PCT LTD - Annual Report: 2018 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2018

OR

For transition period from ___ to ____

Commission file number: 000-31549

PCT LTD

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (843) 390-7900

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

Securities registered under Section 12(g) of the Act: Common Stock

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☑

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

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

Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

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:

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 ☑

As of June 30, 2018, the aggregate market value of the Registrant’s common equity held by non-affiliates computed by reference to the closing price ($0.43) of the Registrant’s most recently completed second fiscal quarter was $11,854,623.

The number of shares of the Registrant’s common stock outstanding as of April 12, 2019 was 51,643,048.

Documents incorporated by reference: None

TABLE OF CONTENTS

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 objections 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 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q 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 and hire key employees;

• the inability of management to effectively implement our strategies and business plans; and

• the other risks and uncertainties detailed in this report.

Readers of this report should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this report. Before you invest in our common stock, you should be aware that the occurrence of the events described in the section entitled “Risk Factors” and elsewhere in this report could negatively affect our business, operating results, financial condition and stock price. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this report to conform our statements to actual results or changed expectations.

In this annual report references to “PCT LTD,” “Bingham Canyon,” “we,” “us,” “our” and “the Company” refer to PCT LTD (formerly known as Bingham Canyon Corporation) and its wholly-owned operating subsidiary, Paradigm Convergence Technologies Corporation (“PCT Corp.).

AVAILABLE INFORMATION

We file annual, quarterly and special reports and other information with the SEC.  You can read these SEC filings and reports over the Internet at the SEC’s website at www.sec.gov.  You can also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, NE, Washington, DC 20549 on official business days between the hours of 10:00 am and 3:00 pm.  Please call the SEC at (800) SEC-0330 for further information on the operations of the public reference facilities. We will provide a copy of our annual report to security holders, including audited financial statements, at no charge upon receipt to of a written request to us at PCT LTD, 4235 Commerce Street, Little River, South Carolina 29566.

PART I

ITEM 1. BUSINESS

Historical Development

On February 27, 1996, PCT LTD, formerly known as Bingham Canyon Corporation (“PCT LTD”) was incorporated in the State of Delaware as Hystar Aerospace Marketing Corporation of Delaware (“Hystar-Delaware”) and was a subsidiary of Nautilus Entertainment, Inc., (now called VIP Worldnet, Inc.), a Nevada corporation. Hystar-Delaware completed a change of domicile merger on August 26, 1999 with then named Bingham Canyon Corporation, now named PCT LTD, a Nevada corporation.

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

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

Business Strategy

PCT LTD’s wholly-owned operating subsidiary, PCT Corp., is a technology development, design, and manufacturing company specializing in providing cleaning/sanitizing/disinfectant equipment that creates environmentally safe solutions for global sustainability. PCT Corp. markets new products and technologies for the Healthcare, Agriculture, and Oil & Gas industries through multi-year system and service contracts that provide equipment and support for our customers.

The Company holds patents, trademarks, intellectual property and distribution rights to our innovative products and technologies. While a direct-sales capability is in place and will be expanded, it is not PCT Corp.’s intent to be the sole distributor of our technology products. In addition to the direct sales program, senior management is responsible for continuing to develop the distribution and licensing program operations for the technology; to develop new opportunities and applications for the products, and to promote the brands. Paradigm’s senior management intends to also continue the pursuit of new technologies – particularly technologies which are complementary to or enhance applications opportunities for its existing products - upon which it will build and expand its business.

Paradigm has developed several commercially-ready product generator systems for Hydrolyte^®, an EPA registered, highly effective sanitizer/disinfectant microbiocide that is safe and non-toxic for use around humans and animals. Hydrolyte^® has been market tested with commercial customers is ready for and is involved in the initial stage of full-scale commercial launch. Management intends to focus on leveraging the opportunities presented by Hydrolyte^® in the short term and is in the first stage of a full commercial launch, commencing now, in the first half of 2018.

Paradigm’s revenue stream is expected to be derived primarily from service contracts and equipment leasing and sales as well as licensing and distributor agreements. In the 2017 “soft” launch, management focused on establishing distributor operations and direct sales in addition to expanding its production capabilities. Initially, direct sales are being managed by members of the senior management team. Subsequently, direct sales may be conducted by a subsidiary company(s) with existing customer relationships and targeted marketing and sales operations. Paradigm has finalized agreements with four distributors and is in negotiations with three additional distributors who are preparing to undertake commercial operations in their respective regional markets. The existing distributors are based in New Jersey/New York, North Carolina, Ohio, and Florida. Management expects to add more distributors throughout the year and in in negotiations with several potential distributors for certain market segments including regional markets in the southeastern portion of the U.S., Texas, mid-Atlantic region and the Caribbean.

In building out its production capabilities, Paradigm has developed strategic operating relationships with firms that are leaders in production, manufacturing, and distributions within the various industries where the markets for our technologies exist. Management believes that this strategy, properly executed, should allow for the most rapid possible rollout of the products and solid capture of market share.

Principal Technology: Hydrolyte^® and Catholyte

Paradigm’s generator systems make two products in the cleansers, sanitizers and disinfectants category:

Both products are outputs of a single generation production process using Paradigm’s technology. Commercially, the primary product is Hydrolyte^® and the second product of the process, Catholyte, is a very useful and effective product for which parallel markets exist and profitable revenue streams can be developed. Both products are generated using a single process of electrochemical activation (“ECA”) of the input ingredients derived from naturally-occurring salt minerals and water.

The company has two registrations of Hydrolyte^® with the U. S. Environmental Protection Agency (“EPA”) as a microbial biocide and the company is in the process of completing a third. Hypochlorous acid solutions such as Hydrolyte^® are approved by the Food and Drug Administration (“FDA”) for cleaning and sanitizing applications and by the United States Department of Agriculture (“USDA”) for use in food processing.

Hydrolyte^® is a metastable, aqueous solution of hypochlorous acid, generated through the electrochemical process. It has a high redox potential (900 millivolts) and a greater biocidal effect than chlorine and other toxic chemicals. Hydrolyte^® is 99.5% water + salt, rendering it safe and non-toxic to humans, yet it is effective against the various classes of pathogens comprising bacteria, viruses, spores, and yeast. Organisms in these categories include C. diff, TB, Parvovirus. Norovirus, Listeria, E. Coli, HIV, Hepatitis C, Influenza A, Candida and antibiotic resistant strains such as MRSA, VRE, and CRE. Using non-toxic Hydrolyte^® in decontamination and sterilization processes generally eliminates the need for the use of other highly toxic chemical biocides (such as ammonia, chlorine bleach and glutaraldehyde) which are commonly used in sanitizing, disinfection and decontamination.

Although it has been well known for many years that an aqueous solution of hypochlorous acid (HOCL), commonly known as “anolyte”, can deliver extremely effective decontamination and disinfectant results, previous problems in anolyte production technology had rendered its use economically infeasible in most applications. The primary drawbacks with previous anolyte production technology were: the inability to generate anolyte in high enough concentrations (Parts Per Million – PPM) of the active ingredient, HOCL; high enough commercial volumes from the generators (as opposed to 1 quart to 1 gallon, small volume batch or low flow generators); reliability of the generators or fluids; and, the relatively short time that the product maintained its maximum decontaminative efficacy.

Paradigm’s new proprietary production, distribution and applications technologies have solved these problems. Its production equipment allows the Hydrolyte^® solution to be produced consistently with specific, predetermined concentration of HOCL within the range of concentrations typically employed (50 to 600 PPM) as well as the desired pH level (the pH scale measures how acidic or Alkaline a substance is) that may be desirable for any given application. To resolve the maintenance of efficacy issue, Paradigm has perfected generation (production) equipment which is small enough to be located on the customer’s facility, allowing for production-on-demand rather than maintaining stored product inventory. For customers who will not use enough product to justify the on-site equipment, the company intends to engage industry-specific distribution and commercial services companies to provide the products to end-user customers on a regular delivery schedule. The combination of the on-site generation and delivery solutions should assure end-users will always be supplied with fresh, full strength product.

Production: Hydrolyte® is generated with the company’s proprietary equipment. The production technology for Hydrolyte® generates a product with predetermined PPM and pH properties, i.e., the equipment can be calibrated to deliver any desired PPM level; and, we believe it is superior to any other known production process or equipment available in the market today. The scalable Hydrolyte® generation systems technology largely will be housed in portable and mobile units, which can be readily moved within a building or from site to site, although more permanent installations, probably employing larger generation systems, will be made in situations where such installation is appropriate or required.

Markets: The primary applications for the Hydrolyte® technology are in cleaning, sanitizing, and disinfecting in a variety of market sectors and settings, including:

Management has determined that the most direct paths to rapid revenue and earnings growth are in the institutional facilities and agriculture markets. The preponderance of business development and marketing resources are currently being devoted to these two markets. Management intends to also work to maintain the company’s position and expertise in the oil and gas industry to assure that current customer relationships are maintained, business opportunities at hand are pursued and that the company is properly positioned for a roll-out as, and when, drilling activity increases as anticipated.

Institutional Facilities: Hospitals, Health Care Facilities & Schools

Paradigm senior research and development personnel have developed several models of Paradigm’s equipment to be deployed as a state-of-the-art integrated product dispensing, tracking and management systems for applications in the institutional facilities market. This integrated technologies solution, branded as PCT’s Annihilyzer^® System, has been designed most particularly for hospitals, large long-term care, assisted living and nursing home facilities. In various configurations in can be deployed in other health care facilities including urgent care centers, medical, dental and veterinary offices. It is adaptable to deployment in schools, prisons, hotels and many other facilities, although the primary marketing and sales goal for Paradigm remains with the hospital market. A complete and custom turn-key cleaning, disinfection and sterilization program solution can be provided to each facility.

At the physical core of the Annihilyzer System is Paradigm’s on-site generation equipment, which is Paradigm’s housed in the Annihilyzer^® Station, also containing the Company’s Patented tracking system, managed disbursement and bottling system for fluid production, containerization and use. Spray bottles and other containers are labeled when filled or refilled with product identification and date of production using printed labels and radio-frequency identification (“RFID”) tags. Reading these labels and tags before use assures that the correct and “fresh” product is always being used. Each room is also given an RFID tag. By reading the RFID room tags with a mobile app in a Mobile Data Terminal (ruggedized smartphone), the system tracks what is cleaned and disinfected, when, with what product, and by whom. The station is Wi-Fi connected to smart phones, which are tied to cloud-based data storage for consistent backup and retrieval. The Cloud-based data can be used to generate a complete record of all cleaning, disinfecting and sanitizing activity, including personnel time and task data – a cost saving convenience to management.

