Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 

FORM 10-Q

 

☑

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

 

For the quarterly period ended September 30, 2022

or 

 

☐

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

 

Commission file number: 000-31549

 

PCT LTD

(Exact name of registrant as specified in its charter)

 

Nevada	90-0578516
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
4235 Commerce Street Little River, South Carolina	29566
(Address of principal executive offices)	(Zip Code)

 

[phone]

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

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

Large accelerated filer ☐ Non-accelerated filer ☑

Accelerated filer ☐ Smaller reporting company ☑ Emerging growth company ☐

 

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

 

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

 

The number of shares outstanding of the registrant's common stock as of November 14, 2022 was 805,596,961 which does not include 192,431,164 common stock reserved against default on convertible debt.

 

 

TABLE OF CONTENTS

 

Part I - Financial Information		Page
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	29
Part II - Other Information
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	32
	Signatures	33

  

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

ITEM 1. FINANCIAL STATEMENTS

 

The financial information set forth below with respect to our statements of operations, stockholders' equity (deficit), and cash flows for the three and nine-month periods ended September 30, 2022 and 2021 is unaudited. This financial information, in the opinion of management, includes all adjustments consisting of normal recurring entries necessary for the fair presentation of such data. The results of operations for the three and nine-month periods ended September 30, 2022 and 2021 are not necessarily indicative of results to be expected for any subsequent period.

 

 

 

2

 

PCT LTD

Condensed Consolidated Balance Sheets 

		September 30, 2022				December 31, 2021
			(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	31,458			$	116,497
Accounts receivable, net			24,714				96,022
Inventory			38,614				36,954
Prepaid expenses			—				53,090
Other current assets			7,200				8,200
Total current assets			101,986				310,763
PROPERTY AND EQUIPMENT
Property and equipment, net			1,032,143				762,054
OTHER ASSETS
Intangible assets, net			2,872,138				3,098,021
Operating lease right-of-use asset			52,645				83,420
Total other assets			2,924,783				3,181,441
TOTAL ASSETS		$	4,058,912			$	4,254,258
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable		$	561,664			$	72,873
Accrued expenses - related parties			230,492				226,844
Accrued expenses			845,913				691,364
Advances payable			500,000				—
Operating lease liability			48,213				42,012
Current portion of notes payable – related parties, net			177,650				85,850
Current portion of notes payable, net			404,049				133,144
Current portion of convertible notes payable, net			430,934				480,808
Derivative liability			1,026,338				3,044,034
Total current liabilities			4,225,253				4,776,929
LONG-TERM LIABILITIES
Convertible notes payable, net of current portion and discounts			1,465,300				1,465,300
Operating lease liability, net of current portion			4,432				41,408
TOTAL LIABILITIES		$	5,694,985				6,283,637
MEZZANINE EQUITY
Preferred series A stock, $0.001 par value; 1,000,000 authorized; 500,000 issued and outstanding at September 30, 2022 and December 31, 2021, respectively			60,398				60,398
Preferred series B stock, $0.001 par value; 1,000,000 authorized; 1,000,000 issued and outstanding at September 30, 2022 and December 31, 2021, respectively			158,247				158,247
Preferred series C stock, $0.001 par value; 1,500,000 authorized; 1,500,000 issued and outstanding at September 30, 2022 and December 31, 2021, respectively			2,250,000				2,250,000
TOTAL MEZZANINE EQUITY			2,468,645				2,468,645
STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value; 1,000,000,000 authorized; 805,596,961 and 790,924,690 issued and outstanding at September 30, 2022 and December 31, 2021, respectively			805,596				790,924
Additional paid-in-capital			24,468,135				24,310,045
Accumulated deficit			(29,378,449	)			(29,598,993	)
TOTAL STOCKHOLDERS' DEFICIT			(4,104,718	)			(4,498,024	)
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' DEFICIT		$	4,058,912			$	4,254,258

 

 

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

 

3

 

 

PCT LTD

Condensed Consolidated Statements of Operations

(Unaudited)

		For the Three Months Ended  September 30,								For the Nine Months Ended September 30,
		2022				2021				2022				2021
REVENUES
Product		$	38,893			$	33,279			$	111,163			$	204,138
Licensing			9,000				75,347				18,097				225,122
Equipment leases			241,604				258,104				744,812				802,132
Total Revenues			289,497				366,730				874,072				1,231,392
OPERATING EXPENSES
General and administrative			551,921				1,031,072				2,008,782				2,583,139
Research and development			119				14,783				5,444				29,738
Cost of product, licensing and equipment leases			6,321				85,591				81,112				225,960
Depreciation and amortization			125,414				98,364				357,799				295,092
Total operating expenses			683,775				1,229,810				2,453,137				3,133,929
Loss from operations			(394,278	)			(863,080	)			(1,579,065	)			(1,902,537	)
OTHER INCOME (EXPENSE)
Gain on change in fair value of derivative liability			51,008				457,116				2,061,774				1,749,277
Gain on settlement of debt			(1,011	)			361,357				68,259				3,689,055
Interest expense			(154,182	)			(101,580	)			(330,424	)			(378,223	)
Misc. income			—				—				—				50,000
Total other income (expense)			(104,185	)			716,893				1,799,609				5,110,109
Income (loss) before income taxes			(498,463	)			(146,187	)			220,544				3,207,572
Income taxes			—				—				—				—
NET (INCOME (LOSS)		$	(498,463	)		$	(146,187	)		$	220,544			$	3,207,572
Basic income (loss) per share		$	(0.00	)		$	(0.00	)		$	0.00			$	0.00
Diluted income (loss) per share		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.00	)
Basic weighted average shares outstanding			806,882,966				773,082,751				797,708,252				760,229,694
Diluted weighted average shares outstanding			806,882,966				773,082,751				899,948,629				1,024,432,537

 

 

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

 

4

 

 

 PCT LTD

Condensed Consolidated Statements of Stockholders' Equity (deficit)

For the Three and Nine Months Ended September 30, 2022 and 2021

(Unaudited)

										Additional								Total Stockholders'
		Common Stock								Paid-in				Accumulated				Equity
		Shares				Amount				Capital				Deficit				(Deficit)
Balance - December 31, 2020			722,487,846			$	722,488			$	23,202,933			$	(30,587,612	)		$	(6,662,191	)
Common stock issued for services			2,500,000				2,500				74,276				—				76,776
Common stock issued in settlement of debt			4,466,508				4,466				648,844				—				653,310
Common stock issued in conversion of convertible notes payable			25,000,000				25,000				—				—				25,000
Conversion of preferred series C stock			4,000,000				4,000				36,000				—				40,000
Net loss for the three-months ended March 31, 2020			—				—				—				(718,028	)			(718,028	)
Balance - March 31, 2021			758,454,354			$	758,454			$	23,962,053			$	(31,305,640	)		$	(6,585,133	)
Common stock issued for cash			8,750,000				8,750				166,250				—				175,000
Common stock issued for services			1,000,000				1,000				32,174				—				33,174
Common stock issued in cashless exercise of warrants			1,921,875				1,922				32,672				—				34,594
Net income for the three-months ended June 30, 2021			—				—				—				4,071,787				4,071,787
Balance - June 30, 2021			770,126,229			$	770,126			$	24,193,149			$	(27,233,853	)		$	(2,270,578	)
Common stock issued for services			2,000,000				2,000				40,737				—				42,737
Common stock issued in conversion of convertible notes payable			8,000,000				8,000				116,000				—				124,000
Net loss for the three-months ended September 30, 2021			—				—				—				(146,187	)			(146,187
Balance - September 30, 2021			780,126,229			$	780,126			$	24,349,886			$	(27,380,040	)			(2,250,028	)
Balance - December 31, 2021			790,924,690			$	790,924			$	24,310,045			$	(29,598,993	)		$	(4,498,024	)
Stock-based compensation			—				—				7,952				—				7,952
Net income for the three-months ended March 31, 2022			—				—				—				468,049				468,049	)
Balance – March 31, 2022			790,924,690			$	790,924			$	24,317,997			$	(29,130,944	)		$	(4,022,023	)
Common stock issued in conversion of convertible notes payable			16,644,146				16,644				108,876				—				125,520
Stock-based compensation			—				—				21,422				—				21,422
Net income for the three-months ended June 30, 2021			—				—				—				250,958				250,958
Balance - June 30, 2022			807,568,836			$	807,568			$	24,448,295			$	(28,879,986	)		$	(3,624,123	)
Return and cancellation of common shares			(1,971,875	)			(1,972	)			1,972				—				—
Stock-based compensation			—				—				17,868				—				17,868
Net loss for the three-months ended September 30, 2022			—				—				—				(498,463	)			(498,463	)
Balance – September 30, 2022			805,596,961			$	805,596			$	24,468,135			$	(29,378,449	)		$	(4,104,718	)

