0001553350-18-001211.txt : 20181113
0001553350-18-001211.hdr.sgml : 20181113
20181113093221
ACCESSION NUMBER: 0001553350-18-001211
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 68
CONFORMED PERIOD OF REPORT: 20180930
FILED AS OF DATE: 20181113
DATE AS OF CHANGE: 20181113
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: PURADYN FILTER TECHNOLOGIES INC
CENTRAL INDEX KEY: 0001019787
STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714]
IRS NUMBER: 141708544
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-11991
FILM NUMBER: 181175680
BUSINESS ADDRESS:
STREET 1: 2017 HIGH RIDGE ROAD
CITY: BOYNTON BEACH
STATE: FL
ZIP: 33426
BUSINESS PHONE: 5615479499
MAIL ADDRESS:
STREET 1: 2017 HIGH RIDGE ROAD
CITY: BOYNTON BEACH
STATE: FL
ZIP: 33426
FORMER COMPANY:
FORMER CONFORMED NAME: T F PURIFINER INC
DATE OF NAME CHANGE: 19960726
10-Q
1
pfti_10q.htm
QUARTERLY REPORT
Quarterly Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2018
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: _____________ to _____________
Commission File Number: 001-11991
PURADYN FILTER TECHNOLOGIES INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE
14-1708544
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
2017 HIGH RIDGE ROAD, BOYNTON BEACH, FL
33426
(Address of principal executive offices)
(Zip Code)
(561) 547-9499
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer þ
Smaller reporting company þ
Emerging growth company ¨
If an emerging growth company, indicate by checkmark 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 þ No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 69,016,468 shares of common stock are issued and outstanding as of November 11, 2018.
Our web site is www.puradyn.com. The information which appears on our web site is not part of this report.
When used in this report, the terms "Puradyn," the "Company," "we," "our," and "us" refers to Puradyn Filter Technologies Incorporated, a Delaware corporation. In addition, when used in this report, third quarter of 2018 refers to the three months ended September 30, 2018, "third quarter of 2017" refers to the three months ended September 30, 2017, 2018 or fiscal 2018 refers to the year ending December 31, 2018 and 2017 or fiscal 2017 refers to the year ended December 31, 2017.
i
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements in this report contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to:
·
our history of losses and uncertainty that we will be able to continue as a going concern,
·
our ability to generate net sales in an amount to pay our operating expenses,
·
our need for additional financing and uncertainties related to our ability to obtain these funds,
·
our ability to repay the outstanding debt of approximately $8.3 million at November 8, 2018 due our Executive Chairman, the majority of which matures on December 31, 2019;
·
the significant amount of deferred compensation owed to one of our executive officers and two other employees and our ability to pay these amounts,
·
our ability to protect our intellectual property, and the potential impact of expiring patents on our business in future periods,
·
anti-takeover provisions of Delaware law and our Board's ability to issue preferred stock without stockholder consent,
·
potential dilution to our stockholders from the exercise of outstanding options and warrants,
·
the lack of sufficient liquidity in the market for our common stock, and
·
the application of penny stock rules to the trading in our common stock.
Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review our Annual Report on Form 10-K for the year ended December 31, 2017, including the risks described in Part I. Item 1A. Risk Factors, and this report together with our subsequent filings with the Securities and Exchange Commission in their entirety. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
ii
PART I - FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS.
PURADYN FILTER TECHNOLOGIES INCORPORATED
CONDENSED BALANCE SHEETS
September 30,
December 31,
2018
2017
(Unaudited)
ASSETS
Current assets:
Cash
$
98,910
$
54,438
Accounts receivable, net of allowance for uncollectible accounts of $17,000 and $17,000, respectively
676,956
270,896
Inventories, net
542,490
400,764
Prepaid expenses and other current assets
114,430
69,355
Total current assets
1,432,786
795,453
Property and equipment, net
82,173
45,327
Other noncurrent assets
572,229
532,540
Total assets
$
2,087,188
$
1,373,320
LIABILITIES AND STOCKHOLDERS DEFICIT
Current liabilities:
Accounts payable
$
345,751
$
186,696
Accrued liabilities
600,021
362,804
Sales incentives
99,128
Capital lease obligation
629
3,443
Deferred compensation
1,593,724
1,626,003
Notes Payable - stockholders
350,000
7,988,349
Total Current Liabilities
2,890,125
10,266,423
Notes Payable - stockholders
7,989,622
Total Liabilities
10,879,747
10,266,423
Commitments and contingencies (Note 12)
Stockholders deficit:
Preferred stock, $.001 par value:
Authorized shares 500,000;
None issued and outstanding
Common stock, $.001 par value,
Authorized shares 100,000,000;
Issued and outstanding 69,016,468 and 69,016,468, respectively
69,016
69,016
Additional paid-in capital
53,637,820
53,599,160
Accumulated deficit
(62,499,395
)
(62,561,279
)
Total stockholders deficit
(8,792,559
)
(8,893,103
)
Total liabilities and stockholders deficit
$
2,087,188
$
1,373,320
See accompanying notes to unaudited condensed financial statements
1
PURADYN FILTER TECHNOLOGIES INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2018
2017
2018
2017
Net sales
$
1,306,070
$
515,846
$
3,344,272
$
1,780,006
Cost of products sold
710,995
385,738
1,906,396
1,364,849
Gross Profit
595,075
130,108
1,437,876
415,157
Costs and expenses:
Salaries and wages
247,363
223,049
637,081
640,137
Selling and administrative
172,194
131,098
497,777
424,459
Total operating costs
419,557
354,147
1,134,858
1,064,596
Income / (Loss) from operations
175,518
(224,039
)
303,018
(649,439
)
Other income (expense):
Interest expense
(85,763
)
(70,300
)
(241,134
)
(203,469
)
Total other expense, net
(85,763
)
(70,300
)
(241,134
)
(203,469
)
Net income / (loss) before income tax expense
89,755
(294,339
)
61,884
(852,908
)
Provision for income taxes
Net Income / (loss)
$
89,755
$
(294,339
)
$
61,884
$
(852,908
)
Basic income / (loss) per common share
$
0.00
$
(0.00
)
$
0.00
$
(0.01
)
Diluted income / (loss) per common share
$
0.00
$
(0.00
)
$
0.00
$
(0.01
)
Weighted average common shares outstanding - basic
69,016,468
69,016,468
69,016,468
69,016,468
Weighted average common shares outstanding - diluted
74,684,488
69,016,468
77,116,732
69,016,468
See accompanying notes to unaudited condensed financial statements
2
PURADYN FILTER TECHNOLOGIES INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
2018
2017
Operating activities
Net income / (loss)
$
61,884
$
(852,908
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
31,611
24,938
Provision for slow moving inventory
13,611
121,998
Compensation expense on stock-based arrangements with employees and consultants
38,661
31,396
Changes in operating assets and liabilities:
Accounts receivable
(406,060
)
48,851
Inventories
(155,337
)
139,457
Prepaid expenses and other current assets
(45,075
)
(25,297
)
Other assets
850
Sales incentives
(99,128
)
30,708
Accounts payable
159,053
31,247
Deferred compensation
(32,279
)
(8,543
)
Accrued liabilities
201,527
27,045
Net cash used in operating activities
(230,682
)
(431,108
)
Investing activities
Capitalized patent costs
(55,279
)
(53,385
)
Purchases of property and equipment
(18,026
)
(27,845
)
Net cash used in investing activities
(73,305
)
(81,230
)
Financing activities
Proceeds from issuance of notes payable to stockholders
601,273
575,000
Repayment of note payable to stockholder
(250,000
)
(50,000
)
Payment of capital lease obligations
(2,814
)
(2,816
)
Net cash provided by financing activities
348,459
522,184
Net increase in cash
44,472
9,846
Cash at beginning of period
54,438
12,806
Cash at end of period
$
98,910
$
22,652
Supplemental cash flow information:
Cash paid for interest
$
109,167
$
180,317
Forgiveness of stockholder loan and accrued interest
$
$
26,373
Addition to leasehold improvement as lease incentive
$
35,690
$
See accompanying notes to unaudited condensed financial statements
3
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1.
Basis of Presentation, Going Concern and Summary of Significant Accounting Policies
Organization
Puradyn Filter Technologies Incorporated (the Company), a Delaware corporation, is engaged in the manufacturing, distribution and sale of bypass oil filtration systems under the trademark Puradyn® primarily to companies within targeted industries. The Company holds the exclusive worldwide manufacturing and marketing rights for the Puradyn products through direct ownership of various patents.
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim information and with the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments consisting of a normal and recurring nature considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2018 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2018.
For further information, refer to the Company's financial statements and footnotes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2017.
Revenue Recognition
The Company recognizes revenue from product sales to customers, distributors and resellers when products that do not require further services or installation by the Company are shipped, when there are no uncertainties surrounding customer acceptance and when collectability is reasonably assured. Cash received by the Company prior to shipment is recorded as deferred revenue. Sales are made to customers under terms allowing certain limited rights of return and other limited product and performance warranties for which provision has been made in the accompanying unaudited condensed financial statements.
Amounts billed to customers in sales transactions related to shipping and handling, represent revenues earned for the goods provided and are included in net sales. Costs of shipping and handling are included in cost of products sold.
The Company accounts for revenue in accordance with Topic 606 which was adopted at the beginning of fiscal year 2018 using the modified retrospective method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the effect was immaterial. The adoption of these standards did not have a material impact on the Company's condensed statements of operations during the nine months ended September 30, 2018.
Use of Estimates
The preparation of condensed financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the accompanying unaudited condensed financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with original maturities of three months or less at the time of purchase. At September 30, 2018 and December 31, 2017, the Company did not have any cash equivalents.
4
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, prepaid expenses and other assets, accounts payable, accrued liabilities and notes payable to stockholder approximate their fair values as of September 30, 2018 and December 31, 2017, respectively, because of their short-term natures.
Accounts Receivable
Accounts receivable are recorded at fair value on the date revenue is recognized. The Company provides allowances for doubtful accounts for estimated losses resulting from the inability of its customers to repay their obligation. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to repay, additional allowances may be required. The Company provides for potential uncollectible accounts receivable based on specific customer identification and historical collection experience adjusted for existing market conditions. If market conditions decline, actual collection experience may not meet expectations and may result in decreased cash flows and increased bad debt expense.
The policy for determining past due status is based on the contractual payment terms of each customer, which are generally net 30 or net 60 days. Once collection efforts by the Company and its collection agency are exhausted, the determination for charging off uncollectible receivables is made.
Inventories
Inventories are stated at the lower of cost or market using the first in, first out (FIFO) method. Production costs, consisting of labor and overhead, are applied to ending finished goods inventories at a rate based on estimated production capacity. Excess production costs are charged to cost of products sold. Provisions have been made to reduce excess or obsolete inventories to their net realizable value.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets, except for assets held under capital leases, for which the Company records depreciation and amortization based on the shorter of the assets useful life or the term of the lease. The estimated useful lives of property and equipment range from 3 to 5 years. Upon sale or retirement, the cost and related accumulated depreciation and amortization are eliminated from their respective accounts, and the resulting gain or loss is included in results of operations. Repairs and maintenance charges, which do not increase the useful lives of the assets, are charged to operations as incurred.
Patents
Patents are stated at cost. Amortization is provided using the straight-line method over the estimated useful lives of the patents. The estimated useful lives of patents are 17 to 20 years. Upon retirement, the cost and related accumulated amortization are eliminated from their respective accounts, and the resulting gain or loss is included in results of operations.
Impairment of Long-Lived Assets
Management assesses the recoverability of its long-lived assets when indicators of impairment are present. If such indicators are present, recoverability of these assets is determined by comparing the undiscounted net cash flows estimated to result from those assets over the remaining life to the assets net carrying amounts. If the estimated undiscounted net cash flows are less than the net carrying amount, the assets would be adjusted to their fair value, based on appraisal or the present value of the undiscounted net cash flows.
5
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Product Warranty Costs
As required by FASB ASC 460, Guarantors Guarantees, the Company is including the following disclosure applicable to its product warranties.
The Company accrues for warranty costs based on the expected material and labor costs to provide warranty replacement products. The methodology used in determining the liability for warranty cost is based upon historical information and experience. The Company's warranty reserve is included in accrued liabilities in the accompanying condensed financial statements and is calculated as the gross sales multiplied by the historical warranty expense return rate. For the nine months ended September 30, 2018, there was no change to the reserve for warranty liability as the reserve balance was deemed sufficient to absorb any warranty costs that might be incurred from the sales activity for the period.
The following table shows the changes in the aggregate product warranty liability for the nine months ended September 30, 2018:
Balance as of December 31, 2017
$
20,000
Less: Payments made
Add: Provision for current period warranties
Balance as of September30, 2018 (unaudited)
$
20,000
Advertising Costs
Advertising costs are expensed as incurred. During the three and nine months ended September 30, 2018 and 2017, advertising costs incurred by the Company totaled approximately $4,117, $7,450, $430, and $731, respectively, and are included in selling and administrative expenses in the accompanying statements of operations.
Engineering and Development
Research and development costs are expensed as incurred. During the three and nine months ended September 30, 2018 and 2017, research and development costs incurred by the Company totaled $1,582, $4,395, $1,677 and $4,970, respectively, and are included in selling and administrative expenses in the accompanying statements of operations.
Income Taxes
The Company accounts for income taxes under FASB ASC 740, Income Taxes. Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
Stock Option Plans
We adopted FASB ASC 718, Compensation-Stock Compensation, effective January 1, 2006 using the modified prospective application method of adoption which requires us to record compensation cost related to unvested stock awards as of December 31, 2005 by recognizing the amortized grant date fair value in accordance with provisions of FASB ASC 718 on straight line basis over the service periods of each award. We have estimated forfeiture rates based on our historical experience. Stock option compensation expense for the year ended December 31, 2017 has been recognized as a component of cost of goods sold and general and administrative expenses in the accompanying financial statements for the three and nine months ended September 30, 2018.
6
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The Company leases its employees from a payroll leasing company. The Companys leased employees meet the definition of employees as specified by FASB Interpretation No. 44 for purposes of applying FASB ASC 718.
Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable in accordance withFASB ASC 505, Equity, and FASB ASC 718, Compensation-Stock Compensation, including related amendments and interpretations. The related expense is recognized over the period the services are provided.
Credit Risk
The Company minimizes the concentration of credit risk associated with its cash by maintaining its cash with high quality federally insured financial institutions. However, cash balances in excess of the FDIC insured limit of $250,000 are at risk. At September 30, 2018 and December 31, 2017, respectively, the Company did not have cash balances above the FDIC insured limit. The Company performs ongoing evaluations of its significant trade accounts receivable customers and generally does not require collateral. An allowance for doubtful accounts is maintained against trade accounts receivable at levels which management believes is sufficient to cover probable credit losses. The Company also has some customer concentrations, and the loss of business from one or a combination of these significant customers, or an unexpected deterioration in their financial condition, could adversely affect the Companys operations. Please refer to Note 15 for further details.
Basic and Diluted Loss Per Share
The Company uses ASC 260-10, Earnings Per Share for calculating the basic and diluted income (loss) per share. The Company computes basic income (loss) per share by dividing net income (loss) and net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding. As of September 30, 2018 and 2017, there were 13,113,336 and 4,175,162 shares issuable upon the exercise of options and warrants, respectively. Common stock equivalent shares are excluded from the computation of net loss per share if their effect is anti-dilutive. The Company had net income for the three and nine month period ended September 30, 2018. A separate computation of diluted earnings per share is presented using the treasury stock method and the common stock equivalents did not have any effect on net income per share.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14, which deferred the effective date of the new revenue standard by one year and allowed entities the option to early adopt the new revenue standard as of the original effective date. There have been multiple standards updates amending this guidance or providing corrections or improvements on issues in the guidance. The requirements for these standards relating to Topic 606 are effective for interim and annual periods beginning after December 15, 2017. This standard permitted adoption using one of two transition methods, either the retrospective or modified retrospective transition method.
7
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The Company adopted these standards at the beginning of fiscal year 2018 using the modified retrospective method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of these standards did not have a material impact on the Company's Condensed Statements of Operations during the nine months ended September 30, 2018.
In February 2016, the FASB issued ASU 2016-02, Leases, which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessees obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessees right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. After reviewing of this ASU we have determined it will have no impact on our results of operations, cash flows or financial condition.
All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.
2.
Going Concern
The Company's unaudited condensed financial statements have been prepared on the assumption that it will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has sustained losses since inception through the December 31, 2017. During the nine-months ended September 30, 2018 the Company has begun to generate net income. However, the Company does not have sufficient revenues and income to fund the operations. During the nine months ended September 30, 2018 and 2017 the Company used net cash in operations of $230,682 and $431,108, respectively. As a result, the Company has had to rely on stockholder loans and related parties to fund its activities to date.
These recurring operating losses, liabilities exceeding assets and the reliance on cash inflows from two stockholders led the Companys independent registered public accounting firm, Liggett & Webb, P.A., to include a statement in its audit report relating to the Companys audited financial statements for the year ended December 31, 2017 expressing substantial doubt as to the Companys ability to continue as a going concern. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.
3.
Inventories
Inventories consisted of the following at September 30, 2018 and December 31, 2017, respectively:
September 30,
2018
December 31,
2017
(Unaudited)
Raw materials
$
918,705
$
901,600
Work In Progress
125,932
Finished goods
99,006
16,848
Valuation allowance
(475,221
)
(643,616
)
Inventory, net
$
542,490
$
400,764
8
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
4.
Prepaid Expenses and Other Current Assets
At September 30, 2018 and December 31, 2017, prepaid expenses and other current assets consisted of the following:
September 30,
2018
December 31,
2017
(Unaudited)
Prepaid expenses
$
44,446
$
26,648
Deposits
69,984
42,707
$
114,430
$
69,355
5.
Property and Equipment
At September 30, 2018 and December 31, 2017, property and equipment consisted of the following:
September 30,
2018
December 31,
2017
(Unaudited)
Machinery and equipment
$
1,045,217
$
1,045,217
Furniture and fixtures
56,558
56,558
Leasehold improvements
188,012
152,322
Software and website development
88,842
88,842
Computer hardware and software
171,275
153,249
1,549,904
1,496,188
Less accumulated depreciation and amortization
(1,467,731
)
(1,450,861
)
$
82,173
$
45,327
Depreciation and amortization expense of property and equipment for the three and nine months ended September 30, 2018 and 2017 is $6,817 and $16,870, and $5,657 and $14,751, respectively.
6.
Patents
Included in other assets at September 30, 2018 and December 31, 2017 are capitalized patent costs as follows:
September 30,
2018
December 31,
2017
(Unaudited)
Patent costs
$
614,152
$
558,873
Less accumulated amortization
(76,893
)
(62,153
)
$
537,259
$
496,720
Amortization expense for the three and nine months ended September 30, 2018 and 2017 amounted to $4,183, $14,741, $3,394, and $10,187, respectively.
Depreciation and amortization expense of property and equipment and capitalized patents for the three and nine months ended September 30, 2018 and 2017 is $11,000, $31,611, $9,051 and $24,938, respectively.
9
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
7.
Leases
The Company leases its office and warehouse facilities in Boynton Beach, Florida under a long-term non-cancellable lease agreement, which contains renewal options and rent escalation clauses. As of September 30, 2018, a security deposit of $34,970 is included in noncurrent assets in the accompanying balance sheet. On September 27, 2012 the Company entered into a non-cancellable six-year lease agreement for the same facilities commencing August 1, 2013 and expiring July 31, 2019. The total minimum lease payments over the term of the current lease amount to $180,826.
On June 29, 2018, the Company entered into a non-cancellable five-year lease for the same facilities commencing August 1, 2019 and expiring July 31, 2024. The lease will require an initial rent of $14,899 per month, beginning August 1, 2019 for the first year, increasing by 3% per year to $16,769 per month in the fifth year. In addition, the Company is responsible for all operating expenses and utilities. As part of the lease the landlord agreed to reimburse the Company $58,000 towards the replacement of air conditioning units, upon written request. As of September 30, 2018 the Company had received all of the reimbursement.
In January 2015 the Company entered into a capital lease for office equipment in the amount of $15,020, which expires in December 2018. As of September 30, 2018 and December 31, 2017 the balance under capital lease obligations was $629 and $3,443, respectively.
In September 2018, the Company entered into a new capital lease for office equipment in the amount of $559, which will commence in December 2018 for a term of 48 months.
8.
Accrued Liabilities
At September 30, 2018 and December 31, 2017, accrued liabilities consisted of the following:
September 30,
2018
December 31,
2017
(Unaudited)
Accrued vacation and benefits
$
50,950
$
69,025
Accrued expenses relating to vendors and others
213,376
136,681
Accrued warranty costs
20,000
20,000
Accrued interest payable relating to stockholder notes
245,900
115,039
Deferred rent
69,795
22,059
$
600,021
$
362,804
9.
Deferred Compensation
Deferred compensation represents amounts owed to three employees for salary. As there is no written agreement with these employees which memorializes the terms of the salary deferral, only a voluntary election to do so, it is possible that the employees could demand payment in full at any time. As of September 30, 2018 and December 31, 2017 the Company recorded deferred compensation of $1,593,724 and $1,626,003, respectively.
10.
Sales Incentives
The Company entered into an exclusive distribution agreement for the worldwide rights to sell its product in the oil and gas industry effective September 7, 2017. The agreement included an incentive program that rewarded credits toward future product redeemable only if targeted quarterly goals are achieved. The incentive-earning period ended on June 30, 2018, and no incentives were earned. The exclusivity agreement continues at a minimum through the end of 2018.
10
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
11.
Notes Payable to Stockholders Related Party
On March 28, 2002 the Company executed a binding agreement with one of its principal stockholders, who is also the former Chief Executive Officer, now Executive Chairman of the Board, to fund up to $6.1 million. Under the terms of the agreement, the Company can draw amounts as needed to fund operations. Amounts drawn bear interest at the BBA LIBOR Daily Floating Rate plus 1.4 percentage points (3.89% and 3.61% per annum at September 30, 2018 and 2017 respectively), payable monthly and were to become due and payable on December 31, 2005 or upon a change in control of the Company or the consummation of any other financing over $7.0 million. Beginning in March 2006, annually, through February 2012, the maturity date for the agreement was extended annually from December 31, 2007, to December 31, 2018. On May 9, 2018 he extended the maturity rate to December 31, 2019.
During the nine months ended September 30, 2018 we borrowed an additional $26,273 from our Executive Chairman, together with $325,000 under a demand note not covered by this line of credit. This demand note bears interest at 4% per annum. As of September 30, 2018 and December 31, 2017 we owed him an aggregate of $8,314,622 and $7,988,349, respectively, which represented approximately 76% and 78% of our total liabilities, respectively. On May 9, 2018 he extended the maturity date to December 31, 2019. While he has continued to fund our working capital needs at reduced levels and extend the due date of the obligation for an additional year, he is under no contractual obligation to do so. During 2017 he advised us he does not expect to continue to provide working capital advances to us at historic amounts. If we are unable to meet our obligation to our Executive Chairman prior to maturity, he has advised us that he may forgive all, or substantially all, of this obligation.
In November 2017, the Company received an additional loan in the amount of $25,000 from a former member of the Board of Directors. The loan bears interest at a rate of 5% per annum and is due December 31, 2018.
From April 1, 2018 through May 15, 2018, the Company received additional loans in the amount of $250,000 from a related party to both the Companys Executive Chairman and its Chief Executive Officer, as advances for working capital needs. The amounts are non-interest bearing and are payable upon demand. On July 15, 2018, $250,000 was repaid.
During the three and nine months ended September 30, 2018 and 2017, the Company incurred interest expense of $85,309 $240,028, $68,564, and $200,405, respectively, on its loan from the Chairman of the Board, which is included in interest expense in the accompanying condensed statements of operations as well as interest expense of $315 and $935 and $315 and $1,068 for the three and nine months ended September 30, 2018 and 2017, respectively related to the loan from a former Board member. These amounts, in addition to interest expense of $139, $171, $1,421, and $1,996, for the three and nine months ended September 30, 2018 and 2017, respectively, are related to capital lease obligations, financing and loans from a stockholder.
Notes payable and capital leases consisted of the following at September 30, 2018 and December 31, 2017:
September 30,
2018
December 31, 2017
Notes payable to stockholders
$
8,339,622
$
7,988,349
Capital lease obligation
629
3,443
8,340,251
7,991,792
Less: current maturities
(350,629
)
(7,991,792
)
Long-term maturities
$
7,989,622
$
11
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Maturities of Long Term Obligations for Five Years and Beyond
The minimum annual principal payments of notes payable and capital lease obligations at September 30, 2018 were:
2018
$
350,629
2019
7,989,622
$
8,340,251
12.
Commitments and Contingencies
Agreements
On May 18, 2018 we entered into a letter agreement with Mr. Edward S. Vittoria pursuant to which he agreed to be employed by us as our Chief Executive Officer for an initial term ending May 31, 2019, which such term may be extended by mutual agreement upon terms and conditions to be mutually agreed upon prior to the expiration of such initial term. Under the terms of the letter agreement we agreed to pay him: (i) an annual base salary of $200,000, payable in accordance with our normal payroll practices; (ii) an annual cash bonus to be awarded by our Board of Directors in January in a minimum amount of $50,000; and (iii) granted him options to purchase 6,500,000 shares of our common stock, vesting one-third in arrears, at an exercise price equal to fair market value on the date of grant pursuant to the terms and conditions of our 2018 Equity Compensation Plan. He is also entitled to: (i) participate in all of our benefit programs currently existing or hereafter made available to executive and/or salaried; (ii) an amount of annual paid vacation consistent with his position and length of service to us; and (iii) reimbursement for all reasonable, out of-pocket expenses incurred by him.