Paradigm has also created an automated state-of-the-art Electrostatic Spray Cart along with a suite of Electrostatic Applicators for use in Healthcare allowing for rapid disinfecting of rooms once a patient has vacated the room. This system is designed to reduce the turnover time required between patients, potentially increase revenue opportunities, and improve efficiency of hospital personnel.

Paradigm deploys its on-site production equipment under service contracts, charging an installation and set-up fee followed by monthly contract fees over a contract period of approximately 3 years. The equipment will be deployed and maintained through Paradigm’s personnel at first, then through Paradigm-licensed commercial services companies that provide the on-site support as required. The product generators and other components of the on-site systems will be monitored remotely by a contracting company which is highly experienced and expert in remote monitoring and response systems. The precise nature of any functional problems that may occur with any of the system’s components will be automatically communicated via the internet to the monitoring and control center. The problems are then resolved through a three-tiered problem response system: first by remote access to the computerized system controls, second by an on-site technician call, and third through a “rapid replacement” program. If problems are not resolved by the first or second tier responses, in the tier three rapid replacement response, Paradigm would overnight ship replacement parts or, if necessary, a complete station or system and have the defective unit returned for repair.

Agricultural Antimicrobial Pesticide

In the agricultural sector our microbicide is branded as “Hydrolyte^® Green.” Our testing and field trials indicate that it can provide pre-harvest disinfection and decontamination solutions for any number of field crops that are affected by various bacterial and fungal pathogens. Through USDA grants and multiple studies by universities around the world, hypochlorous acid solutions have been tested and proven effective in post-harvest applications to include sanitizing at point of harvest, point of packing, and points of sale.

While Hydrolyte Green® is effective in these post-harvest applications, Paradigm’s major objective is to deliver solutions for pre-harvest pathogen contaminations, where a multitude of microbial infestations of many crops still need effective solutions that will qualify for regulatory approvals necessary to bring the treatment solution into commercial use. Paradigm’s agricultural research program is intended to support a continuous rollout of scientifically tested and certified applications for the treatment and prevention of numerous specific microbial infestations of a wide variety of crops. This research activity is expected to capture the test data required for regulatory approvals, and market acceptance of, the specific uses for the specific crops. During 2018, we executed a distribution and license agreement with an agricultural chemical specialty company and are actively involved in additional field trials of Hydrolyte Green®.

While company management and technical staff and consultants are certain of the ability of Hydrolyte^® to kill virtually any microbe; substantial testing and documentation are required to determine optimal protocols for treatment, including application concentrations, volumes, and frequency, as well as optimal delivery techniques (which could be any or all of: root drenching, foliar spray or injection) needed to produce the most effective and least costly solutions to microbial infestations. It must also be demonstrated and certified by independent third-party testing that the treatment does no harm to the plants or the crops to be harvested and leaves no chemical residual inside the crop.

Paradigm has undertaken the establishment of a long-term testing and field trial program with an independent agricultural pesticide research firm to determine the feasibility of pre-harvest use of Hydrolyte^® to treat various microbial infestations in as many different crops as possible. Management has identified several microbial crop infestation problems for which safe and effective treatment solutions have yet to be found and for which there is preliminary evidence that a properly researched Hydrolyte^® treatment protocol could provide such a solution. Management anticipates positive results from independent testing leading to the creation, over time, of multiple business opportunity targets on which to build a solid consistent, long-term revenue stream with solid growth potential for the foreseeable future.

Testing/Research: In the third quarter of 2015, an opportunity was identified for research into a possibly significant opportunity for commercialization of a formulation of the company’s Hydrolyte^® product. A critical agricultural market was seeking solutions to eradicate a serious and threatening microbial infestation. The company’s management determined that our product’s microbicide capability could provide a readily deployable and effective solution to the problem. Three months (late 2015 and early 2016) were spent determining the research requirements, target-market requirements and the potential for successful commercialization in the identified market. Two seasoned professionals with the necessary expertise were brought on board, and the project was launched from the company’s facility in Little River, South Carolina, during the fourth quarter of 2015.

To demonstrate that the company could provide a viable solution, research protocols were developed, and a series of laboratory tests and preliminary trials were performed at a major university by agricultural scientists who were experts on the crop and the infestation. The results of these tests and the trial analysis were very favorable, showing a >97% percent kill rate on the treated microbes in the laboratory and a >88% kill rate in the field trial environment.

Encouraged by early laboratory and field trial results, management secured the services of a consulting specialist in the target crop and the microbial pathogen causing the disease. Working with the consultant, management determined the market to be viable for the use of the company’s Hydrolyte^® in effectively treating the disease.

The second field trial, for nine months of 2016, was extensive and involved a larger-scale operation over a greater length of time. Specific third-party reports to the company indicated “good to excellent control of the disease source, economically feasible, EPA registration possible” and a continuing very high field kill rate. Upon receiving these results, the Company began developing plans to make certain it will be prepared to “supply fluid product in commercial quantities.”

Preventive, curative and health maintenance programs for the application of the Company’s Hydrolyte^® were discussed and developed, with input and encouragement by the fruit’s national growing association, as well as from nationally recognized educational and research institutions.

In March 2017, the company began a much larger-scale field trial of our product on a 20-acre plot that has trees showing widespread presence of the disease. We, and our consulting specialist, expect to replicate and to validate previous results and further define the best possible methodology and protocols for effective application of the Hydrolyte^® solution. Because the results of the trial were positive, as expected, management continued to expand its commercial field trial usage of Hydrolyte Green ® with its agriculture distributor and licensee and is gaining valuable research data to be used in further commercialization efforts during 2019:

Oil and Gas Industry

World market prices for oil decreased during the past several years in response to increased production coming on line simultaneously with a softening of the growth in demand. The oil and gas industry in the U.S. and elsewhere have experienced unprecedented expansion and prosperity due to an influx of technological advances enabling the discovery and accurate location and identification of significant domestic oil and gas reserves. Advances in drilling technology, fracturing equipment and chemical methodology greatly enhanced recovery rates and revenue growth. This growth surge in supply reduced the United States’ dependency on foreign oil, and, we believe, contributed to lowering the U.S. trade deficit, reducing unemployment rates in oil producing areas, reducing heating and cooling costs, and providing lucrative investment opportunities. However, during 2014 and 2015 the steadily increasing supply of oil on a global scale led to reduced prices and decreased drilling activity in the U.S. From a June 20, 2014 price of $115 per barrel, the price dropped to historic lows below $30 in February 2016. The drop in the market price of oil led to a great reduction in drilling activity causing a corresponding loss of opportunities to sell the company’s products and services in the oil & gas industry. By the end of 2017, the price of oil had recovered to the $50 to $55 range. A stable market in this price range is expected to lead to renewed opportunities in this industry in 2018. As opportunities emerge, we plan to use oil-field service companies to market and distribute our Hydrolyte^® and Catholyte products to their clients/customers. Management is currently seeking an appropriate opportunity to re-enter this market.

Management believes that the benefits of our proven technologies continue to be desirable for, and should continue to be used in, hydraulic fracturing drilling worldwide. Some of the benefits of our products and systems include elimination of highly toxic chemicals currently used for decontamination, reduced negative environmental impact, reduced recovery costs, improved product quality, and potentially opening new areas for oil and gas retrieval. As a result, management is preparing for expanding business opportunities in this sector in the mid-term future. As part of this preparation, Paradigm is developing a large-scale system utilizing Hydrolyte^® to decontaminate water and fluid going “down hole” in oil and gas-well drilling; and to decontaminate recovered “frac” water for reuse in the fracking process. Operational experience has shown that Hydrolyte^® not only effectively decontaminates the water supply of microbes, but also does not cause corrosive damage to gas and oil recovery equipment; nor does it cause any loss of performance to the other chemicals, additives, and propellants currently used in drilling and fracking processes.

Hydrolyte^® also addresses another problem in the oil and gas industry. In a separate application, Hydrolyte^® can be used to reduce the sulfur content of crude oil in the ground. There are sulfite-producing microbes in crude oil which cause higher levels of hydrogen sulfide (“H₂S”) and “sour” wells with sour crude oil which is less valuable than “sweet” crude which has low H₂S. It has been demonstrated that Hydrolyte^® is effective in reducing or eliminating these microbes, thus improving the quality and value of the oil recovered from the treated well.

Hydrolyte^® can reduce the costs of transporting contaminated water from the wellbore to a treatment facility and back for reuse, thus reducing the need for construction of water processing capacity, providing a substantial reduction in the costs of drilling, and enabling a sustainable increase in efficiency. The company intends to maintain an active marketing program; and, expects that there will be renewed opportunities for revenue growth from the frac drilling and related oil-field applications.

We delivered a large volume order of Hydrolyte® to a distributor of oilfield chemicals for use by one of its customers during 2018 and continue to have conversations regarding models of delivery of the fluids to the oil and gas market. In addition, we engaged in a contract for the sale of a large volume piece of Hydrolyte® equipment, which is being used by the purchaser for the generation of Hydrolyte® in specific applications within this market.

Marketing, Sales and Distribution of Hydrolyte®

Marketing and sales activities were minimal in 2017 but increased during the 2018 year, as management focused on the final stage of product development, establishing supply chain agreements, and building sufficient physical production capacity to meet expected demand. Distributor and customer relationships were established through management’s existing contacts and are anticipated to provide a solid base of sales and revenue after the first half 2019 launch of this new and expanded stage of operations. Paradigm has agreements with distributors in the Northeast, in Florida and in Ohio with manufacturers’ representative firms and expects to be in full commercial distribution operations in the second half of 2019. Management has additional distribution opportunities under development in multiple markets and intends to more fully expand the distribution network in 2019. Management, working with consultants well-known to management, intends to continue to seek and establish distributor and/or joint venture opportunities and agreements for the marketing and sales of Paradigm’s products and services.

While a major portion of the sales effort is expected to be provided directly by our internal sales team and distributors, Paradigm intends to put in place its own formal marketing program with expanded participation in industry trade shows, advertising in trade publications, internet marketing and sales support, and an impactful and credible company image, which integrates all products and technologies under one cohesive appearance. All marketing and branding material will incorporate a consistent look and display prominent logo recognition.

A direct sales function with clinical expertise is expected to be established to support large customers and pursue promising joint venture opportunities. Paradigm expects to use its production, operations and research and development facility in Little River, South Carolina to display its products and technologies. This will provide a meeting and demonstration area where working models and simulations will allow first-hand interaction and live demonstrations for interested parties. We may sponsor on-site visits to existing installations and technology partner’s facilities. 

