TRITON EMISSION SOLUTIONS INC.

CONSOLIDATED BALANCE SHEETS

(EXPRESSED IN US DOLLARS)

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

F-1

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

F-2

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

F-3

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

F-4

TRITON EMISSION SOLUTIONS INC.

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

Cautionary Statement Regarding Forward-Looking Statements

The information in this Quarterly Report contains forward-looking statements. These forward-looking statements involve risks and uncertainties, including statements regarding Triton’s capital needs, business strategy and expectations. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should consider various factors, including the risks outlined from time to time, in other reports Triton files with the Securities and Exchange Commission.

The forward-looking statements in this Quarterly Report on Form 10-Q for the interim period ended September 30, 2017, are subject to risks and uncertainties that could cause actual results to differ materially from the results expressed in or implied by the statements contained in this report. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives requires the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate.

All forward-looking statements are made as of the date of the filing of this Quarterly Report on Form 10-Q and Triton disclaims any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. Triton may, from time to time, make oral forward-looking statements. Triton strongly advises that the above paragraphs and the risk factors described in this Quarterly Report and in Triton’s other documents filed with the United States Securities and Exchange Commission should be read for a description of certain factors that could cause the actual results of Triton to materially differ from those in the oral forward-looking statements. Triton disclaims any intention or obligation to update or revise any oral or written forward-looking statements whether as a result of new information, future events or otherwise.

Cautionary Statement of No Auditor Review

The unaudited interim consolidated financial statements included in this quarterly report on Form 10-Q have not been reviewed by the Company’s independent auditor. They have been prepared by management of the Company in accordance with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X, and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.

The discussion provided in this Quarterly Report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the United States Securities and Exchange Commission (the “SEC”) on April 14, 2017.

OVERVIEW

We were incorporated under the laws of the State of Delaware on March 2, 2000. We are in the business of developing and marketing emission abatement technologies for the marine industry worldwide.

Our main products are represented by the Njord Exhaust Gas Scrubber System (the “Njord System”) and the DSOX Fuel Purification System (the “DSOX-20” or “DSOX System”).  The main purpose of the Njord System is to clean the exhaust gases from excess sulfur following the internal combustion process within a ships’ engine, whereas the DSOX-20 is a pre-combustion de-sulfurization technology designed to remove alkali metals, such as sulfur and sodium, from heavy marine fuel.

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Both systems can work as stand-alone units or can be used in conjunction with one another to get the ultimate results. The fairly small size of Njord System and capability of it working in both open and closed loop modes makes the system versatile for installation on new builds as well as for retrofitting existing vessels. Its unique design does not require the addition of any chemicals and results in minimal back pressure, allowing for an extended longevity of a ships’ engine.

The DSOX-20 is based on our patented Bio Scrubber platform, integrating it with additional new proprietary technologies that we acquired from Mr. Norling, our former President and Chief Technical Officer (“CTO”), in March 2014.

In February of 2017, majority of our top management, including Anders Aasen, the Chief Executive Officer and a director of the Company, Rasmus Norling, the Chief Technical Officer, President and a director of the Company, and Mitchell Miller, Senior Vice President of Business Development and a director of the Company, tendered their resignations from their respective posts. Resignations of Messrs. Aasen, Norling, and Miller were not due to, and were not caused by, in whole or in part, any disagreement with us, whether related to our operations, policies, practices or otherwise. However, their resignation had left the Company without the technical expertise required for the Company to continue developing and marketing its emission technologies. These resignations, coupled with a significant shortage of financial resources, create an uncertainty in the Company’s ability to continue as a going concern.

In April of 2017 we commissioned Norling Inc., a company controlled by our former President and CTO, to complete a laboratory acceptance test on the Company’s technology.  We paid Norling Inc. a total of $210,600 for the test, which was finalized in late July of 2017. As of the date of this Quarterly Report of Form 10-Q, the Company is awaiting the final results of the test.