On September 7, 2017 the Company entered into an exclusive distribution agreement with NOW, Inc. (DNOW) for the worldwide rights to sell its product in the oil and gas industry. As part of this agreement, the distributor could receive sales incentive credits toward future product, based upon the difference in current pricing and new pricing detailed in the agreement. The credits toward future product are only redeemable if targeted quarterly goals are achieved. If the goals are not achieved the credits will be carried forward and are redeemable when the quarterly goals are achieved. Refer to Note 10. The incentive-earning period ended on June 30, 2018, and no incentives were earned. The exclusivity agreement continues at a minimum through the end of 2018.
On September 27, 2012, the Company entered into a 72 month lease for its corporate offices and warehouse facility in Boynton Beach, Florida. On June 29, 2018, the lease was extended an additional 5 years. The renewed lease commences August 1, 2019 and expiring on July 31, 2024 and requires an initial rent of $14,899 per month beginning in the second month of the first year, increasing in varying amounts to $16,769 per month in the fifth year. In addition, the Company is responsible for all operating expenses and utilities. As part of the lease the landlord agreed to reimburse the Company $58,000 towards the replacement of air conditioning units, upon written request. As of September 30, 2018 the Company has received all of the reimbursement.
On October 20, 2009, the Company entered into a consulting agreement for management and strategic development services with Boxwood Associates, Inc., pursuant to which the Company pays a $2,000 monthly service fee. The contract remains in effect until terminated by either party providing 30 days written notice. A former member of our Board of Directors and a significant stockholder is President of Boxwood Associates, Inc. Refer to Note 14.
12
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
13.
Stock Options and Warrants
For the three and nine months ended September 30, 2018 and September 30, 2017, respectively, the Company recorded non-cash stock-based compensation expense of $13,928, $38,661 $9,999, and $31,396, relating to employee stock options and warrants issued for consulting services.
Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable in accordance with FASB ASC 505, Equity, and FASB ASC 718, Compensation Stock Compensation. The related expense is recognized over the period the services are provided. Unrecognized expense remaining at September 30, 2018 and 2017 for the options is $180,650 and $24,705, respectively, and will be recognized through June 30, 2021.
On April 12, 2018 the Board of Directors approved the adoption of a 2018 Equity Compensation Plan. The Company has reserved 10,000,000 shares of our common stock for grants under this plan.
The 2018 Plan provides for the granting of both incentive and non-qualified stock options to key personnel, including officers, directors, consultants and advisors to the Company, at the discretion of the Board of Directors. Each plan limits the exercise price of the options at no less than the quoted market price of the common stock on the date of grant. The option term is determined by the Board of the Directors, provided that no option may be exercisable more than 10 years after the date of its grant and, in the case of an incentive option granted to an eligible employee owning more than 10% of the Companys common stock, no more than five years after the date of the grant. Generally, under both plans, options to employees vest over three years at 33.33% per annum unless the Board of Directors designates a different vesting schedule.
On April 12, 2018, the Company granted employees and directors options to purchase 4,475,000 shares of the Companys common stock, at exercise prices ranging from $0.0189 to $0.208 per share. The options vest over a three-year period and expire April 12, 2028. The fair value of the options totaled $69,989 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 2.64%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 217%. On April 30, 2018 our Chairman and Former CEO voluntarily cancelled the grant on April 12, 2018 of options awarded him to purchase an aggregate of 1,400,000 shares of the common stock.
On May 18, 2018, the Company, upon recommendation and approval by the compensation committee of the Board of Directors, granted its new Chief Executive Officer, options to purchase 6,500,000 shares of the Companys common stock, at an exercise price of $0.017 per share. The options vest over a three-year period and expire May 18, 2028. The fair value of the options totaled $101,437 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 2.64%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 217%.
On August 24, 2018, the Company granted one director options to purchase 5,000 shares of the Companys common stock, at an exercise price of $0.045 per share. The options vest over a two year period and expire August 25, 2023. The quoted market price of the common stock at the time of issuance of the options was $0.045 per share. The fair value of the options totaled $223 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 2.70%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 188%.
13
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A summary of the Companys stock option plans as of September 30, 2018, and changes during the nine month period then ended is presented below:
Nine Months Ended
September 30, 2018
Number of
Options
Weighted
Average
Exercise Price
Options outstanding at December 31, 2017
3,180,000
$
0.20
Options granted
10,980,000
$
0.02
Options exercised
Options forfeited
(32,500
)
$
0.03
Options expired
(1,787,500
)
$
0.14
Options at end of period
12,340,000
$
0.06
Options exercisable at September 30, 2018
2,745,000
$
0.19
Changes in the Companys non-vested options for the nine months ended September 30, 2018 are summarized as follows:
Nine Months Ended
September 30, 2018
Number of
Options
Weighted
Average
Exercise Price
Nonvested options at December 31, 2017
270,840
$
0.15
Granted
10,980,000
$
0.03
Vested
(247,506
)
$
0.16
Forfeited
(1,408,334
)
$
0.22
Nonvested options at September 30, 2018
9,595,000
$
0.02
Options Outstanding
Options Exercisable
Range of Exercise Price
Number Outstanding
Remaining Average Contractual Life (In Years)
Weighted Average Exercise Price
Number Exercisable
Weighted Average Exercise Price
$0.017- $0.30
12,340,000
8.2
$
0.16
2,745,000
$
0.19
Totals
12,340,000
8.2
$
0.16
2,745,000
$
0.19
A summary of the Companys warrant activity as of September 30, 2018 and changes during the nine-month period then ended is presented below:
Nine months ended
September 30, 2018
Warrants
Weighted
Average
Exercise Price
Warrants outstanding at December 31, 2017
990,162
$
0.24
Granted
Expired
(216,826
)
$
0.35
Warrants outstanding and exercisable at September 30, 2018
773,336
$
0.16
Warrants Outstanding and Exercisable
Range of Exercise Price
Number Outstanding
Remaining Average Contractual Life (In Years)
Weighted Average
Exercise Price
773,336
1.7
$
0.16
Totals
733,336
1.7
$
0.16
14
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
14.
Related Party Transactions
On March 28, 2002 the Company executed a binding agreement with one of its principal stockholders, who is also the former Chief Executive Officer, now Executive Chairman of the Board, to fund up to $6.1 million. Under the terms of the agreement, the Company can draw amounts as needed to fund operations. Amounts drawn bear interest at the BBA LIBOR Daily Floating Rate plus 1.4 percentage points (3.89% and 3.61% per annum at September 30, 2018 and 2017 respectively), payable monthly and were to become due and payable on December 31, 2005 or upon a change in control of the Company or the consummation of any other financing over $7.0 million. Beginning in March 2006, annually, through February 2012, the maturity date for the agreement was extended annually from December 31, 2007, to December 31, 2018. On May 9, 2018 he extended the maturity rate to December 31, 2019.
During the nine months ended September 30, 2018 we borrowed an additional $26,273 from our Executive Chairman, together with $325,000 under a demand note not covered by this line of credit. This demand note bears interest at 4% per annum. As of September 30, 2018 and December 31, 2017 we owed him an aggregate of $8,314,622 and $7,988,349, respectively, which represented approximately 76% and 78% of our total liabilities, respectively. On May 9, 2018 he extended the maturity date to December 31, 2019. While he has continued to fund our working capital needs at reduced levels and extend the due date of the obligation for an additional year, he is under no contractual obligation to do so. During 2017 he advised us he does not expect to continue to provide working capital advances to us at historic amounts. If we are unable to meet our obligation to our Executive Chairman prior to maturity, he has advised us that he may forgive all, or substantially all, of this obligation.
In November 2017, the Company received an additional loan in the amount of $25,000 from a former member of the Board of Directors. The loan bears interest at a rate of 5% per annum and is due December 31, 2018.
From April 1, 2018 through May 15, 2018, the Company received additional loans in the amount of $250,000 from a related party to both the Companys Executive Chairman and its Chief Executive Officer, as advances for working capital needs. The amounts are non-interest bearing and are payable upon demand. On July 15, 2018, $250,000 was repaid.
On April 12, 2018, the Company granted our Chairman and Former CEO options to purchase 1,400,000 shares of the Companys common stock, at exercise price of $0.208 per share. The options vest over a three-year period and expire April 12, 2028. On April 30, 2018 our Chairman and Former CEO voluntarily cancelled the grant on April 12, 2018 of options awarded him to purchase an aggregate of 1,400,000 shares of the common stock.
On May 18, 2018, the Company, upon recommendation and approval by the compensation committee of the Board of Directors, granted its new Chief Executive Officer, options to purchase 6,500,000 shares of the Companys common stock, at an exercise price of $0.017 per share. The options vest over a three-year period and expire May 18, 2028.
On May 18, 2018 Mr. Edward S. Vittoria was appointed Chief Executive Officer of Puradyn Filter Technologies Incorporated and as a member of its Board of Directors. Immediately prior to such appointment, Mr. Joseph V. Vittoria resigned from his position as Chief Executive Officer, and has been appointed Executive Chairman of the Board of Directors. Prior to his appointments, Mr. Edward Vittoria had been providing advisory services to us beginning in December 2017.
On August 24, 2018, the Company granted one director options to purchase 5,000 shares of the Companys common stock, at an exercise price of $0.045 per share. The options vest over a two year period and expire August 25, 2023. The quoted market price of the common stock at the time of issuance of the options was $0.045 per share.
In November 2017, the Company received an additional loan in the amount of $25,000 from a former member of the Board of Directors and a significant stockholder. The loan bears interest at a rate of 5% per annum and is due December 31, 2018.
15
PURADYN FILTER TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
On October 20, 2009, the Company entered into a consulting agreement with Boxwood Associates, Inc., whereby the Company pays $2,000 monthly for management and strategic development services performed. The contract remains in effect until terminated by either party providing 30 days written notice. During each of three and nine months ended September 30, 2018 and 2017, we paid Boxwood Associates, Inc. $6,000 and $18,000, respectively under this agreement. A former member of our Board of Directors is President of Boxwood Associates, Inc.
15.
Major Customers
There are concentrations of credit risk with respect to accounts receivables due to the amounts owed by four customers at September 30, 2018 whose balances each represented approximately 36%, 33%, 14%, and 13%, for a total of 96% of total accounts receivables. Comparatively, there are concentrations of credit risk with respect to accounts receivables due to the amounts owed by two customers at December 31, 2017 whose balances each represented approximately 53%, and 30%, for a total of 83% of total accounts receivables. Sales to three customers for the nine months ended September 30, 2018 were 32%, 27% and 14% of total sales for total of 73% of sales. Sales to four customers for the three months ended September 30, 2018 were 32%, 29%, 16% and 12% for total of 89% of sales. During the three months ended September 30, 2017 sales from four customers represented 33%, 17%, 16% and 11% for a total of 77% of sales. During the nine months ended September 30, 2017 sales from three customers represented 39%, 12%, and 11% for a total of 62% of sales. The loss of business from one or a combination of the Companys significant customers, or an unexpected deterioration in their financial condition, could adversely affect the Companys operations.
16
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion of our unaudited condensed financial condition and results of operations for the three and nine months ended September 30, 2018 and 2017 should be read in conjunction with the unaudited condensed financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the Securities and Exchange Commission on April 10, 2018 (the 2017 10-K), and our subsequent filings with the SEC. We use words such as anticipate, estimate, plan, project, continuing, ongoing, expect, believe, intend, may, will, should, could, and similar expressions to identify forward-looking statements. All information in this section for the three and nine months ended September 30, 2018 and 2017 is unaudited and derived from the unaudited condensed financial statements appearing elsewhere in this report; unless otherwise noted, all information for the year ended December 31, 2017 is derived from our audited financial statements appearing in the 2017 10-K.
OVERVIEW
Our company
We design, manufacture, market and distribute worldwide the Puradyn® bypass oil filtration system for use with substantially all internal combustion engines and hydraulic equipment that use lubricating oil. Working in conjunction with the equipments primary oil filter, the Puradyn system cleans oil by providing a second circuit of oil filtration and treatment to continually remove solid and liquid contaminants from the oil through a sophisticated and unique filtration and absorption process. The Puradyn system consists of a base filtration unit or housing that is connected via hoses or steel tubing to the engine or hydraulic system, along with filter elements that reside inside the filtration unit and are replaced periodically to maintain top performance. We believe that our filter is unique in that it incorporates an additive package to replenish depleted base additive levels in engine lubricating oil. Because Puradyn-filtered lubricating oil is kept in a continually clean state and within engine manufacturers specification, our system has been used effectively to safely and significantly extend oil-drain intervals and to extend the time between engine overhauls.
Our core product, the patented Puradyn bypass oil filtration system, is offered in two primary applications, MTS engine systems and custom-engineered MTS hydraulic systems, which can be attached to almost any engine or hydraulic application. All Puradyn systems are compatible with virtually all standard and synthetic oils on the market, and they work with engines using gasoline, diesel, propane or natural gas. We are also the sole manufacturer and provider of Puradyn replacement filter elements for the Puradyn system. Our products are marketed to numerous industries that include hydraulic applications, and other users of engines or equipment that utilize up to 50 weight oil for lubrication. We focus our sales strategy on individual sales and distribution efforts as well as on the development of a global distribution network that will not only sell, but also install and support our product. DistributionNow (DNOW) joined the Puradyn distributor network in 2016 and became exclusive distributor for the oil and gas industry in September 2017. With 300 locations worldwide, DNOW provides the potential to reach to new markets and customers which we would otherwise not be able to effectively reach, and consistently support our product on a global basis. MNI Diesel, LLC (MNI) joined the Puradyn distributor network in 2012, and in August 2018, they became the exclusive distributor of Puradyn products to the commercial marine industry for the Ohio and Mississippi River Valleys and the U.S. Gulf Coast of Texas, Louisiana, Mississippi and Alabama. In addition to the DNOW network and MNI, we currently have approximately 45 distributors and dealers and manufacturer representatives that sell and/or service the Puradyn system in the U.S. and internationally. Today our products are found around the world in a number of industries, including oil and gas, power generation, construction and forestry, commercial marine, mining, and transportation.
17
Third quarter of 2018 business highlights
·
Launched a new and expanded relationship with MNI Diesel, LLC in August 2018 that made MNI the exclusive distributor of Puradyn products to the commercial marine industry for the Ohio and Mississippi River Valleys and the U.S. Gulf Coast of Texas, Louisiana, Mississippi and Alabama. MNI has significant experience with selling, installing and monitoring the success of Puradyn systems on their clients vessels, making them a powerful advocate for our product line.
·
Continued growth in unit sales to new end users in the oil and gas industry including:
o
In this quarter, the last of the largest contractors we had targeted in the land drilling segment began installing Puradyn systems on their fleet.
o
Puradyn was featured in a webinar presented by World Oil that shared the success experienced by Legend Energy Services, who began testing Puradyn on their pressure pumping equipment earlier in the year and quickly proceeded to make Puradyn standard on their entire fleet after realizing such strong and immediate results. The webinar produced a number of leads that are currently being pursued by Puradyn and DNOW.
o
Continued growing interest and testing by clients in the midstream and pipeline segment.
·
We fulfilled a large order bound for Afghanistan to be used on power generation systems.
Third quarter of 2018 financial highlights:
·
Sales growth of 153% during the third quarter of 2018 compared to the same period in 2017;
·
Gross profit margins almost doubled to 46% during the third quarter of 2018 from 25% in the same period in 2017; and
·
A net income of $89,755 for the third quarter of 2018 compared to a loss of $(294,339) in the same period in 2017.
Key strategies:
During the balance of 2018 we are focusing our sales and marketing efforts on:
·
Further adoption of Puradyn in the pressure pumping and pipeline segments of the oil and gas industry;
·
Increased marketing focus on the commercial marine segment, including representation at the upcoming WorkBoat annual convention; and
·
Further expansion in key international markets through new and existing distributors.
In addition, from an operating standpoint we are placing additional emphasis on:
·
Managing materials costs and preparing for any impacts from new tariffs;
·
Restructuring our distributor network and pricing levels; and
·
Increasing operating capacity and efficiency.
18
Outlook
We attribute the increase in sales in the third quarter of 2018 and the nine months then ended over the comparable periods in 2017 to a number of customers in targeted markets experiencing improved business conditions and greater receptivity to Puradyns message of proven cost savings. Revenue growth continues to derive from multiple customer segments especially in the oil and gas industry, which continues to be our largest. With new customers added this quarter, we believe Puradyn systems will now be active on the majority of active U.S. land rigs. Our focus on the pressure pumping and midstream segments, both of which we believe may provide double the opportunity of land rigs, has been further supported by expanded marketing efforts through our DNOW relationship and the sharing of positive results by early adopters, such as Legend Energy Services, who proceeded to make Puradyn standard on their entire fleet of pressure pumping engines within a few months of beginning testing in the first quarter of 2018. Our efforts in the commercial marine segment will benefit from an expanded relationship with one of our stronger distribution partners, MNI Diesel, who will now be our exclusive distributor along the U.S. Gulf Coast and up through the Mississippi and Ohio River valleys. MNI has installed hundreds of Puradyn systems and has witnessed the performance first hand, which makes them a very credible advocate.
We also continue to receive orders from emerging, and sometimes unexpected, segments. This quarter, we fulfilled a large order for units headed to Afghanistan for use on generators. Another order was for mobile cell transmission towers and lighting units. The applicability of Puradyn bypass filtration to a wide range of industrial engine uses and hydraulic systems is becoming clearer, and people responsible for the maintenance and cost mitigation of this machinery are increasingly seeking the proven results of our systems.
RESULTS OF OPERATIONS
The following table provides certain selected financial information for the periods presented:
Three Months Ended September 30,
Nine Months Ended September 30,
2018
2017
% change
2018
2017
% change
(unaudited)
(unaudited)
Net sales
$
1,306,070
$
515,846
153%
$
3,344,272
$
1,780,006
88%
Gross profit
$
595,075
$
130,108
357%
$
1,437,876
$
415,157
246%
Total operating costs
Income (loss) from operations
$
175,518
$
(224,039
)
(178)%
$
303,018
$
(649,439
)
(147)%
Total other expense, net
Net income (loss)
$
89,755
$
(294,339
)
(130)%
$
61,884
$
(852,908
)
(107)%
Basic and diluted earnings (loss) per share
$
0.00
$
(0.00
)
$
0.00
$
(0.00)
Gross profit
Our gross profit margins for the third quarter of 2018 increased from 25% in the third quarter of 2017 to 46% in the third quarter of 2018, and from 23% for the first nine months of 2017 to 43% for the first nine months of 2018. The increase in our gross profit margins in the 2018 periods is attributable to increased facility utilization and operating efficiencies due to increased sales and a significant decrease in the expense for slow moving inventory from amounts recorded in 2017. We have been advised by several of our suppliers that prices for various raw materials are being increased as a result of the loss of some of their primary suppliers and higher prices with their secondary suppliers and the unknown impact of recently enacted tariffs by the current administration. However, we are exploring and implementing measures to help mitigate the impact on our costs. We notified our customers of pricing increases effective October 1, 2018 which varied by product, and we will continue to review cost of materials increases and adopt further pricing action in the future as warranted.
19
Total operating costs
Our total operating costs which includes salaries and wages and selling and administrative expenses increased during the three months ended September 30, 2018 and the nine months ended September 30, 2018 due to primarily to the hiring of our new CEO in May 2018. The additional expense was offset by the decision not fill a position vacated voluntarily and the impact of one employee who is now being paid only from deferred compensation. The increases in selling and administrative expenses during the third quarter of 2018 and the nine months then ended from the comparable periods in 2017 is attributable to increases in non-cash expenses associated with stock compensation to employees and our decision to restart targeted advertising. We anticipate that our selling and administration expenses will increase slightly throughout 2018, inclusive of communication costs, office supplies, and other components of administrative expenses.
Total other expense, net
Total other expense, net represents interest we pay to related parties on amounts advanced to us for working capital.
LIQUIDITY AND CAPITAL RESOURCES
We had cash on hand of $98,910 and a working capital deficit of $1,457,339 at September 30, 2018 as compared to cash on hand of $54,438 and a working capital deficit of $9,470,970 at December 31, 2017. Our current ratio (current assets to current liabilities) was .50 to 1 at September 30, 2018 as compared to .08 to 1 at December 31, 2017. The decrease in negative working capital is primarily attributable to our Executive Chairman extending the maturity date of his working capital loans to December 31, 2019, thereby reclassifying these amounts from current liabilities to long-term liabilities, together with increases in inventory and accounts receivable which were offset by decreases in deferred compensation, sales incentives cash and increase in accounts payable. We do not currently have any commitments for capital expenditures.
Historically, we have been materially reliant on working capital advances from our Executive Chairman to address our liquidity and working capital issues through the utilization of the borrowing agreement with him. In 2018 we have borrowed an additional $325,000 from him under short term demand notes and $26,273 under a previous line, and at September 30, 2018 we owed him an aggregate of $8,314,622. We do not have the funds necessary to satisfy these obligations. While he has continued to fund our working capital needs and extend the due date of the obligation, he is under no contractual obligation to do so. During 2017 he advised us he does not expect to continue to provide working capital advances to us at historic amounts. If we are unable to meet our obligation to Mr. Vittoria prior to maturity, he has advised us that he may forgive all, or substantially all, of this obligation. However, he is under no obligation to do so.
We also owe certain of our employees $1,593,724 and $1,626,003, respectively in deferred cash compensation at September 30, 2018 and December 31, 2017, which represents 55% and 16%, respectively of our current liabilities on that date. Since 2005, Mr. Kroger, our President and COO, has deferred a portion of his compensation to assist us in managing our cash flow and working capital needs. Two other employees, who no longer receive a salary, are receiving regular payments from their deferred compensation. As there is no written agreement with these employees which memorializes the terms of salary deferral, only an election to do so, it is possible the employees could demand payment in full at any time. We do not have sufficient funds to satisfy these obligations.
We do not have any external sources of liquidity at this time, and our discussions over the past few years with third parties for potential investments have not been successful. We historically have encountered resistance from potential investors on a variety of fronts, including our operating losses, and the amount of debt due Mr. Vittoria. In an effort to improve our ability to raise capital, on November 11, 2016 he converted $6,100,000 of principal and interest due him into shares of our common stock at a conversion price which was a premium to the market value of our common stock. However, following such conversion, the hoped-for change in our potential financing sources looked at our company and risks associated with it have not changed. There can be no assurance we will be able to raise additional capital or generate enough to repay our debt holders, and it is possible that stockholders could lose their entire investment in our company.
20
Summary cash flows
Nine Months Ended
September 30,
2018
2017
(unaudited)
(unaudited)
Net cash (used) by operating activities
$
(230,682
)
$
(431,108
)
Net cash (used) by investing activities
$
(73,305
)
$
(81,230
)
Net cash provided by financing activities
$
348,459
$
522,184
During the first nine months of 2018 net cash used by our operating activities was principally related to increases in inventory, accounts receivable and prepaid expenses offset by increase in accounts payable and accrued liabilities. The increases in accounts receivable as well as the corresponding increases in inventory and accounts payable were a result of the Companys expected increase in sales and timing of receiving raw materials. During the first nine months of 2017, cash used by operating activities was primarily used to fund our net loss together with increase in prepaid expenses were partially offset by decrease in accounts receivable and inventory as well a provision for slow moving inventory and increase in accrued liabilities.
During the first nine months of 2018 and 2017, net cash used by investing activities represented capitalized patent costs and purchases of equipment.
During the first nine months of 2018 and 2017, net cash provided by financing activities represented loans from related parties, net of capital lease payments.
Going concern
Our unaudited condensed financial statements have been prepared on the basis that we will operate as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have incurred net losses each year through December 31, 2017 and have relied on loans from related parties to fund our operations. During the nine-months ended September 30, 2018 the Company has begun to generate net income. However, the Company does not have sufficient revenues and income to fund the operations. These recurring operating losses, liabilities exceeding assets and the reliance on cash inflows from our principal stockholder, as set forth above, have led our independent registered public accounting firm Liggett & Webb, P.A. to include a statement in its audit report relating to our audited financial statements for the years ended December 31, 2017 and 2016 expressing substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our liabilities when they become due and to continue to generate profitable operations in the future. There are no assurances that we will have sufficient funds to execute our business plan, pay our obligations as they become due or generate positive operating results.
Critical accounting policies and estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition and accounts receivable allowances. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 1 to our unaudited condensed financial statements appearing elsewhere in this report.
Recent accounting pronouncements
Information concerning recently issued accounting pronouncements is set forth in Note 1 of our notes to our unaudited condensed financial statements appearing elsewhere in this report.
21
Off balance sheet arrangements
As of the date of this report, we do not have 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 that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable for a smaller reporting company.
ITEM 4.
CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, which includes our CEO and our principal financial and accounting officer, have conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-14(c) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2018 (the "Evaluation Date"). Our management does not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by this report, our CEO and our principal financial and accounting officer have concluded that our disclosure controls and procedures were effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and our principal financial and accounting officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting identified in connection with the evaluation that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
22
PART II. OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS.
None.
ITEM 1A.
RISK FACTORS.
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2017 and our subsequent filings with the SEC, which could materially affect our business, financial condition or future results, subject to the new or modified risk factors appearing below that should be read in conjunction with the risk factors disclosed in such Form 10-K. These cautionary statements are to be used as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the SEC.
WE NEED ADDITIONAL FINANCING WHICH WE MAY NOT BE ABLE TO OBTAIN ON ACCEPTABLE TERMS. IF WE CANNOT RAISE ADDITIONAL CAPITAL AS NEEDED, OUR ABILITY TO FUND OUR ONGOING OPERATIONS WILL BE IN JEOPARDY AND WE WILL BE UNABLE TO CONTINUE AS A GOING CONCERN.