The Institutional program for Healthcare sales program has begun with agreements with prospective customers for pilot/demonstration installations at their facilities. It is expected that the pilot installations will be completed in the second quarter. The pre-deployment preparation has been completed for the first hospital installation in the North Carolina area that is under a system and service agreement that started December 2017 and continued throughout 2018 with three additional contracts within the Healthcare market. The sales pipe line for this market is more complete and we are gleaning solid information and becoming more adept at determining the length of time from inception-to-“contract” within this complex market.

Production, Assembly and Principal Suppliers

Hydrolyte^® Generation and Equipment Production: Paradigm moved into its new operations, research and development and production facility in Little River, South Carolina on December 15, 2016. The research, development and testing space were suitable and functional as already built. Paradigm’s systems consist of large volume units capable of producing up to 1,000 gallons per day for the Agriculture and Oil & Gas industries. Paradigm’s Annihilyzer Infection Control Systems, which are medium to low volume units, are more suitable for the Healthcare market. Testing and assembly of the large volume systems for the Agriculture and Oil & Gas industries is currently being conducted at the new facility. A new design and layout for a final systems assembly area and an expanded testing area was finalized in January 2018.

Annihilyzer^® Infection Control Systems Assembly: Annihilyzer generator systems are tested and assembled in Little River and the other outsourced components for the Annihilyzer^® Infection Control System are shipped to Werks Manufacturing Inc., Ft. Wayne, Indiana for final assembly in the Annihilyzer^® Station cabinet. The Stations and the ESS Carts are manufactured by Werks who specializes in manufacturing and fabricating fiberglass products and Kiosks. The Annihilyzer® Station and ESS Cart manufacture and system assembly is performed by Werks on a purchase order basis.

Competition

In all our target markets, Paradigm will compete directly with large firms selling competing, but toxic, legacy cleanser and disinfectant products that are manufactured off-site and shipped to customers or distributors. These competitors have longer operating histories, more experience, substantially greater financial and human resources, greater size, more substantial research and development and marketing operations, established distribution channels and are well positioned in the market to fight aggressively to defend their market share. However, the combined markets in which Paradigm is engaged are so massive that its competitive position as non-toxic and, in a significant number of applications, less expensive should allow Paradigm to prosper. Paradigm’s on-site generation technology and Patented RFID Tracking and Reporting System provides a substantial competitive advantage in addition to its non-toxic properties.

There are a limited number of potential competitors providing some form of anolyte-based biocide. Based on management’s research these companies are largely in early operating stages, concentrated in local or regional markets and have no advanced technology or pricing advantage. These include Aquaox, Ecologic Solutions, and MIOX Corporation.

In the institutional facilities and agricultural industries, Paradigm believes that its proprietary integrated technologies solutions in production, distribution, applications management and tracking should provide a competitive advantage in direct competition. In the oil and gas industry Paradigm has demonstrated the effectiveness and efficiencies of its products and processes and commercial acceptance from its customers. It is well positioned with respect to other companies providing anolyte-based biocides.

Intellectual Property

EPA product registrations of disinfectants and pesticides allow the registered products to be sold and distributed with labels identifying specific laboratory tested and proven kill claims of its effectiveness against specific microbial pathogens. Below is a summary of recent EPA registrations, EPA sub-registrations and other intellectual property the Company has acquired. The Company continues to hold certain intellectual properties relative to the Soloplax biodegradable plastics technology but does not anticipate pursuing commercialization of the technology associated in the foreseeable future.

On December 15, 2016, Paradigm acquired an EPA sub-registration (#82341-1-92108), which provides for entry into the facilities and agricultural markets described previously in this document. The company is actively pursuing sales under this registration and label. In addition, the Company has registered its products in several states, under its US EPA No. 92108-1.

On March 13, 2017, the Company entered into a Registration Transfer Agreement (“Transfer Agreement”) and a Data License and Assignment Agreement (“Data Agreement”) with a third party. Pursuant to the Transfer Agreement, the Company received United States Environmental Protection Agency’s (“EPA”) Registration number 82341-4 for Excelyte® VET for a one-time fee of $125,000.

On April 6, 2017, Paradigm, acquired the complete intellectual property, including know-how, trade secrets and patent rights to the hardware, firmware and software comprising the product inventory generation, disbursement, containerization, tracking and reporting system, trademarked as the Annihilyzer^® System. The Annihilyzer® System is designed to be employed on-site in healthcare facilities. The company already owns IP rights in the generation system employed in this integrated technology system.

Paradigm has developed proprietary know-how related to the reactor cells and generation systems that generate our Hydrolyte^® and Catholyte products. Paradigm continues, through its research and development program, to perfect the production innovation, know-how, trade secrets and patentable innovations incorporated into the improved production, inventory management and reporting systems. Current focus is on customizing system and equipment design to suite the production parameters and conditions in various specific venues and applications, e.g., agricultural field setting vs. packing house or oil and gas field.

On April 12, 2018 the Company entered into a Purchase Agreement with a third party to purchase its exclusive rights to US EPA Product Registration No 83241-1 for a fixed fee. The Company paid $5,000 on execution of the agreement and has continued to make periodic installment payments for the purchase of this Registration. At December 31,2018, the Company owed $45,000 of installment payments.

Research and Development

Paradigm’s research and development costs for the years ended 2018 and 2017 were $14,000, and $315,385, respectively. During that period, Paradigm concluded ongoing research and development of the application of the Hydrolyte® technology in the oil and gas industry; as a biocide in institutional facilities, such as, hospitals, jails and medical facilities; and continued in trial tests in agriculture and food processing.

In 2017 Paradigm invested $315,385 in products and systems for the institutional facilities market to supply the 2018 launch. Management estimated that 2018 research and development expenditures would be approximately $250,000 to support on-going laboratory and field-trial work in the agricultural sector and continued generator and other equipment and systems engineering and testing for future products. During 2018, we spent significantly less than anticipated. In 2019, we expect to maintain a robust research and development program in agricultural, commercial and industrial opportunities and applications in the foreseeable future as we overcome certain regulatory obstacles.

In October 2015, Paradigm entered an agreement with Florida Pesticide Research, Inc. to conduct agricultural research intended to support an aggressive rollout of tested and certified applications for the treatment and prevention of numerous specific microbial infestations of a wide variety of crops. While company management, technical staff and consultants are confident of Hydrolyte^®’s ability to kill virtually any microbe, testing is required to determine proper application concentrations, volumes, frequency and delivery techniques (which could be any or all of: root drenching, foliar spray or injection) needed to be most effective and least costly. It also must be demonstrated that the treatment does no harm to the plants or the product to be harvested and that no harmful residual remains in the crop because of the treatment. Management intends to maintain and expand the testing and demonstration program currently in place to other crops to target various additional crop infestation problems for the foreseeable future.

Government Regulations and Compliance with Environmental Laws

Paradigm is not aware of any existing or probable government regulations that would negatively impact our operations. As a licensor of water treatment technology, Paradigm is not subject to government regulations for the removal of oils, solids and pathogens from water, other than normal safety standards and certifications (such as UL or CE) for goods that we manufacture for demonstrations and joint ventures, and our product lines. However, prospective customers are subject to local, state and federal laws and regulations governing water quality, environmental quality and pollution control. To date, compliance with government regulations has had no material effect on the company’s operations, capital, earnings, or competitive position, and the cost of such compliance has not been material. Paradigm is unable to assess or predict at this time what effect additional regulations or legislation could have on its activities.

In addition, Paradigm’s prospective customers will be subject to the Clean Water Act which regulates the discharge of pollutants into streams and other waters of the U.S. (as defined in the statute) from a variety of sources. If wastewater or runoff from facilities or operations may be discharged into surface waters, the Clean Water Act requires that person to apply for and obtain discharge permits, conduct sampling and monitoring and, under certain circumstances, reduce the quantity of pollutants in those discharges. The federal government may delegate Clean Water Act authority to the states.

Employees

As of the date of this Report, Paradigm has ten full-time employees, no part-time employees and various contract consultants who are engaged as needed. Management confers with outside expert consultants, attorneys and accountants as necessary. The company anticipates engaging additional full-time employees in 2019. We anticipate that a portion of employee compensation likely would include direct stock grants, or the right to acquire stock in the company through an employee stock purchase program, which would dilute the ownership interest of holders of existing shares of our common stock.

ITEM 1A. RISK FACTORS

You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to PCT LTD’s securities. The risks and uncertainties described below are not the only risks and uncertainties facing us. Additional risks not currently known to us or that we currently believe are immaterial may also impair our operating results, financial condition, and liquidity. Our business is also subject to general risks and uncertainties that affect many other companies. For purposes of this section, references to our business include the business of our wholly-owned subsidiary, Paradigm. The risks discussed below are not presented in order of importance or probability of occurrence.

Risks Related to Our Business

We have a history of losses and may never become profitable.

We have recorded net losses for the past two years and have significant accumulated deficits. We have relied upon loans and advances for operating capital. Total revenues will be insufficient to pay off existing debt and fund research and development.  We cannot assure you that we can identify suitable license or joint venture opportunities, or that any such agreements will be profitable. We may be required to rely on further debt financing, further loans from related parties, and private placements of our common stock for our additional cash needs. Such funding sources may not be available, or the terms of such funding sources may not be acceptable to the Company.

Our inability to generate sufficient cash flows may result in the Company not being able to continue as a going concern.

Our overall cash position as of December 31, 2018 provides limited liquidity to fund day-to-day operations. The Company’s independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern. We may need to seek additional financing or sell our assets to support our continued operations; however, there are no assurances that any such financing or asset sale can be obtained or achieved on commercially reasonable terms, if at all. In view of these conditions, our ability to continue as a going concern depends on our ability to generate sufficient cash flows from our new technology products or to obtain the necessary financing for operations. The outcome of these matters cannot be predicted at this time. The consolidated financial statements for the year ended December 31, 2018 do not include any adjustment to the amounts and classification of assets and liabilities that might be necessary should we be unable to continue business operations. Any such adjustment could be material.

Our indebtedness could adversely affect our business and limit our ability to plan for or respond to changes in our business, and we may be unable to generate sufficient cash flow to satisfy significant debt service obligations.

As of December 31, 2018, our consolidated notes payable owing was $1,907,011, with approximately $826,826 of notes held by related parties. Our indebtedness could have important consequences, including the following:

Our ability to repay our significant indebtedness will depend on our ability to generate cash, whether through cash from operations or cash raised through the issuance of additional equity-based securities. To a certain extent, our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control. If our business does not generate sufficient cash flow from operations or if future equity financings are not available to us in amounts sufficient to enable us to fund our liquidity needs, our financial condition and operating results may be adversely affected. If we cannot make scheduled principal and interest payments on our debt obligations in the future, we may need to refinance all or a portion of our indebtedness on or before maturity, sell assets, delay capital expenditures, cease operations or seek additional equity.