Revenues

We did not generate any revenue during the three-month period ended September 30, 2017, which represented a 100% decline as compared to $21,768 we generated during the three-month period ended September 30, 2016. During the nine-month period ended September 30, 2017, our revenue decreased by 87.7% to $8,753, from $70,988 we generated during the nine months ended September 30, 2016. Our revenue consisted of consulting fees charged by our wholly owned subsidiary, Triton International, on the use and installation of emission abatement technologies. The consulting agreement between Triton International and its sole customer expired during the quarter ended March 31, 2017.

During the nine-month period ended September 30, 2017, we did not record any revenue from our main operations, being installation and servicing of our DSOX and Njord Systems (collectively, the “Emission Technologies”), as the installations of our DSOX Systems for LMS Ship Management Inc. (“LMS”) and Magical Cruise Company, Limited (“DCL”) projects were not completed. Due to significant shortage of financial resources, we do not expect to have significant operating revenue in the foreseeable future.

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Operating Expenses

During the three-month period ended September 30, 2017, our operating expenses decreased by 88.1% to $32,247 from $271,173 for the three months ended September 30, 2016; the decrease was directly associated with a lack of funds and our inability to secure additional financing to continue our operations. The most significant changes included a $132,040 decrease to our salary and wage costs, as majority of our senior officers and board members resigned from their positions in February of 2017; as well as $30,561 reduction to our administrative fees and $45,332 reduction of insurance costs.

During the nine-month period ended September 30, 2017, our operating expenses decreased by 55.4% to $601,062 from $1,347,809 for the nine months ended September 30, 2016.

The most significant year-to-date changes in our operating expenses were as follows:

·

During the nine-month period ended September 30, 2017, we did not have any staff employed directly by the parent corporation. Our Subsidiary had two employees of which one resigned in the month of February and the last employee resigned in May of 2017. This resulted in a decrease to our wages and salaries of $746,172, or 91.0%, from $819,984 we recorded during the nine-month period ended September 30, 2016, to $73,812 we recorded during the nine-month period ended September 30, 2017. As of the date of this report, we have no intention to hire any staff, and we plan to use external consultants on as needed basis.

·

As part of our ongoing efforts to control our overhead costs, while we are seeking additional sources of financing, we terminated our insurance coverage, which resulted in $121,487 decrease to our insurance expenses to $12,105 we incurred during the period ended September 30, 2017. We also decided to reduce our marketing and advertising expenditures, which resulted in decrease of $44,274 to $155.

·

During the nine-month period ended September 30, 2017, our travel and entertainment expenses decreased by $36,843 to recovery of $740 we incurred during the period. Our office and rent expenses decreased by $19,187 and $26,014, respectively to $3,509 we incurred in office expenses, and $2,489 incurred in rent expenses during the period ended September 30, 2017. These decreases were mainly associated with our efforts to control our operating costs.

The above changes were in part offset by the following:

·

On February 7, 2017, Anders Aasen resigned as our Chief Executive Officer and a director, and Rasmus Norling resigned as our Chief Technical Officer, President and a director. On February 13, 2017, Mr. Mitchell Miller resigned as our Senior Vice President of Business Development and as a director. We recorded $89,196 in consulting fees associated with January and February fees we accrued for services performed by Messrs. Norling, Miller and Aasen until their respective resignations. We did not have similar expenses during the nine-month period ended September 30, 2016, as above officers and directors were receiving payroll.

·

In order to protect the intellectual rights to our technology, we incurred $38,409 in patent application and protection fees, which were recorded as part of our expense on research and development.

·

In April of 2017 we commissioned Norling Inc., a company controlled by our former President and CTO, to complete a laboratory acceptance test on the Company’s technology.  We paid Norling Inc. a total of $209,145 for the test, which was finalized in late June of 2017. The payment was included as part of our research and development costs.

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Other Items

During the nine-month period ended September 30, 2017, we recorded $1,046,271 in accretion expense that resulted from the difference between the stated interest rate and the implied interest rate we used to determine the fair value of the proceeds we received pursuant to the First KF Loan, the Second KF Loan and the Third KF Loan (collectively, the “KF Loans”). During the same period of fiscal 2016, our accretion expense was determined to be $2,160,210. As of January 15, 2017, all KF Loans were fully accreted, however, since we did not repay the KF Loans when due, we continue to accrue interest on the balances owed under KF Loans at 15% per annum compounded monthly, the default rate of interest per KF Loan Agreements. As a result we recorded $805,045 in interest on KF Loans. Further $55,360 in interest expense was associated with interest accrued on the notes payable we issued to Mr. Norling and KFBV, and on the notes payable we issued to other non-related lenders.

On January 15, 2017, we recorded a penalty on the KF Loans in the amount of $362,156, which was calculated as 5% of the total amount owed under the First KF Loan, the Second KF Loan and the Third KF Loan on January 15, 2017. The penalty was recorded as part of financing costs.

During the nine months ended September 30, 2017, we recorded $86,559 in stock-based compensation in respect of options to acquire shares of our common stock granted to our chairman of the board of directors and our former CEO under the 2014 Plan. As a consequence of Mr. Aasen’s resignation certain stock options were forfeited by the former CEO. On forfeiture, the Company recorded a reversal of $134,492 of previously recorded stock-based compensation expense relating to options that had not yet vested at the date of resignation. During the nine-month period ended September 30, 2016, our stock-based compensation associated with the same options was determined to be $252,118.

During the nine months ended September 30, 2017, we recorded $83,942 loss on the change in the fair value of the derivative liabilities associated with the warrants we issued to KFBV pursuant to the KF Loans and the conversion feature available under the Third KF Loan Agreement. The change in the fair values of the derivative liabilities was a result of the increase in the market price of our common stock at September 30, 2017 ( $0.012 per share), as compared to the market price of the stock at December 31, 2016 ($0.0115 per share).  During the nine months ended September 30, 2016, we recorded a gain on the change in the fair value of the derivative liabilities of $1,499,131, as the price of our common stock at September 30, 2016 ($0.03 per share), had decreased as compared to the price in effect on December 31, 2015 ($0.0525 per share).

As of September 30, 2017, we had a cash balance of $7,921, a working capital deficit of $14,519,708, and cash flows used in operations of $296,077 for the nine months then ended. Of our working capital deficit at September 30, 2017, $206,635 was attributed to the fair value of the derivative liability associated with the warrants we issued to KFBV as partial consideration for the KF Loans, and $1,647,978 was attributed to the conversion feature included in the Third KF Loan Agreement.  During the nine-month period ended September 30, 2017, we funded our operations with $299,816 we received in non-interest bearing advances from KFBV and Da Costa Management Corp., and, to a minor extent, with cash received from consulting fees.

As of September 30, 2017, we owed a total of $8,410,314 (2016 - $7,213,475) to KFBV under the terms of the First KF Loan, the Second KF Loan and the Third KF Loan, consisting of $5,900,000 (2016 - $5,900,000) in principal amount of all advances made to that date plus $1,343,113 (2016 - $1,313,475) in accrued interest thereon calculated using the stated interest rate of 10% per annum compounded monthly until January 15, 2017, when all  KF Loans became due and payable, $805,045 in accrued interest at a default rate of interest, which was calculated on $7,243,113 owed and payable on January 15, 2017, and $362,156 in financing costs associated with penalty we accrued on an unpaid balance.  A description of the KF Loans is provided under “Net Cash Provided by Financing Activities”.

During the nine-month period ended September 30, 2017, we did not generate sufficient cash flows from our operating activities to satisfy our cash requirements.  Our only significant source of financing during the nine-month period ended September 30, 2017, came from KFBV advances. The amount of cash that we have generated from our operations to date is significantly less than our current debt obligations, including our debt obligations under the KF Loans, which became due and payable on January 15, 2017, and as of the date of the filing of this Form 10-Q are in default.