As described elsewhere herein, our net sales are not sufficient to pay our operating expenses. Our capital requirements depend on a number of factors, including our ability to internally grow our revenues, manage our business and control our expenses. Historically, our operations have been financed primarily through loans from our Chairman of the Board, as well as other affiliates. Our Chairman of the Board recently advised us that he does not expect to continue to provide working capital advances to the Company at historic levels. Given our history of losses and debt levels, we face a number of challenges in our ability to raise capital. If we do not significantly increase our net sales or raise funds as needed, our ability to provide for current working capital needs, pay our obligations as they become due, grow our company, and continue our existing business and operations is in jeopardy. In this event, we would no longer be able to continue as a going concern and you could lose all of your investment in our company.
WE OWE APPROXIMATELY $8.3 MILLION, THE MAJORITY OF WHICH IS DUE BY DECEMBER 31, 2019.
At September 30, 2018, we owed our Executive Chairman approximately $8.3 million. This obligation is unsecured. Substantially all of this amount is due on December 31, 2019, however, $325,000 of which is due on demand. We do not have sufficient funds to repay these obligations. If our Executive Chairman does not consent to further extensions of the due date of these amounts, we will be unable to repay these obligations when due.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None, except as previously reported.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4.
MINE SAFETY DISCLOSURE.
Not Applicable.
23
ITEM 5.
OTHER INFORMATION.
On November 13, 2018 Puradyn Filter Technologies Incorporated issued a press release announcing its financial results for the third quarter of 2018. A copy of this press release is furnished as Exhibit 99.1 to this report. Pursuant to General Instruction B.2 of Form 8-K, the information in this Part II, Item 5 of Form 10-Q, including Exhibit 99.1, is being furnished and shall not be deemed filed for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise be subject to the liabilities of that section, nor is it incorporated by reference into any filing of Puradyn Filter Technologies Incorporated under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PURADYN FILTER TECHNOLOGIES INCORPORATED
Date: November 13, 2018
By:
/s/ Edward S. Vittoria
Edward S. Vittoria, Chief Executive Officer, principal executive officer
Date: November 13, 2018
By:
/s/ Martin Scott
CFO Consultant, principal financial and accounting officer
I have reviewed this report on Form 10-Q for the period ended September 30, 2018 of Puradyn Filter Technologies Incorporated;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: November 13, 2018
/s/ Edward S. Vittoria
Edward S. Vittoria, Chief Executive Officer, principal executive officer
I have reviewed this report on Form 10-Q for the period September 30, 2018 of Puradyn Filter Technologies Incorporated;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: November 13, 2018
/s/ Martin Scott
Martin Scott, CFO Consultant, principal financial and accounting officer
In connection with the Quarterly Report of Puradyn Filter Technologies Incorporated (the Company) on Form 10-Q for the period ended September 30, 2018 as filed with the Securities and Exchange Commission (the Report), I, Edward S. Vittoria, Chief Executive Officer of the Company, and Martin Scott, principal financial and accounting officer of the Company, each certify, pursuant to 18 U.S.C. SS. 1350, as adopted pursuant to SS. 906 of the Sarbanes-Oxley Act of 2002, that:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and
2.
The information contained in the Report fairly presents, in all material respects, the financial conditions and results of operations of the Company.
Dated: November 13, 2018
/s/ Edward S. Vittoria
Edward S. Vittoria,
Chief Executive Officer, principal financial officer
Dated: November 13, 2018
/s/ Martin Scott
Martin Scott,
CFO Consultant, principal financial and accounting officer
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Boynton Beach, FL November 13, 2018 - Puradyn Filter Technologies Incorporated (OTCQB: PFTI), a global manufacturer of oil bypass filtration systems, today reported unaudited results of operations for the third fiscal quarter ended September 30, 2018.
Net sales for the three months ended September 30, 2018 were $1,306,070 compared to $515,846 for the same period in 2017, an increase of 153%. Net sales for the nine-month period ended September 30, 2018 were $3,344,272 compared to $1,780,006 for the same time period in 2017, an increase of 88%.
Income from operations for the three months ended September 30, 2018 was $175,518 as compared to a loss of $(224,039) in the same period in 2017. Gross profit, as a percentage of sales, increased to 46% in the three months ended September 30, 2018 vs 25% in the same period in 2017. Income from operations for the nine months ended September 30, 2018 was $303,018 as compared to a loss of $(649.439) in the same period in 2017. Gross profit, as a percentage of sales, increased to 43% in the nine months ended September 30, 2018 vs 23% in the same period in 2017
The Company reported a net profit of $85,763 or $0.00 per share, basic and diluted, for the three months ended September 30, 2018, compared to a net loss of $(294,339) or ($0.00) per share, basic and diluted, for the same period in 2017; and a net profit of $61,884 or $0.00 per share, basic and diluted, for the nine months ended September 30, 2018, compared to a net loss of $(852,908) or $(0.00) for the same period in 2017. Basic weighted average shares used in the calculations for all of 2017 was 69,016,468 shares. Diluted weighted average shares used in the calculations for three months ended September 30, 2018 and none months ended September 30, 2018 were 74,684,488 and 77,116,732 shares, respectively.
Key business highlights from the third quarter include:
·
The last of the largest contractors targeted in the land drilling segment began installing Puradyn systems on their fleet.
·
Puradyn was featured in a webinar presented by World Oil that shared the success experienced by Legend Energy Services, who began testing Puradyn on their pressure pumping equipment earlier in the year and quickly proceeded to make Puradyn standard on their entire fleet after realizing such strong and immediate results. The webinar produced a number of leads that are currently being pursued.
·
MNI Diesel, LLC became the exclusive distributor of Puradyn products to the commercial marine industry for the Ohio and Mississippi River Valleys and areas along the U.S. Gulf Coast. MNI has significant experience with selling, installing and monitoring the success of Puradyn systems on their clients’ vessels, making them a powerful advocate for the product line.
·
Continued growing interest and testing by clients in the midstream and pipeline segment.
·
A large order bound for Afghanistan to be used on power generation systems was fulfilled.
Ed Vittoria, CEO, commented, We are pleased to see revenue growth this quarter even surpass the record growth we experienced last quarter. We have seen demand for replacement filters double as more installed units become active, and sales of new systems have increased over 65% so far this year versus this point last year, which will further drive filter demand going forward. Our pipeline of new and engaged prospective customers continues to grow across the oil and gas and commercial marine segments, and were seeing improved receptivity in the sales process thanks to more customer testimonials and greater market penetration.
The Companys quarterly report on Form 10-Q is available from the SEC website at http://www.sec.gov or the Investor Relations sections of the Companys website at http://www.puradyn.com.
About Puradyn Filter Technologies (www.puradyn.com)
Puradyn designs, manufactures and markets puraDYN®Oil Filtration Systems, the most effective bypass oil filtration products available for internal combustion engines, transmissions and hydraulic applications. Puradyn bypass filtration systems continuously clean lubricating oil and replenish base additives to maintain oil viscosity and safely and significantly extend oil change intervals and engine life. Effective for internal combustion engines, transmissions and hydraulic applications, Puradyns patented, environmentally-conscious solutions deliver rapid return on investment by reducing oil consumption, maintenance and overhaul costs and engine downtime, while also protecting high-value engine assets. Puradyn filtration systems have been deployed on thousands of engines around the world and were also selected by the US Department of Energy for a three-year study of the performance and cost benefits of bypass oil filtration.
Safe Harbor for Forward-Looking Statements
Statements in this press release, which are not historical data, are forward-looking statements which involve known and unknown risks, uncertainties or other factors not under the companys control, including but not limited to our history of losses and uncertainty that we will be able to continue as a going concern, our ability to generate net sales in an amount to pay our operating expenses, our need for additional financing and uncertainties related to our ability to obtain these funds, our reliance on sales to a limited number of customers, our dependence on a limited number of distributors, our ability to compete, our ability to protect our intellectual property, and the application of penny stock rules to the trading in our stock, among others which may cause actual results, performance or achievements of the company to be materially different from the results, performance or other expectations implied by these forward-looking statements. These risk factors include but are not limited to those detailed in the companys periodic filings with the SEC. Puradyn disclaims any responsibility to update any of the forward looking statements contained in this release.
Puradyn Filter Technologies Incorporated
Condensed Consolidated Statements of Operations
For the Three Months and Nine Months Ended September 30, 2018
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2018
2017
2018
2017
Net sales
$
1,306,070
$
515,846
$
3,344,272
$
1,780,006
Cost of products sold
710,995
385,738
1,906,396
1,364,849
Gross Profit
595,075
130,108
1,437,876
415,157
Costs and expenses:
Salaries and wages
247,363
223,049
637,081
640,137
Selling and administrative
172,194
131,098
497,777
424,459
Total operating costs
419,557
354,147
1,134,858
1,064,596
Income / (Loss) from operations
175,518
(224,039
)
303,018
(649,439
)
Other income (expense):
Interest expense
(85,763
)
(70,300
)
(241,134
)
(203,469
)
Total other expense, net
(85,763
)
(70,300
)
(241,134
)
(203,469
)
Net income / (loss) before income tax expense
89,755
(294,339
)
61,884
(852,908
)
Provision for income taxes
Net Income / (loss)
$
89,755
$
(294,339
)
$
61,884
$
(852,908
)
Basic income / (loss) per common share
$
0.00
$
(0.00
)
$
0.00
$
(0.01
)
Diluted income / (loss) per common share
$
0.00
$
(0.00
)
$
0.00
$
(0.01
)
Weighted average common shares outstanding - basic
69,016,468
69,016,468
69,016,468
69,016,468
Weighted average common shares outstanding - diluted
74,684,488
69,016,468
77,116,732
69,016,468
###
CONTACT:
Puradyn Filter Technologies, Inc.
Kathryn Morris
Director, Corporate Communications
(T) 561 547 9499, x 226
kmorris@puradyn.com
http://www.puradyn.com
EX-101.INS
6
pfti-20180930.xml
XBRL INSTANCE FILE
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FILTER TECHNOLOGIES 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style="margin-top: 0px; margin-bottom: -2px; width: 32px; float: left"><b>3. </b></p>
<p style="margin: 0px; text-indent: -2px"><b>Inventories</b></p>
<p style="margin: 0px; clear: left"><br /></p>
<p style="margin: 0px; text-indent: 48px">Inventories consisted of the following at September 30, 2018 and December 31, 2017, respectively:</p>
<p style="margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 17px" /><td style="width: 6.73px" /><td style="width: 79.26px" /><td style="width: 17px" /><td style="width: 6.66px" /><td style="width: 79px" /><td style="width: 4.46px" /></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 86px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>September 30, </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2018</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85.66px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>December 31, </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2017</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; font-size: 8pt"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 86px"><p style="margin: 0px; font-size: 8pt; text-align: center">(Unaudited)</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 85.66px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; font-size: 8pt"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Raw materials</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79.26px"><p style="margin: 0px; text-align: right">918,705</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">901,600</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Work In Progress</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 79.26px"><p style="margin: 0px; text-align: right">—</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">125,932</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Finished goods</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79.26px"><p style="margin: 0px; text-align: right">99,006</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">16,848</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Valuation allowance</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79.26px"><p style="margin: 0px; text-align: right">(475,221</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 17px"><p style="margin: 0px">)</p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">(643,616</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 4.46px"><p style="margin: 0px">)</p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Inventory, net</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 79.26px"><p style="margin: 0px; text-align: right">542,490</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">400,764</p></td></tr></table><p style="margin: 0px; text-align: justify"><i>Organization</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Puradyn Filter Technologies Incorporated (the “Company”), a Delaware corporation, is engaged in the manufacturing, distribution and sale of bypass oil filtration systems under the trademark Puradyn<sup>®</sup> primarily to companies within targeted industries. The Company holds the exclusive worldwide manufacturing and marketing rights for the Puradyn products through direct ownership of various patents.</p><p style="margin: 0px; text-align: justify"><i>Basis of Presentation</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim information and with the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments consisting of a normal and recurring nature considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2018 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2018.</p>
<p style="line-height: 10pt; margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px">For further information, refer to the Company's financial statements and footnotes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2017.</p><p style="margin: 0px; text-align: justify"><i>Cash and Cash Equivalents</i></p>
<p style="line-height: 10pt; margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Cash and cash equivalents include all highly liquid investments with original maturities of three months or less at the time of purchase. At September 30, 2018 and December 31, 2017, the Company did not have any cash equivalents.</p><p style="margin: 0px; text-align: justify"><i>Fair Value of Financial Instruments</i></p>
<p style="line-height: 10pt; margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The carrying amounts of cash, accounts receivable, prepaid expenses and other assets, accounts payable, accrued liabilities and notes payable to stockholder approximate their fair values as of September 30, 2018 and December 31, 2017, respectively, because of their short-term natures.</p><p style="margin: 0px; text-align: justify"><i>Accounts Receivable</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Accounts receivable are recorded at fair value on the date revenue is recognized. The Company provides allowances for doubtful accounts for estimated losses resulting from the inability of its customers to repay their obligation. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to repay, additional allowances may be required. The Company provides for potential uncollectible accounts receivable based on specific customer identification and historical collection experience adjusted for existing market conditions. If market conditions decline, actual collection experience may not meet expectations and may result in decreased cash flows and increased bad debt expense. </p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The policy for determining past due status is based on the contractual payment terms of each customer, which are generally net 30 or net 60 days. Once collection efforts by the Company and its collection agency are exhausted, the determination for charging off uncollectible receivables is made. </p><p style="margin: 0px; text-align: justify"><i>Inventories</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Inventories are stated at the lower of cost or market using the first in, first out (FIFO) method. Production costs, consisting of labor and overhead, are applied to ending finished goods inventories at a rate based on estimated production capacity. Excess production costs are charged to cost of products sold. Provisions have been made to reduce excess or obsolete inventories to their net realizable value. </p><p style="margin: 0px; text-align: justify"><i>Property and Equipment</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Property and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets, except for assets held under capital leases, for which the Company records depreciation and amortization based on the shorter of the asset’s useful life or the term of the lease. The estimated useful lives of property and equipment range from 3 to 5 years. Upon sale or retirement, the cost and related accumulated depreciation and amortization are eliminated from their respective accounts, and the resulting gain or loss is included in results of operations. Repairs and maintenance charges, which do not increase the useful lives of the assets, are charged to operations as incurred.</p><p style="margin: 0px; text-align: justify"><i>Patents</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Patents are stated at cost. Amortization is provided using the straight-line method over the estimated useful lives of the patents. The estimated useful lives of patents are 17 to 20 years. Upon retirement, the cost and related accumulated amortization are eliminated from their respective accounts, and the resulting gain or loss is included in results of operations. </p><p style="margin: 0px; text-align: justify"><i>Impairment of Long-Lived Assets</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Management assesses the recoverability of its long-lived assets when indicators of impairment are present. If such indicators are present, recoverability of these assets is determined by comparing the undiscounted net cash flows estimated to result from those assets over the remaining life to the assets’ net carrying amounts. If the estimated undiscounted net cash flows are less than the net carrying amount, the assets would be adjusted to their fair value, based on appraisal or the present value of the undiscounted net cash flows. </p><p style="margin: 0px; text-align: justify"><i>Product Warranty Costs</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">As required by FASB ASC 460, <i>Guarantor’s Guarantees</i>, the Company is including the following disclosure applicable to its product warranties.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The Company accrues for warranty costs based on the expected material and labor costs to provide warranty replacement products. The methodology used in determining the liability for warranty cost is based upon historical information and experience.  The Company's warranty reserve is included in accrued liabilities in the accompanying condensed financial statements and is calculated as the gross sales multiplied by the historical warranty expense return rate. For the nine months ended September 30, 2018, there was no change to the reserve for warranty liability as the reserve balance was deemed sufficient to absorb any warranty costs that might be incurred from the sales activity for the period. </p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The following table shows the changes in the aggregate product warranty liability for the nine months ended September 30, 2018:</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 23.93px" /><td style="width: 16.06px" /><td style="width: 56.06px" /><td style="width: 7.86px" /></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px"><b>Balance as of December 31, 2017</b></p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 23.93px"><p style="margin: 0px">     </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 16.06px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 56.06px"><p style="margin: 0px; text-align: right">20,000</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 7.86px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; text-indent: 10.4px">Less: Payments made</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 23.93px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 16.06px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 56.06px"><p style="margin: 0px; text-align: right">—</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 7.86px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px; text-indent: 10.4px">Add: Provision for current period warranties</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 23.93px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 16.06px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 56.06px"><p style="margin: 0px; text-align: right">—</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 7.86px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px"><b>Balance as of September</b> <b>30, 2018 (unaudited)</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 23.93px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 16.06px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 56.06px"><p style="margin: 0px; text-align: right">20,000</p></td></tr></table><p style="margin: 0px"><i>Advertising Costs</i></p>
<p style="margin: 0px"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Advertising costs are expensed as incurred. During the three and nine months ended September 30, 2018 and 2017, advertising costs incurred by the Company totaled approximately $4,117, $7,450, $430, and $731, respectively, and are included in selling and administrative expenses in the accompanying statements of operations. </p><p style="margin: 0px; text-align: justify"><i>Engineering and Development</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Research and development costs are expensed as incurred. During the three and nine months ended September 30, 2018 and 2017, research and development costs incurred by the Company totaled $1,582, $4,395, $1,677 and $4,970, respectively, and are included in selling and administrative expenses in the accompanying statements of operations.</p><p style="margin: 0px; text-align: justify"><i>Income Taxes</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The Company accounts for income taxes under FASB ASC 740, <i>Income Taxes</i>. Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.</p><p style="margin: 0px; text-align: justify"></p>
<p style="margin: 0px; text-align: justify"><i>Stock Option Plans</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">We adopted FASB ASC 718, <i>Compensation-Stock Compensation,</i> effective January 1, 2006 using the modified prospective application method of adoption which requires us to record compensation cost related to unvested stock awards as of December 31, 2005 by recognizing the amortized grant date fair value in accordance with provisions of FASB ASC 718 on straight line basis over the service periods of each award. We have estimated forfeiture rates based on our historical experience. Stock option compensation expense for the year ended December 31, 2017 has been recognized as a component of cost of goods sold and general and administrative expenses in the accompanying financial statements for the three and nine months ended September 30, 2018. </p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The Company leases its employees from a payroll leasing company. The Company’s leased employees meet the definition of employees as specified by FASB Interpretation No. 44 for purposes of applying FASB ASC 718.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable in accordance with<i> </i>FASB ASC 505, <i>Equity, </i>and FASB ASC 718<i>, Compensation-Stock Compensation,</i> including related amendments and interpretations. The related expense is recognized over the period the services are provided.</p><p style="margin: 0px; text-align: justify"><i>Credit Risk</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The Company minimizes the concentration of credit risk associated with its cash by maintaining its cash with high quality federally insured financial institutions. However, cash balances in excess of the FDIC insured limit of $250,000 are at risk. At September 30, 2018 and December 31, 2017, respectively, the Company did not have cash balances above the FDIC insured limit. The Company performs ongoing evaluations of its significant trade accounts receivable customers and generally does not require collateral. An allowance for doubtful accounts is maintained against trade accounts receivable at levels which management believes is sufficient to cover probable credit losses. The Company also has some customer concentrations, and the loss of business from one or a combination of these significant customers, or an unexpected deterioration in their financial condition, could adversely affect the Company’s operations.  Please refer to Note 15 for further details.</p><p style="margin: 0px"><i>Basic and Diluted Loss Per Share</i></p>
<p style="margin: 0px"><br /></p>
<p style="line-height: 11pt; margin: 0px; text-indent: 48px; text-align: justify">The Company uses ASC 260-10, <i>Earnings
Per Share</i> for calculating the basic and diluted income (loss) per share. The Company computes basic income (loss) per
share by dividing net income (loss) and net income (loss) attributable to common shareholders by the weighted average number
of common shares outstanding. As of September 30, 2018 and 2017, there were 13,113,336 and 4,175,162 shares issuable upon the
exercise of options and warrants, respectively. Common stock equivalent shares are excluded from the computation of net loss
per share if their effect is anti-dilutive. The Company had net income for the three and nine month period ended September
30, 2018. A separate computation of diluted earnings per share is presented using the treasury stock method and the common
stock equivalents did not have any effect on net income per share.</p><p style="margin: 0px; text-align: justify"></p>
<p style="margin: 0px"><i>Reclassifications</i></p>
<p style="margin: 0px"><br /></p>
<p style="margin: 0px; text-indent: 48px">Certain prior year amounts have been reclassified to conform to the current year presentation. </p><p style="margin: 0px; clear: left"></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">At September 30, 2018 and December 31, 2017, prepaid expenses and other current assets consisted of the following:</p>
<p style="margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 16.93px" /><td style="width: 6.66px" /><td style="width: 79px" /><td style="width: 17px" /><td style="width: 6.66px" /><td style="width: 79px" /><td style="width: 3.33px" /></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16.93px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85.66px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>September 30, </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2018</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85.66px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>December 31, </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2017</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 3.33px"><p style="margin: 0px; font-size: 8pt"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16.93px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 85.66px"><p style="margin: 0px; font-size: 8pt; text-align: center">(Unaudited)</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 85.66px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 3.33px"><p style="margin: 0px; font-size: 8pt"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Prepaid expenses</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">44,446</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">26,648</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 3.33px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Deposits</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">69,984</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">42,707</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 3.33px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">114,430</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #FFFFFF 1px solid; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">69,355</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #FFFFFF 1px solid; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 3.33px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
</table>27450000.1969016468Non-accelerated Filertruefalse102664231087974779896221026642328901251626003159372434436299912836280460002118669634575179545314327866935511443040076454249027089667695645327821735325405722291373320208718869016690165359916053637820-62561279-62499395-8893103-87925591373320208718877116732690164686901646874684488690164686901646869016468690164680.00-0.00-0.010.000.00-0.00-0.010.0061884-294339-8529088975561884-294339-85290889755-241134-70300-203469-857632411347030020346985763303018-224039-649439175518113485835414710645964195574977771310984244591721946370812230496401372473631437876130108415157595075190639638573813648497109953344272515846178000613060703569026373109167180317544389891012806226524447298463484595221842814281625000050000-73305-8123018026278455527953385-230682-43110820152727045-32279-854315905331247-9912830708-8504507525297155337-139457406060-488511361112199831611905124938110000.160.16P6YP5YP48M<p style="margin: 0px"></p>
<p style="margin-top: 0px; margin-bottom: -2px; width: 32px; float: left"><b>4. </b></p>
<p style="margin: 0px; text-indent: -2px"><b>Prepaid Expenses and Other Current Assets</b></p>
<p style="margin: 0px; clear: left"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">At September 30, 2018 and December 31, 2017, prepaid expenses and other current assets consisted of the following:</p>
<p style="margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 16.93px" /><td style="width: 6.66px" /><td style="width: 79px" /><td style="width: 17px" /><td style="width: 6.66px" /><td style="width: 79px" /><td style="width: 3.33px" /></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16.93px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85.66px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>September 30, </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2018</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85.66px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>December 31, </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2017</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 3.33px"><p style="margin: 0px; font-size: 8pt"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16.93px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 85.66px"><p style="margin: 0px; font-size: 8pt; text-align: center">(Unaudited)</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 85.66px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 3.33px"><p style="margin: 0px; font-size: 8pt"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Prepaid expenses</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">44,446</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">26,648</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 3.33px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Deposits</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">69,984</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">42,707</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 3.33px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">114,430</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #FFFFFF 1px solid; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">69,355</p></td></tr></table><p style="margin-top: 0px; margin-bottom: -2px; width: 32px; float: left"><b>5. </b></p>
<p style="margin: 0px; text-indent: -2px"><b>Property and Equipment</b></p>
<p style="margin: 0px; clear: left"><br /></p>
<p style="margin: 0px; text-indent: 48px">At September 30, 2018 and December 31, 2017, property and equipment consisted of the following:</p>
<p style="margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 16.93px" /><td style="width: 6.73px" /><td style="width: 79.4px" /><td style="width: 17px" /><td style="width: 6.66px" /><td style="width: 79px" /><td style="width: 4.46px" /></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16.93px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 86.13px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>September 30, </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2018</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85.66px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>December 31, </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2017</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; font-size: 8pt"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16.93px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 86.13px"><p style="margin: 0px; font-size: 8pt; text-align: center">(Unaudited)</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 85.66px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; font-size: 8pt"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Machinery and equipment</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79.4px"><p style="margin: 0px; text-align: right">1,045,217</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">1,045,217</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Furniture and fixtures</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 79.4px"><p style="margin: 0px; text-align: right">56,558</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.66px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">56,558</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Leasehold improvements</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79.4px"><p style="margin: 0px; text-align: right">188,012</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">152,322</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Software and website development</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 79.4px"><p style="margin: 0px; text-align: right">88,842</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.66px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">88,842</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Computer hardware and software</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79.4px"><p style="margin: 0px; text-align: right">171,275</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.66px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">153,249</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 79.4px"><p style="margin: 0px; text-align: right">1,549,904</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.66px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">1,496,188</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Less accumulated depreciation and amortization</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79.4px"><p style="margin: 0px; text-align: right">(1,467,731</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 17px"><p style="margin: 0px">)</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.66px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">(1,450,861</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 4.46px"><p style="margin: 0px">)</p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 79.4px"><p style="margin: 0px; text-align: right">82,173</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">45,327</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
</table>
<p style="margin: 0px"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Depreciation and amortization expense of property and equipment for the three and nine months ended September 30, 2018 and 2017 is $6,817 and $16,870, and $5,657 and $14,751, respectively.</p><p style="margin-top: 0px; margin-bottom: -2px; width: 32px; float: left"><b>7. </b></p>
<p style="margin: 0px; text-indent: -2px; text-align: justify"><b>Leases</b></p>
<p style="margin: 0px; clear: left; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The Company leases its office and warehouse facilities in Boynton Beach, Florida under a long-term non-cancellable lease agreement, which contains renewal options and rent escalation clauses. As of September 30, 2018, a security deposit of $34,970 is included in noncurrent assets in the accompanying balance sheet. On September 27, 2012 the Company entered into a non-cancellable six-year lease agreement for the same facilities commencing August 1, 2013 and expiring July 31, 2019. The total minimum lease payments over the term of the current lease amount to $180,826. </p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">On June 29, 2018, the Company entered into a non-cancellable five-year lease for the same facilities commencing August 1, 2019 and expiring July 31, 2024. The lease will require an initial rent of $14,899 per month, beginning August 1, 2019 for the first year, increasing by 3% per year to $16,769 per month in the fifth year. In addition, the Company is responsible for all operating expenses and utilities. As part of the lease the landlord agreed to reimburse the Company $58,000 towards the replacement of air conditioning units, upon written request. As of September 30, 2018 the Company had received all of the reimbursement.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">In January 2015 the Company entered into a capital lease for office equipment in the amount of $15,020, which expires in December 2018. As of September 30, 2018 and December 31, 2017 the balance under capital lease obligations was $629 and $3,443, respectively.  </p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">In September 2018, the Company entered into a new capital lease for office equipment in the amount of $559, which will commence in December 2018 for a term of 48 months.</p><p style="margin-top: 0px; margin-bottom: -2px; width: 32px; float: left"><b>8. </b></p>
<p style="margin: 0px; text-indent: -2px"><b>Accrued Liabilities</b></p>
<p style="margin: 0px; clear: left"><br /></p>
<p style="margin: 0px; text-indent: 48px">At September 30, 2018 and December 31, 2017, accrued liabilities consisted of the following:</p>
<p style="margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 17px" /><td style="width: 17px" /><td style="width: 68px" /><td style="width: 17px" /><td style="width: 6.73px" /><td style="width: 79px" /><td style="width: 3.4px" /></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>September 30, </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2018</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85.73px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>December 31,</b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2017</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 3.4px"><p style="margin: 0px; font-size: 8pt"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 85px"><p style="margin: 0px; font-size: 8pt; text-align: center">(Unaudited)</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 85.73px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 3.4px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Accrued vacation and benefits</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 68px"><p style="margin: 0px; text-align: right">50,950</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">69,025</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 3.4px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Accrued expenses relating to vendors and others</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 68px"><p style="margin: 0px; text-align: right">213,376</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">136,681</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 3.4px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Accrued warranty costs</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 68px"><p style="margin: 0px; text-align: right">20,000</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">20,000</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 3.4px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Accrued interest payable relating to stockholder notes</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 68px"><p style="margin: 0px; text-align: right">245,900</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">115,039</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 3.4px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Deferred rent</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 68px"><p style="margin: 0px; text-align: right">69,795</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">22,059</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 3.4px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 17px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 68px"><p style="margin: 0px; text-align: right">600,021</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">362,804</p></td></tr></table><p style="margin-top: 0px; margin-bottom: -2px; width: 32px; float: left"><b>9. </b></p>