We will need additional capital in the future to finance our planned growth, which we may not be able to raise or it may only be available on terms unfavorable to us or our stockholders, which may result in our inability to fund our working capital requirements and harm our operational results.

We have and expect to continue to have substantial working capital needs. Our cash on hand, together with cash generated from product sales, services, cash equivalents and short-term investments will not meet our working capital and capital expenditure requirements for the next twelve months. In fact, we will be required to raise additional funds throughout 2019 or we will need to limit operations until such time as we can raise substantial funds to meet our working capital needs. In addition, we will need to raise additional funds to fund our operations and implement our growth strategy, or to respond to competitive pressures and/or perceived opportunities, such as investment, acquisition, marketing and development activities.

If we experience operating difficulties or other factors, many of which may be beyond our control, cause our revenues or cash flows from operations, if any, to decrease, we may be limited in our ability to spend the capital necessary to complete our development, marketing and growth programs. We require additional financing, in addition to anticipated cash generated from our operations, to fund our working capital requirements.  Additional financing might not be available on terms favorable to us, or at all. If adequate funds were not available or were not available on acceptable terms, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our business or otherwise respond to competitive pressures would be significantly limited. In such a capital restricted situation, we may curtail our marketing, development, and operational activities or be forced to sell some of our assets on an untimely or unfavorable basis.

We are highly dependent on our officers and directors. The loss of any of them, whose knowledge, leadership and technical expertise upon which we rely, could harm our ability to execute our business plan.

Our success depends heavily upon the continued contributions of our current officers and directors, whose knowledge, leadership and technical expertise may be difficult to replace at this stage in our business development, and on our ability to retain and attract experienced experts, and other technical and professional staff.   If we were to lose the services of our officers or directors, our ability to execute our business plan would be harmed and we may be forced to limit operations until such time as we could hire suitable replacements.

At this stage of our business operations, even with our good faith efforts, potential investors have an increased probability of losing their entire investment.

Because the nature of our business is expected to change as a result of shifts in the industries in which we operate, competition, and the development of new and improved technology, management forecasts are not necessarily indicative of future operations and should not be relied upon as an indication of future performance. Further, we have raised substantial debt and equity to fund our business operations, which to date have generated insufficient revenue to support our working capital needs.

While Management believes its estimates of projected occurrences and events are within the timetable of its business plan, our actual results may differ substantially from those that are currently anticipated. If our revenues do not increase to a level to support our working capital needs, we will be forced to seek equity capital to fund our operations and repay our substantial debt balances, which may not be available to us at all or on acceptable terms.

Our ability to license our products and technologies on a commercially viable basis is unproven, which could have a detrimental effect on our ability to generate or sustain revenues.

The technologies we offer to waste water and water from oil and gas drilling have never been utilized on a full-scale commercial basis. The Hydrolyte™ technology was only recently developed and all of the tests conducted to date with respect to the technology have been performed in a limited scale or small commercial scale environment and the same or similar results may not be obtainable at competitive costs on a large-scale commercial basis. Accordingly, the Hydrolyte™ technology may not perform successfully on a commercial basis and may never generate any revenues or be profitable.

We may not be able to successfully protect our intellectual property rights.

We rely on a combination of product registration, trademark, patent and other proprietary rights laws to protect the intellectual property rights that we own or license. It is possible that third parties may challenge our rights to such intellectual property. In addition, there is a risk of third parties infringing upon our licensors’ or our intellectual property rights and producing counterfeit products. These events may result in lost revenue as well as litigation, which may be expensive and time-consuming even if a favorable outcome is obtained. There can be no assurance that adequate remedies would be available for any infringement of the intellectual property rights owned or licensed by us. Any such failure to successfully protect our intellectual property rights may have a material adverse effect on our competitive position.

Because our technology products are designed to provide a solution which competes with existing methods, we are likely to face resistance to change, which could impede our ability to commercialize this business.

Our Hydrolyte™ products are designed to provide a solution to replacing traditional chemicals that are used in the treatment of bacteria and scaling in industrial water processes. Specifically, we believe it can provide a cost effective and environmentally friendly solution in industrial facilities, agriculture, oil and gas and other industries that consume large amounts of water in their industrial processes. Currently, large and well-capitalized service companies provide traditional chemical equipment and services in these areas. These competitors have strong relationships with their customers’ personnel, and there is a natural reluctance for businesses to change to new technologies. This reluctance is increased when potential customers make significant capital investments in competing technologies. Because of these obstacles, we may face substantial barriers to commercializing our business.

To the extent demand for our products increase, our future success will be dependent upon our ability to ramp up manufacturing production capacity.

We intend to continue marketing our products and services. To the extent demand for our products and services, or other products we may develop, increases significantly in future periods, one of our key challenges will be to ramp up production capacity to meet sales demand, while maintaining product quality. Our inability to meet any future increase in sales demand, access capital for inventory, may hinder growth or increase dilution.

Component shortages could result in our inability to produce volume to adequately meet customer demand. This could result in a loss of sales, delay in deliveries and injury to our reputation.

Single source components used in the manufacture of our products may become unavailable or discontinued. Delays caused by industry allocations, or obsolescence may take weeks or months to resolve. In some cases, parts obsolescence may require a product re-design to ensure quality replacement components. These delays could cause significant delays in manufacturing and loss of sales, leading to adverse effects significantly impacting our financial condition or results of operations.

We may acquire assets or other businesses in the future.

We may consider acquisitions of assets or other business. Any acquisition involves a number of risks that could fail to meet our expectations and adversely affect our profitability. For example:

• The acquired assets or business may not achieve expected results;

• We may incur substantial, unanticipated costs, delays or other operational or financial problems when integrating the acquired assets;

• We may not be able to retain key personnel of an acquired business;

• Our management’s attention may be diverted; or

• Our management may not be able to manage the acquired assets or combined entity effectively or to make acquisitions and grow our business internally at the same time.

If these problems arise, we may not realize the expected benefits of an acquisition.

Risk Related to Our Industries

Global increases in the supply of natural gas or oil may reduce drilling operations in shale deposits, which could adversely affect the attractiveness of our Hydrolyte™ technology in the oil and gas industry.

The development of new horizontal drilling techniques and the discovery of unconventional oil and gas in new shale areas throughout the U.S. and world market have opened up an enormous opportunity for the Hydrolyte™ technology to replace traditional chemicals used to kill bacteria in waters used for hydraulic fracturing. These fracturing operations rely on enormous supplies of clean water to be pumped downhole to break the rock that holds the oil and gas. Much of the water used in drilling oil and natural gas wells and the resulting water that flows back needs to be treated and creates an opportunity for our Hydrolyte™ technology. However, horizontal drilling in shale areas is very expensive; and if current oil prices remain depressed, horizontal drilling may not be cost-effective, and the lack thereof may adversely affect the market for the Hydrolyte™ technology.

If federal and state legislation and regulatory initiatives relating to horizontal drilling are passed, then it could materially and adversely affect our results of operations.

Our business relies upon supplying chemical-free solutions for cleaning the large amounts of water used in hydraulic fracturing applications. Objections have been raised by environmentalists, some land owners and some government officials including environmental authorities that there have been adverse side effects affecting the purity of the water supply as a result of the injection of chemicals and water in connection with horizontal drilling. Although we believe that Hydrolyte™ is a chemical-free solution which should result in increased business, we cannot assure you that legislation or rules will not be passed or action taken by environmental authorities that will preclude the use of horizontal drilling.

At the state level, certain states and localities have implemented moratoriums and certain obligations on oil and gas companies using horizontal drilling. The adoption of any future federal, state or local laws or implementing regulations imposing reporting or permitting obligations on, or otherwise limiting, the horizontal drilling process could make it more difficult to perform, or even prohibit oil and gas companies from using horizontal drilling, to complete gas and oil wells. These additional costs to drillers could result in reduced oil and gas drilling. This would reduce our potential licensing revenue. If this were to occur more widely in the United States, the demand for Hydrolyte™ may be eliminated or substantially reduced. If any such federal or state legislation on horizontal fracturing were passed, our revenues and results of operations could be adversely affected.

Risks Related to PCT LTD’s Common Stock

There is a limited trading market for our shares of common stock on the OTCBB.  You may not be able to sell your shares of common stock if you need money.

Our common stock is traded on the OTCBB, an inter-dealer automated quotation system for equity securities.  There has been limited trading activity in our common stock, and when it has traded, the price has fluctuated widely.  We consider our common stock to be “thinly traded” and any last reported sale prices might not be a true market-based valuation of the common stock.  Stockholders may experience difficulty selling their shares if they choose to do so because of the illiquid market and limited public float for our common stock.

Since PCT LTD has been a shell company as defined in subparagraph (i) of Rule 144 any “restricted securities” issued by the Company, while we were a shell company, cannot be publicly sold for at least one year from September 2, 2016, the date we filed a Current Report on Form 8-K regarding Paradigm’s operations. In addition, we must have filed all reports and other materials required to be filed by section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months.

Compliance with the criteria for securing exemptions under federal securities laws and the securities laws of the various states is extremely complex, especially in respect of those exemptions affording flexibility and the elimination of trading restrictions in respect of securities received in exempt transactions and subsequently disposed of without registration under the Securities Act or state securities laws.

Because our common stock is deemed a low-priced “Penny” stock, an investment in our common stock should be considered high risk and subject to marketability restrictions.

Since our common stock is a penny stock, as defined in Rule 3a51-1 under the Securities Exchange Act of 1934, as amended, it will be more difficult for investors to liquidate their investment even if and when a market develops for the common stock. Until the trading price of the common stock rises above $5.00 per share, if ever, trading in the common stock is subject to the penny stock rules of the Securities Exchange Act specified in rules 15g-1 through 15g-10. Those rules require broker-dealers, before effecting transactions in any penny stock, to:

• Deliver to the customer, and obtain a written receipt for, a disclosure document;

• Disclose certain price information about the stock;

• Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer;

• Send monthly statements to customers with market and price information about the penny stock; and

• In some circumstances, approve the purchaser’s account under certain standards and deliver written statements to the customer with information specified in the rules.

Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to sell the common stock and may affect the ability of holders to sell their common stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.

Financial Industry Regulatory Authority, Inc. (“FINRA”) sales practice requirements may limit a shareholder’s ability to buy and sell our common shares.

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

If we fail to maintain effective internal controls over financial reporting, then the price of our common stock may be adversely affected.

Our internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations. In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock.