 

 

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

 

5

 

 

PCT LTD

Condensed Consolidated Statements of Cash Flows

(Unaudited) 

		For the Nine Months Ended September 30,
		2022				2021
Cash Flows from Operating Activities
Net income		$	220,544			$	3,207,572
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization			357,799				295,092
Amortization of debt discount			133,596				240,413
Common stock issued for services			—				267,830
(Gain) loss on change in fair value of derivative liability			(2,061,774	)			(1,749,277	)
Amortization of right of use asset			30,775				39,182
(Gain) loss on settlement of debt			(68,259	)			(3,689,055	)
Default penalties on convertible notes			—				15,172
Stock-based compensation			47,242				—
Bad debt expense			—				182,700
Changes in operating assets and liabilities:
Accounts receivable			71,308				3,679
Inventory			(1,660	)			(6,130	)
Prepaid expenses			53,090				(8,543
Deposits			—				9,726
Other assets			1,000				(16,740	)
Operating lease liability			(30,775	)			(39,182	)
Accounts payable			488,791				(212,125	)
Accrued expenses - related party			3,648				14,887
Accrued expenses			166,989				165,479
Net cash used in operating activities			(587,686	)			(1,279,320	)
Cash Flows from Investing Activities
Purchase of equipment			(402,005	)			(28,138	)
Net cash used for by investing activities			(402,005	)			(28,138	)
Cash Flows from Financing Activities
Proceeds from advances payable			500,000				1,450,000
Proceeds from notes payable			463,965				410,377
Proceeds from notes payable - related parties			96,800				—
Proceeds from convertible notes payable			225,000				920,000
Proceeds from sale of common stock			—				175,000
Repayment of convertible notes payable			(120,465	)			(673,989	)
Repayment of notes payable			(255,648	)			(796,036	)
Repayment of notes payable - related parties			(5,000	)			(53,763	)
Net cash provided by financing activities			904,652				1,431,589
Net change in cash			(85,039	)			124,131
Cash and cash equivalents at beginning of period			116,497				115,196
Cash and cash equivalents at end of period		$	31,458			$	239,327
Supplemental Cash Flow Information
Cash paid for interest		$	122,054			$	72,763
Cash paid for income taxes		$	—			$	—
Non-cash investing and financing activities:
Original debt discount against convertible notes		$	9,000			$	12,000
Original debt discount against notes payable		$	82,435			$	174,435
Initial derivative on convertible note		$	113,348			$	—
Cancellation of common stock		$	1,972			$	—
Note payable settled for non-cash consideration		$	122,900			$	—
Common stock issued for services		$	—			$	81,740
Common stock issued in conversion of convertible notes payable		$	125,250			$	149,000
Common stock issued in settlement of notes payable to related parties		$	—			$	653,310
Common stock issued in cashless exercise of warrants		$	—			$	34,594
Common stock issued in conversion of preferred series C stock		$	—			$	40,000

 

  

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

6

 

 

 

PCT LTD

Notes to the Unaudited

Condensed Consolidated Financial Statements

September 30, 2022

 

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

 

The unaudited interim condensed consolidated financial statements of PCT LTD (the “Company”) have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of our balance sheet, statements of operations, stockholders’ equity (deficit), and cash flows for the periods presented. All such adjustments are of a normal recurring nature.  The results of operations for the interim period are not necessarily indicative of the results to be expected for a full year.  

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2021 audited financial statements as reported in its Form 10-K, filed on March 31, 2022.

 

COVID-19

 

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

 

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

 

Nature of Operations

 

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

 

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

 

7

 

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, 21^st Century Healthcare, Inc. and 21^st Century Energy, Inc., both in the State of Nevada, and neither have commenced operations to September 30, 2022.

 

Significant Accounting Policies

 

There have been no changes to the significant accounting policies of the Company from the information provided in Note 1 of the Notes to the Consolidated Financial Statements in the Company's most recent Form 10-K.

 

Basic and Diluted Loss Per Share

 

Basic income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period.  Diluted income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period and, if dilutive, potential common shares outstanding during the period. Potentially dilutive securities consist of the incremental common shares issuable upon exercise of common stock equivalents such as options, warrants, convertible notes payable, preferred series A stock and preferred series C stock. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. As a result, for the three months and nine months ended September 30, 2022, there were outstanding common share equivalents which amounted to 331,667,447 and 231,733,160 shares of common stock, respectively, that were not included in the calculation as their effect is anti-dilutive. For fiscal periods with net losses, these common share equivalents were not included in the computation of diluted loss per share as their effect would have been anti-dilutive.

 

		Three months ended September 30, 2022 $				Three months ended September 30, 2021 $				Nine months ended September 30, 2022 $				Nine months ended September 30, 2021 $
Numerator:
Net income (loss)			(498,463	)			(146,187	)			220,544				3,207,572
(Gain) loss on change in fair value of derivative liability			—				—				(1,835,014	)			(1,641,616	)
Gain on settlement of debt			—				—				(69,270	)			(3,792,104	)
Interest expense			—				—				—				30,617
Adjusted net income (loss)			(498,463	)			(146,187	)			(1,683,740	)			(2,195,531	)
Denominator: Weighted average shares outstanding used in computing net income (loss) per share
Basic			806,882,966				773,082,751				797,708,252				760,229,694
Effect of dilutive warrants			—				—				101,723,677				203,745,854
Effect of convertible note weighted shares			—				—				516,700				60,456,989
Diluted			806,882,966				773,082,751				899,948,629				1,024,432,537
Net income (loss) per share applicable to common shareholders:
Basic		$	(0.00	)		$	(0.00	)		$	0.00			$	0.00
Diluted		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.00	)

 

 

 

8

 

Recent Accounting Pronouncements

 

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

 

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

 

 

NOTE 2. GOING CONCERN

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has limited assets, has an accumulated deficit of $29,378,449 and has negative cash flows from operations. As of September 30, 2022, the Company had a working capital deficit of $4,123,267. The Company has relied on raising debt and equity capital in order to fund its ongoing day-to-day operations and its corporate overhead. The Company will require additional working capital from either cash flow from operations, from debt or equity financing, or from a combination of these sources. These factors raise substantial doubt about the ability of the Company to continue as a going concern for a period of one year from the issuance of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

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

 

 

NOTE 3. PROPERTY AND EQUIPMENT

 

Property and equipment at September 30, 2022 and December 31, 2021 consisted of the following: 

 

		September 30, 2022				December 31, 2021
Leasehold improvements		$	61,846			$	61,580
Machinery and leased equipment			433,417				365,483
Machinery and equipment not yet in service			732,572				440,150
Office equipment and furniture			99,296				57,913
Website			2,760				2,760
Total property and equipment		$	1,329,891			$	927,886
Less: Accumulated Depreciation			(297,748	)			(165,832	)
Property and equipment, net		$	1,032,143			$	762,054

 

9

 

Depreciation expense was $131,916 and $66,726 for the nine months ended September 30, 2022 and 2021, respectively. During the nine months ended September 30, 2022, the Company added $292,422 of machinery and equipment not yet in service.

 

 

NOTE 4. INTANGIBLE ASSETS

 

Intangible assets at September 30, 2022 and December 31, 2021 consisted of the following:

 

		September 30, 2022				December 31, 2021
Patents		$	4,505,489			$	4,505,489
Technology rights			200,000				200,000
Intangibles, at cost			4,705,489				4,705,489
Less: Accumulated amortization			(1,833,351	)			(1,607,468	)
Net Carrying Amount		$	2,872,138			$	3,098,021

 

Amortization expense was $225,883 and $228,366 for the nine months ended September 30, 2022 and 2021, respectively.

 

Estimated Future Amortization Expense:

 

				$
	For year ending December 31, 2022				75,501
	For year ending December 31, 2023				302,003
	For year ending December 31, 2024				302,003
	For year ending December 31, 2025				302,003
	For year ending December 31, 2026				302,003
	Thereafter				1,588,625
	Total				2,872,138

  

 

 

NOTE 5. LEASES

 

On August 26, 2020, the Company signed a new one-year lease for the Company headquarters and operations located in Little River, South Carolina. The lease was effective retroactively from July 1, 2020, ending on June 30, 2021, for $7,500 per month. The Company re-negotiated an annual lease on the Little River, SC facility for $7,500 per month, retroactive to July 1, 2020, which is renewable for an additional four years (with a 2% increase annually). The Company renewed the lease for another year, effective July 1, 2021, at $7,650/month. The Company renewed the lease for another year, effective July 1, 2022, at $7,803/month.

 

On October 19, 2020, the Company entered into a building lease with a three-year term and an effective date of November 1, 2020. The lease requires the Company to make payments of $4,500 per month. The Company recognized operating lease expense of $13,500 during the nine-month period ended September 30, 2022.

 

At September 30, 2022, the weighted average remaining operating lease term was 1.08 years and the weighted average discount rate associated with operating leases was 18.5%.

 

The components of lease expenses for the nine-month period ended September 30, 2022 and 2021 were as follows:

 

		2022 $				2021 $
Total operating lease cost			40,500				59,750

  

10

 

 

The following table provides supplemental cashflow and other information related to leases for the nine-month period ended September 30, 2022 and 2021:

 

		2022 $				2021 $
Lease payments			109,809				127,700

  

Supplemental balance sheet information related to leases as of September 30, 2022 and 2021 are as below:

 

		2022 $				2021 $
Cost			123,614				176,213
Accumulated amortization			(70,969	)			(44,411	)
Impairment			—				(39,030	)
Net carrying value			52,645				92,772

  

Future minimum lease payments related to lease obligations are as follows as of September 30, 2022:

 

		$
2022			13,500
2023			45,000
Total minimum lease payments			58,500
Less: amount of lease payments representing effects of discounting			(5,855	)
Present value of future minimum lease payments			52,645
Less: current obligations under leases			(48,213	)
Lease liabilities, net of current portion			4,432

  

  

11

 

NOTE 6. Notes Payable

 

The following tables summarize notes payable as of September 30, 2022 and December 31, 2021:

 

Type		Original Amount				Origination Date		Maturity Date		Effective Annual Interest Rate				Balance at September 30, 2022				Balance at December 31, 2021
Note Payable **		$	25,000			05/08/2017		06/30/2018			0	%		$	20,000			$	22,500
Note Payable **		$	118,644			05/05/2020		05/05/2021			8	%		$	110,644			$	110,644
Note Payable (a)		$	199,000			02/04/2022		02/03/2023			0	%		$	—			$	—
Note Payable (b)		$	131,100			03/04/2022		12/16/2022			83	%		$	40,457			$	—
Note Payable (c)		$	81,600			04/13/2022		01/05/2023			87	%		$	32,063				—
Note Payable (d)		$	200,000			7/13/2022		7/11/2023			70	%		$	177,439				—
Note Payable (e)		$	57,600			8/15/2022		2/13/2023			171	%		$	44,308				—
Sub-total														$	424,911			$	133,144
Debt discount														$	(20,862	)		$	—
Balance, net														$	404,049			$	133,144
Less current portion														$	(404,049	)		$	(133,144	)
Total long-term														$	—			$	—
** Currently in default

   

a)

On February 4, 2022, the Company entered into a loan agreement with a non-related party for $199,000, of which $2,985 was an original issue discount resulting in cash proceeds to the Company of $196,015. The loan is to be repaid through fifty-two weekly payments of $5,013. On July 13, 2022, the Company entered into a second loan agreement with the non-related party (Note 6 (d)) whereby $122,900 of the new loan was to be paid through the extinguishment of the February 4, 2022 loan. As at July 13, 2022, $2,985 of the discount was amortized to expense, $117,312 was repaid in cash, and $122,900 was repaid through the issuance of a new loan, which resulted in a gain on settlement of debt of $1,011 and a note balance of $0.

 

b)

On March 4, 2022, the Company sold future receivables with a non-related party for $131,100, of which $36,100 was loan fees and original issue discount resulting in cash proceeds to the Company of $95,000. The advance is to be repaid through weekly payments of $3,121. In connection with the advance, the Company granted the lender a security interest and all past, present and future assets of the Company. During the nine months ended September 30, 2022, $32,518 of the discount was amortized to expense, and $90,643 was repaid leaving a note balance of $40,457 (discount balance of $3,582).

 

c)

On April 13, 2022, the Company sold future receivables with a non-related party for $81,600, of which $21,600 was loan fees and original issue discount resulting in cash proceeds to the Company of $60,000. The advance is to be repaid through weekly payments of $2,147. In connection with the advance, the Company granted the lender a security interest and all past, present and future assets of the Company. During the nine months ended September 30, 2022, $18,133 of the discount was amortized to expense, and $49,537 was repaid leaving a note balance of $32,063 (discount balance of $3,467).

 

d)

On July 13, 2022, the Company entered into a loan agreement with a non-related party for $200,000, of which $2,500 was an original issue discount and $122,900 was paid through the extinguishment of a prior loan (Note 6 (a)) resulting in cash proceeds to the Company of $74,600. The loan is to be repaid through fifty-two weekly payments of $5,308. During the nine months ended September 30, 2022, $878 of the discount was amortized to expense, and $42,462 was repaid leaving a note balance of $177,439 (discount balance of $1,622).

 

12

 

e)

On August 15, 2022, the Company sold future receivables with a non-related party for $57,600, of which $17,600 was loan fees and original issue discount resulting in cash proceeds to the Company of $40,000. The advance is to be repaid through weekly payments of $2,215. In connection with the advance, the Company granted the lender a security interest and all past, present and future assets of the Company. During the nine months ended September 30, 2022, $8,113 of the discount was amortized to expense, and $13,292 was repaid leaving a note balance of $44,308 (discount balance of $12,191).