<p style="margin: 0px; text-indent: -2px"><b>Deferred Compensation</b></p>
<p style="margin: 0px; clear: left"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Deferred compensation represents amounts owed to three employees for salary. As there is no written agreement with these employees which memorializes the terms of the salary deferral, only a voluntary election to do so, it is possible that the employees could demand payment in full at any time. As of September 30, 2018 and December 31, 2017 the Company recorded deferred compensation of $1,593,724 and $1,626,003, respectively.</p><p style="line-height: 11pt; margin-top: 0px; margin-bottom: -2px; width: 32px; float: left"><b>14. </b></p>
<p style="line-height: 11pt; margin: 0px; text-indent: -2px"><b>Related Party Transactions </b></p>
<p style="line-height: 8pt; margin: 0px; clear: left; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">On March 28, 2002 the Company executed a binding agreement with one of its principal stockholders, who is also the former Chief Executive Officer, now Executive Chairman of the Board, to fund up to $6.1 million. Under the terms of the agreement, the Company can draw amounts as needed to fund operations. Amounts drawn bear interest at the BBA LIBOR Daily Floating Rate plus 1.4 percentage points (3.89% and 3.61% per annum at September 30, 2018 and 2017 respectively), payable monthly and were to become due and payable on December 31, 2005 or upon a change in control of the Company or the consummation of any other financing over $7.0 million. Beginning in March 2006, annually, through February 2012, the maturity date for the agreement was extended annually from December 31, 2007, to December 31, 2018. On May 9, 2018 he extended the maturity rate to December 31, 2019. </p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">During the nine months ended September 30, 2018 we borrowed an additional $26,273 from our Executive Chairman, together with $325,000 under a demand note not covered by this line of credit. This demand note bears interest at 4% per annum. As of September 30, 2018 and December 31, 2017 we owed him an aggregate of $8,314,622 and $7,988,349, respectively, which represented approximately 76% and 78% of our total liabilities, respectively. On May 9, 2018 he extended the maturity date to December 31, 2019. While he has continued to fund our working capital needs at reduced levels and extend the due date of the obligation for an additional year, he is under no contractual obligation to do so. During 2017 he advised us he does not expect to continue to provide working capital advances to us at historic amounts. If we are unable to meet our obligation to our Executive Chairman prior to maturity, he has advised us that he may forgive all, or substantially all, of this obligation.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">In November 2017, the Company received an additional loan in the amount of $25,000 from a former member of the Board of Directors. The loan bears interest at a rate of 5% per annum and is due December 31, 2018.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="line-height: 11pt; margin: 0px; text-indent: 48px; text-align: justify">From April 1, 2018 through May 15, 2018, the Company received additional loans in the amount of $250,000 from a related party to both the Company’s Executive Chairman and its Chief Executive Officer, as advances for working capital needs. The amounts are non-interest bearing and are payable upon demand. On July 15, 2018, $250,000 was repaid.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">On April 12, 2018, the Company granted our Chairman and Former CEO options to purchase 1,400,000 shares of the Company’s common stock, at exercise price of $0.208 per share. The options vest over a three-year period and expire April 12, 2028. On April 30, 2018 our Chairman and Former CEO voluntarily cancelled the grant on April 12, 2018 of options awarded him to purchase an aggregate of 1,400,000 shares of the common stock.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">On May 18, 2018, the Company, upon recommendation and approval by the compensation committee of the Board of Directors, granted its new Chief Executive Officer, options to purchase 6,500,000 shares of the Company’s common stock, at an exercise price of $0.017 per share. The options vest over a three-year period and expire May 18, 2028. </p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">On May 18, 2018 Mr. Edward S. Vittoria was appointed Chief
Executive Officer of Puradyn Filter Technologies Incorporated and as a member of its Board of Directors. Immediately prior to
such appointment, Mr. Joseph V. Vittoria resigned from his position as Chief Executive Officer, and has been appointed
Executive Chairman of the Board of Directors. Prior to his appointments, Mr. Edward Vittoria had been providing advisory
services to us beginning in December 2017.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">On August 24, 2018, the Company granted one director options to purchase 5,000 shares of the Company’s common stock, at an exercise price of $0.045 per share. The options vest over a two year period and expire August 25, 2023. The quoted market price of the common stock at the time of issuance of the options was $0.045 per share.</p>
<p style="line-height: 11pt; margin: 0px; text-align: justify"><br /></p>
<p style="line-height: 11pt; margin: 0px; text-indent: 48px; text-align: justify">In November 2017, the Company received an additional loan in the amount of $25,000 from a former member of the Board of Directors and a significant stockholder. The loan bears interest at a rate of 5% per annum and is due December 31, 2018.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">On October 20, 2009, the Company entered into a consulting agreement with Boxwood Associates, Inc., whereby the Company pays $2,000 monthly for management and strategic development services performed. The contract remains in effect until terminated by either party providing 30 days written notice. During each of three and nine months ended September 30, 2018 and 2017, we paid Boxwood Associates, Inc. $6,000 and $18,000, respectively under this agreement. A former member of our Board of Directors is President of Boxwood Associates, Inc.</p><p style="margin-top: 0px; margin-bottom: -2px; width: 32px; float: left"><b>15. </b></p>
<p style="margin: 0px; text-indent: -2px; text-align: justify"><b>Major Customers </b></p>
<p style="margin: 0px; clear: left; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">There are concentrations of credit risk with respect to accounts receivables due to the amounts owed by four customers at September 30, 2018 whose balances each represented approximately 36%, 33%, 14%, and 13%, for a total of 96% of total accounts receivables. Comparatively, there are concentrations of credit risk with respect to accounts receivables due to the amounts owed by two customers at December 31, 2017 whose balances each represented approximately 53%, and 30%, for a total of 83% of total accounts receivables. Sales to three customers for the nine months ended September 30, 2018 were 32%, 27% and 14% of total sales for total of 73% of sales. Sales to four customers for the three months ended September 30, 2018 were 32%, 29%, 16% and 12% for total of 89% of sales. During the three months ended September 30, 2017 sales from four customers represented 33%, 17%, 16% and 11% for a total of 77% of sales. During the nine months ended September 30, 2017 sales from three customers represented 39%, 12%, and 11% for a total of 62% of sales.  The loss of business from one or a combination of the Company’s significant customers, or an unexpected deterioration in their financial condition, could adversely affect the Company’s operations.</p><p style="margin: 0px; text-align: justify"></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The following table shows the changes in the aggregate product warranty liability for the nine -months ended September 30, 2018:</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 23.93px" /><td style="width: 16.06px" /><td style="width: 56.06px" /><td style="width: 7.86px" /></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px"><b>Balance as of December 31, 2017</b></p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 23.93px"><p style="margin: 0px">     </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 16.06px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 56.06px"><p style="margin: 0px; text-align: right">20,000</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 7.86px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; text-indent: 10.4px">Less: Payments made</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 23.93px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 16.06px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 56.06px"><p style="margin: 0px; text-align: right">—</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 7.86px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px; text-indent: 10.4px">Add: Provision for current period warranties</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 23.93px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 16.06px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 56.06px"><p style="margin: 0px; text-align: right">—</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 7.86px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px"><b>Balance as of September</b> <b>30, 2018 (unaudited)</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 23.93px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 16.06px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 56.06px"><p style="margin: 0px; text-align: right">20,000</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 7.86px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
</table><p style="margin: 0px; clear: left"></p>
<p style="margin: 0px; text-indent: 48px">Inventories consisted of the following at September 30, 2018 and December 31, 2017, respectively:</p>
<p style="margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 17px" /><td style="width: 6.73px" /><td style="width: 79.26px" /><td style="width: 17px" /><td style="width: 6.66px" /><td style="width: 79px" /><td style="width: 4.46px" /></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 86px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>September 30, </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2018</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85.66px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>December 31, </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2017</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; font-size: 8pt"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 86px"><p style="margin: 0px; font-size: 8pt; text-align: center">(Unaudited)</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 85.66px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; font-size: 8pt"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Raw materials</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79.26px"><p style="margin: 0px; text-align: right">918,705</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">901,600</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Work In Progress</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 79.26px"><p style="margin: 0px; text-align: right">—</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">125,932</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Finished goods</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79.26px"><p style="margin: 0px; text-align: right">99,006</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">16,848</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Valuation allowance</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79.26px"><p style="margin: 0px; text-align: right">(475,221</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 17px"><p style="margin: 0px">)</p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">(643,616</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 4.46px"><p style="margin: 0px">)</p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Inventory, net</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 79.26px"><p style="margin: 0px; text-align: right">542,490</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">400,764</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
</table><p style="margin: 0px; text-indent: 48px">At September 30, 2018 and December 31, 2017, property and equipment consisted of the following:</p>
<p style="margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 16.93px" /><td style="width: 6.73px" /><td style="width: 79.4px" /><td style="width: 17px" /><td style="width: 6.66px" /><td style="width: 79px" /><td style="width: 4.46px" /></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16.93px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 86.13px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>September 30, </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2018</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85.66px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>December 31, </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2017</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; font-size: 8pt"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16.93px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 86.13px"><p style="margin: 0px; font-size: 8pt; text-align: center">(Unaudited)</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 85.66px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; font-size: 8pt"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Machinery and equipment</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79.4px"><p style="margin: 0px; text-align: right">1,045,217</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">1,045,217</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Furniture and fixtures</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 79.4px"><p style="margin: 0px; text-align: right">56,558</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.66px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">56,558</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Leasehold improvements</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79.4px"><p style="margin: 0px; text-align: right">188,012</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">152,322</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Software and website development</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 79.4px"><p style="margin: 0px; text-align: right">88,842</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.66px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">88,842</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Computer hardware and software</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79.4px"><p style="margin: 0px; text-align: right">171,275</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.66px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">153,249</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 79.4px"><p style="margin: 0px; text-align: right">1,549,904</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.66px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">1,496,188</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Less accumulated depreciation and amortization</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79.4px"><p style="margin: 0px; text-align: right">(1,467,731</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 17px"><p style="margin: 0px">)</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.66px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">(1,450,861</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 4.46px"><p style="margin: 0px">)</p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 79.4px"><p style="margin: 0px; text-align: right">82,173</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">45,327</p></td></tr></table><p style="margin: 0px; clear: left"></p>
<p style="margin: 0px; text-indent: 48px">Included in other assets at September 30, 2018 and December 31, 2017 are capitalized patent costs as follows:</p>
<p style="margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 16px" /><td style="width: 6.73px" /><td style="width: 78.86px" /><td style="width: 16px" /><td style="width: 6.73px" /><td style="width: 79px" /><td style="width: 4.46px" /></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt; text-align: justify"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16px"><p style="margin: 0px; font-size: 8pt; text-align: justify"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85.6px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>September 30,</b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2018</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85.73px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>December 31,</b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2017</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; font-size: 8pt; text-align: justify"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; text-align: justify"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16px"><p style="margin: 0px; text-align: justify"> </p>
</td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 85.6px"><p style="margin: 0px; font-size: 8pt; text-align: center">(Unaudited)</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16px"><p style="margin: 0px; padding: 0px"> </p></td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 85.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; text-align: justify"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px; text-align: justify">Patent costs</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 16px"><p style="margin: 0px; text-align: justify"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; text-align: justify">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 78.86px"><p style="margin: 0px; text-align: right">614,152</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 16px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; text-align: justify">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">558,873</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; text-align: justify">Less accumulated amortization</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16px"><p style="margin: 0px; text-align: justify"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; text-align: justify"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 78.86px"><p style="margin: 0px; text-align: right">(76,893</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16px"><p style="margin: 0px">)</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; text-align: justify"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">(62,153</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px">)</p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px; text-align: justify"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 16px"><p style="margin: 0px; text-align: justify"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; text-align: justify">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 78.86px"><p style="margin: 0px; text-align: right">537,259</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #FFFFFF 1px solid; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 16px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; text-align: justify">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">496,720</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #FFFFFF 1px solid; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
</table><p style="margin: 0px; clear: left"></p>
<p style="margin: 0px; text-indent: 48px">At September 30, 2018 and December 31, 2017, accrued liabilities consisted of the following:</p>
<p style="margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 17px" /><td style="width: 17px" /><td style="width: 68px" /><td style="width: 17px" /><td style="width: 6.73px" /><td style="width: 79px" /><td style="width: 3.4px" /></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>September 30, </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2018</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85.73px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>December 31,</b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2017</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 3.4px"><p style="margin: 0px; font-size: 8pt"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 85px"><p style="margin: 0px; font-size: 8pt; text-align: center">(Unaudited)</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 85.73px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 3.4px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Accrued vacation and benefits</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 68px"><p style="margin: 0px; text-align: right">50,950</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">69,025</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 3.4px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Accrued expenses relating to vendors and others</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 68px"><p style="margin: 0px; text-align: right">213,376</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">136,681</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 3.4px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Accrued warranty costs</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 68px"><p style="margin: 0px; text-align: right">20,000</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">20,000</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 3.4px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Accrued interest payable relating to stockholder notes</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 68px"><p style="margin: 0px; text-align: right">245,900</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">115,039</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 3.4px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Deferred rent</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 68px"><p style="margin: 0px; text-align: right">69,795</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.73px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">22,059</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 3.4px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 17px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 68px"><p style="margin: 0px; text-align: right">600,021</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">362,804</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 3.4px"><p style="margin: 0px"> </p>
</td></tr>
</table><p style="margin: 0px"></p>
<p style="margin: 0px; text-indent: 48px">The minimum annual principal payments of notes payable and capital lease obligations at September 30, 2018 were:</p>
<p style="margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 17px" /><td style="width: 6.66px" /><td style="width: 76px" /><td style="width: 6.66px" /></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">2018</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">350,629</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">2019</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px">  </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">7,989,622</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">  </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">8,340,251</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td></tr>
</table><p style="margin: 0px; text-indent: 48px">A summary of the Company’s stock option plans as of September 30, 2018, and changes during the nine month period then ended is presented below:</p>
<p style="margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td /><td style="width: 15.93px" /><td style="width: 8px" /><td style="width: 76px" /><td style="width: 8px" /><td style="width: 20px" /><td style="width: 8px" /><td style="width: 76.4px" /><td style="width: 7.6px" /></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 15.93px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="6" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 196.4px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Nine Months Ended</b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>September 30, 2018</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 7.6px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt">  </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 15.93px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 84px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Number of </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>Options</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 84.4px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Weighted </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>Average</b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>Exercise Price</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 7.6px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Options outstanding at December 31, 2017</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 15.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">3,180,000</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 76.4px"><p style="margin: 0px; text-align: right">0.20</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 7.6px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Options granted</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 15.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">10,980,000</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 8px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 76.4px"><p style="margin: 0px; text-align: right">0.02</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 7.6px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Options exercised</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 15.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">—</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 76.4px"><p style="margin: 0px; text-align: right">—</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 7.6px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Options forfeited </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 15.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">(32,500</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8px"><p style="margin: 0px">)</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 8px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 76.4px"><p style="margin: 0px; text-align: right">0.03</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 7.6px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Options expired</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 15.93px"><p style="margin: 0px; text-align: right"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 8px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">(1,787,500</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 8px"><p style="margin: 0px">)</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 8px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 76.4px"><p style="margin: 0px; text-align: right">0.14</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 7.6px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Options at end of period</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 15.93px"><p style="margin: 0px; text-align: right"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 8px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">12,340,000</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 8px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 76.4px"><p style="margin: 0px; text-align: right">0.06</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 7.6px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Options exercisable at September 30, 2018</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 15.93px"><p style="margin: 0px; text-align: right"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 8px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">2,745,000</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 8px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 76.4px"><p style="margin: 0px; text-align: right">0.19</p>
</td></tr></table><p style="line-height: 8pt; margin: 0px"></p>
<table cellpadding="0" cellspacing="0" align="center" style="margin-top: 0px; font-size: 10pt"><tr style="height: 0px; font-size: 0"><td style="width: 132.8px" /><td style="width: 13.26px" /><td style="width: 13.26px" /><td style="width: 13.26px" /><td style="width: 119.53px" /><td style="width: 13.26px" /><td style="width: 13.26px" /><td style="width: 13.26px" /><td style="width: 119.53px" /><td style="width: 13.26px" /><td style="width: 13.26px" /><td style="width: 13.26px" /><td style="width: 119.53px" /><td style="width: 13.2px" /></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom; width: 132.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td colspan="10" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 451.46px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Warrants Outstanding and Exercisable</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 13.2px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom; width: 132.8px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Range of Exercise Price</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 132.8px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Number Outstanding</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 132.8px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Remaining Average Contractual Life (In Years)</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 132.8px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Weighted Average </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>Exercise Price</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 13.2px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 132.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 119.53px"><p style="margin: 0px; text-align: right">773,336</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 119.53px"><p style="margin: 0px; text-align: right">1.7</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 13.26px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 119.53px"><p style="margin: 0px; text-align: right">0.16</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 13.2px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom; width: 132.8px"><p style="margin: 0px; padding-left: 8px; text-indent: -8px"><b>Totals</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px"><b> </b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 13.26px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 119.53px"><p style="margin: 0px; text-align: right">733,336</p>
</td><td style="margin-top: 0px; border-top: #FFFFFF 1px solid; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 119.53px"><p style="margin: 0px; text-align: right">1.7</p>
</td><td style="margin-top: 0px; border-top: #FFFFFF 1px solid; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 13.26px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 119.53px"><p style="margin: 0px; text-align: right">0.16</p>
</td><td style="margin-top: 0px; border-top: #FFFFFF 1px solid; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 13.2px"><p style="margin: 0px"> </p>
</td></tr>
</table><p style="margin-top: 0px; margin-bottom: -2px; width: 32px; float: left"><b>1.</b></p>
<p style="margin: 0px; text-indent: -2px; text-align: justify"><b>Basis of Presentation, Going Concern and Summary of Significant Accounting Policies</b></p>
<p style="margin: 0px; clear: left; text-align: justify"><br /></p>
<p style="margin: 0px; text-align: justify"><i>Organization</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Puradyn Filter Technologies Incorporated (the “Company”), a Delaware corporation, is engaged in the manufacturing, distribution and sale of bypass oil filtration systems under the trademark Puradyn<sup>®</sup> primarily to companies within targeted industries. The Company holds the exclusive worldwide manufacturing and marketing rights for the Puradyn products through direct ownership of various patents.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-align: justify"><i>Basis of Presentation</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim information and with the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments consisting of a normal and recurring nature considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2018 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2018.</p>
<p style="line-height: 10pt; margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">For further information, refer to the Company's financial statements and footnotes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2017.</p>
<p style="line-height: 10pt; margin: 0px"><br /></p>
<p style="margin: 0px; text-align: justify"><i>Revenue Recognition</i></p>
<p style="line-height: 10pt; margin: 0px; text-align: justify"><br /></p>
<p style="line-height: 11pt; margin: 0px; text-indent: 48px; text-align: justify">The Company recognizes revenue from product sales to customers, distributors and resellers when products that do not require further services or installation by the Company are shipped, when there are no uncertainties surrounding customer acceptance and when collectability is reasonably assured. Cash received by the Company prior to shipment is recorded as deferred revenue. Sales are made to customers under terms allowing certain limited rights of return and other limited product and performance warranties for which provision has been made in the accompanying unaudited condensed financial statements. </p>
<p style="line-height: 11pt; margin: 0px; text-align: justify"><br /></p>
<p style="line-height: 11pt; margin: 0px; text-indent: 48px; text-align: justify">Amounts billed to customers in sales transactions related to shipping and handling, represent revenues earned for the goods provided and are included in net sales. Costs of shipping and handling are included in cost of products sold.</p>
<p style="line-height: 11pt; margin: 0px; text-align: justify"><br /></p>
<p style="line-height: 11pt; margin: 0px; text-indent: 48px; text-align: justify">The Company accounts for revenue in accordance with Topic 606 which was adopted at the beginning of fiscal year 2018 using the modified retrospective method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the effect was immaterial. The adoption of these standards did not have a material impact on the Company's condensed statements of operations during the nine months ended September 30, 2018. </p>
<p style="line-height: 10pt; margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-align: justify"><i>Use of Estimates</i></p>
<p style="line-height: 10pt; margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The preparation of condensed financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the accompanying unaudited condensed financial statements and accompanying notes. Actual results could differ from those estimates.</p>
<p style="line-height: 10pt; margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-align: justify"><i>Cash and Cash Equivalents</i></p>
<p style="line-height: 10pt; margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Cash and cash equivalents include all highly liquid investments with original maturities of three months or less at the time of purchase. At September 30, 2018 and December 31, 2017, the Company did not have any cash equivalents.</p>
<p style="margin: 0px"><br /></p>
<p style="margin: 0px; text-align: justify"><i>Fair Value of Financial Instruments</i></p>
<p style="line-height: 10pt; margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The carrying amounts of cash, accounts receivable, prepaid expenses and other assets, accounts payable, accrued liabilities and notes payable to stockholder approximate their fair values as of September 30, 2018 and December 31, 2017, respectively, because of their short-term natures.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-align: justify"><i>Accounts Receivable</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Accounts receivable are recorded at fair value on the date revenue is recognized. The Company provides allowances for doubtful accounts for estimated losses resulting from the inability of its customers to repay their obligation. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to repay, additional allowances may be required. The Company provides for potential uncollectible accounts receivable based on specific customer identification and historical collection experience adjusted for existing market conditions. If market conditions decline, actual collection experience may not meet expectations and may result in decreased cash flows and increased bad debt expense. </p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The policy for determining past due status is based on the contractual payment terms of each customer, which are generally net 30 or net 60 days. Once collection efforts by the Company and its collection agency are exhausted, the determination for charging off uncollectible receivables is made. </p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-align: justify"><i>Inventories</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Inventories are stated at the lower of cost or market using the first in, first out (FIFO) method. Production costs, consisting of labor and overhead, are applied to ending finished goods inventories at a rate based on estimated production capacity. Excess production costs are charged to cost of products sold. Provisions have been made to reduce excess or obsolete inventories to their net realizable value. </p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-align: justify"><i>Property and Equipment</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Property and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets, except for assets held under capital leases, for which the Company records depreciation and amortization based on the shorter of the asset’s useful life or the term of the lease. The estimated useful lives of property and equipment range from 3 to 5 years. Upon sale or retirement, the cost and related accumulated depreciation and amortization are eliminated from their respective accounts, and the resulting gain or loss is included in results of operations. Repairs and maintenance charges, which do not increase the useful lives of the assets, are charged to operations as incurred.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-align: justify"><i>Patents</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Patents are stated at cost. Amortization is provided using the straight-line method over the estimated useful lives of the patents. The estimated useful lives of patents are 17 to 20 years. Upon retirement, the cost and related accumulated amortization are eliminated from their respective accounts, and the resulting gain or loss is included in results of operations. </p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-align: justify"><i>Impairment of Long-Lived Assets</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<a name="Toc320722657"></a><a name="Toc320722761"></a><a name="Toc320722877"></a><a name="Toc320722933"></a><a name="Toc320722988"></a><p style="margin: 0px; text-indent: 48px; text-align: justify">Management assesses the recoverability of its long-lived assets when indicators of impairment are present. If such indicators are present, recoverability of these assets is determined by comparing the undiscounted net cash flows estimated to result from those assets over the remaining life to the assets’ net carrying amounts. If the estimated undiscounted net cash flows are less than the net carrying amount, the assets would be adjusted to their fair value, based on appraisal or the present value of the undiscounted net cash flows. </p>
<p style="margin: 0px"><br /></p>