Transfers of our securities may be restricted by virtue of state securities “blue sky” laws that prohibit trading absent compliance with individual state laws.  These restrictions may make it difficult or impossible to sell shares in those states.

Transfers of our common stock may be restricted under the securities or securities regulation laws promulgated by various states and foreign jurisdictions, commonly referred to as “blue sky” laws.  Absent compliance with such individual state laws, our common stock may not be traded in such jurisdictions.  Because the securities registered hereunder have not been registered for resale under the blue sky laws of any state, the holders of such shares and persons who desire to purchase them should be aware that there may be significant state blue sky law restrictions upon the ability of investors to sell the securities and of purchasers to purchase the securities.  These restrictions may prohibit the secondary trading of our common stock.  Investors should consider the secondary market for our securities to be a limited one.

We do not intend to pay dividends on our common stock in the foreseeable future.

For the foreseeable future, we intend to retain any earnings to finance the development of our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors (the “Board”) and will be dependent upon then-existing conditions, including our operating results and financial condition, capital requirements, contractual restrictions, business prospects and other factors that our Board considers relevant. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their investment.

We have the ability to issue additional shares of our common stock and shares of preferred stock without obtaining stockholder approval, which could cause your investment to be diluted.

Our Articles of incorporation authorizes the Board of Directors to issue up to 300,000,000 shares of common stock and up to 10,000,000 shares of preferred stock.  The power of the Board of Directors to issue shares of common stock, preferred stock or warrants or options to purchase shares of common stock or preferred stock is generally not subject to stockholder approval.  Accordingly, any additional issuance of our common stock, or preferred stock that may be convertible into common stock, may have the effect of diluting your investment.

Future sales of our common stock may result in a decrease in the market price of our common stock, even if our business is doing well.

The market price of our common stock could drop due to sales of a large number of shares of our common stock in the market or the perception that such sales could occur. This could make it more difficult to raise funds through future offerings of common stock.

Our articles of incorporation and bylaws contain provisions that could discourage an acquisition or change of control of us.

Our articles of incorporation authorize our board of directors to issue preferred stock and common stock without stockholder approval. If our board of directors elects to issue preferred stock, it could be more difficult for a third party to acquire control of us. In addition, provisions of the articles of incorporation and bylaws could also make it more difficult for a third party to acquire control of us.

There are limitations in connection with the availability of quotes and order information on the OTCBB.

Trades and quotations on the OTCBB involve a manual process and the market information for such securities cannot be guaranteed. In addition, quote information, or even firm quotes, may not be available.  The manual execution process may delay order processing and intervening price fluctuations may result in the failure of a limit order to execute or the execution of a market order at a significantly different price.  Execution of trades, execution reporting and the delivery of legal trade confirmation may be delayed significantly.  Consequently, one may not be able to sell shares of our common stock at the optimum trading prices.

There are delays in order communication on the OTCBB.

Electronic processing of orders is not available for securities traded on the OTCBB and high order volume and communication risks may prevent or delay the execution of one’s OTCBB trading orders. This lack of automated order processing may affect the timeliness of order execution reporting and the availability of firm quotes for shares of our common stock. Heavy market volume may lead to a delay in the processing of OTCBB security orders for shares of our common stock, due to the manual nature of the market. Consequently, one may not able to sell shares of our common stock at the optimum trading prices.

There is a risk of market fraud on the OTCBB.

OTCBB securities are frequent targets of fraud or market manipulation. Not only because of their generally low price, but also because the OTCBB reporting requirements for these securities are less stringent than for listed or NASDAQ traded securities, and no exchange requirements are imposed. Dealers may dominate the market and set prices that are not based on competitive forces. Individuals or groups may create fraudulent markets and control the sudden, sharp increase of price and trading volume and the equally sudden collapse of the market price for shares of our common stock.

There is a limitation in connection with the editing and canceling of orders on the OTCBB.

Orders for OTCBB securities may be canceled or edited like orders for other securities. All requests to change or cancel an order must be submitted to, received and processed by the OTCBB. Due to the manual order processing involved in handling OTCBB trades, order processing and reporting may be delayed, and one may not be able to cancel or edit one’s order. Consequently, one may not able to sell their shares of our common stock at the optimum trading prices.

Increased dealer compensation could adversely affect our stock price.

The dealer’s spread (the difference between the bid and ask prices) may be large and may result in substantial losses to the seller  of shares of our common stock may incur an immediate “paper” loss due to the price spread.  Moreover, dealers trading on the OTCBB may not have a bid price for shares of our common stock on the OTCBB.  Due to the foregoing, demand for shares of our common stock on the OTCBB may be decreased or eliminated.

Additional Risks and Uncertainties

If any of the risks that we face actually occur, irrespective of whether those risks are described in this section or elsewhere in this report, our business, financial condition and operating results could be materially adversely affected.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

On, November 20, 2016, Paradigm signed a 3-year lease for a 12,000 square foot facility in Little River, South Carolina, which became effective December 1, 2016. The lease amount is $4,800 per month and the term is three years with an option for an additional three years. The facility, in Strand Industrial Park at 4235 Commerce Street, houses operations, research and development, production, assembly and testing. All operations for PCT LTD and PCT Corp. are performed from the Little River, SC facility. The original lease has 1 year remaining with the renewal option.

ITEM 3. LEGAL PROCEEDINGS

We may become involved in various routine legal proceedings incidental to our business. However, to our knowledge as of the date of this report, there are no material pending legal proceedings to which we are a party or to which any of our property is subject. We have received notice of a law suit for the payment of $6,010 to a local Heating, Ventilation and Air Conditioning Company. We paid $1,000 of the bill for the replacement of an external HVAC, as mandated in our lease for the premises, and we maintain that the remaining portion of the outstanding invoice is due from our Landlord, as per our lease agreement.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable to our operations.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

 PCT LTD’s common stock is quoted on the OTC Bulletin Board under the symbol “PCTL” Prior to September 15, 2016 there was no trading activity in our common stock. The following table represents the range of the high and low trading prices of our common stock during the years of 2018 and 2017 as reported by the OTC Bulletin Board.

On April 12, 2019, the closing price of shares of common stock of the Company was $0.14.  However, we consider our common stock to be thinly traded and, as a result, any reported sales prices may not be a true market-based valuation of the common stock.

(b) Holders of Common Stock

We had 207 stockholders of record as of April 12, 2019 and 51,643,048 shares outstanding. We have not declared dividends on our common stock and do not anticipate paying dividends on our common stock in the foreseeable future.

(c) Dividends

In the future we intend to follow a policy of retaining earnings, if any, to finance the growth of the business and do not anticipate paying any cash dividends in the foreseeable future. The declaration and payment of future dividends on the Common Stock will be the sole discretion of board of directors and will depend on our profitability and financial condition, capital requirements, statutory and contractual restrictions, future prospects and other factors deemed relevant.

(d) Securities Authorized for Issuance under Equity Compensation Plans

None.

Recent Sales of Unregistered Securities

On December 3, 2018 the Company authorized the issuance of 100,000 shares of common stock to a consultant engaged during 2018 for a value of $0.17 per share or $17,000, for the provision of insight and market instruction with regard to the healthcare market. There were no fees or cash involved with this consulting contract that expires on June 4, 2019.

Subsequent Issuances After Year-End

On January 2, 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 operational 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 January 28, 2019, the Company agreed to convert $131,327 of principal and interest of the notes payable described in Note 6(f) into 987,421 shares of the Company’s common stock. As of the date of filing the Company had not yet issued the shares.

On March 26, 2019 the Company issued 200,000 shares of common stock to two employees of the Company as compensation in lieu of commission on sales of the Company’s products.

On March 27, 2019, the Company settled a convertible note dated January 15, 2019 with a non-related party, in the combined amount of principal and interest of $539,936 at $0.1525/share of common stock, for a total conversion of debt into equity of $539,936 for 3,597,989 restricted shares of common stock. This conversion transaction shall retire the entire note as paid in full. The shares have not been issued as of this filing.

On March 29, 2019, the Company executed a settlement agreement with a contractual consultant, UCAP Partners, LLC for the settlement of $25,000 owed to the contractor. The settlement terms include acknowledgement that the Company owes UCAP $25,000 as payment for said services; that UCAP purchased and fully paid for Series A Preferred Stock and Warrants from the Company on December 3, 2018 (100,000 Preferred Series A Shares and 100,000 warrants to purchase common shares at $0.10/share); that the Company shall issue 164,000 shares of its common stock as payment in full for the services rendered on the consulting contract; the Company shall accept UCAP’s conversion and exercise of the purchased 100,000 Preferred Series A shares into 100,000 shares of the Company’s common stock and the Company shall accept the cashless conversion of UCAP’s 100,000 warrant into 34,400 shares of the Company’s restricted common stock; and, as inducement for and consideration for the settlement of the Company’s debt to UCAP, the Company agrees to grant 500,000 additional shares of the Company’s restricted stock. The Company has not issued any shares with regard to the settlement of this debt at the time of this filing.

Subsequent Share Reservations After Year-End

From January 15, 2019 through March 13, 2019, the Company has executed eight separate convertible notes, each requiring specific numbers of shares of the Company’s common stock to be held in reserve. As of April 12, 2019, there are 44,233,756 shares of the Company’s common stock held in reserve in the event of default on these notes. Additionally, one of the eight convertible notes was issued with 300,000 warrant at $0.20 per share.

Subsequent Share Reservations After Year-End

From January 15, 2019 through March 13, 2019, the Company has executed eight separate convertible notes, each requiring specific numbers of shares of the Company’s common stock to be held in reserve. As of April 12, 2019, there are 44,233,756 shares of the Company’s common stock held in reserve in the event of default on these notes.

Issuer Purchase of Securities

We did not repurchase any of our equity securities during the year ended December 31, 2018.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable to smaller reporting companies.

ITEM 7. 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, recording annual net losses of $3,182,483 and $2,721,536 for the years ended December 31, 2018 and 2017.

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 $2,500,000. 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 at or close to profitability by the end of the third quarter of 2019.

Liquidity and Capital Resources

The Company recorded a net loss of $3,182,483 and had a working deficit of $1,606,592 for the year ended December 31, 2018. We have recorded a relatively small amount of revenues from operations since inception and we have not established an ongoing source of revenue sufficient to cover our operating costs. During 2018 and 2017 the Company has relied on raising equity capital and borrowing from stockholders and third parties to fund its ongoing day-to-day operations and its corporate overhead. As December 31, 2018 we had $4,893 in cash compared to $7,838 in cash at December 31, 2017. We had total liabilities of $3,141,401 at December 31, 2018 compared to $1,456,198 at December 31, 2017.

