PCT LTD - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

FORM 10-Q

For the quarterly period ended September 30, 2020

or 

Commission file number: 000-31549

PCT LTD

(Exact name of registrant as specified in its charter)

(843) 390-7900

(Registrant’s telephone number, including area code)

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

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 ☐ The registrant does not have a Web site.

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

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

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

The number of shares outstanding of the registrant’s common stock as of November 13, 2020 was 689,437,846 which does not include 309,812,154 shares of common stock reserved against default on convertible debt and 750,000 shares for vesting of executive shares.

TABLE OF CONTENTS

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

PCT LTD

Consolidated Balance Sheets

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

PCT LTD

Condensed Consolidated Statements of Operations

(Unaudited)

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

PCT LTD

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

PCT LTD

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

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

PCT LTD

Condensed Consolidated Statements of Cash Flows

(Unaudited)

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

PCT LTD

Notes to the Unaudited

Condensed Consolidated Financial Statements

September 30, 2020

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

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

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2019 audited financial statements as reported in its Form 10-K, filed on August 3, 2020.

COVID-19

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

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

Nature of Operations

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

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

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

Significant Accounting Policies

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

Reclassification

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

Fair Value Measurements

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

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

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

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

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

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

Basic and Diluted Loss Per Share

Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period.  Diluted loss per share is computed by dividing net loss by the weighted-average number of common shares and dilutive potential common shares outstanding during the period. As September 30, 2020, there were outstanding common share equivalents (options, warrants, convertible notes payable, preferred series A stock and preferred series C stock) which amounted to 617,194,775 shares of common stock. These common share equivalents were not included in the computation of diluted loss per share as their effect would have been anti-dilutive.

Recent Accounting Pronouncements 

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

NOTE 2. GOING CONCERN

The accompanying consolidated condensed financial statements have been prepared assuming that the Company will continue as a going concern. The Company has an accumulated deficit of $40,416,317 and has negative cash flows from operations. As of September 30, 2020, the Company had a working capital deficit of $19,916,591. 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.

NOTE 3. PROPERTY AND EQUIPMENT

Property and equipment at September 30, 2020 and December 31, 2019 consisted of the following: 

Depreciation expense was $27,085 and $18,947 for the nine-months ended September 30, 2020 and 2019, respectively.

NOTE 4. INTANGIBLE ASSETS

Intangible assets at September 30, 2020 and December 31, 2019 consisted of the following:

Amortization expense was $228,283 and $234,621 for the nine-months ended September 30, 2020 and 2019, respectively.

Estimated Future Amortization Expense:

NOTE 5. Notes Payable

The following tables summarize notes payable as of September 30, 2020 and December 31, 2019:

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

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

NOTE 6. DERIVATIVE LIABILITIES

The embedded conversion option of (1) the convertible notes payable described in Note 5; (2) warrants; contain conversion features that qualify for embedded derivative classification. The fair value of the liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments.

Upon the issuance of the convertible notes payable described in Note 5, the Company concluded that it only has sufficient shares to satisfy the conversion of some but not all of the outstanding convertible notes, warrants and options. The Company elected to reclassify contracts from equity with the earliest inception date first. As a result, none of the Company’s previously outstanding convertible instruments qualified for derivative reclassification, however, any convertible securities issued after the election, including the warrants described in Note 9, qualified for derivative classification. The Company reassesses the classification of the instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.

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

The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option 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:

NOTE 7. STOCKHOLDERS’ DEFICIT

Preferred Stock

On February 7, 2020, the Company extinguished a promissory note and convertible note, including accrued interest through the issuance of 220,000 shares of preferred series C stock. The Company recorded the difference between the fair value of the preferred series C stock of $264,000 and the debt outstanding of $220,000 as a loss on extinguishment of debt of $44,000.

During the period ended September 30, 2020, the Company sold 270,000 shares of preferred series C stock for proceeds of $270,000.

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

During the period ended September 30, 2020, 400,000 shares of preferred series C stock with a value of $444,000 was converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 40,000,000 shares of common stock.

Common Stock

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

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

During the period ended September 30, 2020, the Company issued 9,246,186 shares of common stock upon the cashless exercise of 9,280,742 warrants.

During the period ended September 30, 2020, 400,000 shares of preferred series C stock with a value of $444,000 was converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 40,000,000 shares of common stock.

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

On March 20, 2020, the Company issued 150,000 shares of common stock to a consultant. The Company recorded the fair value of the common shares of $5,880 in consulting expense.

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

On April 27, 2020, the Company issued 1,000,000 shares of common stock to an employee of the Company for cash proceeds of $10,000.