<p style="margin: 0px; text-align: justify"><i>Product Warranty Costs</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<a name="Toc320722658"></a><a name="Toc320722762"></a><a name="Toc320722878"></a><a name="Toc320722934"></a><a name="Toc320722989"></a><p style="margin: 0px; text-indent: 48px; text-align: justify">As required by FASB ASC 460, <i>Guarantor’s Guarantees</i>, the Company is including the following disclosure applicable to its product warranties.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The Company accrues for warranty costs based on the expected material and labor costs to provide warranty replacement products. The methodology used in determining the liability for warranty cost is based upon historical information and experience.  The Company's warranty reserve is included in accrued liabilities in the accompanying condensed financial statements and is calculated as the gross sales multiplied by the historical warranty expense return rate. For the nine months ended September 30, 2018, there was no change to the reserve for warranty liability as the reserve balance was deemed sufficient to absorb any warranty costs that might be incurred from the sales activity for the period. </p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The following table shows the changes in the aggregate product warranty liability for the nine months ended September 30, 2018:</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td></td><td style="width: 23.93px"></td><td style="width: 16.06px"></td><td style="width: 56.06px"></td><td style="width: 7.86px"></td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px"><b>Balance as of December 31, 2017</b></p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 23.93px"><p style="margin: 0px">     </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 16.06px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 56.06px"><p style="margin: 0px; text-align: right">20,000</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 7.86px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; text-indent: 10.4px">Less: Payments made</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 23.93px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 16.06px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 56.06px"><p style="margin: 0px; text-align: right">—</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 7.86px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px; text-indent: 10.4px">Add: Provision for current period warranties</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 23.93px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 16.06px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 56.06px"><p style="margin: 0px; text-align: right">—</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 7.86px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px"><b>Balance as of September</b> <b>30, 2018 (unaudited)</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 23.93px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 16.06px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 56.06px"><p style="margin: 0px; text-align: right">20,000</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 7.86px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
</table>
<p style="margin: 0px"><br /></p>
<p style="margin: 0px"><i>Advertising Costs</i></p>
<p style="margin: 0px"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Advertising costs are expensed as incurred. During the three and nine months ended September 30, 2018 and 2017, advertising costs incurred by the Company totaled approximately $4,117, $7,450, $430, and $731, respectively, and are included in selling and administrative expenses in the accompanying statements of operations. </p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-align: justify"><i>Engineering and Development</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Research and development costs are expensed as incurred. During the three and nine months ended September 30, 2018 and 2017, research and development costs incurred by the Company totaled $1,582, $4,395, $1,677 and $4,970, respectively, and are included in selling and administrative expenses in the accompanying statements of operations.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-align: justify"><i>Income Taxes</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The Company accounts for income taxes under FASB ASC 740, <i>Income Taxes</i>. Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-align: justify"><i>Stock Option Plans</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">We adopted FASB ASC 718, <i>Compensation-Stock Compensation,</i> effective January 1, 2006 using the modified prospective application method of adoption which requires us to record compensation cost related to unvested stock awards as of December 31, 2005 by recognizing the amortized grant date fair value in accordance with provisions of FASB ASC 718 on straight line basis over the service periods of each award. We have estimated forfeiture rates based on our historical experience. Stock option compensation expense for the year ended December 31, 2017 has been recognized as a component of cost of goods sold and general and administrative expenses in the accompanying financial statements for the three and nine months ended September 30, 2018. </p>
<p style="margin: 0px"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The Company leases its employees from a payroll leasing company. The Company’s leased employees meet the definition of employees as specified by FASB Interpretation No. 44 for purposes of applying FASB ASC 718.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable in accordance with<i> </i>FASB ASC 505, <i>Equity, </i>and FASB ASC 718<i>, Compensation-Stock Compensation,</i> including related amendments and interpretations. The related expense is recognized over the period the services are provided.<b> </b></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-align: justify"><i>Credit Risk</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The Company minimizes the concentration of credit risk associated with its cash by maintaining its cash with high quality federally insured financial institutions. However, cash balances in excess of the FDIC insured limit of $250,000 are at risk. At September 30, 2018 and December 31, 2017, respectively, the Company did not have cash balances above the FDIC insured limit. The Company performs ongoing evaluations of its significant trade accounts receivable customers and generally does not require collateral. An allowance for doubtful accounts is maintained against trade accounts receivable at levels which management believes is sufficient to cover probable credit losses. The Company also has some customer concentrations, and the loss of business from one or a combination of these significant customers, or an unexpected deterioration in their financial condition, could adversely affect the Company’s operations.  Please refer to Note 15 for further details.</p>
<p style="margin: 0px"><br /></p>
<p style="margin: 0px"><i>Basic and Diluted Loss Per Share</i></p>
<p style="margin: 0px"><br /></p>
<a name="Toc320722671"></a><a name="Toc320722775"></a><a name="Toc320722891"></a><a name="Toc320722947"></a><a name="Toc320723002"></a><p style="line-height: 11pt; margin: 0px; text-indent: 48px; text-align: justify">The
Company uses ASC 260-10, <i>Earnings Per Share</i> for calculating the basic and diluted
income (loss) per share. The Company computes basic income (loss) per share by dividing
net income (loss) and net income (loss) attributable to common shareholders by the weighted
average number of common shares outstanding. As of September 30, 2018 and 2017, there
were 13,113,336 and 4,175,162 shares issuable upon the exercise of options and warrants,
respectively. Common stock equivalent shares are excluded from the computation of net
loss per share if their effect is anti-dilutive. The Company had net income for the three
and nine month period ended September 30, 2018. A separate computation of diluted earnings
per share is presented using the treasury stock method and the common stock equivalents
did not have any effect on net income per share.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px"><i>Reclassifications</i></p>
<p style="margin: 0px"><br /></p>
<a name="Toc320722672"></a><a name="Toc320722776"></a><a name="Toc320722892"></a><a name="Toc320722948"></a><a name="Toc320723003"></a><p style="margin: 0px; text-indent: 48px; text-align: justify">Certain prior year amounts have been reclassified to conform to the current year presentation. </p>
<p style="margin: 0px"><br /></p>
<p style="margin: 0px"><i>Recent Accounting Pronouncements</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">In May 2014, the FASB issued ASU No. 2014-09, <i>Revenue from Contracts
with Customers (Topic 606)</i>, which supersedes the revenue recognition requirements in Accounting Standards Codification 605,
<i>Revenue Recognition</i>. This ASU is based on the principle that revenue is recognized to depict the transfer of goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue
and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized
from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14, which deferred the effective
date of the new revenue standard by one year and allowed entities the option to early adopt the new revenue standard as of the
original effective date. There have been multiple standards updates amending this guidance or providing corrections or improvements
on issues in the guidance. The requirements for these standards relating to Topic 606 are effective for interim and annual periods
beginning after December 15, 2017. This standard permitted adoption using one of two transition methods, either the retrospective
or modified retrospective transition method.</p>
<p style="margin: 0px"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The Company adopted these standards at the beginning of fiscal year 2018 using the modified retrospective method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of these standards did not have a material impact on the Company's Condensed Statements of Operations during the nine months ended September 30, 2018. </p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify"><font style="background-color: #FFFFFF">In February 2016, the FASB
issued ASU 2016-02, <i>Leases</i>, which will amend current lease accounting to require lessees to recognize (i) a lease liability,
which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use
asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease
term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes
were made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal
years beginning after December 15, 2018, including interim periods within those fiscal years. After reviewing of this ASU we have
determined it will have no impact on our results of operations, cash flows or financial condition. </font></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.</p>
<a name="Toc320722673"></a><a name="Toc320722777"></a><a name="Toc320722893"></a><a name="Toc320722949"></a><a name="Toc320723004"></a><a name="Toc320722674"></a><a name="Toc320722778"></a><a name="Toc320722894"></a><a name="Toc320722950"></a><a name="Toc320723005"></a><p style="margin-top: 0px; margin-bottom: -2px; width: 32px; float: left"><b>2. </b></p>
<p style="margin: 0px; text-indent: -2px; text-align: justify"><b>Going Concern </b></p>
<p style="margin: 0px; clear: left; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The Company's unaudited condensed financial statements have been prepared on the assumption that it will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has sustained losses since inception through the December 31, 2017. During the nine-months ended September 30, 2018 the Company has begun to generate net income. However, the Company does not have sufficient revenues and income to fund the operations. During the nine months ended September 30, 2018 and 2017 the Company used net cash in operations of $230,682 and $431,108, respectively. As a result, the Company has had to rely on stockholder loans and related parties to fund its activities to date.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">These recurring operating losses, liabilities exceeding assets and the reliance on cash inflows from two stockholders led the Company’s independent registered public accounting firm, Liggett & Webb, P.A., to include a statement in its audit report relating to the Company’s audited financial statements for the year ended December 31, 2017 expressing substantial doubt as to the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.</p><p style="margin: 0px; text-align: justify"><i>Revenue Recognition</i></p>
<p style="line-height: 10pt; margin: 0px; text-align: justify"><br /></p>
<p style="line-height: 11pt; margin: 0px; text-indent: 48px; text-align: justify">The Company recognizes revenue from product sales to customers, distributors and resellers when products that do not require further services or installation by the Company are shipped, when there are no uncertainties surrounding customer acceptance and when collectability is reasonably assured. Cash received by the Company prior to shipment is recorded as deferred revenue. Sales are made to customers under terms allowing certain limited rights of return and other limited product and performance warranties for which provision has been made in the accompanying unaudited condensed financial statements. </p>
<p style="line-height: 11pt; margin: 0px; text-align: justify"><br /></p>
<p style="line-height: 11pt; margin: 0px; text-indent: 48px; text-align: justify">Amounts billed to customers in sales transactions related to shipping and handling, represent revenues earned for the goods provided and are included in net sales. Costs of shipping and handling are included in cost of products sold.</p>
<p style="line-height: 11pt; margin: 0px; text-align: justify"><br /></p>
<p style="line-height: 11pt; margin: 0px; text-indent: 48px; text-align: justify">The Company accounts for revenue in accordance with Topic 606 which was adopted at the beginning of fiscal year 2018 using the modified retrospective method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the effect was immaterial. The adoption of these standards did not have a material impact on the Company's condensed statements of operations during the nine months ended September 30, 2018. </p><p style="margin: 0px; text-align: justify"><i>Use of Estimates</i></p>
<p style="line-height: 10pt; margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The preparation of condensed financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the accompanying unaudited condensed financial statements and accompanying notes. Actual results could differ from those estimates.</p><p style="margin: 0px"><i>Recent Accounting Pronouncements</i></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">In May 2014, the FASB issued ASU No. 2014-09, <i>Revenue from Contracts
with Customers (Topic 606)</i>, which supersedes the revenue recognition requirements in Accounting Standards Codification 605,
<i>Revenue Recognition</i>. This ASU is based on the principle that revenue is recognized to depict the transfer of goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue
and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized
from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14, which deferred the effective
date of the new revenue standard by one year and allowed entities the option to early adopt the new revenue standard as of the
original effective date. There have been multiple standards updates amending this guidance or providing corrections or improvements
on issues in the guidance. The requirements for these standards relating to Topic 606 are effective for interim and annual periods
beginning after December 15, 2017. This standard permitted adoption using one of two transition methods, either the retrospective
or modified retrospective transition method.</p>
<p style="margin: 0px"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The Company adopted these standards at the beginning of fiscal year 2018 using the modified retrospective method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of these standards did not have a material impact on the Company's Condensed Statements of Operations during the nine months ended September 30, 2018. </p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify"><font style="background-color: #FFFFFF">In February 2016, the FASB
issued ASU 2016-02, <i>Leases</i>, which will amend current lease accounting to require lessees to recognize (i) a lease liability,
which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use
asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease
term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes
were made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal
years beginning after December 15, 2018, including interim periods within those fiscal years. After reviewing of this ASU we have
determined it will have no impact on our results of operations, cash flows or financial condition. </font></p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.</p><p style="margin-top: 0px; margin-bottom: -2px; width: 32px; float: left"><b>6. </b></p>
<p style="margin: 0px; text-indent: -2px"><b>Patents</b></p>
<p style="margin: 0px; clear: left"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Included in other assets at September 30, 2018 and December 31, 2017 are capitalized patent costs as follows:</p>
<p style="margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td></td><td style="width: 16px"></td><td style="width: 6.73px"></td><td style="width: 78.86px"></td><td style="width: 16px"></td><td style="width: 6.73px"></td><td style="width: 79px"></td><td style="width: 4.46px"></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt; text-align: justify"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16px"><p style="margin: 0px; font-size: 8pt; text-align: justify"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85.6px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>September 30,</b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2018</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85.73px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>December 31,</b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2017</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; font-size: 8pt; text-align: justify"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; text-align: justify"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16px"><p style="margin: 0px; text-align: justify"> </p>
</td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 85.6px"><p style="margin: 0px; font-size: 8pt; text-align: center">(Unaudited)</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16px"><p style="margin: 0px; padding: 0px"> </p></td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 85.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; text-align: justify"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px; text-align: justify">Patent costs</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 16px"><p style="margin: 0px; text-align: justify"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; text-align: justify">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 78.86px"><p style="margin: 0px; text-align: right">614,152</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 16px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; text-align: justify">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">558,873</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; text-align: justify">Less accumulated amortization</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16px"><p style="margin: 0px; text-align: justify"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; text-align: justify"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 78.86px"><p style="margin: 0px; text-align: right">(76,893</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 16px"><p style="margin: 0px">)</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; text-align: justify"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">(62,153</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px">)</p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px; text-align: justify"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 16px"><p style="margin: 0px; text-align: justify"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; text-align: justify">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 78.86px"><p style="margin: 0px; text-align: right">537,259</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #FFFFFF 1px solid; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 16px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; text-align: justify">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">496,720</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #FFFFFF 1px solid; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
</table>
<p style="margin: 0px"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Amortization expense for the three and nine months ended September 30, 2018 and 2017 amounted to $4,183, $14,741, $3,394, and $10,187, respectively.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Depreciation and amortization expense of property and equipment and capitalized patents for the three and nine months ended September 30, 2018 and 2017 is $11,000, $31,611, $9,051 and $24,938, respectively. </p><p style="margin: 0px"></p>
<p style="margin-top: 0px; margin-bottom: -2px; width: 32px; float: left"><b>11. </b></p>
<p style="margin: 0px; text-indent: -2px"><b>Notes Payable to Stockholders – Related Party</b></p>
<p style="margin: 0px; clear: left"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">On March 28, 2002 the Company executed a binding agreement with one of its principal stockholders, who is also the former Chief Executive Officer, now Executive Chairman of the Board, to fund up to $6.1 million. Under the terms of the agreement, the Company can draw amounts as needed to fund operations. Amounts drawn bear interest at the BBA LIBOR Daily Floating Rate plus 1.4 percentage points (3.89% and 3.61% per annum at September 30, 2018 and 2017 respectively), payable monthly and were to become due and payable on December 31, 2005 or upon a change in control of the Company or the consummation of any other financing over $7.0 million. Beginning in March 2006, annually, through February 2012, the maturity date for the agreement was extended annually from December 31, 2007, to December 31, 2018. On May 9, 2018 he extended the maturity rate to December 31, 2019. </p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">During the nine months ended September 30, 2018 we borrowed an additional $26,273 from our Executive Chairman, together with $325,000 under a demand note not covered by this line of credit. This demand note bears interest at 4% per annum. As of September 30, 2018 and December 31, 2017 we owed him an aggregate of $8,314,622 and $7,988,349, respectively, which represented approximately 76% and 78% of our total liabilities, respectively. On May 9, 2018 he extended the maturity date to December 31, 2019. While he has continued to fund our working capital needs at reduced levels and extend the due date of the obligation for an additional year, he is under no contractual obligation to do so. During 2017 he advised us he does not expect to continue to provide working capital advances to us at historic amounts. If we are unable to meet our obligation to our Executive Chairman prior to maturity, he has advised us that he may forgive all, or substantially all, of this obligation.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">In November 2017, the Company received an additional loan in the amount of $25,000 from a former member of the Board of Directors. The loan bears interest at a rate of 5% per annum and is due December 31, 2018.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="line-height: 11pt; margin: 0px; text-indent: 48px; text-align: justify">From April 1, 2018 through May 15, 2018, the Company received additional loans in the amount of $250,000 from a related party to both the Company’s Executive Chairman and its Chief Executive Officer, as advances for working capital needs. The amounts are non-interest bearing and are payable upon demand. On July 15, 2018, $250,000 was repaid.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">During the three and nine months ended September 30, 2018 and 2017, the Company incurred interest expense of $85,309 $240,028, $68,564, and $200,405, respectively, on its loan from the Chairman of the Board, which is included in interest expense in the accompanying condensed statements of operations as well as interest expense of $315 and $935 and $315 and $1,068 for the three and nine months ended September 30, 2018 and 2017, respectively related to the loan from a former Board member. These amounts, in addition to interest expense of $139, $171, $1,421, and $1,996, for the three and nine months ended September 30, 2018 and 2017, respectively, are related to capital lease obligations, financing and loans from a stockholder.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px">Notes payable and capital leases consisted of the following at September 30, 2018 and December 31, 2017:</p>
<p style="margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td></td><td style="width: 17px"></td><td style="width: 6.66px"></td><td style="width: 79px"></td><td style="width: 17px"></td><td style="width: 6.66px"></td><td style="width: 79px"></td><td style="width: 4.46px"></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85.66px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>September 30, </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2018</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85.66px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>December 31, 2017</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; font-size: 8pt"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Notes payable to stockholders</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">8,339,622</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">7,988,349</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Capital lease obligation</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">629</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">3,443</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">8,340,251</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">7,991,792</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Less: current maturities</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">(350,629</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 17px"><p style="margin: 0px">)</p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">(7,991,792</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 4.46px"><p style="margin: 0px">)</p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Long-term maturities</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">7,989,622</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">—</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
</table>
<p style="margin: 0px"><br /></p>
<p style="margin: 0px"><b><i>Maturities of Long Term Obligations for Five Years and Beyond</i></b></p>
<p style="margin: 0px"><br /></p>
<p style="margin: 0px; text-indent: 48px">The minimum annual principal payments of notes payable and capital lease obligations at September 30, 2018 were:</p>
<p style="margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td></td><td style="width: 17px"></td><td style="width: 6.66px"></td><td style="width: 76px"></td><td style="width: 6.66px"></td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">2018</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">350,629</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">2019</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px">  </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">7,989,622</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">  </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">8,340,251</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td></tr>
</table><p style="margin: 0px; text-indent: 48px">Notes payable and capital leases consisted of the following at September 30, 2018 and December 31, 2017:</p>
<p style="margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td></td><td style="width: 17px"></td><td style="width: 6.66px"></td><td style="width: 79px"></td><td style="width: 17px"></td><td style="width: 6.66px"></td><td style="width: 79px"></td><td style="width: 4.46px"></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85.66px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>September 30, </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>2018</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 85.66px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>December 31, 2017</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; font-size: 8pt"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Notes payable to stockholders</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">8,339,622</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">7,988,349</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Capital lease obligation</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">629</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">3,443</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">8,340,251</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">7,991,792</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Less: current maturities</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">(350,629</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 17px"><p style="margin: 0px">)</p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.66px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">(7,991,792</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 4.46px"><p style="margin: 0px">)</p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Long-term maturities</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">7,989,622</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 17px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 79px"><p style="margin: 0px; text-align: right">—</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 4.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
</table><p style="margin-top: 0px; margin-bottom: -2px; width: 32px; float: left"><b>12. </b></p>
<p style="margin: 0px; text-indent: -2px"><b>Commitments and Contingencies  </b></p>
<p style="margin: 0px; clear: left"><br /></p>
<p style="margin: 0px"><b><i>Agreements</i></b></p>
<p style="margin: 0px"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">On May 18, 2018 we entered into a letter agreement with Mr. Edward S. Vittoria pursuant to which he agreed to be employed by us as our Chief Executive Officer for an initial term ending May 31, 2019, which such term may be extended by mutual agreement upon terms and conditions to be mutually agreed upon prior to the expiration of such initial term.  Under the terms of the letter agreement we agreed to pay him: (i) an annual base salary of $200,000, payable in accordance with our normal payroll practices; (ii) an annual cash bonus to be awarded by our Board of Directors in January in a minimum amount of $50,000; and (iii) granted him options to purchase 6,500,000 shares of our common stock, vesting one-third in arrears, at an exercise price equal to fair market value on the date of grant pursuant to the terms and conditions of our 2018 Equity Compensation Plan.  He is also entitled to: (i) participate in all of our benefit programs currently existing or hereafter made available to executive and/or salaried; (ii) an amount of annual paid vacation consistent with his position and length of service to us; and (iii) reimbursement for all reasonable, out of-pocket expenses incurred by him.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">On September 7, 2017 the Company entered into an exclusive distribution agreement with NOW, Inc. (“DNOW”) for the worldwide rights to sell its product in the oil and gas industry. As part of this agreement, the distributor could receive sales incentive credits toward future product, based upon the difference in current pricing and new pricing detailed in the agreement. The credits toward future product are only redeemable if targeted quarterly goals are achieved. If the goals are not achieved the credits will be carried forward and are redeemable when the quarterly goals are achieved. Refer to Note 10. The incentive-earning period ended on June 30, 2018, and no incentives were earned. The exclusivity agreement continues at a minimum through the end of 2018. </p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">On September 27, 2012, the Company entered into a 72 month lease for its corporate offices and warehouse facility in Boynton Beach, Florida. On June 29, 2018, the lease was extended an additional 5 years. The renewed lease commences August 1, 2019 and expiring on July 31, 2024 and requires an initial rent of $14,899 per month beginning in the second month of the first year, increasing in varying amounts to $16,769 per month in the fifth year. In addition, the Company is responsible for all operating expenses and utilities. As part of the lease the landlord agreed to reimburse the Company $58,000 towards the replacement of air conditioning units, upon written request. As of September 30, 2018 the Company has received all of the reimbursement.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">On October 20, 2009, the Company entered into a consulting agreement for management and strategic development services with Boxwood Associates, Inc., pursuant to which the Company pays a $2,000 monthly service fee. The contract remains in effect until terminated by either party providing 30 days written notice. A former member of our Board of Directors and a significant stockholder is President of Boxwood Associates, Inc. Refer to Note 14.</p><p style="margin: 0px"></p>
<p style="margin-top: 0px; margin-bottom: -2px; width: 32px; float: left"><b>13. </b></p>
<p style="margin: 0px; text-indent: -2px"><b>Stock Options and Warrants</b></p>
<p style="margin: 0px; clear: left"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">For the three and nine months ended September 30, 2018 and September 30, 2017, respectively, the Company recorded non-cash stock-based compensation expense of $13,928, $38,661 $9,999, and $31,396, relating to employee stock options and warrants issued for consulting services.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable in accordance with FASB ASC 505, <i>Equity, </i>and FASB ASC 718,<i> Compensation – Stock Compensation</i>. The related expense is recognized over the period the services are provided. Unrecognized expense remaining at September 30, 2018 and 2017 for the options is $180,650 and $24,705, respectively, and will be recognized through June 30, 2021.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="line-height: 11pt; margin: 0px; text-indent: 48px; text-align: justify">On April 12, 2018 the Board of Directors approved the adoption of a 2018 Equity Compensation Plan.  The Company has reserved 10,000,000 shares of our common stock for grants under this plan. </p>
<p style="line-height: 8pt; margin: 0px"><br /></p>
<p style="line-height: 11pt; margin: 0px; text-indent: 48px; text-align: justify">The 2018 Plan provides for the granting of both incentive and non-qualified stock options to key personnel, including officers, directors, consultants and advisors to the Company, at the discretion of the Board of Directors. Each plan limits the exercise price of the options at no less than the quoted market price of the common stock on the date of grant. The option term is determined by the Board of the Directors, provided that no option may be exercisable more than 10 years after the date of its grant and, in the case of an incentive option granted to an eligible employee owning more than 10% of the Company’s common stock, no more than five years after the date of the grant. Generally, under both plans, options to employees vest over three years at 33.33% per annum unless the Board of Directors designates a different vesting schedule.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">On April 12, 2018, the Company granted employees and directors options to purchase 4,475,000 shares of the Company’s common stock, at exercise prices ranging from $0.0189 to $0.208 per share.  The options vest over a three-year period and expire April 12, 2028.   The fair value of the options totaled $69,989 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 2.64%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 217%. On April 30, 2018 our Chairman and Former CEO voluntarily cancelled the grant on April 12, 2018 of options awarded him to purchase an aggregate of 1,400,000 shares of the common stock.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">On May 18, 2018, the Company, upon recommendation and approval by the compensation committee of the Board of Directors, granted its new Chief Executive Officer, options to purchase 6,500,000 shares of the Company’s common stock, at an exercise price of $0.017 per share. The options vest over a three-year period and expire May 18, 2028. The fair value of the options totaled $101,437 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 2.64%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 217%.</p>
<p style="margin: 0px; text-align: justify"><br /></p>
<p style="line-height: 11pt; margin: 0px; text-indent: 48px; text-align: justify">On August 24, 2018, the Company granted one director options to purchase 5,000 shares of the Company’s common stock, at an exercise price of $0.045 per share. The options vest over a two year period and expire August 25, 2023. The quoted market price of the common stock at the time of issuance of the options was $0.045 per share. The fair value of the options totaled $223 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 2.70%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 188%.</p>
<p style="margin: 0px"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">A summary of the Company’s stock option plans as of September 30, 2018, and changes during the nine month period then ended is presented below:</p>
<p style="margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td></td><td style="width: 15.93px"></td><td style="width: 8px"></td><td style="width: 76px"></td><td style="width: 8px"></td><td style="width: 20px"></td><td style="width: 8px"></td><td style="width: 76.4px"></td><td style="width: 7.6px"></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 15.93px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="6" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 196.4px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Nine Months Ended</b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>September 30, 2018</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 7.6px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt">  </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 15.93px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 84px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Number of </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>Options</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 84.4px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Weighted </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>Average</b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>Exercise Price</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 7.6px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Options outstanding at December 31, 2017</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 15.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">3,180,000</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 76.4px"><p style="margin: 0px; text-align: right">0.20</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 7.6px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Options granted</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 15.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">10,980,000</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 8px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 76.4px"><p style="margin: 0px; text-align: right">0.02</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 7.6px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Options exercised</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 15.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">—</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 76.4px"><p style="margin: 0px; text-align: right">—</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 7.6px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Options forfeited </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 15.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">(32,500</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8px"><p style="margin: 0px">)</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 8px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 76.4px"><p style="margin: 0px; text-align: right">0.03</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 7.6px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Options expired</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 15.93px"><p style="margin: 0px; text-align: right"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 8px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">(1,787,500</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 8px"><p style="margin: 0px">)</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 8px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 76.4px"><p style="margin: 0px; text-align: right">0.14</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 7.6px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Options at end of period</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 15.93px"><p style="margin: 0px; text-align: right"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 8px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">12,340,000</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 8px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 76.4px"><p style="margin: 0px; text-align: right">0.06</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 7.6px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Options exercisable at September 30, 2018</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 15.93px"><p style="margin: 0px; text-align: right"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 8px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">2,745,000</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 8px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 76.4px"><p style="margin: 0px; text-align: right">0.19</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 7.6px"><p style="margin: 0px"> </p>
