Item 1. Unaudited Financial Statements
NOTES TO CONDENSED CONSOLIDATED UNAUDITED
FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2014
AND 2013
|
1.
|
Description of Business
|
Description of Business
Save The World Air,
Inc. (“STWA”, “Company”) was incorporated on February 18, 1998, as a Nevada Corporation under the name
Mandalay Capital Corporation. The Company changed its name to Save the World Air, Inc. on February 11, 1999. The Company’s
common stock is quoted under the symbol “ZERO” on the Over-the-Counter Bulletin Board. More information including the
Company’s fact sheet, logos and media articles are available at our corporate website,
www.stwa.com
.
Save The World
Air, Inc. develops and intends to commercialize energy efficiency technologies that assist in meeting increasing global energy
demands, improving the economics of oil extraction and transport, and reducing greenhouse gas emissions. The Company's intellectual
property portfolio includes 48 domestic and international patents and patents pending, a substantial portion of which have been
developed in conjunction with and exclusively licensed from Temple University of Philadelphia, PA (“Temple”). STWA's
technology is called Applied Oil Technology™ (AOT™), a commercial-grade crude oil pipeline transportation flow-assurance
product. AOT™ has been proven in U.S. Department of Energy tests to increase the energy efficiency of oil pipeline pump stations.
The AOT product has transitioned from the research and development stage to initial commercial production and testing for the midstream
pipeline marketplace.
Consolidation Policy
The accompanying condensed
consolidated financial statements of Save the World Air, Inc. and Subsidiary include the accounts of Save the World Air, Inc. (the
Parent) and its wholly owned subsidiary STWA Asia Pte. Limited, incorporated on January 17, 2006. Intercompany transactions
and balances have been eliminated in consolidation.
Reclassification
In presenting
the Company’s statement of operations for the three-month period ended March 31, 2013, the Company reclassified certain salary
and consulting expenses in the aggregate of $44,000 that were previously reflected as operating expenses to research and development
expenses.
In presenting
the Company’s statement of operations from inception to March 31, 2014, the Company reclassified certain salary and consulting
expenses in the aggregate of $531,500 previously reflected as operating expenses to research and development expenses as reported
in the Company’s Form 10-Q for the three-month period ending March 31, 2013.
|
2.
|
Summary of Significant Accounting Policies
|
Development Stage Enterprise
The Company is a development
stage enterprise. Losses accumulated since the inception of the Company have been considered as part of the Company’s
development stage activities.
The Company’s
focus is on product development and marketing of proprietary devices that are designed to improve the operational parameters of
petrochemical pipeline transport systems and has not yet generated revenues. The Company is currently transitioning from
the product development cycle to the commercial manufacturing and sales cycle. Expenses have been funded through the
sale of shares of common stock for cash, issuance of convertible notes for cash and the proceeds from exercise of options and warrants. The
Company has taken actions to secure the intellectual property rights to the proprietary technologies and is the worldwide exclusive
licensee for the intellectual property the Company co-developed with its intellectual property partner, Temple.
Going Concern
The accompanying consolidated
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements,
the Company is in a development stage and has not generated any revenues from operations, and had a net loss of $1,403,474 and
a negative cash flow from operations of $1,368,699 for the quarter ended March 31, 2014 and accumulated deficit of $94,442,337
as of March 31, 2014. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
As a result, the Company’s independent registered public accounting firm, in its report on the Company’s December 31,
2013 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern. The ability
of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement
its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
At March 31, 2014,
the Company had cash on hand in the amount of $4,076,653. Management expects that the current funds on hand will be sufficient
to continue operations through March 2015. Management is currently seeking additional funds, primarily through the issuance of
debt and equity securities for cash to operate our business, including without limitation the expenses it will incur in connection
with the license and research and development agreements with Temple; costs associated with product development and commercialization
of the AOT technology; costs to manufacture and ship the products; costs to design and implement an effective system of internal
controls and disclosure controls and procedures; costs of maintaining our status as a public company by filing periodic reports
with the SEC and costs required to protect our intellectual property. In addition, as discussed below, the Company has substantial
contractual commitments, including without limitation salaries to our executive officers pursuant to employment agreements, certain
severance payments to former officers and consulting fees, during the remainder of 2014 and beyond.