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

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

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

On July 1, 2020, the Company entered into a consulting agreement. Pursuant to the agreement the consultant will provide advisory services through December 31, 2021 in consideration of 8,000,000 shares of common stock. The fair value of the common stock was $307,200 of which $49,685 was recognized in consulting expenses for the period ended September 30, 2020, with the remainder in prepaid assets for future services.

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

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

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

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

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

NOTE 8. STOCK OPTIONS

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

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

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

NOTE 9. WARRANTS

The Company concluded that it only has sufficient shares to satisfy the conversion of some but not all of the outstanding convertible instruments. The initial fair value of the warrants issued during the period was calculated using the Binomial Model as described in Note 6.

The following table summarizes the continuity of share purchase warrants:

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

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

The intrinsic value of warrants outstanding at September 30, 2020 was $14,768,388.

NOTE 10. RELATED PARTY TRANSACTIONS

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

NOTE 11. COMMITMENTS AND CONTINGENCIES

Consulting Agreements – 

On October 1, 2019, the Company entered into a consulting agreement for investor relations services through March 31, 2020. The agreement called for a cash payment of $25,000 and 12,000,000 restricted shares of common stock to be issued to the consultant. As of December 31, 2019, the Company recorded the fair value of the shares of $61,200 for the consulting expense related to the consulting services provided. The expense was recognized over the service period, ending on March 31, 2020.

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

Employment Agreements –

On January 1, 2019, the Company entered into a four-year employment agreement with F. Jody Read in his role as Chief Executive Officer. The terms of the contract call for an annual salary of $90,000 for the first year, effective March 1, 2019 and increasing to $120,000 once the Company’s revenue exceeds monthly expenses, then incrementally over time and with certain operation results, up to $200,000/year. The salary may be paid, at the employee’s discretion, either in cash or in common stock. A $1,000 per month allowance will be granted to the executive for housing near the Company’s South Carolina facility. The employment agreement awards the CEO 1,500,000 restricted shares of the Company’s restricted stock, which shall vest in the following manner: 375,000 shares on March 1, 2019, 375,000 shares on March 1, 2020, 375,000 shares on March 1, 2021 and the final 375,000 shares on March 1, 2022. On August 12, 2019, the Company amended the Employment Contract with F. Jody Read, CEO, whereby 500,000 preferred series B stock were issued to Read. All other terms of the January 1, 2019 employment agreement remain in effect. On October 4, 2019, F. Jody Read resigned from the position of CEO and moved back into the role of COO.

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

Other Obligations and Commitments –

On March 20, 2020, the Company entered into a consulting agreement. Pursuant to the agreement the consultant will provide investor relations services for a period of nine months. The Company issued the consultant 150,000 shares of common stock.

On July 1, 2020, the Company entered into a consulting agreement. Pursuant to the agreement the consultant will provide advisory services through December 31, 2021 in consideration of 8,000,000 shares of common stock.

On July 6, 2020, the Company entered into a consulting agreement. Pursuant to the agreement the consultant will provide investor relations services for a period of one year in consideration for $3,000 per month and the issuance of 1,000,000 shares of common stock.

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

On August 26, 2020 the Company signed a new 1-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 has an option to renew the lease for an additional 4-years.

NOTE 12. SUBSEQUENT EVENTS

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

On October 7, 2020, the Company entered into a convertible promissory with a non-related party for $200,000. The note is due on October 7, 2021 and bears interest on the unpaid principal balance at a rate of 5% per annum. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company’s common stock at a conversion price of $0.20.

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

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

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

On October 7, 2020, the Company entered into a Services Agreement with a consultant for services for a period of six months. In consideration for services the Company issued 5,000,000 shares of common stock.

On October 16, 2020, the Company entered into a convertible promissory with a non-related party for $200,000. The note is due on October 16, 2021 and bears interest on the unpaid principal balance at a rate of 5% per annum. The Note may be converted by the Lender at any time after 180 days of the date of issuance into shares of Company’s common stock at a conversion price of $0.20.

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

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, a,re subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:

In this form 10-Q references to “PCT LTD”, “the Company”, “we,” “us,” “our” and similar terms refer to PCT LTD and its wholly owned operating subsidiary, Paradigm Convergence Technologies Corporation (“Paradigm”).

COVID-19

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

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

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

Executive Overview

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

PCT LTD had not recorded revenues for the two fiscal years prior to its acquisition of Paradigm and was dependent upon financing to continue basic operations. Paradigm has recorded revenue since it initiated operations in 2012; however, those revenues have not been sufficient to finance operations. The Company recorded a net loss of $13,640,750 for the nine-months ended September 30, 2020 and accumulated losses of $40,416,317 from inception through September 30, 2020.