There is no assurance that we will be able to generate sufficient cash from our operations to repay the amounts owing under the KF Loans when due, or to service our other debt obligations.  If we are unable to generate sufficient cash flow from our operations to repay the amounts owing when due, we may be required to raise additional financing, or re-negotiate the terms of our debt obligations. Our ability to raise financing from other sources is restricted under the terms of the KF Loan Agreements.  Under the terms of those agreements, we may not incur additional debt financing (other than trade payables incurred in the ordinary course of business), sell any material assets, sell any of our equity securities as part of any transaction that would result in a change in control, or engage in any corporate reorganization while any amounts remain outstanding under those agreements without KFBV’s prior written consent.

Although Robert C. Kopple, the Chairman of our Board of Directors, is the principal of KFBV, there is no assurance that we will be able to obtain additional financing from KFBV, re-negotiate the terms of the KF Loans, or obtain KFBV’s consent to other financing alternatives, if needed.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

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ITEM 4. CONTROLS AND PROCEDURES.

In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by our management, with the participation of our Chief Financial Officer and Chairman of our board of directors, of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”) as of September 30, 2017. Based on the evaluation, our management concluded, as of the end of the period covered by this report, that our disclosure controls and procedures were not effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Securities and Exchange Commission’s rules and forms due to limited segregation of duties.

Due to financial constraints, the management decided not to engage services of an independent accountant to review its quarterly financial statements. To the management’s best knowledge the financial statements included in this Form 10-Q have been prepared in accordance with US GAAP and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X; they include all adjustments considered necessary for a fair presentation of the results of operations and financial position and all such adjustments are of a normal recurring nature.

During the quarter ended September 30, 2017, other than noted above, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 1A. RISK FACTORS.

As of September 30, 2017, we owed a total of $8,410,314 to KFBV under the terms of the KF Loans, consisting of the full principal amount of all advances made to that date ($5,900,000) plus interest and late payment fees accrued thereon.   Outstanding principal plus interest under the KF Loans was due on January 15, 2017. As of the date of this Quarterly Report on Form 10-Q, the loans are in default, however, we have not been served with a default notice by KFBV.

Since we are not in position to pay our debt obligations, we will most likely seek to re-negotiate the terms of our debt obligations. Although Robert C. Kopple, the Chairman of our Board of Directors, is the principal of KFBV, there is no assurance that we will be able to re-negotiate the terms of the KFBV Loans. If we are unable to re-negotiate the terms of our debt obligations, our business could fail and our investors could lose their investment.

We have a lack of operating history in the emission abatement industry and there is no assurance that our business efforts in this industry will be successful.

Resignations of Mr. Norling, our former President and CTO, and Mr. Aasen, our former CEO, have left our current Board of Directors and Executive Officers with no relevant expertise in the emission abatement industry. Many of our competitors have top management with relevant experience and have greater financial resources than we do at this time. We intend to seek experienced management and engineers, as well as sales and consulting teams to continue development of our business and our products. However, since we have no history of earning revenue in this business line, there is no assurance that our business efforts will prove successful.

Although we have entered into sales contracts for our Emission Technologies, we have not yet obtained certification that our DSOX and Njord Systems meet current MEPC standards.

Although we have entered into sales contracts with LMS and DCL, and have a term sheet agreement with Prestige, for the installation of our DSOX Systems, and we have completed installation of our DSOX System on board a DCL vessel, we have not yet obtained certification that our DSOX System installed on board the DCL vessel meets current MEPC standards. In addition, we have temporarily suspended our efforts on the LMS Project. As a result, we have not yet recorded revenue from the LMS or DCL Projects, and there is no assurance that our DSOX Systems as well as future installations of the Njord Systems will obtain certification under current MEPC Standards.