  

The following table summarizes notes payable, related parties as of September 30, 2022 and December 31, 2021:

 

Type		Original Amount				Origination Date		Maturity Date		Annual Interest Rate				Balance at September 30, 2022				Balance at December 31, 2021
Note Payable, RP **		$	17,000			06/20/2018		01/02/2020			5	%		$	10,000			$	10,000
Note Payable, RP **		$	50,000			07/27/2018		11/30/2018			8	%		$	10,850			$	10,850
Note Payable, RP **		$	15,000			08/16/2019		02/16/2020			8	%		$	15,000			$	15,000
Note Payable, RP (f)		$	84,034			02/16/2021		Demand			5	%		$	45,000			$	50,000
Note Payable, RP (g)		$	9,000			06/15/2022		12/31/2022			0	%		$	9,000			$	—
Note Payable, RP (g)		$	5,000			06/24/2022		12/31/2022			0	%		$	5,000			$	—
Note Payable, RP (g)		$	41,300			06/29/2022		12/31/2022			0	%		$	41,300			$	—
Note Payable, RP (h)		$	15,500			07/07/2022		12/31/2022			0	%			15,500				—
Note Payable, RP (i)		$	3,500			08/19/2022		12/31/2022			0	%			3,500				—
Note Payable, RP (j)		$	22,500			09/02/2022		12/31/2022			0	%			22,500				—
Subtotal														$	177,650			$	85,850
Debt discount														$	—			$	—
Balance, net														$	177,650			$	85,850
Less current portion														$	(177,650	)		$	(85,850	)
Total long-term														$	—			$	—
** Currently in default

  

f)

On March 7, 2022, the Company repaid the principal amount of $5,000 leaving a note principal balance of $45,000.

 

g)

During June 2022, the Company entered into three promissory notes with the CFO of the Company for an aggregate principal amount of $55,300, bearing interest of 0%, repayable on or before July 31, 2022. Subsequently, the maturity date was extended to December 31, 2022.

 

h)

On July 7, 2022, the Company entered into a promissory note with the CFO of the Company for a principal amount of $15,500, bearing interest of 0%, repayable on or before August 31, 2022. Subsequently, the maturity date was extended to December 31, 2022.

 

i)	On August 19, 2022, the Company entered into a promissory note with the CFO of the Company for a principal amount of $3,500, bearing interest of 0%, repayable on or before September 30, 2022. Subsequently, the maturity date was extended to December 31, 2022.

 

j)	On September 2, 2022, the Company entered into a promissory note with the CFO of the Company for a principal amount of $22,500, bearing interest of 0%, repayable on or before September 30, 2022. Subsequently, the maturity date was extended to December 31, 2022.

 

 

13

 

The following table summarizes convertible notes payable as of September 30, 2022 and December 31, 2021:

 

Type		Original Amount				Origination Date		Maturity Date		Annual Interest Rate				Balance at September 30, 2022				Balance at December 31, 2021
Convertible Note Payable (k) * **		$	150,000			04/10/2020		04/09/2021			12	%		$	—			$	25,000
Convertible Note Payable (l) **		$	300,000			08/27/2020		07/31/2021			12	%		$	265,000			$	270,000
Convertible Note Payable (m)		$	226,162			11/04/2021		11/04/2022			19	%		$	—			$	203,546
Convertible Note Payable		$	1,465,300			11/30/2021		11/30/2023			5	%		$	1,465,300			$	1,465,300
Convertible Note Payable (n) **		$	128,000			03/29/2022		03/29/2023			12	%		$	128,000			$	—
Convertible Note Payable (o)		$	53,000			06/01/2022		06/01/2023			12	%		$	53,000			$	—
Convertible Note Payable (p)		$	53,000			06/14/2022		06/14/2023			12	%		$	53,000			$	—
Subtotal														$	1,964,300			$	1,963,846
Debt discount														$	(68,066	)		$	(17,738	)
Balance, net														$	1,896,234			$	1,946,108
Less current portion														$	(430,934	)		$	(480,808	)
Total long-term														$	1,465,300			$	1,465,300
* Embedded conversion feature accounted for as a derivative liability at period end ** Currently in default

  

k)

During the nine months ended September 30, 2022, the Company repaid $25,000 of the note, leaving a note principal balance of $0.

 

l)

During the nine months ended September 30, 2022, the Company repaid $5,000 of the note, leaving a note principal balance of $265,000.

 

m)

During the nine months ended September 30, 2022, $17,738 of the discount was amortized to expense, and $90,465 was repaid.  During the nine months ended September 30, 2022, the Company issued 16,644,146 common shares upon the conversion of the remaining balance of the convertible note and unpaid interest, leaving a note principal balance of $0.

 

n)

On March 29, 2022, the Company entered into a convertible promissory note with a non-related party for $128,000, of which $500 was an original issue discount and $2,500 was issue costs resulting in cash proceeds to the Company of $125,000. The Company received the cash proceeds on April 4, 2022. The note is due on March 29, 2023 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note's term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company's common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date. On September 25, 2022 the Note became convertible and the Company recognized a further discount of $113,348 relating to the initial fair value of the derivative conversion feature. During the nine months ended September 30, 2022, $52,436 of the discount was amortized to expense.

 

o)

On June 1, 2022, the Company entered into a convertible promissory note with a non-related party for $53,000, of which $500 was an original issue discount and $2,500 was issue costs resulting in cash proceeds to the Company of $50,000. The note is due on June 1, 2023 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note's term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company's common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date. During the six months ended September 30, 2022, $976 of the discount was amortized to expense.

 

14

 

p)

On June 14, 2022, the Company entered into a convertible promissory note with a non-related party for $53,000, of which $500 was an original issue discount and $2,500 was issue costs resulting in cash proceeds to the Company of $50,000. The note is due on June 14, 2023 and bears interest on the unpaid principal balance at a rate of 12% per annum. Stringent pre-payment terms apply (from 15% to 40%, dependent upon the timeframe of repayment during the note's term) and any part of the note which is not paid when due shall bear interest at the rate of 22% per annum from the due date until paid. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company's common stock at a conversion price equal to 61% of the lowest trading price during the 15-trading day period prior to the conversion date. During the six months ended September 30, 2022, $870 of the discount was amortized to expense.

  

 

NOTE 7. DERIVATIVE LIABILITIES

 

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

 

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

 

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

 

		September 30, 2022				December 31, 2021
Balance at the beginning of period		$	3,044,034			$	7,102,801
Discount upon recognition of conversion feature			113,348				—
Settlement of derivative instruments			(69,270	)			(4,035,906	)
Change in fair value of embedded conversion option			(2,061,774	)			(22,861	)
Balance at the end of the period		$	1,026,338			$	3,044,034

 

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

 

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

 

		Expected Volatility		Risk-free Interest Rate		Expected Dividend Yield				Expected Life (in years)
At September 30, 2022		108-199%		3.92-4.25%			0	%			0.49-2.91

  

 

NOTE 8. STOCKHOLDERS' DEFICIT

 

Preferred Stock

Effective March 23, 2018, the Company amended the articles of incorporation and authorized 10,000,000 shares of preferred stock with a par value of $0.001 per share. The preferred stock may be issued from time to time by the Board of Directors as shares of one or more classes or series, as summarized below.

 

15

 

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

 

16

 

3)

If there is no active public market, the value shall be the fair market value thereof, as mutually determined by the Company and the holders of at least a majority of the voting power of all then outstanding shares of Preferred Stock.

 

B.

The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as mutually determined by the Company and the holders of at least a majority of the voting power of all then outstanding shares of such Preferred Stock:

 

Voting

The holder of each Share shall not have any voting rights, except in the case of voting on a change in the preferences of Shares.