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

The expected costs for the next twelve months include:

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

Liquidity and Capital Resources

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

At September 30, 2020, the Company recorded a net loss of $13,640,750 and a working capital deficit of $19,916,591. While we have recently recorded an increase in the amount of revenues from operations, since inception and we had not established an ongoing source of revenue sufficient to cover our operating costs. During the nine-months ended September 30, 2020 and 2019 we primarily relied upon advances and loans from stockholders and third parties to fund our operations. The Company has relied on raising debt and equity capital in order to fund its ongoing day-to-day operations and its corporate overhead. We had $161,248 in cash at September 30, 2020, compared to $67,613 in cash at December 31, 2019. We had total liabilities of $20,683,430 at September 30, 2020 compared to $14,290,486 at December 31, 2019.

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

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

Commitments and Obligations

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

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

Results of Operations

Three Months Ended September 30, 2020

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

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

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

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

Total other expenses was $3,360,767 for the 2020 third quarter compared to other expenses of $5,379,178 during the 2019 third quarter. The overall decrease was a result of a decrease in the loss on change in fair value of derivatives during the third quarter of 2020 offset by an increase in loss on settlement of debt.

As a result of the changes described above, net loss decreased to $3,352,793 during the 2020 third quarter compared to $5,763,992 during the 2019 third quarter.

Nine months Ended September 30, 2020

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

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

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

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

Total other expenses increased to $12,927,176 for nine months ended September 30, 2020 compared to $8,792,540 during the nine months ended September 30, 2019. The overall increase was a result of an increase in loss on change in fair value of derivatives and loss on settlement of debt. This was offset by a decrease in interest expense during the nine months ended September 30, 2020.

As a result of the changes described above, net loss increased to $13,640,750 during the nine months ended September 30, 2020 compared to $10,214,462 during the nine months ended September 30, 2019.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

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

Changes in Internal Control Over Financial Reporting

During the quarter ended September 30, 2020, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934).

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

Annihilare Litigation

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

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

1. Two counts of Patent infringement;

2. Trademark infringement;

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

4. Trademark dilution;

5. Federal cybersquatting;

6. Violation of Defend Trade Secrets Act;

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

8. Violation of North Carolina and common law unfair competition

9. Breach of fiduciary duty;

10. Breach of duty of loyalty and faithless service;

11. Breach of consulting agreements;

12. Breach of employment agreements;

13. Tortious interference with prospective business relationships;

14. Unjust enrichment;

15. Conversion;

16. Civil conspiracy; and

17. Injunctive relief.

These claims arise from several consulting agreements and an acquisition agreements between us and the Defendants surrounding the purchase of Annihilyzer® Intellectual property by us and subsequent infringement of the intellectual properties. The case is currently ongoing.

ITEM 1A. RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and, as such, are not required to provide the information under this Item. However, we detailed significant business risks in Item 1A to our Form 10-K for the year ended December 31, 2019.

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

During the quarter ended September 30, 2020, 350,000 shares of preferred series C stock with a value of $394,000 was converted into common stock (1 share converts into 100 shares of common stock), resulting in the issuance of 35,000,000 shares of common stock.

On July 1, 2020, the Company entered into a consulting agreement. Pursuant to the agreement the consultant will provide advisory services through December 31, 2021 in consideration of 8,000,000 shares of common stock. The fair value of the common stock was $307,200 of which $49,685 was recognized in consulting expenses for the period ended September 30, 2020, with the remainder in prepaid assets for future services.

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

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

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

On September 1, 2020, $5,685 of principal and $500 of interest of the convertible note payable was converted into 955,272 shares of the Company’s common stock as further described in Note 5(k).

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

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

Subsequent Issuances After Quarter-End

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

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

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

On October 7, 2020, the Company entered into a Services Agreement with a consultant for services for a period of six months. In consideration for services the Company issued 5,000,000 shares of common stock.

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

Issuer Purchases of Equity Securities

We did not repurchase any of our equity securities during the quarter ended September 30, 2020.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

We have entered into a number of promissory notes, some of which are in default as of September 30, 2020, or went into default before the filing of this Quarterly Report (See Note 5 to the financial statements).

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

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

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

RB Capital Financing

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

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

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

On October 20, 2020, the Company issued a press release announcing the financing. A copy of the press release is attached hereto as Exhibit 99.1.

ITEM 6. EXHIBITS