Total assets increased by $92,807 at December 31, 2018 compared to December 31, 2017. This increase is primarily from increases property and equipment to $499,972 (net of depreciation) acquired during the year ended December 31, 2018, and prepaid expenses which increased to $218,494 which increased as a result of shares issued for prepaid consulting services.

Total liabilities increased by $1,685,203 at December 31, 2018 compared to December 31, 2017. This increase is primarily comprised of additions to convertible notes (net of discount) of $553,814 notes payable (net of discount) of approximately $526,371, derivative liabilities of $322,976, preferred stock liability of $144,352 and to accounts payable and accrued liabilities of approximately $445,081 related to administrative and professional services during the year ended December 31, 2018.

Our current cash flow is not sufficient to meet our monthly expenses of approximately $210,000 and to fund future research and development. We intend to rely on additional debt financing, loans from existing shareholders and private placements of common stock for additional funding; 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 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 periodic 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.

The table below presents information regarding cash flows:

Commitments and Obligations

At December 31, 2018 the Company recorded notes payable (related and non-related party) totaling approximately $1,353,197 (net of debt discount) compared to notes payable totaling $1,134,217 (net of debt discount) at December 31, 2017. These notes payable represent cash advances received and expenses paid from third parties and related parties. All of the notes payable are non-collateralized, carry interest from 0% to 13% and are due ranging from on demand to January 2, 2020.

At December 31, 2018 the Company recorded convertible notes payable totaling approximately $553,814 (net of debt discount) compared to convertible notes payable totaling $0 at December 31, 2017. These notes payable represent cash advances received and expenses paid from third parties and related parties. All of the convertible notes payable are non-collateralized, carry interest from 5% to 12% and are due ranging from June 5, 2019 to March 31, 2021.

In 2017, we elected to centralize our headquarters and operations in South Carolina, moving all office operations on December 31, 2017 from Lenexa, Kansas to South Carolina. The South Carolina lease amounts to $4,800 per month, expires on November 30, 2019 and includes an option to renew for two additional three-year periods. We are in arrears in our lease payment for this location but have a verbal arrangement with our landlord for making additional payments during 2019 in order to become current.

Results of Operations

     Revenues increased to $266,122 for the year ended December 31, 2018 compared to $123,105 for the year ended December 31, 2017. The revenue increases for 2018 were due to the increased volume of fluids sold, the sale of a piece of fluid producing equipment, licensing revenue from EPA sub registration, and placing equipment under the Company’s 2-year Systems Service Agreements (“leases”).

Total operating expenses increased to $2,934,065 for the 2018 year compared to $2,392,007 for the 2017 year. The total operating expense increases for 2018 were due to an increase in operations from a result of increased revenue, revenue costs, and increased stock-based compensation.

General and administrative expenses increased to $2,509,924 for the 2018 year compared to $1,745,792 for the 2017 year. General and administrative expense increases for 2018 were due to an increase in operations from a result of increased revenue, contract services and increased stock-based compensation.

Research and development expenses decreased to $14,000 for the 2018 year compared to $315,385 for the 2017 year. Research and development expenses decreased for 2018 due to completion of a small portion of testing of the application of the Hydrolyte® technology in the oil and gas industry and as a biocide in institutional facilities, such as, hospitals, jails and medical facilities; and less cost associated with research and development in the agricultural market.

Depreciation and amortization expenses increased to $336,708 for the 2018 year compared to $291,590 for the 2017 year. Depreciation and amortization expenses increased in 2018 due to placing equipment into service during the year and amortization of new intangible assets.

Total other expenses increased to $514,540 for the 2018 year compared to $452,634 for the 2017 year. The overall increase was a result of an increase in interest expense, loss on change in fair value of derivatives and loss on change in fair value of preferred stock liabilities. This was offset by a decrease in other expense. Interest expense and other expense increased in 2018 as there was an increase in notes payable outstanding accruing interest during 2018. The loss on change in fair value of derivatives was the result of the Company issuing notes with conversion features that required bifurcation for the first time in 2018

As a result of the changes described above, the net loss increased to $3,182,483 for the 2018 year compared to $2,721,536 for the 2017 year.

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.

The Company believes the following accounting policies are critical:

Use of Estimates – The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting periods. Estimates are based on historical experience and on various other market-specific and other relevant assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from those estimates.

Derivative and Preferred Stock Liabilities

The Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” and all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet. The Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above. As of December 31, 2018, and December 31, 2017, the Company had a $322,976 and $0 derivative liability, respectively and preferred stock liabilities of $144,352 and $0, respectively.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. See Note 7 for additional information.

Property and Equipment– Property and equipment are stated at purchased cost and depreciated utilizing a straight-line method over estimated useful lives ranging from 3 to 7 years after the asset has been placed in service.  Upon selling equipment that had been under a lease agreement, the company discontinues the depreciation on that piece of equipment, as it transfers ownership to another entity. Additions and major improvements that extend the useful lives of property and equipment are capitalized. Maintenance and repairs are charged to operations as incurred.  Upon trade-in, sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any related gains or losses are recorded in the results of operations.

Impairment of Long-lived Assets – The carrying values of the Company’s long-lived assets are reviewed for impairment annually and whenever events or changes in circumstances indicate that they may not be recoverable. When projections indicate that the carrying value of the long-lived asset is not recoverable, the carrying value is reduced by the estimated excess of the carrying value over the fair value. Under similar analysis no impairment was recorded during the years ended December 31, 2018 and 2017.

Intangible Assets – Costs to obtain or develop patents are capitalized and amortized over the remaining life of the patents, and technology rights are amortized over their estimated useful lives. The Company currently has the right to several patents and proprietary technology.  Patents and technology are amortized from the date the Company acquires or is awarded the patent or technology right, over their estimated useful lives, which range from 1 to 15 years.  An impairment charge is recognized if the carrying amount is not recoverable and the carrying amount exceeds the fair value of the intangible assets as determined by projected discounted net future cash flows. The recorded impairment expense was nil for the years ended December 31, 2018 and 2017, respectively.

Research and Development – Research and development costs are recognized as an expense during the period incurred, which is until the conceptual formulation, design, and testing of a process is completed and the process has been determined to be commercially viable.

Revenue Recognition – On May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customer (Topic 606). The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principal is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services.

The Company has the following three revenue streams:

The Company recognizes revenue from the sale of products when the performance obligation is satisfied by transferring control of the product to a customer.

The Company recognizes revenue from the leasing of equipment as the entity provides the equipment and the customer simultaneously receives and consumes the benefits through the use of the equipment. This revenue generating activity would meet the criteria for a performance obligation satisfied over time. As a result, the Company recognizes revenue over time by using the output method, as the Company can measure progress of the performance obligation using the time elapsed under each obligation.

The Company’s licenses provide a right to use and create performance obligations satisfied at a point in time. The Company recognizes revenue from licenses when the performance obligation is satisfied through the transfer of the license. For licenses that include royalties the Company will recognize royalty revenue as the underlying sales or usages occur, as long as this approach does not result in the acceleration of revenue ahead of the entity’s performance.

The Company has disclosed disaggregated revenue via revenue stream on the face of the statement of operations. The Company did not have any contract assets or liabilities at December 31, 2018.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PCT LTD

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of PCT LTD:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of PCT LTD (“the Company”) as of December 31, 2018 and 2017, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2018 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph Regarding Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Sadler, Gibb & Associates, LLC

We have served as the Company’s auditor since 2015.

Salt Lake City, UT

April 15, 2019

PCT LTD

Consolidated Balance Sheets

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

PCT LTD

Consolidated Statements of Operations

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

PCT LTD

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

PCT LTD

Consolidated Statements of Cash Flows

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

PCT LTD 

Consolidated Statements of Cash Flows

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

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations – PCT Ltd (the “Company”), a Delaware corporation, (formerly Bingham Canyon Corporation) was formed on August 27, 1986. The Company changed its domicile to Nevada on August 26, 1999.

On August 31, 2016, the Company entered into a Securities Exchange Agreement with Paradigm Convergence Technologies Corporation (“Paradigm,” “PCT Corp,” or PCT Corp., the wholly-owned operating subsidiary”) to affect the acquisition of Paradigm as a wholly-owned subsidiary. Under the terms of the agreement, the Company issued 16,790,625 restricted common shares of Company stock to all of the shareholders of Paradigm in exchange for all 22,387,500 outstanding Paradigm common stock. In addition, the Company issued options exercisable into 2,040,000 shares of the Company’s common stock (with exercise prices ranging between $0.133 and $0.333) in exchange for 2,720,000 outstanding Paradigm stock options (with exercise prices ranging between $0.10 and $0.25). These 2,040,000 options have been adjusted at the same exchange rate of 75% that the outstanding common shares were exchanged. As a result of this reverse recapitalization, PCT Corp, the operating company, is considered the accounting acquirer.

PCT Corp. 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 names to Paradigm Convergence Technologies Corp. PCT Corp. is a technology licensing, OEM and sales/leasing company specializing in environmentally-responsible solutions for global sustainability. PCT LTD, the public company and “parent” of PCT Corp. holds a United States Patent No. 9,679,170 B2 with a recently granted Canadian Allowance, as well as owning future and pending international patent(s) (response to examiners comments in process), intellectual property and/or distribution rights to innovative products and technologies. PCT Corp. provides innovative products and technologies for eliminating bacterial contamination in healthcare facilities, the agricultural market and in the oil & gas industry. PCT Corp.’s overall strategy is to design, assemble, market, sell and/or lease equipment, fluids and proprietary “certifications” of its products and technologies. PCT Corp., utilizes equipment leasing program (“System Service Agreements”), 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, PCT Corp. 

Principles of Consolidations – The accompanying consolidated financial statements include the accounts of PCT LTD (“Parent”) and PCT Corp. All intercompany accounts have been eliminated upon consolidation.

Use of Estimates – The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting periods. Estimates are based on historical experience and on various other market-specific and other relevant assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from those estimates.

Cash and Cash Equivalents – Cash and cash equivalents are considered to be cash and highly liquid securities with original maturities of three months or less. There was cash of $4,893 and $7,838 at December 31, 2018 and 2017, respectively. There were no cash equivalents at December 31, 2018 and December 31, 2017 respectively.

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. There were no financial assets or liabilities that are measured at fair value on a recurring basis as of December 31, 2017.

Derivative liabilities and preferred stock liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. There were no transfers into or out of “Level 3” during the years ended December 31, 2018 and 2017. 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 December 31, 2018, consisted of the following:

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

Derivative and Preferred Stock Liabilities

The Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” and all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet. The Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above. As of December 31, 2018, and December 31, 2017, the Company had a $322,976 and $0 derivative liability, respectively and preferred stock liabilities of $144,352 and $0, respectively.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. See Note 7 for additional information.