Conversion

Each Share shall be convertible into shares of the Company’s Common Stock at a price per share of $0.10 (1 Share converts into 1 share of Common Stock), at the option of the holder thereof, at any time following the date of issuance of such Share and on or prior to the fifth day prior to the Redemption Date, if any, as may have been fixed in any Redemption Notice with respect to the Shares, at the office of this Company or any transfer agent for such stock. Each Share shall automatically be converted into shares of Common Stock on the first day of the thirty-sixth (36th) month following the original issue date of the shares at the Conversion Price per share. To date, the Shares have not yet been converted into Common Stock.

 

The Company was unable to issue the subscribers the preferred shares until the Company filed a Certificate of Designation and the Preferred Series “A” stock had been duly validly authorized. As the Company had not filed the Certificate of Designation and as the Company could not issue the preferred shares to settle the proceeds received, it was determined the subscriptions were settleable in cash. As a result, the Company classified the subscriptions received as a liability in accordance with ASC 480 Distinguishing Liabilities from Equity. The filing of the Certificate of Designation and issuance of the preferred shares in 2019 resulted in the reclassification of the Series A Preferred Shares from a liability to temporary equity or “mezzanine” because the preferred shares include the liquidation preferences described above. The fair value of the preferred series A stock on April 12, 2019 was $60,398 and was valued by using the Binomial Model based on various assumptions and was reclassified from a liability to mezzanine equity.

As of September 30, 2022, and December 31, 2021, there were 500,000 shares of Series A Convertible Preferred Stock issued and outstanding, respectively. The Series A Convertible Preferred Stock are currently in default as they were subject to automatic conversion to shares of Common Stock on April 19, 2022, which did not occur due to the Company not having the sufficient number of common shares available for conversion. The Company is continuing to negotiate an extension of the conversion date with the Series A Convertible Preferred Stock shareholders.

Series B Preferred Shares

 

Effective August 13, 2019, the Company filed a Certificate of Designation with the Nevada Secretary of State thereby designating 1,000,000 shares of its authorized preferred stock as Series B –Preferred Stock. The principal terms of the Series B Preferred Shares are as follows:

Voting Rights

Holders of the Series B Preferred Stock shall be entitled to cast five hundred (500) votes for each share held of the Series B Preferred Stock on all matters presented to the stockholders of the Corporation for stockholder vote which shall vote along with holders of the Corporation’s Common Stock on such matters.

Redemption Rights

The Series B Preferred Stock shall be redeemed by the Corporation upon the successful receipt by the Corporation of at least $1,000,000 in equity capital following the issuance of the Series B Preferred Stock. The Company has received in excess of $1,000,000 of equity capital during the year ended December 31, 2021, and the redemption right has been triggered. However, to date the Company has not exercised the redemption rights to redeem the Series B Preferred Stock and currently has no plans to do so.

17

 

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 500,000 shares of the Series B preferred stock to each of its current CEO/Chairman and COO/Director (1,000,000 shares in total) pursuant to their employment agreements. As the Series B Preferred Shares represent share-based payments that are not classified as liabilities but that could require the employer to redeem the equity instruments for cash or other assets, the Company classified the initial redemption amount of the shares of $158,247 as temporary equity or “mezzanine”.

 

As of September 30, 2022, and December 31, 2021, there were 1,000,000 shares of Series B Preferred Stock issued and outstanding, respectively.

 

Series C Preferred Shares

 

Pursuant to the September 18, 2019, the Company filed a Certificate of Designation with the Nevada Secretary of State designating 5,500,000 shares of its authorized preferred stock as Series C Convertible Preferred Stock. The Registrant is awaiting the file stamped Certificate of Designation from the Nevada Secretary of State. The rights and preferences of such preferred stock are as follows:

 

The number of shares constituting the Series C Convertible Preferred Stock shall be 5,500,000. Such number of shares may be increased or decreased by resolution of the Board of Directors, provided that no decrease shall reduce the number of shares of Series C Convertible Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Series C Convertible Preferred Stock.

18

 

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.

19

 

Effective December 1, 2021, the Company filed an Amended and Restated Certificate of Designation with the Nevada Secretary of State designating 1,500,000 shares of its authorized preferred stock as Series C Convertible Preferred Stock. The revised rights and preferences of such preferred stock are as follows:

The amended number of shares constituting the Series C Convertible Preferred Stock shall be 1,500,000. Such number of shares may be increased or decreased by resolution of the Board of Directors, provided that no decrease shall reduce the number of shares of Series C Convertible Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Series C Convertible Preferred Stock. At September 30, 2022, the Company is in default of the terms of the Series C Convertible Preferred Stock due to not having enough reserved common shares available for conversion of all outstanding Series C Convertible Preferred Stock.

Amended Conversion Rights

 

Each Share shall be convertible into shares of the Company’s Common Stock at a price per share of $0.015 (1 Share converts into 150 shares of Common Stock) (the “Conversion Price”), at the option of the holder thereof, at any time following the date of issuance of such Share and on or prior to the fifth (5th) day prior to the redemption Date, if any, as may have been fixed in any redemption notice with respect to the Shares, at the office of this Company or any transfer agent for such stock.

 

During the year ended December 31, 2021, the Company sold 1,500,000 shares of preferred series C stock at $1.50 per share for proceeds of $2,250,000.

 

As of September 30, 2022, and December 31, 2021, there were 1,500,000 shares of Series C Preferred Stock issued and outstanding, respectively. The Company has sufficient shares of Common Stock reserved for any potential conversion of Series C Preferred Stock.

 

Common Stock

 

The authorized shares of common stock consists of 1,000,000,000 shares with a par value of $0.001 per share. The number of shares of common stock outstanding as of September 30, 2022 and December 31, 2021 was 805,596,961 and 790,924,690, respectively.

 

On May 26, 2022, $12,500 of principal and interest of a convertible note payable was converted into 1,453,488 shares of the Company’s common stock as further described in Note 6(m).

 

On June 1, 2022, $12,500 of principal and interest of a convertible note payable was converted into 1,506,024 shares of the Company’s common stock as further described in Note 6(m).

 

On June 2, 2022, $15,000 of principal and interest of a convertible note payable was converted into 1,973,684 shares of the Company’s common stock as further described in Note 6(m).

 

On June 6, 2022, $20,000 of principal and interest of a convertible note payable was converted into 2,597,403 shares of the Company’s common stock as further described in Note 6(m).

 

On June 8, 2022, $30,000 of principal and interest of a convertible note payable was converted into 3,947,368 shares of the Company’s common stock as further described in Note 6(m).

 

On June 13, 2022, $20,000 of principal and interest of a convertible note payable was converted into 2,702,703 shares of the Company’s common stock as further described in Note 6(m).

 

On June 21, 2022, $15,520 of principal and interest of a convertible note payable was converted into 2,463,476 shares of the Company’s common stock as further described in Note 6(m).

 

On August 31, 2022, 1,971,875 shares of the Company’s common stock were returned for cancellation as a result of an SEC court order.

 

20

 

NOTE 9. STOCK OPTIONS

 

Below is a table summarizing the options issued and outstanding as of September 30, 2022:

 

				Number of options				Weighted average exercise price $
	Balance, December 31, 2021				8,500,000				0.034
	Granted				7,000,000				0.067
	Expired/Cancelled				(6,500,000	)			0.039
	Settled				—				—
	Balance, September 30, 2022				9,000,000				0.056
	Exercisable				3,500,000				0.021

 

As at September 30, 2022, the following share stock options were outstanding:

 

Date				Number				Number				Exercise				Weighted Average Remaining Contractual				Expiration				Proceeds to Company if
Issued				Outstanding				Exercisable				Price $				Life (Years)				Date				Exercised
	09/01/2021				2,000,000				2,000,000				0.015				3.92				08/31/2026				30,000
	04/01/2021				1,500,000				1,500,000				0.03				4.92				08/31/2027				45,000
	04/01/2021				1,500,000				—				0.05				5.92				08/31/2028				75,000
	04/01/2021				2,000,000				—				0.075				6.92				08/31/2029				150,000
	04/01/2021				2,000,000				—				0.10				7.92				08/31/2030				200,000
					9,000,000				3,500,000															$	500,000

 

At September 30, 2022, the weighted average exercise prices are $0.056 and $0.021 for the options outstanding and exercisable, respectively. The intrinsic value of stock options outstanding at September 30, 2022 was $0.

 

During the nine months ended September 30, 2022, the Company revised the terms of an employment agreement with the CFO to increase the amount of unvested stock options from 4,000,000 to 7,000,000 which shall vest incrementally over four years in the following manner: 1,500,000 stock options on September 1, 2022, 1,500,000 stock options on September 1, 2023, 2,000,000 stock options on September 1, 2024 and the final 2,000,000 stock options on September 1, 2025. Upon modification of the stock options, the Company calculated the incremental compensation cost of $42,899, which will be amortized to expense over the vesting period.

 

 

NOTE 10. WARRANTS

 

The Company concluded that it only has sufficient shares to satisfy the conversion of some but not all of the outstanding convertible instruments. The initial fair value of the warrants issued during the period was calculated using the Binomial Model as described in Note 7.

 

The following table summarizes the continuity of share purchase warrants:

 

				Number of warrants				Weighted average exercise price $
	Balance, December 31, 2021				115,048,858				0.00597
	Cancelled				—				—
	Granted				—				—
	Exercised				—				—
	Balance, September 30, 2022				115,048,858				0.00597

 

21

 

As at September 30, 2022, the following share purchase warrants were outstanding:

 

Date				Number				Number				Exercise				Weighted Average Remaining Contractual				Expiration				Proceeds to Company if
Issued				Outstanding				Exercisable				Price $				Life (Years)				Date				Exercised
	12/3/2018				500,000				500,000	*			0.10				1.18				12/3/2023				50,000
	3/31/2019				104,548,858	*			104,548,858	*			0.00035	*			1.45				03/13/2024				36,592
	8/26/2020				10,000,000				10,000,000				0.06				2.91				8/26/2025				600,000
					115,048,858				115,048,858															$	686,592

 

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

 

The intrinsic value of warrants outstanding at September 30, 2022 was $737,069.

 

 

NOTE 11. RELATED PARTY TRANSACTIONS

 

The Company has agreements with related parties for consulting services, accrued rent, accrued interest, notes payable and stock options. See Notes to Financial Statements numbers 6, 8, and 9 for more details.

 

 

NOTE 12. COMMITMENTS AND CONTINGENCIES

 

Consulting Agreements - 

 

On March 1, 2021, the Company entered into a consulting agreement. Pursuant to the agreement, the consultant will provide consulting services to the Company in various marketing and management matters for a period of three months. In consideration for the services performed by the consultant, the Company agreed to compensate the consultant $5,000 per month. The Company also granted stock options to purchase 2,500,000 common shares exercisable at $0.0001 per share for one year. The options expired in full without exercise on March 1, 2022.

 

The Company also uses the professional services of securities attorneys, a US EPA specialist, professional accountants, and other public-company specialists.

 

Employment Agreements -

 

On April 1, 2022, the Company entered into an amended and restated four-year employment agreement with Arthur E. Abraham, replacing the former employment agreement dated September 1, 2021, to add the role of President. The terms of the revised agreement increases the amount of unvested stock options from 4,000,000 to 7,000,000 which shall vest incrementally over four years in the following manner: 1,500,000 stock options on September 1, 2022, 1,500,000 stock options on September 1, 2023, 2,000,000 stock options on September 1, 2024 and the final 2,000,000 stock options on September 1, 2025. All other terms of the former employment agreement remain the same.

 

Other Obligations and Commitments -

 

No new obligation or commitments during the period ending September 30, 2022.

 

 

22

 

NOTE 13. SUBSEQUENT EVENTS

 

On October 4, 2022, the Company entered into a convertible promissory note with a non-related party for $50,000. The note is due on October 4, 2024 and bears interest on the unpaid principal balance at a rate of 7% per annum. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company's common stock at a conversion price equal to $0.05 per share.

 

On November 7, 2022, the Company entered into a promissory note with a non-related party for $250,000. The note is due on January 30, 2023 and bears interest on the unpaid principal balance at a rate of 8% per annum. The Note is repayable by four bi-monthly payments of $67,500 on the 15^th and 30^th of every month beginning on December 15, 2022. The Note is secured by 75,000,000 shares of restricted common stock, which will not be issued until ten days after the due date of the loan has passed and payment has not been received by the lender. If the Company fails to make a payment due within ten days after the due date, a late payment fee of 10% of the principal amount due or $25,000 is applicable.

 

 

 

23

 

FORWARD-LOOKING STATEMENTS

 

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

 

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

 

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

 

•	our ability to efficiently manage and repay our debt obligations;
•	our inability to raise additional financing for working capital;
•	our ability to generate sufficient revenue in our targeted markets to support operations;
•	significant dilution resulting from our financing activities;
•	actions and initiatives taken by both current and potential competitors;
•	supply chain disruptions for components used in our products;
•	manufacturers inability to deliver components or products on time;
•	our ability to diversify our operations;
•	the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require management to make estimates about matters that are inherently uncertain;
•	adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;
•	changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which we operate;
•	deterioration in general or global economic, market and political conditions;
•	inability to efficiently manage our operations;
•	inability to achieve future operating results;
•	the unavailability of funds for capital expenditures;
•	our ability to recruit, hire and retain key employees;
•	the global impact of COVID-19 on the United States economy and out operations;
•	the inability of management to effectively implement our strategies and business plans; and
•	the other risks and uncertainties detailed in this report.

 

In this form 10-Q references to “PCT LTD”, “the Company”, “we,” “us,” “our” and similar terms refer to PCT LTD and its wholly-owned operating subsidiary, Paradigm Convergence Technologies Corporation (“Paradigm”) and recently formed subsidiaries 21^st Century Energy Solutions, Inc. and 21^st Century Healthcare, Inc.

 

 

24

 

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

 

Executive Overview

 

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

 

PCT LTD had not recorded revenues for the two fiscal years prior to its acquisition of Paradigm and was dependent upon financing to continue basic operations. Paradigm has recorded revenue since it initiated operations in 2012; however, those revenues have not been sufficient to finance operations. The Company recorded net income of $220,544 for the nine-months ended September 30, 2022 and accumulated losses of $29,378,449 from inception through September 30, 2022.

 

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

  

The expected costs for the next twelve months include:

 

•

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

 

•

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

 

•

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

 

•

acquiring available complementary technology rights;

 

•

payment of short-term debt;

 

•

general and administrative operating costs.

 

Management projects these costs to total approximately $2,580,000 in 2023. To minimize these costs, the Company intends to maintain its practice of controlling operating overheads with efficient facilities commitments, generally below market salaries and consulting fees, and rigorous prioritization of expenditure requirements. Based on its understanding of the commercial readiness of its products and technologies, the capabilities of its current personnel, established business relationships and the general market conditions, management believes that the Company expects to be covering its fixed operating expenses (“burn rate”) by the end of the second quarter of 2023.

 

In August of 2022, we announced that we are in the process of segregating te Healthcare and Oil & Gas technologies into separate wholly-owned subsidiaries to capitalize on marketing opportunities. The PCT Healthcare division is being rebranded with assets transferred into 21^st Century Healthcare, Inc. while the PCT Oil & Gas division will be rebranded with assets transferred into 21^st Century Energy Solutions, Inc. 21^st Century Healthcare, Inc. intends to build and market equipment and fluids specifically to the healthcare industry. 21^st Century Energy Solutions, Inc. intends to market oil and gas technologies and services to the Oil & Gas industry. Both new entities anticipate marketing directly to their customer base and form strategic partnerships with companies that are heavily engaged in both Healthcare and Oil & Gas, respectively.

 

25

 

PCT believes that this will open additional investment and strategic alliance opportunities. PCT has found there is much more opportunity to attract the necessary investment and alliances to assure the funds will be used in the areas of investment interest while each company focuses on their specific market.

 

Liquidity and Capital Resources

 

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

 

SUMMARY OF BALANCE SHEET		September 30, 2022				December 31, 2021
Cash and cash equivalents		$	31,458			$	116,497
Total current assets			101,986				310,763
Total assets			4,058,912				4,254,258
Total liabilities			5,694,985				6,283,637
Accumulated deficit			(29,378,449	)			(29,598,993	)
Total stockholders' deficit		$	(4,104,718	)		$	(4,498,024	)

 

For the nine months ended September 30, 2022, the Company recorded a net income of $220,544 and at September 30, 2022, had a working capital deficit of $4,123,267. Since inception we had not established an ongoing source of revenue sufficient to cover our operating costs. During the nine-months ended September 30, 2022, we primarily relied upon advances and loans from stockholders and third parties to fund our operations. The Company has relied on raising debt and equity capital in order to fund its ongoing day-to-day operations and its corporate overhead. We had $31,458 in cash at September 30, 2022, compared to $116,497 in cash at December 31, 2021. We had total liabilities of $5,694,985 at September 30, 2022 compared to $6,283,637 at December 31, 2021.

 

Our current cash flow is not sufficient to meet our monthly expenses of approximately $250,000 and to fund future research and development adequately. We intend to rely on additional debt financing, loans from existing stockholders and private placements of common stock for additional funding in addition to the increasing our recognized revenue from the leasing and/or sale of products; however, there is no assurance that additional funding will be available. We do not have material commitments for future capital expenditures. However, we cannot assure you that we will be able to obtain short-term financing, or that sources of such financing, if any, will continue to be available, and if available, that they will be on favorable terms.

  

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

  

Commitments and Obligations

 

At September 30, 2022 the Company recorded notes payable totaling approximately $2,477,933 (related, non-related and convertible, net of debt discount) compared to notes payable totaling $2,165,102 (related, non-related and convertible, net of debt discount) at December 31, 2021. These notes payable represent cash advances received and expenses paid from third parties and related parties. All of the notes payable carry effective interest from 0% to 171% and are due ranging from on demand to November 30, 2023.

 

The Company headquarters and operations are located in Little River, South Carolina. The Company re-negotiated an annual lease on the Little River, SC facility for $7,500 per month, retroactive to July 1, 2020, which is renewable for an additional four years (with a 2% increase annually). Effective July 1, 2021 through June 30, 2022, the monthly lease payment was $7,650. Effective July 1, 2022 through June 30, 2023, the monthly lease payment is $7,803. The Company added a three-year lease for 9,600 sf. of warehouse space in Fort Wayne, Indiana, effective November 1, 2020, for $4,500/month.   

 

26

 

Results of Operations

 

Three Months Ended September 30, 2022

 

SUMMARY OF OPERATIONS		Three-month period ended September 30,
		(Unaudited)
		2022				2021
Revenues		$	289,497			$	366,730
Total operating expenses			683,775				1,229,810
Total other income (expense)			(104,185	)			716,893
Net income (loss)			(498,463	)			(146,187	)
Net income (loss) attributable to common stockholders'			(498,463	)			(146,187	)
Basic income per share		$	(0.00	)		$	(0.00	)
Diluted income (loss) per share		$	(0.00	)		$	(0.00	)

 

Revenues decreased to $289,497 for the three months ended September 30, 2022 (the "2022 third quarter") compared to $366,730 for the three months ended September 30, 2021 (the "2021 third quarter"). The revenue decrease for the period was due to the decreased volume of fluids sold, as a result of the decreased need for an effective US EPA-registered disinfectant as the country comes out of the COVID-19 pandemic.

 

Total operating expenses decreased to $683,775 during the 2022 third quarter compared to $1,229,810 during the 2021 third quarter. The decrease during the third quarter of 2022 was primarily due to a decrease in general and administrative expenses and cost of product, licensing, and equipment leases associated with decreased revenue, offset by an increase in depreciation and amortization.

 

General and administrative expenses decreased to $551,921 for the 2022 third quarter compared to $1,031,072 during the 2021 third quarter. The decrease during the third quarter of 2022 was primarily due to a decrease in payroll expenses and professional fees and due to effective cost controls.

 

Depreciation and amortization expenses increased to $125,414 during the 2022 third quarter compared to $98,364 during the 2021 third quarter.

 

Total other expense was $104,185 for the 2022 third quarter compared to other income of $716,893 during the 2021 third quarter. The overall change was a result of a decrease in gain on settlement of debt of $362,368 and a decrease in the gain on change in fair value of derivatives of $406,108 when compared to the third quarter of 2022.

 

As a result of the changes described above, net loss increased to $498,463 during the 2022 third quarter compared to $146,187 during the 2021 third quarter.

 

Nine Months Ended September 30, 2022

 

SUMMARY OF OPERATIONS		Nine-month period ended September 30,
		(Unaudited)
		2022				2021
Revenues		$	874,072			$	1,231,392
Total operating expense		$	2,453,137			$	3,133,929
Total other income (expense)		$	1,799,609			$	5,110,109
Net income		$	220,544			$	3,207,572
Net income attributable to common stockholders'		$	220,544				3,207,572
Basic income per share		$	0.00			$	0.00
Diluted income (loss) per share		$	(0.00	)		$	(0.00	)

 

27

 

Revenues decreased to $874,072 for the nine months ended September 30, 2022, compared to $1,231,392 for the nine months ended September 30, 2021. The revenue decrease for the period was due to the decreased volume of fluids sold as a result of the country coming out of the COVID-19 pandemic.

Total operating expenses decreased to $2,453,137 during the nine months ended September 30, 2022, compared to $3,133,929 during the nine months ended September 30, 2021. The decrease during the period was primarily due to a decrease in general and administrative expenses and cost of product, licensing, and equipment leases associated with decreased revenue, offset by an increase in depreciation and amortization.

General and administrative expenses decreased to $2,008,782 for the nine months ended September 30, 2022, compared to $2,583,139 during the nine months ended September 30, 2021. General and administrative expenses were reduced due to effective cost controls.

Depreciation and amortization expenses increased to $357,799 during the nine months ended September 30, 2022, compared to $295,092 during the nine months ended September 30, 2021.

Total other income decreased to $1,799,609 for the nine months ended September 30, 2022, compared to $5,110,109 of expenses during the nine months ended September 30, 2021. The overall decrease in income was a result of a decrease in gain on the settlement of debt of $3,620,796 offset by the increase in gain on change in the fair value of derivatives of $312,497 when compared to the third quarter of 2022.

As a result of the changes described above, a net income of $220,544 was realized during the nine months ended September 30, 2022, compared to a net income of $3,207,572 during the nine months ended September 30, 2021.

 

Off-Balance Sheet Arrangements

 

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

 

Critical Accounting Policies

 

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

 

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

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable to smaller reporting companies.