</td></tr>
</table>
<p style="margin: 0px"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Changes in the Company’s non-vested options for the nine months ended September 30, 2018 are summarized as follows:</p>
<p style="line-height: 8pt; margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td></td><td style="width: 19.93px"></td><td style="width: 3.4px"></td><td style="width: 76px"></td><td style="width: 8px"></td><td style="width: 20px"></td><td style="width: 6.66px"></td><td style="width: 76.6px"></td><td style="width: 7.46px"></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 19.93px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="6" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 190.66px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Nine Months Ended</b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>September 30, 2018</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 7.46px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt">  </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 19.93px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 79.4px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Number of </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>Options</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 20px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 83.26px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Weighted </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>Average</b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>Exercise Price</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 7.46px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Nonvested options at December 31, 2017</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 19.93px"><p style="margin: 0px; text-align: right"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 3.4px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">270,840</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 76.6px"><p style="margin: 0px; text-align: right">0.15</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 7.46px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Granted</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 19.93px"><p style="margin: 0px; text-align: right"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 3.4px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">10,980,000</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 76.6px"><p style="margin: 0px; text-align: right">0.03</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 7.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Vested </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 19.93px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 3.4px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">(247,506</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8px"><p style="margin: 0px">)</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 76.6px"><p style="margin: 0px; text-align: right">0.16</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 7.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Forfeited</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 19.93px"><p style="margin: 0px; text-align: right"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 3.4px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">(1,408,334</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 8px"><p style="margin: 0px">)</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 76.6px"><p style="margin: 0px; text-align: right">0.22</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 7.46px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Nonvested options at September 30, 2018</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 19.93px"><p style="margin: 0px; text-align: right"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 3.4px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">9,595,000</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 76.6px"><p style="margin: 0px; text-align: right">0.02</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 7.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
</table>
<p style="line-height: 8pt; margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" align="center" style="margin-top: 0px; font-size: 10pt"><tr style="height: 0px; font-size: 0"><td style="width: 88px"></td><td style="width: 8.8px"></td><td style="width: 8.8px"></td><td style="width: 8.8px"></td><td style="width: 79.2px"></td><td style="width: 8.8px"></td><td style="width: 8.8px"></td><td style="width: 8.8px"></td><td style="width: 79.2px"></td><td style="width: 8.8px"></td><td style="width: 8.73px"></td><td style="width: 8.73px"></td><td style="width: 79.13px"></td><td style="width: 8.73px"></td><td style="width: 8.73px"></td><td style="width: 9.93px"></td><td style="width: 77.93px"></td><td style="width: 8.73px"></td><td style="width: 8.73px"></td><td style="width: 8.73px"></td><td style="width: 79.13px"></td><td style="width: 8.73px"></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom; width: 88px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="10" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 299px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Options Outstanding</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="6" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 193.2px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Options Exercisable</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom; width: 88px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Range of Exercise Price</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 88px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Number Outstanding</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 88px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Remaining Average Contractual Life (In Years)</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 87.86px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Weighted Average Exercise Price</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 87.86px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Number Exercisable</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 87.86px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Weighted Average Exercise Price</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 88px"><p style="margin: 0px; text-align: center">$0.017- $0.30</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79.2px"><p style="margin: 0px; text-align: right">12,340,000</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79.2px"><p style="margin: 0px; text-align: right">8.2</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 8.73px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79.13px"><p style="margin: 0px; text-align: right">0.16</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 9.93px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 77.93px"><p style="margin: 0px; text-align: right">2,745,000</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 8.73px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79.13px"><p style="margin: 0px; text-align: right">0.19</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 8.73px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom; width: 88px"><p style="margin: 0px">Totals</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.8px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.8px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 8.8px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 79.2px"><p style="margin: 0px; text-align: right">12,340,000</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 79.2px"><p style="margin: 0px; text-align: right">8.2</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 8.73px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 79.13px"><p style="margin: 0px; text-align: right">0.16</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 9.93px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 77.93px"><p style="margin: 0px; text-align: right">2,745,000</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-top: #FFFFFF 1px solid; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 8.73px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 79.13px"><p style="margin: 0px; text-align: right">0.19</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 8.73px"><p style="margin: 0px"> </p>
</td></tr>
</table>
<p style="line-height: 8pt; margin: 0px"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">A summary of the Company’s warrant activity as of September 30, 2018 and changes during the nine-month period then ended is presented below:</p>
<p style="line-height: 8pt; margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td></td><td style="width: 20.2px"></td><td style="width: 3.46px"></td><td style="width: 81.4px"></td><td style="width: 17.46px"></td><td style="width: 6.13px"></td><td style="width: 23.93px"></td><td style="width: 57.13px"></td><td style="width: 7.26px"></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 20.2px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="6" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 189.53px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Nine months ended</b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>September 30, 2018</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 7.26px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt">  </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 20.2px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 84.86px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Warrants</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17.46px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 6.13px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 81.06px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Weighted <br />
Average <br />
Exercise Price</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 7.26px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px; padding-left: 8px; text-indent: -8px">Warrants outstanding at December 31, 2017</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 20.2px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 3.46px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 81.4px"><p style="margin: 0px; text-align: right">990,162</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17.46px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.13px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 23.93px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 57.13px"><p style="margin: 0px; text-align: right">0.24</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 7.26px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; padding-left: 24px; text-indent: -8px">Granted</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 20.2px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 3.46px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 81.4px"><p style="margin: 0px; text-align: right">—</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 17.46px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.13px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 23.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 57.13px"><p style="margin: 0px; text-align: right">—</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 7.26px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px; padding-left: 24px; text-indent: -8px">Expired</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 20.2px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 3.46px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 81.4px"><p style="margin: 0px; text-align: right">(216,826</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 17.46px"><p style="margin: 0px">)</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.13px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 23.93px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 57.13px"><p style="margin: 0px; text-align: right">0.35</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 7.26px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Warrants outstanding and exercisable at September 30, 2018</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 20.2px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 3.46px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 81.4px"><p style="margin: 0px; text-align: right">773,336</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 17.46px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.13px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 23.93px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 57.13px"><p style="margin: 0px; text-align: right">0.16</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 7.26px"><p style="margin: 0px"> </p>
</td></tr>
</table>
<p style="line-height: 8pt; margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" align="center" style="margin-top: 0px; font-size: 10pt"><tr style="height: 0px; font-size: 0"><td style="width: 132.8px"></td><td style="width: 13.26px"></td><td style="width: 13.26px"></td><td style="width: 13.26px"></td><td style="width: 119.53px"></td><td style="width: 13.26px"></td><td style="width: 13.26px"></td><td style="width: 13.26px"></td><td style="width: 119.53px"></td><td style="width: 13.26px"></td><td style="width: 13.26px"></td><td style="width: 13.26px"></td><td style="width: 119.53px"></td><td style="width: 13.2px"></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom; width: 132.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td colspan="10" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 451.46px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Warrants Outstanding and Exercisable</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 13.2px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom; width: 132.8px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Range of Exercise Price</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 132.8px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Number Outstanding</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 132.8px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Remaining Average Contractual Life (In Years)</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 132.8px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Weighted Average </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>Exercise Price</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 13.2px"><p style="margin: 0px; padding: 0px; font-size: 8pt"> </p></td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 132.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 119.53px"><p style="margin: 0px; text-align: right">773,336</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 119.53px"><p style="margin: 0px; text-align: right">1.7</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 13.26px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 119.53px"><p style="margin: 0px; text-align: right">0.16</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 13.2px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom; width: 132.8px"><p style="margin: 0px; padding-left: 8px; text-indent: -8px"><b>Totals</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px"><b> </b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 13.26px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 119.53px"><p style="margin: 0px; text-align: right">733,336</p>
</td><td style="margin-top: 0px; border-top: #FFFFFF 1px solid; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 119.53px"><p style="margin: 0px; text-align: right">1.7</p>
</td><td style="margin-top: 0px; border-top: #FFFFFF 1px solid; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 13.26px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 13.26px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-top: #000000 1px solid; border-bottom: #000000 3px double; vertical-align: bottom; width: 119.53px"><p style="margin: 0px; text-align: right">0.16</p>
</td><td style="margin-top: 0px; border-top: #FFFFFF 1px solid; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 13.2px"><p style="margin: 0px"> </p>
</td></tr>
</table><p style="margin: 0px"></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">Changes in the Company’s non-vested options for the nine months ended September 30, 2018 are summarized as follows:</p>
<p style="line-height: 8pt; margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td></td><td style="width: 19.93px"></td><td style="width: 3.4px"></td><td style="width: 76px"></td><td style="width: 8px"></td><td style="width: 20px"></td><td style="width: 6.66px"></td><td style="width: 76.6px"></td><td style="width: 7.46px"></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 19.93px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="6" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 190.66px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Nine Months Ended</b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>September 30, 2018</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 7.46px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt">  </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 19.93px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 79.4px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Number of </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>Options</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 20px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 83.26px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Weighted </b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>Average</b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>Exercise Price</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 7.46px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Nonvested options at December 31, 2017</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 19.93px"><p style="margin: 0px; text-align: right"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 3.4px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">270,840</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 76.6px"><p style="margin: 0px; text-align: right">0.15</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 7.46px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Granted</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 19.93px"><p style="margin: 0px; text-align: right"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 3.4px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">10,980,000</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 76.6px"><p style="margin: 0px; text-align: right">0.03</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 7.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Vested </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 19.93px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 3.4px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">(247,506</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8px"><p style="margin: 0px">)</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 76.6px"><p style="margin: 0px; text-align: right">0.16</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 7.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Forfeited</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 19.93px"><p style="margin: 0px; text-align: right"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 3.4px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">(1,408,334</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 8px"><p style="margin: 0px">)</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 76.6px"><p style="margin: 0px; text-align: right">0.22</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 7.46px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px">Nonvested options at September 30, 2018</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 19.93px"><p style="margin: 0px; text-align: right"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 3.4px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 76px"><p style="margin: 0px; text-align: right">9,595,000</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 20px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 3px double; vertical-align: bottom; width: 76.6px"><p style="margin: 0px; text-align: right">0.02</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 7.46px"><p style="margin: 0px; padding: 0px"> </p></td></tr>
</table><p style="line-height: 8pt; margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" align="center" style="margin-top: 0px; font-size: 10pt"><tr style="height: 0px; font-size: 0"><td style="width: 88px"></td><td style="width: 8.8px"></td><td style="width: 8.8px"></td><td style="width: 8.8px"></td><td style="width: 79.2px"></td><td style="width: 8.8px"></td><td style="width: 8.8px"></td><td style="width: 8.8px"></td><td style="width: 79.2px"></td><td style="width: 8.8px"></td><td style="width: 8.73px"></td><td style="width: 8.73px"></td><td style="width: 79.13px"></td><td style="width: 8.73px"></td><td style="width: 8.73px"></td><td style="width: 9.93px"></td><td style="width: 77.93px"></td><td style="width: 8.73px"></td><td style="width: 8.73px"></td><td style="width: 8.73px"></td><td style="width: 79.13px"></td><td style="width: 8.73px"></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom; width: 88px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; font-size: 8pt"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="10" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 299px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Options Outstanding</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="6" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 193.2px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Options Exercisable</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom; width: 88px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Range of Exercise Price</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 88px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Number Outstanding</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 88px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Remaining Average Contractual Life (In Years)</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 87.86px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Weighted Average Exercise Price</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 87.86px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Number Exercisable</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 87.86px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Weighted Average Exercise Price</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 88px"><p style="margin: 0px; text-align: center">$0.017- $0.30</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79.2px"><p style="margin: 0px; text-align: right">12,340,000</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79.2px"><p style="margin: 0px; text-align: right">8.2</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 8.73px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79.13px"><p style="margin: 0px; text-align: right">0.16</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 9.93px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 77.93px"><p style="margin: 0px; text-align: right">2,745,000</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 8.73px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 79.13px"><p style="margin: 0px; text-align: right">0.19</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 8.73px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom; width: 88px"><p style="margin: 0px">Totals</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.8px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 8.8px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 8.8px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 79.2px"><p style="margin: 0px; text-align: right">12,340,000</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 79.2px"><p style="margin: 0px; text-align: right">8.2</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 8.8px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 8.73px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 79.13px"><p style="margin: 0px; text-align: right">0.16</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 9.93px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 77.93px"><p style="margin: 0px; text-align: right">2,745,000</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-top: #FFFFFF 1px solid; vertical-align: bottom; width: 8.73px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 8.73px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 79.13px"><p style="margin: 0px; text-align: right">0.19</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 8.73px"><p style="margin: 0px"> </p>
</td></tr>
</table><p style="margin: 0px; text-indent: 48px; text-align: justify">A summary of the Company’s warrant activity as of September 30, 2018 and changes during the nine-month period then ended is presented below:</p>
<p style="line-height: 8pt; margin: 0px"><br /></p>
<table cellpadding="0" cellspacing="0" style="margin-top: 0px; font-size: 10pt; width: 100%"><tr style="height: 0px; font-size: 0"><td></td><td style="width: 20.2px"></td><td style="width: 3.46px"></td><td style="width: 81.4px"></td><td style="width: 17.46px"></td><td style="width: 6.13px"></td><td style="width: 23.93px"></td><td style="width: 57.13px"></td><td style="width: 7.26px"></td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 20.2px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="6" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 189.53px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Nine months ended</b></p>
<p style="margin: 0px; font-size: 8pt; text-align: center"><b>September 30, 2018</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 7.26px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; font-size: 8pt">  </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 20.2px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="2" style="margin-top: 0px; vertical-align: bottom; width: 84.86px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Warrants</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 17.46px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 6.13px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td><td colspan="2" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: bottom; width: 81.06px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Weighted <br />
Average <br />
Exercise Price</b></p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 7.26px"><p style="margin: 0px; font-size: 8pt"><b> </b></p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px; padding-left: 8px; text-indent: -8px">Warrants outstanding at December 31, 2017</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 20.2px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 3.46px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-top: #000000 1px solid; vertical-align: bottom; width: 81.4px"><p style="margin: 0px; text-align: right">990,162</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 17.46px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.13px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 23.93px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 57.13px"><p style="margin: 0px; text-align: right">0.24</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 7.26px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px; padding-left: 24px; text-indent: -8px">Granted</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 20.2px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 3.46px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 81.4px"><p style="margin: 0px; text-align: right">—</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 17.46px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.13px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 23.93px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 57.13px"><p style="margin: 0px; text-align: right">—</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 7.26px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom"><p style="margin: 0px; padding-left: 24px; text-indent: -8px">Expired</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 20.2px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 3.46px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 81.4px"><p style="margin: 0px; text-align: right">(216,826</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 17.46px"><p style="margin: 0px">)</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.13px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 23.93px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 57.13px"><p style="margin: 0px; text-align: right">0.35</p>
</td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 7.26px"><p style="margin: 0px"> </p>
</td></tr>
<tr><td style="margin-top: 0px; vertical-align: bottom"><p style="margin: 0px">Warrants outstanding and exercisable at September 30, 2018</p>
</td><td style="margin-top: 0px; vertical-align: bottom; width: 20.2px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 3.46px"><p style="margin: 0px"> </p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 81.4px"><p style="margin: 0px; text-align: right">773,336</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 17.46px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.13px"><p style="margin: 0px; padding: 0px"> </p></td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 23.93px"><p style="margin: 0px">$</p>
</td><td style="margin-top: 0px; border-bottom: #000000 3px double; vertical-align: bottom; width: 57.13px"><p style="margin: 0px; text-align: right">0.16</p>
</td><td style="margin-top: 0px; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 7.26px"><p style="margin: 0px"> </p>
</td></tr>
</table><p style="margin-top: 0px; margin-bottom: -2px; width: 32px; float: left"><b>10. </b></p>
<p style="margin: 0px; text-indent: -2px"><b>Sales Incentives </b></p>
<p style="margin: 0px; clear: left"><br /></p>
<p style="margin: 0px; text-indent: 48px; text-align: justify">The Company entered into an exclusive distribution agreement for the worldwide rights to sell its product in the oil and gas industry effective September 7, 2017. The agreement included an incentive program that rewarded credits toward future product redeemable only if targeted quarterly goals are achieved. The incentive-earning period ended on June 30, 2018, and no incentives were earned. The exclusivity agreement continues at a minimum through the end of 2018. </p>EX-101.SCH
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This is focus fiscal period of the document report. For a first quarter 2006 quarterly report, which may also provide financial information from prior periods, the first fiscal quarter should be given as the fiscal period focus. Values: FY, Q1, Q2, Q3, Q4, H1, H2, M9, T1, T2, T3, M8, CY.
This is focus fiscal year of the document report in CCYY format. For a 2006 annual report, which may also provide financial information from prior periods, fiscal 2006 should be given as the fiscal year focus. Example: 2006.
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Indicate number of shares or other units outstanding of each of registrant's classes of capital or common stock or other ownership interests, if and as stated on cover of related periodic report. Where multiple classes or units exist define each class/interest by adding class of stock items such as Common Class A [Member], Common Class B [Member] or Partnership Interest [Member] onto the Instrument [Domain] of the Entity Listings, Instrument.
Indicate whether the registrant is one of the following: (1) Large Accelerated Filer, (2) Accelerated Filer, (3) Non-accelerated Filer, (4) Smaller Reporting Company (Non-accelerated), (5) Smaller Reporting Accelerated Filer or (6) Smaller Reporting Company and Large Accelerated Filer. Definitions of these categories are stated in Rule 12b-2 of the Exchange Act. This information should be based on the registrant's current or most recent filing containing the related disclosure.
Carrying value as of the balance sheet date of liabilities incurred (and for which invoices have typically been received) and payable to vendors for goods and services received that are used in an entity's business. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer).
Amount due from customers or clients, within one year of the balance sheet date (or the normal operating cycle, whichever is longer), for goods or services (including trade receivables) that have been delivered or sold in the normal course of business, reduced to the estimated net realizable fair value by an allowance established by the entity of the amount it deems uncertain of collection.
Carrying value as of the balance sheet date of obligations incurred and payable, pertaining to costs that are statutory in nature, are incurred on contractual obligations, or accumulate over time and for which invoices have not yet been received or will not be rendered. Examples include taxes, interest, rent and utilities. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer).
Excess of issue price over par or stated value of the entity's capital stock and amounts received from other transactions involving the entity's stock or stockholders. Includes adjustments to additional paid in capital. Some examples of such adjustments include recording the issuance of debt with a beneficial conversion feature and certain tax consequences of equity instruments awarded to employees. Use this element for the aggregate amount of additional paid-in capital associated with common and preferred stock. For additional paid-in capital associated with only common stock, use the element additional paid in capital, common stock. For additional paid-in capital associated with only preferred stock, use the element additional paid in capital, preferred stock.
Sum of the carrying amounts as of the balance sheet date of all assets that are recognized. Assets are probable future economic benefits obtained or controlled by an entity as a result of past transactions or events.
Sum of the carrying amounts as of the balance sheet date of all assets that are expected to be realized in cash, sold, or consumed within one year (or the normal operating cycle, if longer). Assets are probable future economic benefits obtained or controlled by an entity as a result of past transactions or events.
Amount of currency on hand as well as demand deposits with banks or financial institutions. Includes other kinds of accounts that have the general characteristics of demand deposits. Also includes short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Excludes cash and cash equivalents within disposal group and discontinued operation.
Represents the caption on the face of the balance sheet to indicate that the entity has entered into (1) purchase or supply arrangements that will require expending a portion of its resources to meet the terms thereof, and (2) is exposed to potential losses or, less frequently, gains, arising from (a) possible claims against a company's resources due to future performance under contract terms, and (b) possible losses or likely gains from uncertainties that will ultimately be resolved when one or more future events that are deemed likely to occur do occur or fail to occur.
Aggregate par or stated value of issued nonredeemable common stock (or common stock redeemable solely at the option of the issuer). This item includes treasury stock repurchased by the entity. Note: elements for number of nonredeemable common shares, par value and other disclosure concepts are in another section within stockholders' equity.
Aggregate carrying value as of the balance sheet date of the liabilities for all deferred compensation arrangements payable within one year (or the operating cycle, if longer). Represents currently earned compensation under compensation arrangements that is not actually paid until a later date.
Sum of the carrying amounts as of the balance sheet date of all liabilities that are recognized. Liabilities are probable future sacrifices of economic benefits arising from present obligations of an entity to transfer assets or provide services to other entities in the future.
Total obligations incurred as part of normal operations that are expected to be paid during the following twelve months or within one business cycle, if longer.
The amount for notes payable (written promise to pay), due to related parties. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer).
Aggregate par or stated value of issued nonredeemable preferred stock (or preferred stock redeemable solely at the option of the issuer). This item includes treasury stock repurchased by the entity. Note: elements for number of nonredeemable preferred shares, par value and other disclosure concepts are in another section within stockholders' equity.
Amount of asset related to consideration paid in advance for costs that provide economic benefits in future periods, and amount of other assets that are expected to be realized or consumed within one year or the normal operating cycle, if longer.
Amount after accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business to produce goods and services and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures.
Total of all stockholders' equity (deficit) items, net of receivables from officers, directors, owners, and affiliates of the entity which are attributable to the parent. The amount of the economic entity's stockholders' equity attributable to the parent excludes the amount of stockholders' equity which is allocable to that ownership interest in subsidiary equity which is not attributable to the parent (noncontrolling interest, minority interest). This excludes temporary equity and is sometimes called permanent equity.
A valuation allowance for trade and other receivables due to an Entity within one year (or the normal operating cycle, whichever is longer) that are expected to be uncollectible.
Total number of common shares of an entity that have been sold or granted to shareholders (includes common shares that were issued, repurchased and remain in the treasury). These shares represent capital invested by the firm's shareholders and owners, and may be all or only a portion of the number of shares authorized. Shares issued include shares outstanding and shares held in the treasury.
The maximum number of nonredeemable preferred shares (or preferred stock redeemable solely at the option of the issuer) permitted to be issued by an entity's charter and bylaws.
Total number of nonredeemable preferred shares (or preferred stock redeemable solely at the option of the issuer) issued to shareholders (includes related preferred shares that were issued, repurchased, and remain in the treasury). May be all or portion of the number of preferred shares authorized. Excludes preferred shares that are classified as debt.
Aggregate share number for all nonredeemable preferred stock (or preferred stock redeemable solely at the option of the issuer) held by stockholders. Does not include preferred shares that have been repurchased.
The amount of net income (loss) for the period available to each share of common stock or common unit outstanding during the reporting period and to each share or unit that would have been outstanding assuming the issuance of common shares or units for all dilutive potential common shares or units outstanding during the reporting period.
Amount of income (loss) from continuing operations, including income (loss) from equity method investments, before deduction of income tax expense (benefit), and income (loss) attributable to noncontrolling interest.
The aggregate amount of income or expense from ancillary business-related activities (that is to say, excluding major activities considered part of the normal operations of the business).
Amount of revenue recognized from goods sold, services rendered, insurance premiums, or other activities that constitute an earning process. Includes, but is not limited to, investment and interest income before deduction of interest expense when recognized as a component of revenue, and sales and trading gain (loss).
Amount of expense for salary and wage arising from service rendered by nonofficer and officer employees. Excludes allocated cost, labor-related nonsalary expense, and direct and overhead labor cost included in cost of good and service sold.
The aggregate total costs related to selling a firm's product and services, as well as all other general and administrative expenses. Direct selling expenses (for example, credit, warranty, and advertising) are expenses that can be directly linked to the sale of specific products. Indirect selling expenses are expenses that cannot be directly linked to the sale of specific products, for example telephone expenses, Internet, and postal charges. General and administrative expenses include salaries of non-sales personnel, rent, utilities, communication, etc.
The average number of shares or units issued and outstanding that are used in calculating diluted EPS or earnings per unit (EPU), determined based on the timing of issuance of shares or units in the period.
Number of [basic] shares or units, after adjustment for contingently issuable shares or units and other shares or units not deemed outstanding, determined by relating the portion of time within a reporting period that common shares or units have been outstanding to the total time in that period.
Amount of currency on hand as well as demand deposits with banks or financial institutions. Includes other kinds of accounts that have the general characteristics of demand deposits. Also includes short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Excludes cash and cash equivalents within disposal group and discontinued operation.
Amount of increase (decrease) in cash and cash equivalents. Cash and cash equivalents are the amount of currency on hand as well as demand deposits with banks or financial institutions. Includes other kinds of accounts that have the general characteristics of demand deposits. Also includes short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Includes effect from exchange rate changes.
The aggregate expense recognized in the current period that allocates the cost of tangible assets, intangible assets, or depleting assets to periods that benefit from use of the assets.
The increase (decrease) during the reporting period in the aggregate amount of liabilities incurred (and for which invoices have typically been received) and payable to vendors for goods and services received that are used in an entity's business.
The increase (decrease) during the reporting period in amount due within one year (or one business cycle) from customers for the credit sale of goods and services.
The increase (decrease) during the reporting period in the obligation created by employee agreements whereby earned compensation will be paid in the future.
The increase (decrease) during the reporting period in the aggregate value of all inventory held by the reporting entity, associated with underlying transactions that are classified as operating activities.
Amount of cash paid for interest, excluding capitalized interest, classified as operating activity. Includes, but is not limited to, payment to settle zero-coupon bond for accreted interest of debt discount and debt instrument with insignificant coupon interest rate in relation to effective interest rate of borrowing attributable to accreted interest of debt discount.
Amount of loss from reductions in inventory due to subsequent measurement adjustments, including, but not limited to, physical deterioration, obsolescence, or changes in price levels.
Amount of cash inflow (outflow) from financing activities, including discontinued operations. Financing activity cash flows include obtaining resources from owners and providing them with a return on, and a return of, their investment; borrowing money and repaying amounts borrowed, or settling the obligation; and obtaining and paying for other resources obtained from creditors on long-term credit.
Amount of cash inflow (outflow) from investing activities, including discontinued operations. Investing activity cash flows include making and collecting loans and acquiring and disposing of debt or equity instruments and property, plant, and equipment and other productive assets.
Amount of cash inflow (outflow) from operating activities, including discontinued operations. Operating activity cash flows include transactions, adjustments, and changes in value not defined as investing or financing activities.
The cash outflow associated with the acquisition of long-lived, physical assets that are used in the normal conduct of business to produce goods and services and not intended for resale; includes cash outflows to pay for construction of self-constructed assets.
The cash inflow from a long-term borrowing made from related parties where one party can exercise control or significant influence over another party; including affiliates, owners or officers and their immediate families, pension trusts, and so forth. Alternate caption: Proceeds from Advances from Affiliates.
The aggregate amount of noncash, equity-based employee remuneration. This may include the value of stock or unit options, amortization of restricted stock or units, and adjustment for officers' compensation. As noncash, this element is an add back when calculating net cash generated by operating activities using the indirect method.
Basis of Presentation, Going Concern and Summary of Significant Accounting Policies
Organization
Puradyn Filter Technologies Incorporated (the Company), a Delaware corporation, is engaged in the manufacturing, distribution and sale of bypass oil filtration systems under the trademark Puradyn® primarily to companies within targeted industries. The Company holds the exclusive worldwide manufacturing and marketing rights for the Puradyn products through direct ownership of various patents.
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim information and with the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments consisting of a normal and recurring nature considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2018 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2018.
For further information, refer to the Company's financial statements and footnotes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2017.
Revenue Recognition
The Company recognizes revenue from product sales to customers, distributors and resellers when products that do not require further services or installation by the Company are shipped, when there are no uncertainties surrounding customer acceptance and when collectability is reasonably assured. Cash received by the Company prior to shipment is recorded as deferred revenue. Sales are made to customers under terms allowing certain limited rights of return and other limited product and performance warranties for which provision has been made in the accompanying unaudited condensed financial statements.
Amounts billed to customers in sales transactions related to shipping and handling, represent revenues earned for the goods provided and are included in net sales. Costs of shipping and handling are included in cost of products sold.
The Company accounts for revenue in accordance with Topic 606 which was adopted at the beginning of fiscal year 2018 using the modified retrospective method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the effect was immaterial. The adoption of these standards did not have a material impact on the Company's condensed statements of operations during the nine months ended September 30, 2018.
Use of Estimates
The preparation of condensed financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the accompanying unaudited condensed financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with original maturities of three months or less at the time of purchase. At September 30, 2018 and December 31, 2017, the Company did not have any cash equivalents.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, prepaid expenses and other assets, accounts payable, accrued liabilities and notes payable to stockholder approximate their fair values as of September 30, 2018 and December 31, 2017, respectively, because of their short-term natures.
Accounts Receivable
Accounts receivable are recorded at fair value on the date revenue is recognized. The Company provides allowances for doubtful accounts for estimated losses resulting from the inability of its customers to repay their obligation. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to repay, additional allowances may be required. The Company provides for potential uncollectible accounts receivable based on specific customer identification and historical collection experience adjusted for existing market conditions. If market conditions decline, actual collection experience may not meet expectations and may result in decreased cash flows and increased bad debt expense.
The policy for determining past due status is based on the contractual payment terms of each customer, which are generally net 30 or net 60 days. Once collection efforts by the Company and its collection agency are exhausted, the determination for charging off uncollectible receivables is made.
Inventories
Inventories are stated at the lower of cost or market using the first in, first out (FIFO) method. Production costs, consisting of labor and overhead, are applied to ending finished goods inventories at a rate based on estimated production capacity. Excess production costs are charged to cost of products sold. Provisions have been made to reduce excess or obsolete inventories to their net realizable value.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets, except for assets held under capital leases, for which the Company records depreciation and amortization based on the shorter of the assets useful life or the term of the lease. The estimated useful lives of property and equipment range from 3 to 5 years. Upon sale or retirement, the cost and related accumulated depreciation and amortization are eliminated from their respective accounts, and the resulting gain or loss is included in results of operations. Repairs and maintenance charges, which do not increase the useful lives of the assets, are charged to operations as incurred.
Patents
Patents are stated at cost. Amortization is provided using the straight-line method over the estimated useful lives of the patents. The estimated useful lives of patents are 17 to 20 years. Upon retirement, the cost and related accumulated amortization are eliminated from their respective accounts, and the resulting gain or loss is included in results of operations.
Impairment of Long-Lived Assets
Management assesses the recoverability of its long-lived assets when indicators of impairment are present. If such indicators are present, recoverability of these assets is determined by comparing the undiscounted net cash flows estimated to result from those assets over the remaining life to the assets net carrying amounts. If the estimated undiscounted net cash flows are less than the net carrying amount, the assets would be adjusted to their fair value, based on appraisal or the present value of the undiscounted net cash flows.
Product Warranty Costs
As required by FASB ASC 460, Guarantors Guarantees, the Company is including the following disclosure applicable to its product warranties.
The Company accrues for warranty costs based on the expected material and labor costs to provide warranty replacement products. The methodology used in determining the liability for warranty cost is based upon historical information and experience. The Company's warranty reserve is included in accrued liabilities in the accompanying condensed financial statements and is calculated as the gross sales multiplied by the historical warranty expense return rate. For the nine months ended September 30, 2018, there was no change to the reserve for warranty liability as the reserve balance was deemed sufficient to absorb any warranty costs that might be incurred from the sales activity for the period.
The following table shows the changes in the aggregate product warranty liability for the nine months ended September 30, 2018:
Balance as of December 31, 2017
$
20,000
Less: Payments made
Add: Provision for current period warranties
Balance as of September30, 2018 (unaudited)
$
20,000
Advertising Costs
Advertising costs are expensed as incurred. During the three and nine months ended September 30, 2018 and 2017, advertising costs incurred by the Company totaled approximately $4,117, $7,450, $430, and $731, respectively, and are included in selling and administrative expenses in the accompanying statements of operations.
Engineering and Development
Research and development costs are expensed as incurred. During the three and nine months ended September 30, 2018 and 2017, research and development costs incurred by the Company totaled $1,582, $4,395, $1,677 and $4,970, respectively, and are included in selling and administrative expenses in the accompanying statements of operations.
Income Taxes
The Company accounts for income taxes under FASB ASC 740, Income Taxes. Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
Stock Option Plans
We adopted FASB ASC 718, Compensation-Stock Compensation, effective January 1, 2006 using the modified prospective application method of adoption which requires us to record compensation cost related to unvested stock awards as of December 31, 2005 by recognizing the amortized grant date fair value in accordance with provisions of FASB ASC 718 on straight line basis over the service periods of each award. We have estimated forfeiture rates based on our historical experience. Stock option compensation expense for the year ended December 31, 2017 has been recognized as a component of cost of goods sold and general and administrative expenses in the accompanying financial statements for the three and nine months ended September 30, 2018.
The Company leases its employees from a payroll leasing company. The Companys leased employees meet the definition of employees as specified by FASB Interpretation No. 44 for purposes of applying FASB ASC 718.
Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable in accordance withFASB ASC 505, Equity, and FASB ASC 718, Compensation-Stock Compensation, including related amendments and interpretations. The related expense is recognized over the period the services are provided.
Credit Risk
The Company minimizes the concentration of credit risk associated with its cash by maintaining its cash with high quality federally insured financial institutions. However, cash balances in excess of the FDIC insured limit of $250,000 are at risk. At September 30, 2018 and December 31, 2017, respectively, the Company did not have cash balances above the FDIC insured limit. The Company performs ongoing evaluations of its significant trade accounts receivable customers and generally does not require collateral. An allowance for doubtful accounts is maintained against trade accounts receivable at levels which management believes is sufficient to cover probable credit losses. The Company also has some customer concentrations, and the loss of business from one or a combination of these significant customers, or an unexpected deterioration in their financial condition, could adversely affect the Companys operations. Please refer to Note 15 for further details.
Basic and Diluted Loss Per Share
The
Company uses ASC 260-10, Earnings Per Share for calculating the basic and diluted
income (loss) per share. The Company computes basic income (loss) per share by dividing
net income (loss) and net income (loss) attributable to common shareholders by the weighted
average number of common shares outstanding. As of September 30, 2018 and 2017, there
were 13,113,336 and 4,175,162 shares issuable upon the exercise of options and warrants,
respectively. Common stock equivalent shares are excluded from the computation of net
loss per share if their effect is anti-dilutive. The Company had net income for the three
and nine month period ended September 30, 2018. A separate computation of diluted earnings
per share is presented using the treasury stock method and the common stock equivalents
did not have any effect on net income per share.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts
with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification 605,
Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue
and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized
from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14, which deferred the effective
date of the new revenue standard by one year and allowed entities the option to early adopt the new revenue standard as of the
original effective date. There have been multiple standards updates amending this guidance or providing corrections or improvements
on issues in the guidance. The requirements for these standards relating to Topic 606 are effective for interim and annual periods
beginning after December 15, 2017. This standard permitted adoption using one of two transition methods, either the retrospective
or modified retrospective transition method.
The Company adopted these standards at the beginning of fiscal year 2018 using the modified retrospective method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of these standards did not have a material impact on the Company's Condensed Statements of Operations during the nine months ended September 30, 2018.
In February 2016, the FASB
issued ASU 2016-02, Leases, which will amend current lease accounting to require lessees to recognize (i) a lease liability,
which is a lessees obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use
asset, which is an asset that represents the lessees right to use, or control the use of, a specified asset for the lease
term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes
were made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal
years beginning after December 15, 2018, including interim periods within those fiscal years. After reviewing of this ASU we have
determined it will have no impact on our results of operations, cash flows or financial condition.
All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.
The Company's unaudited condensed financial statements have been prepared on the assumption that it will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has sustained losses since inception through the December 31, 2017. During the nine-months ended September 30, 2018 the Company has begun to generate net income. However, the Company does not have sufficient revenues and income to fund the operations. During the nine months ended September 30, 2018 and 2017 the Company used net cash in operations of $230,682 and $431,108, respectively. As a result, the Company has had to rely on stockholder loans and related parties to fund its activities to date.
These recurring operating losses, liabilities exceeding assets and the reliance on cash inflows from two stockholders led the Companys independent registered public accounting firm, Liggett & Webb, P.A., to include a statement in its audit report relating to the Companys audited financial statements for the year ended December 31, 2017 expressing substantial doubt as to the Companys ability to continue as a going concern. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.
The entire disclosure when substantial doubt is raised about the ability to continue as a going concern. Includes, but is not limited to, principal conditions or events that raised substantial doubt about the ability to continue as a going concern, management's evaluation of the significance of those conditions or events in relation to the ability to meet its obligations, and management's plans that alleviated or are intended to mitigate the conditions or events that raise substantial doubt about the ability to continue as a going concern.
The entire disclosure for inventory. Includes, but is not limited to, the basis of stating inventory, the method of determining inventory cost, the classes of inventory, and the nature of the cost elements included in inventory.
At September 30, 2018 and December 31, 2017, property and equipment consisted of the following:
September 30,
2018
December 31,
2017
(Unaudited)
Machinery and equipment
$
1,045,217
$
1,045,217
Furniture and fixtures
56,558
56,558
Leasehold improvements
188,012
152,322
Software and website development
88,842
88,842
Computer hardware and software
171,275
153,249
1,549,904
1,496,188
Less accumulated depreciation and amortization
(1,467,731
)
(1,450,861
)
$
82,173
$
45,327
Depreciation and amortization expense of property and equipment for the three and nine months ended September 30, 2018 and 2017 is $6,817 and $16,870, and $5,657 and $14,751, respectively.
The entire disclosure for long-lived, physical assets used in the normal conduct of business and not intended for resale. Includes, but is not limited to, accounting policies and methodology, roll forwards, depreciation, depletion and amortization expense, including composite depreciation, accumulated depreciation, depletion and amortization expense, useful lives and method used, income statement disclosures, assets held for sale and public utility disclosures.
Included in other assets at September 30, 2018 and December 31, 2017 are capitalized patent costs as follows:
September 30,
2018
December 31,
2017
(Unaudited)
Patent costs
$
614,152
$
558,873
Less accumulated amortization
(76,893
)
(62,153
)
$
537,259
$
496,720
Amortization expense for the three and nine months ended September 30, 2018 and 2017 amounted to $4,183, $14,741, $3,394, and $10,187, respectively.
Depreciation and amortization expense of property and equipment and capitalized patents for the three and nine months ended September 30, 2018 and 2017 is $11,000, $31,611, $9,051 and $24,938, respectively.
The Company leases its office and warehouse facilities in Boynton Beach, Florida under a long-term non-cancellable lease agreement, which contains renewal options and rent escalation clauses. As of September 30, 2018, a security deposit of $34,970 is included in noncurrent assets in the accompanying balance sheet. On September 27, 2012 the Company entered into a non-cancellable six-year lease agreement for the same facilities commencing August 1, 2013 and expiring July 31, 2019. The total minimum lease payments over the term of the current lease amount to $180,826.
On June 29, 2018, the Company entered into a non-cancellable five-year lease for the same facilities commencing August 1, 2019 and expiring July 31, 2024. The lease will require an initial rent of $14,899 per month, beginning August 1, 2019 for the first year, increasing by 3% per year to $16,769 per month in the fifth year. In addition, the Company is responsible for all operating expenses and utilities. As part of the lease the landlord agreed to reimburse the Company $58,000 towards the replacement of air conditioning units, upon written request. As of September 30, 2018 the Company had received all of the reimbursement.
In January 2015 the Company entered into a capital lease for office equipment in the amount of $15,020, which expires in December 2018. As of September 30, 2018 and December 31, 2017 the balance under capital lease obligations was $629 and $3,443, respectively.
In September 2018, the Company entered into a new capital lease for office equipment in the amount of $559, which will commence in December 2018 for a term of 48 months.
The entire disclosure for lessee entity's leasing arrangements including, but not limited to, all of the following: (a.) The basis on which contingent rental payments are determined, (b.) The existence and terms of renewal or purchase options and escalation clauses, (c.) Restrictions imposed by lease agreements, such as those concerning dividends, additional debt, and further leasing.
Deferred compensation represents amounts owed to three employees for salary. As there is no written agreement with these employees which memorializes the terms of the salary deferral, only a voluntary election to do so, it is possible that the employees could demand payment in full at any time. As of September 30, 2018 and December 31, 2017 the Company recorded deferred compensation of $1,593,724 and $1,626,003, respectively.
The entire disclosure for compensation costs, including compensated absences accruals, compensated absences liability, deferred compensation arrangements and income statement compensation items. Deferred compensation arrangements may include a description of an arrangement with an individual employee, which is generally an employment contract between the entity and a selected officer or key employee containing a promise by the employer to pay certain amounts at designated future dates, usually including a period after retirement, upon compliance with stipulated requirements. This type of arrangement is distinguished from broader based employee benefit plans as it is usually tailored to the employee. Disclosure also typically includes the amount of related compensation expense recognized during the reporting period, the number of shares (units) issued during the period under such arrangements, and the carrying amount as of the balance sheet date of the related liability.
The Company entered into an exclusive distribution agreement for the worldwide rights to sell its product in the oil and gas industry effective September 7, 2017. The agreement included an incentive program that rewarded credits toward future product redeemable only if targeted quarterly goals are achieved. The incentive-earning period ended on June 30, 2018, and no incentives were earned. The exclusivity agreement continues at a minimum through the end of 2018.
On March 28, 2002 the Company executed a binding agreement with one of its principal stockholders, who is also the former Chief Executive Officer, now Executive Chairman of the Board, to fund up to $6.1 million. Under the terms of the agreement, the Company can draw amounts as needed to fund operations. Amounts drawn bear interest at the BBA LIBOR Daily Floating Rate plus 1.4 percentage points (3.89% and 3.61% per annum at September 30, 2018 and 2017 respectively), payable monthly and were to become due and payable on December 31, 2005 or upon a change in control of the Company or the consummation of any other financing over $7.0 million. Beginning in March 2006, annually, through February 2012, the maturity date for the agreement was extended annually from December 31, 2007, to December 31, 2018. On May 9, 2018 he extended the maturity rate to December 31, 2019.
During the nine months ended September 30, 2018 we borrowed an additional $26,273 from our Executive Chairman, together with $325,000 under a demand note not covered by this line of credit. This demand note bears interest at 4% per annum. As of September 30, 2018 and December 31, 2017 we owed him an aggregate of $8,314,622 and $7,988,349, respectively, which represented approximately 76% and 78% of our total liabilities, respectively. On May 9, 2018 he extended the maturity date to December 31, 2019. While he has continued to fund our working capital needs at reduced levels and extend the due date of the obligation for an additional year, he is under no contractual obligation to do so. During 2017 he advised us he does not expect to continue to provide working capital advances to us at historic amounts. If we are unable to meet our obligation to our Executive Chairman prior to maturity, he has advised us that he may forgive all, or substantially all, of this obligation.
In November 2017, the Company received an additional loan in the amount of $25,000 from a former member of the Board of Directors. The loan bears interest at a rate of 5% per annum and is due December 31, 2018.
From April 1, 2018 through May 15, 2018, the Company received additional loans in the amount of $250,000 from a related party to both the Companys Executive Chairman and its Chief Executive Officer, as advances for working capital needs. The amounts are non-interest bearing and are payable upon demand. On July 15, 2018, $250,000 was repaid.
During the three and nine months ended September 30, 2018 and 2017, the Company incurred interest expense of $85,309 $240,028, $68,564, and $200,405, respectively, on its loan from the Chairman of the Board, which is included in interest expense in the accompanying condensed statements of operations as well as interest expense of $315 and $935 and $315 and $1,068 for the three and nine months ended September 30, 2018 and 2017, respectively related to the loan from a former Board member. These amounts, in addition to interest expense of $139, $171, $1,421, and $1,996, for the three and nine months ended September 30, 2018 and 2017, respectively, are related to capital lease obligations, financing and loans from a stockholder.
Notes payable and capital leases consisted of the following at September 30, 2018 and December 31, 2017:
September 30,
2018
December 31, 2017
Notes payable to stockholders
$
8,339,622
$
7,988,349
Capital lease obligation
629
3,443
8,340,251
7,991,792
Less: current maturities
(350,629
)
(7,991,792
)
Long-term maturities
$
7,989,622
$
Maturities of Long Term Obligations for Five Years and Beyond
The minimum annual principal payments of notes payable and capital lease obligations at September 30, 2018 were:
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
On May 18, 2018 we entered into a letter agreement with Mr. Edward S. Vittoria pursuant to which he agreed to be employed by us as our Chief Executive Officer for an initial term ending May 31, 2019, which such term may be extended by mutual agreement upon terms and conditions to be mutually agreed upon prior to the expiration of such initial term. Under the terms of the letter agreement we agreed to pay him: (i) an annual base salary of $200,000, payable in accordance with our normal payroll practices; (ii) an annual cash bonus to be awarded by our Board of Directors in January in a minimum amount of $50,000; and (iii) granted him options to purchase 6,500,000 shares of our common stock, vesting one-third in arrears, at an exercise price equal to fair market value on the date of grant pursuant to the terms and conditions of our 2018 Equity Compensation Plan. He is also entitled to: (i) participate in all of our benefit programs currently existing or hereafter made available to executive and/or salaried; (ii) an amount of annual paid vacation consistent with his position and length of service to us; and (iii) reimbursement for all reasonable, out of-pocket expenses incurred by him.
On September 7, 2017 the Company entered into an exclusive distribution agreement with NOW, Inc. (DNOW) for the worldwide rights to sell its product in the oil and gas industry. As part of this agreement, the distributor could receive sales incentive credits toward future product, based upon the difference in current pricing and new pricing detailed in the agreement. The credits toward future product are only redeemable if targeted quarterly goals are achieved. If the goals are not achieved the credits will be carried forward and are redeemable when the quarterly goals are achieved. Refer to Note 10. The incentive-earning period ended on June 30, 2018, and no incentives were earned. The exclusivity agreement continues at a minimum through the end of 2018.
On September 27, 2012, the Company entered into a 72 month lease for its corporate offices and warehouse facility in Boynton Beach, Florida. On June 29, 2018, the lease was extended an additional 5 years. The renewed lease commences August 1, 2019 and expiring on July 31, 2024 and requires an initial rent of $14,899 per month beginning in the second month of the first year, increasing in varying amounts to $16,769 per month in the fifth year. In addition, the Company is responsible for all operating expenses and utilities. As part of the lease the landlord agreed to reimburse the Company $58,000 towards the replacement of air conditioning units, upon written request. As of September 30, 2018 the Company has received all of the reimbursement.
On October 20, 2009, the Company entered into a consulting agreement for management and strategic development services with Boxwood Associates, Inc., pursuant to which the Company pays a $2,000 monthly service fee. The contract remains in effect until terminated by either party providing 30 days written notice. A former member of our Board of Directors and a significant stockholder is President of Boxwood Associates, Inc. Refer to Note 14.
For the three and nine months ended September 30, 2018 and September 30, 2017, respectively, the Company recorded non-cash stock-based compensation expense of $13,928, $38,661 $9,999, and $31,396, relating to employee stock options and warrants issued for consulting services.
Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable in accordance with FASB ASC 505, Equity, and FASB ASC 718, Compensation Stock Compensation. The related expense is recognized over the period the services are provided. Unrecognized expense remaining at September 30, 2018 and 2017 for the options is $180,650 and $24,705, respectively, and will be recognized through June 30, 2021.
On April 12, 2018 the Board of Directors approved the adoption of a 2018 Equity Compensation Plan. The Company has reserved 10,000,000 shares of our common stock for grants under this plan.
The 2018 Plan provides for the granting of both incentive and non-qualified stock options to key personnel, including officers, directors, consultants and advisors to the Company, at the discretion of the Board of Directors. Each plan limits the exercise price of the options at no less than the quoted market price of the common stock on the date of grant. The option term is determined by the Board of the Directors, provided that no option may be exercisable more than 10 years after the date of its grant and, in the case of an incentive option granted to an eligible employee owning more than 10% of the Companys common stock, no more than five years after the date of the grant. Generally, under both plans, options to employees vest over three years at 33.33% per annum unless the Board of Directors designates a different vesting schedule.
On April 12, 2018, the Company granted employees and directors options to purchase 4,475,000 shares of the Companys common stock, at exercise prices ranging from $0.0189 to $0.208 per share. The options vest over a three-year period and expire April 12, 2028. The fair value of the options totaled $69,989 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 2.64%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 217%. On April 30, 2018 our Chairman and Former CEO voluntarily cancelled the grant on April 12, 2018 of options awarded him to purchase an aggregate of 1,400,000 shares of the common stock.
On May 18, 2018, the Company, upon recommendation and approval by the compensation committee of the Board of Directors, granted its new Chief Executive Officer, options to purchase 6,500,000 shares of the Companys common stock, at an exercise price of $0.017 per share. The options vest over a three-year period and expire May 18, 2028. The fair value of the options totaled $101,437 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 2.64%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 217%.
On August 24, 2018, the Company granted one director options to purchase 5,000 shares of the Companys common stock, at an exercise price of $0.045 per share. The options vest over a two year period and expire August 25, 2023. The quoted market price of the common stock at the time of issuance of the options was $0.045 per share. The fair value of the options totaled $223 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 2.70%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 188%.