No assurance can be
given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company.
Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of
debt financing or cause substantial dilution for our stockholders, in case or equity financing.
Property
and Equipment and Depreciation
Property and
equipment are stated at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the
assets, generally ranging from three to ten years. Expenditures for major renewals and improvements that extend the useful lives
of property and equipment are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred. Leasehold
improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the lease
term.
Basic and Diluted Income
per share
Our computation of
earnings per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income (loss) available to
common stockholders divided by the weighted average common shares outstanding for the period. Diluted income (loss) per share reflects
the potential dilution, using the treasury stock method, that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the income (loss)
of the Company as if they had been converted at the beginning of the periods presented, or issuance date, if later. In computing
diluted income (loss) per share, the treasury stock method assumes that outstanding options and warrants are exercised and the
proceeds are used to purchase common stock at the average market price during the period. Options and warrants may have a dilutive
effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise
price of the options and warrants. Potential common shares that have an antidilutive effect (i.e., those that increase income per
share or decrease loss per share) are excluded from the calculation of diluted EPS.
Income (loss) per common
share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the
respective periods. Basic and diluted (loss) per common share is the same for periods in which the company reported an operating
loss because all warrants and stock options outstanding are anti-dilutive.
Income Taxes
Income taxes are recognized
for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets are recognized for the
future tax consequences of transactions that have been recognized in the Company’s consolidated financial statements or tax
returns. A valuation allowance is provided when it is more likely than not that some portion or entire deferred tax asset will
not be realized.
Stock-Based Compensation
The Company periodically
issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing
costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance
provided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized
over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance
with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based
upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at
which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally
are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance
requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded
in the period of the measurement date.
The fair value of the
Company's stock options and warrants grant is estimated using the Black-Scholes Option Pricing model, which uses certain assumptions
related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends.
Compensation expense is recorded based upon the value derived from the Black-Scholes Option Pricing model, and based on actual
experience. The assumptions used in the Black-Scholes Option Pricing model could materially affect compensation expense recorded
in future periods.
Business and Credit Concentrations
Company’s cash
balances in financial institutions at times may exceed federally insured limits. As of March 31, 2014 and December 31, 2013,
before adjustments for outstanding checks and deposits in transit, the Company had $4,073,272 and $4,143,367, respectively, on
deposit with two banks. The deposits are federally insured up to $250,000 at each bank. . The Company believes that no significant
concentration of credit risk exists with respect to these cash balances because of its assessment of the creditworthiness and financial
viability of these financial institutions.
Estimates
The preparation of
financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Certain significant estimates
were made in connection with preparing the Company’s financial statements. This includes certain inputs to the Black-Scholes
Option Pricing model used to value options and warrants to purchase stock and derivative liabilities. Actual results could differ
from those estimates.
Fair Value of Financial
Instruments
Effective January 1,
2008, fair value measurements are determined by the Company's adoption of authoritative guidance issued by the FASB, with the exception
of the application of the statement to non-recurring, non-financial assets and liabilities as permitted. The adoption of the authoritative
guidance did not have a material impact on the Company's fair value measurements. Fair value is defined in the authoritative
guidance as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy
was established, which prioritizes the inputs used in measuring fair value into three broad levels as follows:
Level 1—Quoted
prices in active markets for identical assets or liabilities.
Level 2—Inputs,
other than the quoted prices in active markets, are observable either directly or indirectly.
Level 3—Unobservable
inputs based on the Company's assumptions.
The Company is required
to use of observable market data if such data is available without undue cost and effort.
Research and Development
Costs
Costs incurred for
research and development are expensed as incurred. Purchased materials that do not have an alternative future use are also expensed.