 

 

28

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated to allow our management to make timely decisions regarding required disclosure. Gary Grieco, our Chief Executive Officer, who serves as our principal executive officer, and Arthur Abraham, our Chief Financial Officer, who serves as our principal accounting officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. The disclosure controls and procedures ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the SEC's rule and forms; and (ii) accumulated and communicated to our principal executive officer as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive and principal accounting officers concluded that as of September 30, 2022, our disclosure controls and procedures were not effective.  

 

Notwithstanding this finding of ineffective disclosure controls and procedures, we concluded that the consolidated financial statements included in this Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

 

Changes in Internal Control Over Financial Reporting

 

During the quarter ended September 30, 2022, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934).

 

 

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

Auctus Fund Litigation

 

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

 

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

 

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

 

On September 1, 2021, we issued 8,000,000 common shares and paid the remaining cash balance to Auctus under the terms of the settlement. We fully complied with all payments required under the settlement agreement and issued the shares of common stock to Auctus, which triggered the mutual release of all disputes and claims between us and Auctus. Despite our compliance with the terms of the settlement agreement and even though Auctus’s Managing Director signed the Mutual Release on January 19, 2022 Auctus continues to dispute its scope.

 

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

 

1.

Breach of Contract;

 

2.

Breach of Implied Covenant of Good Faith and Fair Dealing;

 

3.

Reformation of Mutual Release;

 

4.

Fraud;

 

5.

Conversion; and

 

6.

Unjust Enrichment.

 

In June of 2022, Auctus filed its answers to the complaint and asserted counterclaims for Declaratory Judgment and Breach of Contract.

 

The case is currently ongoing.

 

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item. However, we detailed significant business risks in Item 1A to our Form 10-K for the year ended December 31, 2021.

 

 

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

 

On August 30, 2022, 1,971,875 shares of common stock were returned for cancellation due to an SEC court order.

 

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

 

Issuer Purchases of Equity Securities

 

We did not repurchase any of our equity securities during the quarter ended September 30, 2022.

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

We have entered into a number of promissory notes, some of which are in default as of September 30, 2022, or went into default before the filing of this Quarterly Report (See Note 6 to the financial statements).

 

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

 

As of September 30, 2022, we had cash and cash equivalents of $31,458 and had a portion of short-term debt in default. Management's plan is to raise additional funds in the form of debt or equity in order to continue to fund losses until such time as revenues are able to sustain the Company. To date, the main source of funding has been through the issuance of Common stock, Preferred C stock, the issuance of notes payable and the issuance of convertible notes with provisions that allow the holder to convert the debt and accrued and unpaid interest at substantial discounts to the trading price of our common stock. However, there is no assurance that management will be successful in being able to continue to obtain additional funding or defend potential litigation by note holders.

 

  

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

ITEM 5. OTHER INFORMATION

 

None.

 

 

 

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ITEM 6. EXHIBITS

 

Exhibit No.	Description
3(i)	Amended and Restated Articles of Incorporation, as currently in effect (Incorporated by reference to Exhibit 3.1 of Form 8-K, filed April 13, 2018)
3.1	Amended Articles of Incorporation increasing authorized shares (Incorporated by reference to Exhibit 3.1 of Form 8-K, filed on October 25, 2019)
3(ii)	Amended and Restated Bylaws, as currently in effect (Incorporated by reference to Exhibit 3.2 of Form 8-K, filed April 13, 2018)
4.2	Certificate of Designation of Series A Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 of Form 10-Q, filed on September 16, 2019)
4.3	Certificate of Designation of Series B – Super Voting Convertible Preferred Stock (Incorporated by reference to Exhibit 4.2 of Form 10-Q, filed on September 16, 2019)
4.4	Certificate of Designation of Series C Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 of Form 8-K, filed on October 25, 2019)
4.5	Amended and Restated Series C Convertible Preferred Stock Certificate of Designation effective on December 7, 2021 (Incorporated by reference to Exhibit 4.1 of Form 8-K, filed on December 29, 2021)
4.6	Auctus Note dated March 13, 2019 (Incorporated by reference to Exhibit 4.14 of Form 10-Q, filed on September 16, 2019)
10.1	Auctus Agreement dated March 13, 2019 (Incorporated by reference to Exhibit 10.17 of Form 10-Q, filed on September 16, 2019)
10.2†	Read Employment Agreement (Incorporated by reference to Exhibit 10.18 of Form 10-Q, filed on September 16, 2019)
10.3†	Read Addendum to Employment Agreement (Incorporated by reference to Exhibit 10.19 of Form 10-Q, filed on September 16, 2019)
10.4†	Grieco 2019 Employment Agreement (Incorporated by reference to Exhibit 10.20 of Form 10-Q, filed on September 16, 2019)
10.5†	Grieco 2020 Employment Agreement Incorporated by reference to Exhibit 10.20 of Form 10-Q, filed on April 13, 2020)
10.6†	Amended and Restated Abraham Employment Agreement dated April 1, 2022 (Incorporated by reference to Exhibit 10.6 of Form 10-Q, filed on May 16, 2022)
10.7	Disruptive Oil and Gas Contribution Agreement dated October 26, 2021(Incorporated by reference to Exhibit 10.7 of Form 10-K filed on March 31, 2022)
10.8	$199,000 Note dated February 4, 2022 (Incorporated by reference to Exhibit 10.8 of Form 10-Q, filed on May 16, 2022)
10.9	$131,000 Note dated March 4, 2022 (Incorporated by reference to Exhibit 10.9 of Form 10-Q, filed on May 16, 2022)
10.10	$81,600 Note dated April 14, 2022 (Incorporated by reference to Exhibit 10.10 of Form 10-Q, filed on May 16, 2022)
10.11#	June 1, 2022 $53,000 promissory note
10.12#	June 14, 2022 $53,000 promissory note
10.13#	July 13, 2022 $200,000 loan agreement
10.14	August 15, 2022 $57,600 inventory finance note
10.15#	October 4, 2022 $50,000 promissory note
10.16#	November 7, 2022 $250,000 promissory note
31.1#	Principal Executive Officer Certification
31.2#	Principal Financial Officer Certification
32.1‡	Section 1350 Certification, Principal Executive Officer
32.2‡	Section 1350 Certification, Principal Financial Officer
99.1#	PCT Corp Simplifies Hospital Disinfectant Sourcing press release dated June 27, 2022
99.2#	Hydrolyte An Ideal Disinfecting Solution for Schools press release dated July 25, 2022
99.3#	Monkeypox Illustrates need for Constant Infection Control press release dated August 18, 2022
99.4#	PCT LTD Announces Rebranding of Two Product Lines press release dated August 19, 2022
99.5#	PCT Announces 21st Century Energy Inc Contract press release dated September 29, 2022
99.6#	PCTL/21st Century Announce New Hospital Contract press release dated October 18, 2022
99.7#	21st Century Healthcare, Inc. Congratulates Crothall Healthcare on BIG Sustainability Award press release dated November 2, 2022
101.INS	Inline XBRL Instance Document**
101.SCH	Inline XBRL Taxonomy Extension Schema**
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase**
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase**
101.LAB	Inline XBRL Taxonomy Extension Labels Linkbase**
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase**
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

  

# Filed herewith.

 

‡ Furnished herewith.

 

† Indicates management contract or compensatory plan or arrangement.

 

 

** The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

 

 

32

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

		PCT LTD
Date:  November 14, 2022	By:	/s/ Gary Grieco
		Gary Grieco Principal Executive Officer
		Chief Executive Officer and Chairman

 

 

 

Date:  November 14, 2022	By:	/s/ Arthur Abraham
		Arthur Abraham
		Chief Financial Officer Principal Financial Officer

 

 

33