Accounts Receivable – Trade accounts receivable are recorded at the time product is shipped or services are provided including any shipping and handling fees. The Company provided allowances for uncollectible accounts receivable equal to the estimated collection losses that will be incurred in collection of all receivables. Accounts receivable is periodically evaluated for collectability bases on past credit history with customers and their current financial condition. The Company’s management determines which accounts are past due and if deemed uncollectible, the Company charges off the receivable in the period the determination is made. Based on management’s evaluation, the Company provided an allowance for doubtful accounts of $0 and $12,000 for the years ending December 31, 2018 and 2017, respectively.

Inventories – Inventories are stated at the lower of cost or market. Cost is determined by using the first in, first out (FIFO) method. We record the value of our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand, future pricing and market conditions. As of December 31, 2018, and 2017, the inventory consisted of parts for equipment sold as replacement parts to existing customers or sold to new customers. The Company has recorded a reserve allowance of $0 and $0 for the years ended December 31, 2018 and 2017, respectively. The Company wrote off the inventory previously reserved against during 2017. The Company has determined that some of the supplies inventory is necessary to be placed into service, after assembly into equipment to be used in product manufacturing and classified as Machines and Equipment. The balance at December 31, 2018 and 2017 of such supplies and equipment not yet placed in service amounted to $319,735 and $269,382, respectively. During the 4^th quarter of 2017, management determined that $193,344 of supplies inventory as of the 3^rd quarter of 2017 be reclassified to property and equipment.

Property and Equipment– Property and equipment are stated at purchased cost and depreciated utilizing a straight-line method over estimated useful lives ranging from 3 to 7 years after the asset has been placed in service.  Upon selling equipment that had been under a lease agreement, the company discontinues the depreciation on that piece of equipment, as it transfers ownership to another entity. Additions and major improvements that extend the useful lives of property and equipment are capitalized. Maintenance and repairs are charged to operations as incurred.  Upon trade-in, sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any related gains or losses are recorded in the results of operations.

Impairment of Long-lived Assets – The carrying values of the Company’s long-lived assets are reviewed for impairment annually and whenever events or changes in circumstances indicate that they may not be recoverable. When projections indicate that the carrying value of the long-lived asset is not recoverable, the carrying value is reduced by the estimated excess of the carrying value over the fair value. Under similar analysis no impairment was recorded during the years ended December 31, 2018 and 2017.

Intangible Assets – Costs to obtain or develop patents are capitalized and amortized over the remaining life of the patents, and technology rights are amortized over their estimated useful lives. The Company currently has the right to several patents and proprietary technology.  Patents and technology are amortized from the date the Company acquires or is awarded the patent or technology right, over their estimated useful lives, which range from 1 to 15 years.  An impairment charge is recognized if the carrying amount is not recoverable and the carrying amount exceeds the fair value of the intangible assets as determined by projected discounted net future cash flows. The recorded impairment expense was nil for the years ended December 31, 2018 and 2017, respectively.

Research and Development – Research and development costs are recognized as an expense during the period incurred, which is until the conceptual formulation, design, and testing of a process is completed and the process has been determined to be commercially viable.

Revenue Recognition – On May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customer (Topic 606). The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principal is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services.

The Company has the following three revenue streams:

The Company recognizes revenue from the sale of products when the performance obligation is satisfied by transferring control of the product to a customer.

The Company recognizes revenue from the leasing of equipment as the entity provides the equipment and the customer simultaneously receives and consumes the benefits through the use of the equipment. This revenue generating activity would meet the criteria for a performance obligation satisfied over time. As a result, the Company recognizes revenue over time by using the output method, as the Company can measure progress of the performance obligation using the time elapsed under each obligation.

The Company’s licenses provide a right to use and create performance obligations satisfied at a point in time. The Company recognizes revenue from licenses when the performance obligation is satisfied through the transfer of the license. For licenses that include royalties the Company will recognize royalty revenue as the underlying sales or usages occur, as long as this approach does not result in the acceleration of revenue ahead of the entity’s performance.

The Company has disclosed disaggregated revenue via revenue stream on the face of the statement of operations. The Company did not have any contract assets or liabilities at December 31, 2018.

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 of December 31, 2018, there were outstanding common share equivalents (options, warrants and convertible debt) which amounted to 5,852,661 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.

Reclassification – Certain balances in previously issued financial statements have been reclassified to be consistent with the current period presentation. Current liabilities were reclassified and the reclassification had no impact on total financial position, net income, or stockholders’ equity.

Recent Accounting Pronouncements – In February 2016, the FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”), and associated ASUs related to ASU 842, Leases, which require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. In addition, the new guidance will require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. For leases where we are a lessee, the presentation and measurement of the assets and liabilities will depend on each lease’s classification as either a finance or operating lease. For leases where we are a lessor, the accounting remains largely unchanged from current U.S. GAAP but does contain some targeted improvements to align with the new revenue recognition guidance issued in 2014 (ASC 606). The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployees Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 expands the scope of Topic 718 (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. With the adoption of ASU 2018-07, the accounting for share-based payments for nonemployees and employees will be substantially the same. ASU 2018-07 is effective for public companies for annual and interim periods beginning after December 15, 2018, with early adoption permitted. ASU 2018-07 is not expected to have a material impact on the Company’s financial statements.

The Company has reviewed all other FASB issued ASU accounting pronouncements and interpretations thereof that have effective dates during the period reported and in future periods. The Company has carefully considered the new pronouncements that alter the previous GAAP and do not believe that any new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term.

NOTE 2 – Going Concern

The accompanying audited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has limited assets, has incurred losses since inception of $9,927,003 and has negative cash flows from operations. As of December 31, 2018, the Company had a working capital deficit of $1,606,592, as compared to $1,415,877 at December 31, 2017. 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 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 – INCOME TAXES

There was no provision for, or benefit from, income tax during the years ended December 31, 2018 and 2017 respectively.  The Company was subject to United States federal and state income taxes at an approximate rate of 34% for the year ended May 31, 2017. Due to the enactment of the Tax Reform Act of 2017, the tax rate for the year ended May 31, 2018 has been reduced to 21%.

The components of the net deferred tax asset as of December 31, 2018, and 2017:

Federal and state net operating loss carry forwards at December 31, 2018 were $6,541,856. The net operating loss carry forwards expire between 2033 and 2038.

The following is a reconciliation of the amount of benefit that would result from applying the federal statutory rate to pretax loss with the provision for income taxes for the years ended December 31, 2018 and 2017, respectively:

In June 2006, FASB issued FASB ASC 740-10-05-6. The Company adopted FASB ASC 740-10-05-6 on January 1, 2013. Under FASB ASC 740-10-05-6, tax benefits are recognized only for the tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the company's tax return that do not meet these recognition and measurement standards.

Upon the adoption of FASB ASC 740-10-05-6, the Company had no liabilities for unrecognized tax benefits and, as such, the adoption had no impact on its financial statements, and the Company has recorded no additional interest or penalties. The Adoption of FASB ASC 740-10-05-6 did not impact the Company's effective tax rates.

The Company's policy is to recognize potential interest and penalties accrued related to unrecognized tax benefits with the income tax expense. For the years ended December 31, 2018, and 2017, the Company did not recognize any interest or penalties in its Statement of Operations, nor did it have any interest or penalties accrued in its Balance Sheet at December 31, 2018 and 2017 relating to unrecognized benefits.

The tax years 2018 and 2017 remain open to examination for federal income tax purposes and by other major taxing jurisdictions to which the Company is subject.

NOTE 4 – PROPERTY AND EQUIPMENT

Depreciation is computed using the straight-line method and is recognized over the estimated useful lives of the property and equipment, which range from 3 to 7 years once placed into service.  Depreciation expense does not begin until documentation of equipment placed in service is provided. Machinery and leased equipment is not intended to be sold to the customer at the end of the lease term. Depreciation expense was $26,376 (2017 - $18,790) for the year ended December 31, 2018, of which $11,549 (2017 - $12,191) relates to product costs and $10,749 (2017 - $422) relates to leased equipment costs. During the year ended December 31, 2018, the Company recognized an impairment charge of $26,550 (2017 - $Nil). Property and equipment at December 31, 2018 and 2017 consisted of the following:

NOTE 5 – INTANGIBLE ASSETS

Amortization is computed using the straight-line method and is recognized over the estimated useful lives of the intangible assets, which range from 1 to 15 years.  Amortization expense was $310,332 for the year ended December 31, 2018, of which $16,662 relates to patents and $293,670 relates to technology rights. Amortization expense was $272,800 for the year ended December 31, 2017, of which $13,681 relates to product costs, $3,029 relates to licensing costs and $1,477 relates to leased equipment costs. No impairment was recognized during the twelve months ended December 31, 2018. Intangible assets at December 31, 2018 and 2017 consisted of the following:

The components of intangible assets at December 31, 2018 and December 31, 2017 were as follows:

On March 10, 2017, the Company entered into a three-year Efficacy Test Data License Agreement and Efficacy Test Data Assignment Agreement (the “Agreement”) with a third party for $25,000. Under the Agreement, the Company can use certain Efficacy Test Data and purchases the rights to other Efficacy Test Data to be added to its EPA Registration number 83241-4. The Company paid $25,000 for the use of certain Efficacy Test Data and purchase of other Efficacy Test Data.

On March 13, 2017, the Company entered into a Registration Transfer Agreement (“Transfer Agreement”) and a Data License and Assignment Agreement (“Data Agreement”) with a third party. Pursuant to the Transfer Agreement, the Company received United States Environmental Protection Agency’s (“EPA”) Registration number 82341-4 for Excelyte® VET for a one-time fee of $125,000.

On April 6, 2017, the Company acquired intangible assets by issuing 2,250,000 shares of common stock at a deemed value of $1.96 per share ($4,405,050) to Annihilyzer Inc. in order to close on the amended agreement dated April 6, 2017. Pursuant to the terms of the Agreement, as amended, the Company acquired an Annihilyzer patent and all associated intellectual property. In addition, Paradigm granted Annihilyzer Inc, a three-year license and sub-registration under Paradigm’s EPA Product Registration #82341-4. Annihilyzer, Inc. had no activity under this sub-registration agreement as of December 31, 2017.

On April 12, 2018, the Company entered into a Purchase agreement with a third party to purchase its exclusive rights to US EPA Product Registration No. 83241-1 for a fixed fee. The Company paid $5,000 on execution of the agreement and has continued to make periodic installment payments for the purchase of this Registration. At December 31, 2018, the Company owed $45,000 of installment payments.