Furthermore, costs incurred in the construction of prototypes with no certainty of any alternative future use and established commercial
uses are also expensed.
For the three months
ended March 31, 2014 and 2013, and for the period from inception to March 31, 2014, research and development costs incurred were
$451,987, $373,555 and $11,133,145, respectively.
Recent Accounting
Pronouncements
In April 2014, the
Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-08, "Presentation of Financial Statements
(Topic 205) and Property, Plant and Equipment (Topic 360)." ASU 2014-08 amends the requirements for reporting discontinued
operations and requires additional disclosures about discontinued operations. Under the new guidance, only disposals representing
a strategic shift in operations or that have a major effect on the Company's operations and financial results should be presented
as discontinued operations. This new accounting guidance is effective for annual periods beginning after December 15, 2014. The
Company is currently evaluating the impact of adopting ASU 2014-08 on the Company's results of operations or financial condition.
On February 26, 2014,
the FASB Board affirmed changes in a November 2013 Exposure Draft, Development Stage Entities (Topic 915): Elimination of Certain
Financial Reporting Requirements, and directed the staff to draft a final Accounting Standards Update for vote by the Board. This
is intended to reduce the cost and complexity in financial reporting by eliminating inception-to-date information from the financial
statements of development stage entities.
Other recent accounting
pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants,
and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's
present or future consolidated financial statements.
|
3.
|
Certain Relationships and Related Transactions
|
Accrued Expenses and
Accounts Payable - Related Parties
As of March 31,
2014 and December 31, 2013, the Company had accounts payable to related parties in the amount of $18,203 and $85,869, respectively.
These amounts are unpaid Committee Fees and unpaid Company expenses incurred by Officers and Directors.
As of March 31,
2014 and December 31, 2013, the Company accrued the unpaid salaries, unused vacation and the corresponding payroll taxes of Officers
in the aggregate of $537,083 and $576,159, respectively. Included in these accruals are the unpaid salaries of the former Chief
Executive Officer (CEO) of the Company of $218,750 and $306,250, respectively pursuant to November 2013 separation agreement, former
President and current member of the Company’s Board of Directors of $180,429 and $195,429. The Company agreed to monthly
payments ranging from $5,000 up to $29,167 to these Officers until their unpaid salaries are fully settled.
Consulting Fees Paid
to Related Party
The Company incurred
consulting fees of $15,000 to a consulting firm controlled by a member of our Board of Directors in each of the three-month periods
ending March 31, 2014 and 2013.
|
4.
|
Property and Equipment
|
At March 31, 2014 and
December 31, 2013, property and equipment consists of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Office equipment
|
|
$
|
65,051
|
|
|
$
|
65,051
|
|
Furniture and fixtures
|
|
|
4,075
|
|
|
|
4,075
|
|
Subtotal
|
|
|
69,126
|
|
|
|
69,126
|
|
Less accumulated depreciation
|
|
|
(36,811
|
)
|
|
|
(33,355
|
)
|
Total
|
|
$
|
32,315
|
|
|
$
|
35,771
|
|
Depreciation expense
for the three months ended March 31, 2014 and 2013 was $3,456 and $15,399, respectively. Depreciation expense for the period from
inception (February 18, 1998) through March 31, 2013 was $549,831.
|
5.
|
Research and Development
|
AOT Testing and Development
Total expenses
incurred during the three months ended March 31, 2014 and 2013 on AOT testing and development amounted to $14,670 and $291,680,
respectively, and has been reflected as part of Research and Development expenses on the accompanying consolidated statement of
operations.
AOT
Prototype
On August 1, 2013,
the Company entered into an Equipment Lease/Option to Purchase Agreement ("Agreement" or "Lease") with TransCanada
Keystone Pipeline, L.P. by its agent TC Oil Pipeline Operations, Inc. ("TransCanada"), whereby, TransCanada has agreed
to lease, install, maintain, operate and test the effectiveness of the Company's AOT technology and equipment (the "Equipment")
on one of TransCanada's operating pipelines by the second quarter of 2014. The initial term of the lease is six (6) months at
a rate of $60,000/month, with an option to extend the lease for an additional eighty-four (84) months. TransCanada has an option
to purchase equipment during the term of the lease for approximately $4.3 million. The Company will account for this lease as
an operating lease if accepted by TransCanada.
The Company began
manufacturing equipment for delivery to TransCanada in the third quarter of 2013. The equipment was delivered to the installation
site in March 2014 and installation was completed and accepted by TransCanada in April 2014. Total expenses incurred during three
months ended March 31, 2014 amounted to $358,079 and has been reflected as part of Research and Development expenses on the accompanying
consolidated statement of operations.
Temple University Licensing
Agreement
On August 1, 2011,
the Company and Temple University (“Temple”) entered into two (2) Exclusive License Agreements (collectively, the “License
Agreements”) relating to Temple’s patent applications, patents and technical information pertaining to technology associated
with an electric and/or magnetic field assisted fuel injector system (the “First Temple License”), and to technology
to reduce crude oil viscosity (the “Second Temple License”). The License Agreements are exclusive and the territory
licensed to the Company is worldwide and replace previously issued License Agreements.
Pursuant to the two
licensing agreements, the Company agreed to pay Temple the following: (i) non-refundable license maintenance fee of $300,000;
(ii) annual maintenance fees of $187,500; (iii) royalty fee ranging from 4% up to 7% from revenues generated from the licensing
agreements; and (iv) 25% of all revenues generated from sub-licensees to secure or maintain the sub-license or option thereon.
Temple also agreed to cancel $37,500 of the amount due if the Company agrees to fund at least $250,000 in research or development
of Temple’s patent rights licensed to the Company. The term of the licenses commenced in August 2011 and will expire upon
the expiration of the patents. The agreement can also be terminated by either party upon notification under terms of the licensing
agreements or if the Company ceases the development of the patent or failure to commercialize the patent rights.
Total expenses recognized
during the three months ended March 31, 2014 and 2013 pursuant to these two agreements amounted to $46,875 in each period, and
has been reflected in Research and Development expenses on the accompanying consolidated statement of operations.
As of March 31, 2014
and December 31, 2013, total unpaid fees due to Temple pursuant to these agreements amounted to $200,000 and $153,125, respectively,
which are included as part of Accounts Payable – licensing agreement in the accompanying consolidated balance sheets.
As of and during the
period ended March 31, 2014 and December 31, 2013, there were no revenues generated from these two licenses.
Temple University Sponsored
Research Agreement
On March 19, 2012,
the Company entered into a Sponsored Research Agreement (“Research Agreement”) with Temple University (“Temple”),
whereby Temple, under the direction of Dr. Rongjia Tao, will perform ongoing research related to the Company’s AOT device
(the “Project”), for the period April 1, 2012, through April 1, 2014. All rights and title to intellectual property
resulting from Temple’s work related to the Project shall be subject to the Exclusive License Agreements between Temple
and the Company, dated August 1, 2011. In exchange for Temple’s research efforts on the Project, the Company has
agreed to pay Temple $500,000, payable in quarterly installments of $62,500.
In August 2013, the
Company and Temple amended the Research Agreement. Under the amended agreement, parties agreed that total cost for Phase 1 of the
agreement expenses incurred in prior periods was $241,408, of which, $187,500 was already recognized in prior year and total cost
for Phase 2 of the agreement was $258,592 payable beginning September 1, 2013 in eight quarterly installments of $32,324.
During the three months
ended March 31, 2014 and 2013, the Company recognized a total of $32,363 and $62,500, respectively, pursuant to this agreement
and has been reflected in Research and Development expenses on the accompanying consolidated statement of operations.
As of March 31, 2014
and December 31, 2013, total unpaid fees due to Temple pursuant to this agreement amounted to $64,688 and $32,325, respectively,
which are included as part of Accounts Payable – licensing agreement in the accompanying consolidated balance sheets.
|
6.
|
Common Stock Transactions
|
During the three months
ended March 31, 2014, the Company issued 4,360,947 shares of its common stock upon exercise of options and warrants at a price
of $0.30 per share with proceeds of $1,308,248.
|
7.
|
Stock Options and Warrants
|
The Company periodically
issues stock options and warrants to employees and non-employees in capital raising transactions, for services and for financing
costs. Options vest and expire according to terms established at the grant date.
Options
The Company currently
issues stock options to employees, directors and consultants under its 2004 Stock Option Plan (the Plan). The Company could issue
options under the Plan to acquire up to 7,000,000 shares of common stock as amended in May 2006.
From the Plan’s
inception in 2004 up to March 31, 2014, the Company granted options to purchase 9,111,815 shares under the Plan, of which options
to purchase 4,293,574 shares were subsequently cancelled or forfeited and made available for grants under the Plan. As of March
31, 2014, options to purchase 3,549,908 shares were issued and outstanding and 2,181,759 shares were available to be granted under
the Plan.
From
the Company’s inception in February 1998 up to December 31, 2012, options to purchase a total of 37,050,000 shares
were granted outside of the Plan, of which, options to purchase 17,430,000 shares were subsequently cancelled or forfeited.
No options were granted and 55,000 shares were forfeited outside the Plan between January 1, 2013 and March 31, 2014. As of
March 31, 2014, options to purchase 16,705,000 shares were issued and outstanding outside of the plan.
Employee options vest
according to the terms of the specific grant and expire from 5 to 10 years from date of grant. Non-employee option grants
have vested upon issuance and up to 2 years from the date of grant. The weighted-average, remaining contractual life of employee
and Non-employee options outstanding at December 31, 2013 was 7.1 years. Stock option activity for the period January 1, 2013
to March 31, 2014, was as follows:
|
|
Weighted Avg.
Options
|
|
|
Weighted Avg.
Exercise Price
|
|
Options, January 1, 2013
|
|
|
27,278,098
|
|
|
$
|
0.27
|
|
Options granted
|
|
|
207,819
|
|
|
|
1.17
|
|
Options exercised
|
|
|
(115,000
|
)
|
|
|
0.60
|
|
Options forfeited
|
|
|
(7,061,009
|
)
|
|
|
0.25
|
|
Options, December 31, 2013
|
|
|
20,309,908
|
|
|
$
|
0.28
|
|
Options granted
|
|
|
20,000
|
|
|
|
0.99
|
|
Options exercised
|
|
|
(20,000
|
)
|
|
|
0.30
|
|
Options forfeited
|
|
|
(55,000
|
)
|
|
|
1.00
|
|
Options, March 31, 2014
|
|
|
20,254,908
|
|
|
$
|
0.28
|
|
The weighted average
exercise prices, remaining contractual lives for options granted, exercisable, and expected to vest under the Plan as of March
31, 2014 were as follows:
|
|
Outstanding Options
|
|
Exercisable Options
|
Option
Exercise Price
Per Share
|
|
Shares
|
|
|
Life
(Years)
|
|
Weighted
Average Exercise
Price
|
|
Shares
|
|
|
Weighted
Average Exercise
Price
|
$ 0.21 - $ 0.99
|
|
|
19,991,679
|
|
|
6.8
|
|
$0.27
|
|
|
17,991,679
|
|
|
$0.27
|
$ 1.00 - $ 1.99
|
|
|
263,229
|
|
|
6.0
|
|
$1.22
|
|
|
119,601
|
|
|
$1.27
|
|
|
|
20,254,908
|
|
|
6.8
|
|
$0.28
|
|
|
18,111,280
|
|
|
$0.28
|
At March 31, 2014 the
aggregate intrinsic value of the options outstanding was $ $12,643,371. Future unamortized compensation expense on the unvested
outstanding options at December 31, 2013 is approximately $577,100.
2014
|
·
|
Options to acquire 20,000 shares of common stock were exercised resulting in net proceeds of $6,000.
|
|
·
|
The Company issued options to purchase 20,000 shares of common stock to an employee with a
fair value of approximately $9,200 using the Black-Scholes Option Pricing model with the following assumptions: life of 1
year; risk free interest rate of 0.12%; volatility of 125% and dividend yield of 0%. The options are exercisable at
$0.99/share, vested immediately and expire in two years from the date of grant. During the three months ended March 31, 2014,
the Company recognized compensation costs of $9,200 based on the fair value of options that vested.
|
|
·
|
During the three-months ended March 31, 2014, the Company amortized $107,907 of compensation cost
based on the vesting of the options granted to employees and directors in prior years.
|
Warrants
The following
table summarizes certain information about the Company’s stock purchase warrants activity for the period starting January
1, 2013 and ending March 31, 2014.
|
|
Warrants
|
|
|
Weighted Avg.
Exercise Price
|
|
Warrants outstanding, January 1, 2013
|
|
|
42,205,507
|
|
|
$
|
0.31
|
|
Warrants granted
|
|
|
150,000
|
|
|
|
0.31
|
|
Warrants exercised
|
|
|
(29,037,389
|
)
|
|
|
0.29
|
|
Warrants cancelled
|
|
|
(1,554,152
|
)
|
|
|
0.49
|
|
Warrants outstanding, December 31, 2013
|
|
|
11,763,966
|
|
|
$
|
0.34
|
|
Warrants granted
|
|
|
120,000
|
|
|
|
1.01
|
|
Warrants exercised
|
|
|
(4,340,947
|
)
|
|
|
0.30
|
|
Warrants cancelled
|
|
|
(291,969
|
)
|
|
|
0.30
|
|
Warrants outstanding, March 31, 2014
|
|
|
7,251,050
|
|
|
$
|
0.38
|
|
At March 31, 2014,
the aggregate intrinsic value of the warrants outstanding was $3,855,525. Future unamortized compensation expense on the unvested
outstanding warrants at March 31, 2014 is approximately $250,000.
|
|
|
Outstanding Warrants
|
|
Exercisable Warrants
|
Warrant
Exercise Price Per Share
|
|
|
Shares
|
|
|
Life
(Years)
|
|
Weighted
Average Exercise
Price
|
|
Shares
|
|
|
Weighted
Average Exercise
Price
|
$ 0.30 - $ 0.99
|
|
|
|
6,631,050
|
|
|
4.3
|
|
$0.32
|
|
|
5,747,716
|
|
|
$0.31
|
$ 1.00 - $ 1.99
|
|
|
|
620,000
|
|
|
0.5
|
|
$1.00
|
|
|
500,000
|
|
|
$1.00
|
|
|
|
|
|
7,251,050
|
|
|
|
|
$0.38
|
|
|
6,247,716
|
|
|
$0.38
|
2014
|
·
|
During the three-month period ended March 31, 2014, warrants to acquire 4,340,947 shares of common
stock were exercised resulting in proceeds of $1,302,284.
|
|
·
|
During the three-month period ended March 31, 2014, the Company granted warrants to consultants
to purchase 120,000 shares of its common stock. The warrants have an exercise price of $1.01 per share, vest over six months and
will expire two years from the grant date. Total fair value of the warrant amounted to $42,000 using the Black-Scholes Option Pricing
model with the following average assumptions: risk-free interest rate of 0.44%; dividend yield of 0%; volatility of 119%; and an
expected life of one year. During the three months ended March 31, 2014, the Company recognized compensation costs of $21,000
based on the fair value of warrants that vested.
|
|
·
|
During the three-months ended March 31, 2014, the Company amortized $17,271 of compensation cost
based on the vesting of the warrants granted to an employee and consultants in prior years.
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8.
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Commitments and Contingencies
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There are no current
or pending litigation of any significance with the exception of the matters that have arisen under, and are being handled in, the
normal course of business.