Flag Ship Approval under Regulation 4 of Marpol Annex VI is made on a ship by ship basis.

The approval of the emission abatement technologies is made on a ship by ship basis and it is very difficult to receive a type approval for the system prior to installation. We cannot guarantee that our DSOX Systems and future installations of the exhaust scrubbers will receive type approval.  Failure to receive type approval on future installations could have a significant material impact on the financial results of our Company.

Changes in government policies, regulations and laws could adversely affect our financial results.

We expect the majority of our future revenue to come from sales of our DSOX-20 Fuel Purification System, and our Njord System, which are heavily dependent on current and future IMO Regulations being enforced by international signatories to MARPOL Annex VI.  Currently the United States, Canada and the E.U. have Emission Control Area’s (ECA) in place that apply stringent engine emission standards and fuel sulfur limits to ships that operate in these ECA’s as set under MARPOL Annex VI.  There can be no assurance that other reductions in limits will be implemented as planned.  A change in the current and upcoming IMO regulations may have a significant material impact on our financial results.

Unforeseen complications during the installation of our DSOX and Njord Systems can potentially halt ships operation, which could adversely affect our sales, results of operations or cash flows, as well as increase potential for lawsuits filed against us.

Our DSOX Fuel Purification System as well as our exhaust gas scrubber, Njord, can be installed on a ship without disruption to the ship’s operations. The DSOX-20 can also be bypassed if needed, reducing the potential operational impact in case of any technical issues. However, if the planning and/or execution of the installation process have flaws, we can face a situation where the ship's operation may have to be halted in order to complete installation. Depending on the type of ship and its machinery, this risk can be mitigated by scheduling the operation of a different engine. However, if the alternative engine is not available, or if bypassing our DSOX System is not possible, we will have no choice but to stop the operation of the ship.

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Inability to protect and enforce our intellectual property rights could adversely affect our financial results.

Intellectual property rights, including patents, trade secrets, confidential information, trademarks, tradenames and other forms of trade dress, are important to our business. We endeavor to protect our intellectual property rights in jurisdictions in which our products are produced or used and in jurisdictions into which our products are imported. However, we may be unable to obtain protection for our intellectual property in key jurisdictions. We have designed and implemented internal controls to restrict access to and distribution of our intellectual property. Despite these precautions, our intellectual property is vulnerable to unauthorized access through employee error or actions, theft and cybersecurity incidents, and other security breaches.

Demand for and supply of our products and services may be adversely affected by several factors, some of which we cannot predict or control, that could adversely affect our financial position, results of operations or cash flows.

The demand for our products and services could be affected by several factors, including:

·

economic downturns in the markets in which we sell our products;

·

competition from other products;

·

changes in customer preferences;

·

product obsolescence or technological changes that render our products less desirable to use or more expensive to  produce;

·

changes in environmental regulations that may make our products illegal to sell and distribute in their present form; and

·

inability of our suppliers to obtain materials used in production due to factors such as work stoppages, shortages or supplier plant shutdowns.

If any of these events occur, the demand for and supply of our products and services could suffer, which could have a material adverse effect on our financial position, results of operations and cash flows.

We are subject to risks associated with selling our products internationally.

Our non-domestic sales efforts are subject to varying degrees of regulation in each of the foreign jurisdictions in which we may seek to provide services. Local laws and regulations, and their interpretation and enforcement, differ significantly among those jurisdictions, and can change significantly over time. Future regulatory, judicial and legislative changes or interpretations may have a material adverse effect on our ability to deliver services in foreign jurisdictions.