NOTE 6 - DEBT

The following table summarizes notes payable as of December 31, 2018 and December 31, 2017:

On June 20, 2018, the Company issued a new note that consolidated into one the notes above as well as any outstanding interest owed. The new note has a principal of $130,000, bears interest at 8% per annum and is due on January 2, 2020. As the debt is being exchanged with the lender, the Company evaluated the modification pursuant to ASC 470-60 Troubled Debt Restructuring by Debtors, and ASC 470-50 Modification and Extinguishment.

The indicators of financial difficulty contained in ASC 470-60 were reviewed and it was concluded that the Company is experiencing financial difficulty. The Company then determined that a concession was granted. As the creditors have granted a concession the troubled debt restructuring model contained in ASC 470-60 was applied. The carrying amount of the payable was not adjusted and the effects of the changes are reflected in future periods by computing the constant effective interest rate and applying it to the carrying amount of the payable each period until maturity.

On June 20, 2018, the Company issued a new note that consolidated into one note the notes above as well as any outstanding interest owed. The new note has a principal of $126,964, bears interest at 6% per annum. The Company must repay $66,964 of the note on August 31, 2018, and the remaining $60,000 on January 2, 2020. If the Company fails to make the $66,664 on August 31, 2018 the entire amount owed under the original notes becomes due immediately. As the debt is being exchanged with the lender, the Company evaluated the modification pursuant to ASC 470-60 Troubled Debt Restructuring by Debtors, and ASC 470-50 Modification and Extinguishment.

The indicators of financial difficulty contained in ASC 470-60 were reviewed and it was concluded that the Company is experiencing financial difficulty as there is significant doubt that the Company is a going concern and that there is no assurance that the Company will have sufficient cash flows to service the debt through its maturity. The Company then proceeded to assess whether the creditors granted a concession. The Company determined that a concession was granted as the effective borrowing rate on the restructured debt is lower than the effective borrowing rate of the old debt. As the creditors have granted a concession the troubled debt restructuring model contained in ASC 470-60 was applied. The carrying amount of the payable was not adjusted and the effects of the changes are reflected in future periods by computing the constant effective interest rate and applying it to the carrying amount of the payable each period until maturity.

At December 31, 2018, the Company has not repaid the $66,964 due on August 31, 2018; hence making $66,964 and $60,000, and interest, due immediately.

The following table summarizes notes payable, related parties as of December 31, 2018 and December 31, 2017:

On June 20, 2018, the Company issued a new note that consolidated into one note the notes above as well as any outstanding interest owed. The new note has a principal of $380,000, bears interest at 8% per annum and is due on January 2, 2020. As the debt is being exchanged with the lender, the Company evaluated the modification pursuant to ASC 470-60 Troubled Debt Restructuring by Debtors, and ASC 470-50 Modification and Extinguishment.

The indicators of financial difficulty contained in ASC 470-60 were reviewed and it was concluded that the Company is experiencing financial difficulty and that a concession was granted. As the creditor granted a concession the troubled debt restructuring model contained in ASC 470-60 was applied. The carrying amount of the payable was not adjusted and the effects of the changes are reflected in future periods by computing the constant effective interest rate and applying it to the carrying amount of the payable each period until maturity.

On June 20, 2018, the Company issued a new note that consolidated into one note the notes above as well as any outstanding interest owed. The new note has a principal of $350,000, bears interest at 5% per annum and is due on January 2, 2020. The Company evaluated the transaction under the guidance found in ASC 470-50 Modification and Extinguishment.

The Company concluded that the Company is experiencing financial difficulty and that a concession was not granted. As the creditor has not granted a concession, the guidance contained in ASC 470-60 was applied. The Company accounted for the new note as a debt modification. The carrying amount of the payable was not adjusted and a new effective interest rate was determined on the modification date that equates the revised cash flows to the carrying amount of the original debt.

The Company concluded that the Company is experiencing financial difficulty and that a concession was not granted. As the creditor has not granted a concession, the guidance contained in ASC 470-60 was applied. The Company accounted for the new note as a debt modification. The carrying amount of the payable was not adjusted and a new effective interest rate was determined on the modification date that equates the revised cash flows to the carrying amount of the original debt.

The Company concluded that the Company is experiencing financial difficulty and that a concession was not granted. As the creditor has not granted a concession, the guidance contained in ASC 470-60 was applied. The Company accounted for the new note as a debt modification. The carrying amount of the payable was not adjusted and a new effective interest rate was determined on the modification date that equates the revised cash flows to the carrying amount of the original debt.

The following table summarizes convertible notes payable as of December 31, 2018 and December 31, 2017:

Due to this provision, the Company considered whether the embedded conversion option qualifies for derivative accounting under ASC 815-15 Derivatives and Hedging. As the note isn’t convertible until 180 days following issuance, no derivative liability was recognized as of December 31, 2018.

The embedded conversion option and warrant qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $109,491 and the warrant of $4,920 resulted in a discount to the note payable of $50,000 and an initial derivative expense of $71,411. During the year ended December 31, 2018, the Company recorded accretion of $6,028 increasing the carrying value of the notes to $6,028.

The embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 Derivatives and Hedging. The initial fair value of the conversion feature of $142,339 resulted in a discount to the note payable of $65,000 and an initial derivative expense of $85,339. During the year ended December 31, 2018, the Company recorded accretion of $7,837 increasing the carrying value of the notes to $7,837.

Due to this provision, the Company considered whether the embedded conversion option qualifies for derivative accounting under ASC 815-15 Derivatives and Hedging. As the note isn’t convertible until 180 days following issuance, no derivative liability was recognized as of December 31, 2018.

NOTE 7 – DERIVATIVE AND PREFERRED STOCK LIABILITIES

The embedded conversion option of (1) the convertible debentures described in Note 6(x) & (y); (2) preferred stock liability; (3) 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 6(x) & (y), 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 600,000 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 derivatives only (not including changes in the Level 3 of Preferred Stock, which is listed in the paragraphs below this table) the fair value of the Company’s Level 3 financial liabilities.

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

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

On December 1, 2018, the Company’s Board of Director 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. This Preferred Series “A” stock had not been issued as of December 31, 2018. The Company did issue 600,000 warrants subject to cashless exercise at $0.10 per share for 5 years.

The Company is unable to issue the subscriber the preferred shares until the Company files a Certificate of Designation and the Preferred Series “A” stock has been duly validly authorized. At December 31, 2018, the Company had not filed the Certificate of Designation, and as the Company cannot issue the preferred shares to settle the proceeds received, it was determined the subscriptions were settleable in cash. As a result, the Company has classified the subscriptions received as a liability in accordance with ASC 480 Distinguishing Liabilities from Equity. The fair value of the liability of the preferred stock at December 31, 2018 was $144,352. The Company recorded a loss on initial fair value of $90,283 and a gain on the change in fair value of the preferred stock of $5,931.

The Company uses Level 3 inputs for its valuation methodology for the preferred stock liability 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 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. As of December 31, 2018, there were no shares of preferred stock issued or outstanding. See Note 7 for liabilities related to the Company’s commitment to issue shares of Series A stock upon the designation.

Common Stock

Effective March 23, 2018, the Company amended the articles of incorporation and increased the authorized shares of common stock with a par value of $0.001 per share from 100,000,000 to 300,000,000 shares. The number of shares outstanding of the registrant’s common stock as of December 31, 2018 was 44,559,238.

On January 2, 2018, the Company sold 110,000 shares of common stock to an un-related party for $55,000.

On March 15, 2018, the Company entered into a 12-month service agreement, expiring on March 15, 2019, for strategic planning, financing, capital formation, up-listing and expansion of the Company’s shareholder base. Per the terms of the agreement, the consulting company received a non-refundable $5,000 initial fee, will receive $2,500 per month beginning in April 2018, and was issued 2,000,000 fully vested non-forfeitable shares of restricted common stock, valued at $1,000,000 ($0.50 per shares). The 2,000,000 common shares of the Company’s stock were issued on June 12, 2018. As of December 31, 2018 the Company recorded the fair value of the common shares of $1,000,000 in common stock and additional paid in capital and has recorded $797,260 for the consulting expense related to the portion of the 12-month service agreement that has been completed.

On April 10, 2018 the Company issued 120,000 shares of common stock at $0.50 per share to an employee and Director of the Company for cash proceeds of $60,000.

On June 12, 2018, the Company entered into a 6-month service agreement, expiring on December 12, 2018, for business development and the development of financial reports. Per the terms of the agreement, the consulting company was issued 50,000 shares of restricted stock on June 29, 2018. As of December 31, 2018, the Company recorded the fair value of the common shares of $28,000 in common stock and additional paid in capital and has recorded $28,000 for the consulting expense related to the portion of the 6-month service agreement that has been completed.

On July 2, 2018 the Company’s Board of Directors authorized the issuance of 1,000,000 restricted shares of common stock to Life Sciences Journeys, Inc., for six months of services outlined in the July 2, 2018 services agreement. The 1,000,000 restricted shares of common stock were issued to Life Sciences Journeys, Inc. on October 9, 2018. The Company placed a stop transfer order on the shares but has since rescinded the stop transfer order. The Company recorded the fair value of the common shares of $355,000 in common stock and additional paid in capital and has recorded $355,000 for the consulting services, during the year ended December 31, 2018.

On December 3, 2018, the Company engaged a consultant for services related to business development in the healthcare market. The contract is in place through June 3, 2019 and pursuant to the agreement the Company issued the consultant 100,000 common shares. As of December 31, 2018 the Company recorded the fair value of the common shares of $17,000 in common stock and additional paid in capital and has recorded $2,615 for the consulting expense related to the portion of the 6-month service agreement that has been completed.

NOTE 9 – STOCK OPTIONS

The Company did not grant any stock options during the year ended December 31, 2018. 

On January 1, 2017 the Company issued 30,000 stock options to a related party with an exercise price of $2.00 per share. The options vest on January 1, 2018. The Company used the Black-Scholes methodology to value the stock-based compensation expense for options. Compensation expense is recognized on a straight-line basis over the vesting period. As of December 31, 2017, the Company recognized $56,220 in compensation expense, leaving $0 to be recognized in remaining compensation expense.

On January 26, 2017, the Company issued 200,000 stock options to a related party with an exercise price of $2.00 per share. The options vested immediately. The Company used the Black-Scholes methodology to value the stock-based compensation expense for options. As of December 31, 2017, the Company recognized $373,800 in compensation expense, leaving $0 to be recognized in remaining compensation expense.

In applying the Black-Scholes methodology to the options granted through December 31, 2018, the fair value of our stock-based awards was estimated using the following assumptions ranging from:

Below is a table summarizing the options issued and outstanding as of December 31, 2018 and 2017: