preferred Stock. The revised rights and preferences of such preferred
stock are as follows:
The amended number of shares constituting the
Series C Convertible Preferred Stock shall be 1,500,000. Such number of shares may be increased or decreased by resolution of the Board
of Directors, provided that no decrease shall reduce the number of shares of Series C Convertible Preferred Stock to a number less than
the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights
or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Series C Convertible Preferred
Stock. At June 30, 2022, the Company is in default of the terms of the Series C Convertible Preferred Stock due to not having enough reserved
common shares available for conversion of all outstanding Series C Convertible Preferred Stock.
Amended Conversion Rights
Each Share shall be convertible into shares
of the Company’s Common Stock at a price per share of $0.015 (1 Share converts into 150 shares of Common Stock) (the “Conversion
Price”), at the option of the holder thereof, at any time following the date of issuance of such Share and on or prior to the fifth
(5th) day prior to the redemption Date, if any, as may have been fixed in any redemption notice with respect to the Shares, at the office
of this Company or any transfer agent for such stock.
During the year ended December 31, 2021, the Company
sold 1,500,000
shares of preferred series C stock at $1.50 per share for proceeds of $2,250,000.
As of June 30, 2022, and December 31, 2021, there
were 1,500,000 shares of Series C Preferred Stock issued and outstanding, respectively. The Company has sufficient shares of Common Stock reserved for any potential
conversion of Series C Preferred Stock.
Common Stock
The authorized shares of common stock consists of
1,000,000,000 shares with a par value of $0.001 per share. The number of shares of common stock outstanding as of June 30, 2022 and December
31, 2021 was 807,568,836 and 790,924,690, respectively.
On May 26, 2022, $12,500 of principal and interest
of a convertible note payable was converted into 1,453,488 shares of the Company’s common stock as further described in Note 6(h).
On June 1, 2022, $12,500 of principal and interest
of a convertible note payable was converted into 1,506,024 shares of the Company’s common stock as further described in Note 6(h).
On June 2, 2022, $15,000 of principal and interest
of a convertible note payable was converted into 1,973,684 shares of the Company’s common stock as further described in Note 6(h).
On June 6, 2022, $20,000 of principal and interest
of a convertible note payable was converted into 2,597,403 shares of the Company’s common stock as further described in Note 6(h).
On June 8, 2022, $30,000 of principal and interest
of a convertible note payable was converted into 3,947,368 shares of the Company’s common stock as further described in Note 6(h).
On June 13, 2022, $20,000 of principal and interest
of a convertible note payable was converted into 2,702,703 shares of the Company’s common stock as further described in Note 6(h).
On June 21, 2022, $15,520 of principal and interest
of a convertible note payable was converted into 2,463,476 shares of the Company’s common stock as further described in Note 6(h).
NOTE 9. STOCK OPTIONS
Below is a table summarizing the options issued and
outstanding as of June 30, 2022:
| | |
Number of options | |
Weighted average exercise price
$ |
| | Balance, December 31, 2021 | | |
| 8,500,000 | | |
| 0.034 | |
| | Granted | | |
| 7,000,000 | | |
| 0.067 | |
| | Expired/Cancelled | | |
| (6,500,000 | ) | |
| 0.039 | |
| | Settled | | |
| — | | |
| — | |
| | Balance, June 30, 2022 | | |
| 9,000,000 | | |
| 0.056 | |
| | Exercisable | | |
| 2,000,000 | | |
| 0.015 | |
As at June 30, 2022, the following share stock options
were outstanding:
| Date |
|
Number |
|
Number |
|
Exercise |
|
Weighted
Average Remaining Contractual |
|
Expiration |
|
Proceeds
to Company if |
| Issued |
|
Outstanding |
|
Exercisable |
|
Price
$ |
|
Life
(Years) |
|
Date |
|
Exercised |
| |
09/01/2021 |
|
|
|
2,000,000 |
|
|
|
2,000,000 |
|
|
|
0.015 |
|
|
|
4.17 |
|
|
|
08/31/2026 |
|
|
|
30,000 |
|
| |
04/01/2021 |
|
|
|
1,500,000 |
|
|
|
— |
|
|
|
0.03 |
|
|
|
5.17 |
|
|
|
08/31/2027 |
|
|
|
45,000 |
|
| |
04/01/2021 |
|
|
|
1,500,000 |
|
|
|
— |
|
|
|
0.05 |
|
|
|
6.17 |
|
|
|
08/31/2028 |
|
|
|
75,000 |
|
| |
04/01/2021 |
|
|
|
2,000,000 |
|
|
|
— |
|
|
|
0.075 |
|
|
|
7.17 |
|
|
|
08/31/2029 |
|
|
|
150,000 |
|
| |
04/01/2021 |
|
|
|
2,000,000 |
|
|
|
— |
|
|
|
0.10 |
|
|
|
8.17 |
|
|
|
08/31/2030 |
|
|
|
200,000 |
|
| |
|
|
|
|
9,000,000 |
|
|
|
2,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
500,000 |
|
At June 30, 2022, the weighted average exercise prices
are $0.056 and $0.015 for the options outstanding and exercisable, respectively. The intrinsic value of stock options outstanding at June
30, 2022 was $0.
During the six months ended June 30, 2022, the
Company revised the terms of an employment agreement with the CFO to increase the amount of unvested stock options from 4,000,000 to
7,000,000 which shall vest incrementally over four years in the following manner: 1,500,000 stock options on September 1, 2022,
1,500,000 stock options on September 1, 2023, 2,000,000 stock options on September 1, 2024 and the final 2,000,000 stock options on
September 1, 2025. Upon modification of the stock options, the Company calculated the incremental
compensation cost of $42,899, which will be amortized to expense over the vesting period.
NOTE 10. WARRANTS
The Company concluded that it only has sufficient
shares to satisfy the conversion of some but not all of the outstanding convertible instruments. The initial fair value of the warrants
issued during the period was calculated using the Binomial Model as described in Note 7.
The following table summarizes the continuity of share
purchase warrants:
| | |
Number of
warrants | |
Weighted average exercise price
$ |
| | Balance, December 31, 2021 | | |
| 115,048,858 | | |
| 0.00597 | |
| | Cancelled | | |
| — | | |
| — | |
| | Granted | | |
| — | | |
| — | |
| | Exercised | | |
| — | | |
| — | |
| | Balance, June 30, 2022 | | |
| 115,048,858 | | |
| 0.00597 | |
As at June 30, 2022, the following share purchase
warrants were outstanding:
| Date | |
Number | |
Number | |
Exercise | |
Weighted Average Remaining
Contractual | |
Expiration | |
Proceeds to Company
if |
| Issued | |
Outstanding | |
Exercisable | |
Price
$ | |
Life
(Years) | |
Date | |
Exercised |
| | 12/3/2018 | | |
| 500,000 | | |
| 500,000 | * | |
| 0.10 | | |
| 1.44 | | |
| 12/3/2023 | | |
| 50,000 | |
| | 3/31/2019 | | |
| 104,548,858 | * | |
| 104,548,858 | * | |
| 0.00035 | * | |
| 1.70 | | |
| 03/13/2024 | | |
| 36,592 | |
| | 8/26/2020 | | |
| 10,000,000 | | |
| 10,000,000 | | |
| 0.06 | | |
| 3.16 | | |
| 8/26/2025 | | |
| 600,000 | |
| | | | |
| 115,048,858 | | |
| 115,048,858 | | |
| | | |
| | | |
| | | |
$ | 686,592 | |
*The number of warrants outstanding and exercisable
is variable based on adjustments to the exercise price of the warrant due to dilutive issuances.
The intrinsic value of warrants outstanding at June
30, 2022 was $852,073.
NOTE 11. RELATED PARTY TRANSACTIONS
The Company has agreements with related parties
for consulting services, accrued rent, accrued interest, notes payable and stock options. See Notes to Financial Statements numbers 6,
8, and 9 for more details.
NOTE 12. COMMITMENTS AND CONTINGENCIES
Consulting Agreements -
On March 1, 2021, the Company entered into
a consulting agreement. Pursuant to the agreement, the consultant will provide consulting services to the Company in various marketing
and management matters for a period of three months. In consideration for the services performed by the consultant, the Company agreed
to compensate the consultant $5,000
per month. The Company also granted stock options to purchase 2,500,000
common shares exercisable at $0.0001
per share for one year. The options expired in full without exercise on March 1, 2022.
The Company also uses the professional services
of securities attorneys, a US EPA specialist, professional accountants, and other public-company specialists.
Employment Agreements -
On April 1, 2022, the Company entered into an amended
and restated four-year employment agreement with Arthur E. Abraham, replacing the former employment agreement dated September 1, 2021,
to add the role of President. The terms of the revised agreement increases the amount of unvested stock options from 4,000,000 to 7,000,000
which shall vest incrementally over four years in the following manner: 1,500,000 stock options on September 1, 2022, 1,500,000 stock
options on September 1, 2023, 2,000,000 stock options on September 1, 2024 and the final 2,000,000 stock options on September 1, 2025.
All other terms of the former employment agreement remain the same.
Other Obligations and Commitments -
No new obligation or commitments during the
period ending June 30, 2022.
NOTE 13. SUBSEQUENT EVENTS
During July, 2022, the Company entered into a promissory
note with the CFO of the Company for principal amount of $15,500, bearing interest of 0%, repayable on or before August 31, 2022 . The
maturity date of the three June 2022 promissory notes with the CFO of the Company for an aggregate principal amount of $55,300 has been
extended to August 31, 2022.
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”).