In addition to these international regulatory risks, some of the other risks inherent in conducting business internationally include:

·

economic, political and social instability;

·

currency restrictions and exchange rate fluctuations;

·

potential submission to the jurisdiction of a foreign court or arbitration panel;

·

import and export quotas;

·

longer payment cycles and problems collecting accounts receivable;

·

potential vessel seizure, terrorist attacks, piracy, kidnapping, the expropriation of assets and other governmental acts;

·

pandemics or epidemics that disrupt worldwide trade or the movement of vessels;

·

additional U.S. and other regulation of non-domestic operations, including regulation under the Foreign Corrupt Practices Act as well as other anti-corruption laws; and

·

the imposition of unanticipated or increased taxes, increased environmental and safety regulations or other forms of public and governmental regulation that increase our operating expenses.

Many of these risks are beyond our control, and we cannot predict the nature or the likelihood of the occurrence or corresponding effect of any such events, each of which could have an adverse effect on our financial condition and results of operations.

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Disruptions in the global credit and financial markets could limit our access to financing, which could negatively impact our business.

Disruptions to credit and financial markets, including volatility in security prices, diminished liquidity and credit availability, declining valuations of certain investments and significant changes in the capital and organizational structures of certain financial institutions may limit our ability to access the capital necessary to grow and maintain our business. Accordingly, we may be forced to delay raising capital, issue shorter tenors than we prefer or pay unattractive interest rates, which could increase our interest expense, decrease our profitability and significantly reduce our financial flexibility. Overall, our results of operations, financial condition and cash flows could be materially adversely affected by disruptions in the global credit and financial markets.

Global economic downturns may have a negative effect on our business and operations.

Global economic downturns cause general tightening in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, and lower business spending, all of which may have a negative effect on our business, results of operations, financial condition and liquidity. Potential customers may be unable to fund purchases, may decide to reduce purchases or inventories, or may cease to continue in business. In addition, our supplier may not be able to supply us with needed raw materials on a timely basis, may increase prices or go out of business, which could result in our inability to meet customer demand or could affect our gross margins.

Such conditions may make it very difficult to forecast operating results, make business decisions and identify and address material business risks and our operating results, financial condition and business could be adversely affected.

The agreements governing our debt contain various covenants that limit our ability to take certain actions, failure to comply with which could have a material adverse effect on us.

The agreements governing our debt obligations contain a number of covenants that, among other things, limit our ability to: transfer or sell all or substantially all of our assets or make certain other restricted payments. Any future refinancing of the term loan is likely to contain similar restrictive covenants.

Our former Chief Technical Officer, former Senior Vice President of Business Development and Chairman of our Board of Directors each hold a significant amount of our outstanding common stock.  Together, they hold approximately 56.6% of our common stock and are able to exert considerable influence over our actions.

Rasmus Norling, a former director, Chief Technical Officer and President, and Mitchell Miller, a former director and Senior Vice President of Business Development, each own approximately 23.1% of our outstanding common stock.  Robert C. Kopple, Chairman of our Board of Directors, owns approximately 10.4% of our outstanding common stock.  Mr. Kopple also owns a significant number of warrants and options to purchase additional shares of our common stock, further increasing the number of shares beneficially owned by our current and former executive officers and members of our Board of Directors (See “Security Ownership of Certain Beneficial Holders and Management”).  In addition, Mr. Kopple is the principal of KF Business Ventures, LP, our principal creditor, which has loaned to us a total of $5,900,000 under the First KF Loan, the Second KF Loan, and the Third KF Loan.

Our current and former executive officers and directors, as identified above, have the power to exert considerable influence over our actions and the outcome of matters on which our stockholders are entitled to vote, including the election of directors and other significant corporate actions. The interests of Mr. Norling, Mr. Miller and Mr. Kopple may be different from the interests of our shareholders.

Because our stock is a penny stock, stockholders will be more limited in their ability to sell their stock.

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system.

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Because our securities constitute "penny stocks" within the meaning of the rules, the rules apply to us and to our securities. The rules may further affect the ability of owners of shares to sell our securities in any market that might develop for them. As long as the quotation price of our common stock is less than $5.00 per share, the common stock will be subject to Rule 15g-9 under the Exchange Act. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that:

·

contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;

·

contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of securities laws;

·

contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price;

·

contains a toll-free telephone number for inquiries on disciplinary actions;

·

defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and

·

contains such other information and is in such form, including language, type, size and format, as the SEC shall require by rule or regulation.

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with: (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.

FOR ALL OF THE AFORESAID REASONS AND OTHERS SET-FORTH AND NOT SET-FORTH HEREIN, AN INVESTMENT IN OUR SECURITIES INVOLVES A CERTAIN DEGREE OF RISK. ANY PERSON CONSIDERING TO INVEST IN OUR SECURITIES SHOULD BE AWARE OF THESE AND OTHER FACTORS SET-FORTH IN THIS REPORT AND IN THE OTHER REPORTS AND DOCUMENTS THAT WE FILE FROM TIME TO TIME WITH THE SEC AND SHOULD CONSULT WITH HIS/HER LEGAL, TAX AND FINANCIAL ADVISORS PRIOR TO MAKING AN INVESTMENT IN OUR SECURITIES. AN INVESTMENT IN OUR SECURITIES SHOULD ONLY BE ACQUIRED BY PERSONS WHO CAN AFFORD TO LOSE THEIR TOTAL INVESTMENT.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None

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ITEM 6. EXHIBITS.

The following exhibits are either provided with this Quarterly Report or are incorporated herein by reference:

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(5)

Filed as an exhibit to our Current Report on Form 8-K filed on November 14, 2005.

(6)

Filed as an exhibit to our Current Report on Form 8-K filed on December 11, 2012.

(7)

Filed as an exhibit to our Current Report on Form 8-K filed on January 17, 2013.

(8)

Filed as an exhibit to our Current Report on Form 8-K filed on February 6, 2013.

(9)

Filed as an exhibit to our Current Report on Form 8-K filed on July 24, 2013.

(10)

Filed as an exhibit to our Current Report on Form 8-K filed on August 22, 2013.

(11)

Filed as an exhibit to our Current Report on Form 8-K filed on January 3, 2014.

(12)

Filed as an exhibit to our Current Report on Form 8-K filed on January 17, 2014.

(13)

Filed as an exhibit to our Current Report on Form 8-K filed on February 18, 2014.

(14)

Filed as an exhibit to our Current Report on Form 8-K filed on March 3, 2014.

(15)

Filed as an exhibit to our Current Report on Form 8-K filed on March 11, 2014.

(16)

Filed as an exhibit to our Current Report on Form 8-K filed on April 17, 2014.

(17)

Filed as an exhibit to our Current Report on Form 8-K filed on August 1, 2014.

(18)

Filed as an exhibit to our Current Report on Form 8-K filed on September 9, 2014.

(19)

Filed as an exhibit to our Current Report on Form 8-K filed on September 12, 2014.

(20)

Filed as an exhibit to our Current Report on Form 8-K filed on January 26, 2015.

(21)

Filed as an exhibit to our Current Report on Form 8-K filed on March 12, 2015.

(22)

Filed as an exhibit to our Current Report on Form 8-K filed on August 3, 2015.

(23)

Filed as an exhibit to our Current Report on Form 8-K filed on September 4, 2015.

(24)

Filed as an exhibit to our Current Report on Form 8-K filed on September 10, 2015.

(25)

Filed as an exhibit to our Annual Report on Form 10-K filed on April 14, 2016

(26)

Filed as an exhibit to our Current Report on Form 8-K filed on November 12, 2015.

(27)

Filed as an exhibit to our Current Report on Form 8-K filed on December 23, 2015.

(28)

Filed as an exhibit to our Current Report on Form 8-K filed on February 1, 2016.

(29)

Filed as an exhibit to our Current Report on Form 10-Q filed on November 21, 2016.

(30)

Filed as an exhibit to our Annual Report on Form 10-K filed on April 14, 2017.

20