A summary of the Companys stock option plans as of September 30, 2018, and changes during the nine month period then ended is presented below:
Nine Months Ended
September 30, 2018
Number of
Options
Weighted
Average
Exercise Price
Options outstanding at December 31, 2017
3,180,000
$
0.20
Options granted
10,980,000
$
0.02
Options exercised
Options forfeited
(32,500
)
$
0.03
Options expired
(1,787,500
)
$
0.14
Options at end of period
12,340,000
$
0.06
Options exercisable at September 30, 2018
2,745,000
$
0.19
Changes in the Companys non-vested options for the nine months ended September 30, 2018 are summarized as follows:
Nine Months Ended
September 30, 2018
Number of
Options
Weighted
Average
Exercise Price
Nonvested options at December 31, 2017
270,840
$
0.15
Granted
10,980,000
$
0.03
Vested
(247,506
)
$
0.16
Forfeited
(1,408,334
)
$
0.22
Nonvested options at September 30, 2018
9,595,000
$
0.02
Options Outstanding
Options Exercisable
Range of Exercise Price
Number Outstanding
Remaining Average Contractual Life (In Years)
Weighted Average Exercise Price
Number Exercisable
Weighted Average Exercise Price
$0.017- $0.30
12,340,000
8.2
$
0.16
2,745,000
$
0.19
Totals
12,340,000
8.2
$
0.16
2,745,000
$
0.19
A summary of the Companys warrant activity as of September 30, 2018 and changes during the nine-month period then ended is presented below:
Nine months ended
September 30, 2018
Warrants
Weighted
Average
Exercise Price
Warrants outstanding at December 31, 2017
990,162
$
0.24
Granted
Expired
(216,826
)
$
0.35
Warrants outstanding and exercisable at September 30, 2018
The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.
On March 28, 2002 the Company executed a binding agreement with one of its principal stockholders, who is also the former Chief Executive Officer, now Executive Chairman of the Board, to fund up to $6.1 million. Under the terms of the agreement, the Company can draw amounts as needed to fund operations. Amounts drawn bear interest at the BBA LIBOR Daily Floating Rate plus 1.4 percentage points (3.89% and 3.61% per annum at September 30, 2018 and 2017 respectively), payable monthly and were to become due and payable on December 31, 2005 or upon a change in control of the Company or the consummation of any other financing over $7.0 million. Beginning in March 2006, annually, through February 2012, the maturity date for the agreement was extended annually from December 31, 2007, to December 31, 2018. On May 9, 2018 he extended the maturity rate to December 31, 2019.
During the nine months ended September 30, 2018 we borrowed an additional $26,273 from our Executive Chairman, together with $325,000 under a demand note not covered by this line of credit. This demand note bears interest at 4% per annum. As of September 30, 2018 and December 31, 2017 we owed him an aggregate of $8,314,622 and $7,988,349, respectively, which represented approximately 76% and 78% of our total liabilities, respectively. On May 9, 2018 he extended the maturity date to December 31, 2019. While he has continued to fund our working capital needs at reduced levels and extend the due date of the obligation for an additional year, he is under no contractual obligation to do so. During 2017 he advised us he does not expect to continue to provide working capital advances to us at historic amounts. If we are unable to meet our obligation to our Executive Chairman prior to maturity, he has advised us that he may forgive all, or substantially all, of this obligation.
In November 2017, the Company received an additional loan in the amount of $25,000 from a former member of the Board of Directors. The loan bears interest at a rate of 5% per annum and is due December 31, 2018.
From April 1, 2018 through May 15, 2018, the Company received additional loans in the amount of $250,000 from a related party to both the Companys Executive Chairman and its Chief Executive Officer, as advances for working capital needs. The amounts are non-interest bearing and are payable upon demand. On July 15, 2018, $250,000 was repaid.
On April 12, 2018, the Company granted our Chairman and Former CEO options to purchase 1,400,000 shares of the Companys common stock, at exercise price of $0.208 per share. The options vest over a three-year period and expire April 12, 2028. On April 30, 2018 our Chairman and Former CEO voluntarily cancelled the grant on April 12, 2018 of options awarded him to purchase an aggregate of 1,400,000 shares of the common stock.
On May 18, 2018, the Company, upon recommendation and approval by the compensation committee of the Board of Directors, granted its new Chief Executive Officer, options to purchase 6,500,000 shares of the Companys common stock, at an exercise price of $0.017 per share. The options vest over a three-year period and expire May 18, 2028.
On May 18, 2018 Mr. Edward S. Vittoria was appointed Chief
Executive Officer of Puradyn Filter Technologies Incorporated and as a member of its Board of Directors. Immediately prior to
such appointment, Mr. Joseph V. Vittoria resigned from his position as Chief Executive Officer, and has been appointed
Executive Chairman of the Board of Directors. Prior to his appointments, Mr. Edward Vittoria had been providing advisory
services to us beginning in December 2017.
On August 24, 2018, the Company granted one director options to purchase 5,000 shares of the Companys common stock, at an exercise price of $0.045 per share. The options vest over a two year period and expire August 25, 2023. The quoted market price of the common stock at the time of issuance of the options was $0.045 per share.
In November 2017, the Company received an additional loan in the amount of $25,000 from a former member of the Board of Directors and a significant stockholder. The loan bears interest at a rate of 5% per annum and is due December 31, 2018.
On October 20, 2009, the Company entered into a consulting agreement with Boxwood Associates, Inc., whereby the Company pays $2,000 monthly for management and strategic development services performed. The contract remains in effect until terminated by either party providing 30 days written notice. During each of three and nine months ended September 30, 2018 and 2017, we paid Boxwood Associates, Inc. $6,000 and $18,000, respectively under this agreement. A former member of our Board of Directors is President of Boxwood Associates, Inc.
The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.
There are concentrations of credit risk with respect to accounts receivables due to the amounts owed by four customers at September 30, 2018 whose balances each represented approximately 36%, 33%, 14%, and 13%, for a total of 96% of total accounts receivables. Comparatively, there are concentrations of credit risk with respect to accounts receivables due to the amounts owed by two customers at December 31, 2017 whose balances each represented approximately 53%, and 30%, for a total of 83% of total accounts receivables. Sales to three customers for the nine months ended September 30, 2018 were 32%, 27% and 14% of total sales for total of 73% of sales. Sales to four customers for the three months ended September 30, 2018 were 32%, 29%, 16% and 12% for total of 89% of sales. During the three months ended September 30, 2017 sales from four customers represented 33%, 17%, 16% and 11% for a total of 77% of sales. During the nine months ended September 30, 2017 sales from three customers represented 39%, 12%, and 11% for a total of 62% of sales. The loss of business from one or a combination of the Companys significant customers, or an unexpected deterioration in their financial condition, could adversely affect the Companys operations.
The entire disclosure for any concentrations existing at the date of the financial statements that make an entity vulnerable to a reasonably possible, near-term, severe impact. This disclosure informs financial statement users about the general nature of the risk associated with the concentration, and may indicate the percentage of concentration risk as of the balance sheet date.
Puradyn Filter Technologies Incorporated (the Company), a Delaware corporation, is engaged in the manufacturing, distribution and sale of bypass oil filtration systems under the trademark Puradyn® primarily to companies within targeted industries. The Company holds the exclusive worldwide manufacturing and marketing rights for the Puradyn products through direct ownership of various patents.
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim information and with the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments consisting of a normal and recurring nature considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2018 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2018.
For further information, refer to the Company's financial statements and footnotes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2017.
The Company recognizes revenue from product sales to customers, distributors and resellers when products that do not require further services or installation by the Company are shipped, when there are no uncertainties surrounding customer acceptance and when collectability is reasonably assured. Cash received by the Company prior to shipment is recorded as deferred revenue. Sales are made to customers under terms allowing certain limited rights of return and other limited product and performance warranties for which provision has been made in the accompanying unaudited condensed financial statements.
Amounts billed to customers in sales transactions related to shipping and handling, represent revenues earned for the goods provided and are included in net sales. Costs of shipping and handling are included in cost of products sold.
The Company accounts for revenue in accordance with Topic 606 which was adopted at the beginning of fiscal year 2018 using the modified retrospective method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the effect was immaterial. The adoption of these standards did not have a material impact on the Company's condensed statements of operations during the nine months ended September 30, 2018.
The preparation of condensed financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the accompanying unaudited condensed financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and cash equivalents include all highly liquid investments with original maturities of three months or less at the time of purchase. At September 30, 2018 and December 31, 2017, the Company did not have any cash equivalents.
The carrying amounts of cash, accounts receivable, prepaid expenses and other assets, accounts payable, accrued liabilities and notes payable to stockholder approximate their fair values as of September 30, 2018 and December 31, 2017, respectively, because of their short-term natures.
Accounts receivable are recorded at fair value on the date revenue is recognized. The Company provides allowances for doubtful accounts for estimated losses resulting from the inability of its customers to repay their obligation. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to repay, additional allowances may be required. The Company provides for potential uncollectible accounts receivable based on specific customer identification and historical collection experience adjusted for existing market conditions. If market conditions decline, actual collection experience may not meet expectations and may result in decreased cash flows and increased bad debt expense.
The policy for determining past due status is based on the contractual payment terms of each customer, which are generally net 30 or net 60 days. Once collection efforts by the Company and its collection agency are exhausted, the determination for charging off uncollectible receivables is made.
Inventories are stated at the lower of cost or market using the first in, first out (FIFO) method. Production costs, consisting of labor and overhead, are applied to ending finished goods inventories at a rate based on estimated production capacity. Excess production costs are charged to cost of products sold. Provisions have been made to reduce excess or obsolete inventories to their net realizable value.
Property and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets, except for assets held under capital leases, for which the Company records depreciation and amortization based on the shorter of the assets useful life or the term of the lease. The estimated useful lives of property and equipment range from 3 to 5 years. Upon sale or retirement, the cost and related accumulated depreciation and amortization are eliminated from their respective accounts, and the resulting gain or loss is included in results of operations. Repairs and maintenance charges, which do not increase the useful lives of the assets, are charged to operations as incurred.
Patents are stated at cost. Amortization is provided using the straight-line method over the estimated useful lives of the patents. The estimated useful lives of patents are 17 to 20 years. Upon retirement, the cost and related accumulated amortization are eliminated from their respective accounts, and the resulting gain or loss is included in results of operations.
Management assesses the recoverability of its long-lived assets when indicators of impairment are present. If such indicators are present, recoverability of these assets is determined by comparing the undiscounted net cash flows estimated to result from those assets over the remaining life to the assets net carrying amounts. If the estimated undiscounted net cash flows are less than the net carrying amount, the assets would be adjusted to their fair value, based on appraisal or the present value of the undiscounted net cash flows.
As required by FASB ASC 460, Guarantors Guarantees, the Company is including the following disclosure applicable to its product warranties.
The Company accrues for warranty costs based on the expected material and labor costs to provide warranty replacement products. The methodology used in determining the liability for warranty cost is based upon historical information and experience. The Company's warranty reserve is included in accrued liabilities in the accompanying condensed financial statements and is calculated as the gross sales multiplied by the historical warranty expense return rate. For the nine months ended September 30, 2018, there was no change to the reserve for warranty liability as the reserve balance was deemed sufficient to absorb any warranty costs that might be incurred from the sales activity for the period.
The following table shows the changes in the aggregate product warranty liability for the nine months ended September 30, 2018:
Advertising costs are expensed as incurred. During the three and nine months ended September 30, 2018 and 2017, advertising costs incurred by the Company totaled approximately $4,117, $7,450, $430, and $731, respectively, and are included in selling and administrative expenses in the accompanying statements of operations.
Research and development costs are expensed as incurred. During the three and nine months ended September 30, 2018 and 2017, research and development costs incurred by the Company totaled $1,582, $4,395, $1,677 and $4,970, respectively, and are included in selling and administrative expenses in the accompanying statements of operations.
The Company accounts for income taxes under FASB ASC 740, Income Taxes. Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
We adopted FASB ASC 718, Compensation-Stock Compensation, effective January 1, 2006 using the modified prospective application method of adoption which requires us to record compensation cost related to unvested stock awards as of December 31, 2005 by recognizing the amortized grant date fair value in accordance with provisions of FASB ASC 718 on straight line basis over the service periods of each award. We have estimated forfeiture rates based on our historical experience. Stock option compensation expense for the year ended December 31, 2017 has been recognized as a component of cost of goods sold and general and administrative expenses in the accompanying financial statements for the three and nine months ended September 30, 2018.
The Company leases its employees from a payroll leasing company. The Companys leased employees meet the definition of employees as specified by FASB Interpretation No. 44 for purposes of applying FASB ASC 718.
Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable in accordance withFASB ASC 505, Equity, and FASB ASC 718, Compensation-Stock Compensation, including related amendments and interpretations. The related expense is recognized over the period the services are provided.
The Company minimizes the concentration of credit risk associated with its cash by maintaining its cash with high quality federally insured financial institutions. However, cash balances in excess of the FDIC insured limit of $250,000 are at risk. At September 30, 2018 and December 31, 2017, respectively, the Company did not have cash balances above the FDIC insured limit. The Company performs ongoing evaluations of its significant trade accounts receivable customers and generally does not require collateral. An allowance for doubtful accounts is maintained against trade accounts receivable at levels which management believes is sufficient to cover probable credit losses. The Company also has some customer concentrations, and the loss of business from one or a combination of these significant customers, or an unexpected deterioration in their financial condition, could adversely affect the Companys operations. Please refer to Note 15 for further details.
The Company uses ASC 260-10, Earnings
Per Share for calculating the basic and diluted income (loss) per share. The Company computes basic income (loss) per
share by dividing net income (loss) and net income (loss) attributable to common shareholders by the weighted average number
of common shares outstanding. As of September 30, 2018 and 2017, there were 13,113,336 and 4,175,162 shares issuable upon the
exercise of options and warrants, respectively. Common stock equivalent shares are excluded from the computation of net loss
per share if their effect is anti-dilutive. The Company had net income for the three and nine month period ended September
30, 2018. A separate computation of diluted earnings per share is presented using the treasury stock method and the common
stock equivalents did not have any effect on net income per share.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts
with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification 605,
Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue
and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized
from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14, which deferred the effective
date of the new revenue standard by one year and allowed entities the option to early adopt the new revenue standard as of the
original effective date. There have been multiple standards updates amending this guidance or providing corrections or improvements
on issues in the guidance. The requirements for these standards relating to Topic 606 are effective for interim and annual periods
beginning after December 15, 2017. This standard permitted adoption using one of two transition methods, either the retrospective
or modified retrospective transition method.
The Company adopted these standards at the beginning of fiscal year 2018 using the modified retrospective method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of these standards did not have a material impact on the Company's Condensed Statements of Operations during the nine months ended September 30, 2018.
In February 2016, the FASB
issued ASU 2016-02, Leases, which will amend current lease accounting to require lessees to recognize (i) a lease liability,
which is a lessees obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use
asset, which is an asset that represents the lessees right to use, or control the use of, a specified asset for the lease
term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes
were made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal
years beginning after December 15, 2018, including interim periods within those fiscal years. After reviewing of this ASU we have
determined it will have no impact on our results of operations, cash flows or financial condition.
All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.
Disclosure of accounting policy for advertising costs. For those costs that cannot be capitalized, discloses whether such costs are expensed as incurred or the first period in which the advertising takes place. For direct response advertising costs that are capitalized, describes those assets and the accounting policy used, including a description of the qualifying activity, the types of costs capitalized and the related amortization period. An entity also may disclose its accounting policy for cooperative advertising arrangements.
Disclosure of accounting policy for basis of accounting, or basis of presentation, used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS).
Disclosure of accounting policy for cash and cash equivalents, including the policy for determining which items are treated as cash equivalents. Other information that may be disclosed includes (1) the nature of any restrictions on the entity's use of its cash and cash equivalents, (2) whether the entity's cash and cash equivalents are insured or expose the entity to credit risk, (3) the classification of any negative balance accounts (overdrafts), and (4) the carrying basis of cash equivalents (for example, at cost) and whether the carrying amount of cash equivalents approximates fair value.
Disclosure of accounting policy for reporting any exceptions to the comparability of prior year financial data with data shown for the most recent accounting period.
Disclosure of accounting policy for computing basic and diluted earnings or loss per share for each class of common stock and participating security. Addresses all significant policy factors, including any antidilutive items that have been excluded from the computation and takes into account stock dividends, splits and reverse splits that occur after the balance sheet date of the latest reporting period but before the issuance of the financial statements.
Disclosure of accounting policy for intangible assets. This accounting policy may address both intangible assets subject to amortization and those that are not. The following also may be disclosed: (1) a description of intangible assets (2) the estimated useful lives of those assets (3) the amortization method used (4) how the entity assesses and measures impairment of such assets (5) how future cash flows are estimated (6) how the fair values of such asset are determined.
Disclosure of accounting policy for recognizing and measuring the impairment of long-lived assets. An entity also may disclose its accounting policy for long-lived assets to be sold. This policy excludes goodwill and intangible assets.
Disclosure of inventory accounting policy for inventory classes, including, but not limited to, basis for determining inventory amounts, methods by which amounts are added and removed from inventory classes, loss recognition on impairment of inventories, and situations in which inventories are stated above cost.
Disclosure of accounting policy pertaining to new accounting pronouncements that may impact the entity's financial reporting. Includes, but is not limited to, quantification of the expected or actual impact.
Disclosure of accounting policy for long-lived, physical assets used in the normal conduct of business and not intended for resale. Includes, but is not limited to, basis of assets, depreciation and depletion methods used, including composite deprecation, estimated useful lives, capitalization policy, accounting treatment for costs incurred for repairs and maintenance, capitalized interest and the method it is calculated, disposals and impairments.
Disclosure of accounting policy for income taxes, including investment tax credits, and the related regulatory treatment (for example, whether deferred income tax accounting - normalization - is allowed in rate making).
Disclosure of accounting policy for costs it has incurred (1) in a planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service, a new process or technique, or in bringing about a significant improvement to an existing product or process; or (2) to translate research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process.
Disclosure of accounting policy for revenue recognition. If the entity has different policies for different types of revenue transactions, the policy for each material type of transaction is generally disclosed. If a sales transaction has multiple element arrangements (for example, delivery of multiple products, services or the rights to use assets) the disclosure may indicate the accounting policy for each unit of accounting as well as how units of accounting are determined and valued. The disclosure may encompass important judgment as to appropriateness of principles related to recognition of revenue. The disclosure also may indicate the entity's treatment of any unearned or deferred revenue that arises from the transaction.
Disclosure of accounting policy for stock option and stock incentive plans. This disclosure may include (1) the types of stock option or incentive plans sponsored by the entity (2) the groups that participate in (or are covered by) each plan (3) significant plan provisions and (4) how stock compensation is measured, and the methodologies and significant assumptions used to determine that measurement.
Disclosure of accounting policy for trade and other accounts receivables. This disclosure may include the basis at which such receivables are carried in the entity's statements of financial position (for example, net realizable value), how the entity determines the level of its allowance for doubtful accounts, when impairments, charge-offs or recoveries are recognized, and the entity's income recognition policies for such receivables, including its treatment of related fees and costs, its treatment of premiums, discounts or unearned income, when accrual of interest is discontinued, how the entity records payments received on nonaccrual receivables and its policy for resuming accrual of interest on such receivables. If the enterprise holds a large number of similar loans, disclosure may include the accounting policy for the anticipation of prepayments and significant assumptions underlying prepayment estimates for amortization of premiums, discounts, and nonrefundable fees and costs.
Disclosure of accounting policy for the use of estimates in the preparation of financial statements in conformity with generally accepted accounting principles.
Tabular disclosure of the changes in the guarantor's aggregate product warranty liability, including the beginning balance of the aggregate product warranty liability, the aggregate reductions in that liability for payments made (in cash or in kind) under the warranty, the aggregate changes in the liability for accruals related to product warranties issued during the reporting period, the aggregate changes in the liability for accruals related to preexisting warranties (including adjustments related to changes in estimates), and the ending balance of the aggregate product warranty liability.
Tabular disclosure of the carrying amount as of the balance sheet date of merchandise, goods, commodities, or supplies held for future sale or to be used in manufacturing, servicing or production process.
Tabular disclosure of physical assets used in the normal conduct of business and not intended for resale. Includes, but is not limited to, balances by class of assets, depreciation and depletion expense and method used, including composite depreciation, and accumulated deprecation.
Tabular disclosure of assets, excluding financial assets and goodwill, lacking physical substance with a finite life, by either major class or business segment.
Tabular disclosure of information pertaining to short-term and long-debt instruments or arrangements, including but not limited to identification of terms, features, collateral requirements and other information necessary to a fair presentation.
Tabular disclosure of the combined aggregate amount of maturities and sinking fund requirements for all long-term borrowings for each of the five years following the date of the latest balance sheet date presented.
Tabular disclosure of option exercise prices, by grouped ranges, including the upper and lower limits of the price range, the number of shares under option, weighted average exercise price and remaining contractual option terms.
Tabular disclosure for stock option plans. Includes, but is not limited to, outstanding awards at beginning and end of year, grants, exercises, forfeitures, and weighted-average grant date fair value.
Tabular disclosure of warrants or rights issued. Warrants and rights outstanding are derivative securities that give the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue to entice investors by a higher return potential. The main difference between warrants and call options is that warrants are issued and guaranteed by the company, whereas options are exchange instruments and are not issued by the company. Also, the lifetime of a warrant is often measured in years, while the lifetime of a typical option is measured in months. Disclose the title of issue of securities called for by warrants and rights outstanding, the aggregate amount of securities called for by warrants and rights outstanding, the date from which the warrants or rights are exercisable, and the price at which the warrant or right is exercisable.
Amount charged to advertising expense for the period, which are expenses incurred with the objective of increasing revenue for a specified brand, product or product line.
Securities (including those issuable pursuant to contingent stock agreements) that could potentially dilute basic earnings per share (EPS) or earnings per unit (EPU) in the future that were not included in the computation of diluted EPS or EPU because to do so would increase EPS or EPU amounts or decrease loss per share or unit amounts for the period presented.
Amount of short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Excludes cash and cash equivalents within disposal group and discontinued operation.
Useful life of finite-lived intangible assets, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days.
Useful life of long lived, physical assets used in the normal conduct of business and not intended for resale, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days. Examples include, but not limited to, land, buildings, machinery and equipment, office equipment, furniture and fixtures, and computer equipment.
The aggregate costs incurred (1) in a planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service, a new process or technique, or in bringing about a significant improvement to an existing product or process; or (2) to translate research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or the entity's use, during the reporting period charged to research and development projects, including the costs of developing computer software up to the point in time of achieving technological feasibility, and costs allocated in accounting for a business combination to in-process projects deemed to have no alternative future use.
Carrying value as of the balance sheet date of obligations incurred through that date and payable for estimated claims under standard and extended warranty protection rights granted to customers.
Amount of decrease in the standard and extended product warranty accrual from payments made in cash or in kind to satisfy claims under the terms of the standard and extended product warranty.
Amount of cash inflow (outflow) from operating activities, including discontinued operations. Operating activity cash flows include transactions, adjustments, and changes in value not defined as investing or financing activities.
Amount before valuation and LIFO reserves of merchandise or goods in the production process expected to be completed within one year or operating cycle, if longer.
The carrying amount of the asset transferred to a third party to serve as a deposit, which typically serves as security against failure by the transferor to perform under terms of an agreement.
Amount of asset related to consideration paid in advance for costs that provide economic benefits in future periods, and amount of other assets that are expected to be realized or consumed within one year or the normal operating cycle, if longer.
Amount of asset related to consideration paid in advance for costs that provide economic benefits within a future period of one year or the normal operating cycle, if longer.
Amount of accumulated depreciation, depletion and amortization for physical assets used in the normal conduct of business to produce goods and services.
The amount of expense recognized in the current period that reflects the allocation of the cost of tangible assets over the assets' useful lives. Includes production and non-production related depreciation.
Amount before accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Amount after accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business to produce goods and services and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures.
The aggregate expense charged against earnings to allocate the cost of intangible assets (nonphysical assets not used in production) in a systematic and rational manner to the periods expected to benefit from such assets. As a noncash expense, this element is added back to net income when calculating cash provided by or used in operations using the indirect method.
The aggregate expense recognized in the current period that allocates the cost of tangible assets, intangible assets, or depleting assets to periods that benefit from use of the assets.
Amount equal to the present value (the principal) at the beginning of the lease term of minimum lease payments during the lease term (excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, together with any profit thereon) net of payments or other amounts applied to the principal, through the balance sheet date and due to be paid more than one year (or one operating cycle, if longer) after the balance sheet date.
Amount of rent expense incurred for leased assets, including but not limited to, furniture and equipment, that is not directly or indirectly associated with the manufacture, sale or creation of a product or product line.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Amount of required minimum rental payments for operating leases having an initial or remaining non-cancelable lease term in excess of one year due in the fifth fiscal year following the latest fiscal year. Excludes interim and annual periods when interim periods are reported on a rolling approach, from latest balance sheet date.
The amount of an asset, typically cash, provided to a counterparty to provide certain assurance of performance by the entity pursuant to the terms of a written or oral agreement, such as a lease.
Carrying value as of the balance sheet date of obligations incurred and payable, pertaining to costs that are statutory in nature, are incurred on contractual obligations, or accumulate over time and for which invoices have not yet been received or will not be rendered. Examples include taxes, interest, rent and utilities. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer).
Carrying value as of the balance sheet date of obligations incurred through that date and payable for contractual rent under lease arrangements. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer).
Carrying value as of the balance sheet date of the obligations incurred through that date and payable for employees' services provided. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer).
Carrying value as of the balance sheet date of [accrued] interest payable on all forms of debt, including trade payables, that has been incurred and is unpaid. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer).
Amount as of the balance sheet date of the aggregate standard product warranty liability that is expected to be paid within one year or the normal operating cycle, if longer. Does not include the balance for the extended product warranty liability.
Aggregate carrying value as of the balance sheet date of the liabilities for all deferred compensation arrangements payable within one year (or the operating cycle, if longer). Represents currently earned compensation under compensation arrangements that is not actually paid until a later date.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
The amount, during the lease term, of each minimum [capital] lease payment allocated to interest expense so as to produce a constant periodic rate of interest on the remaining balance of the capital lease obligation.
The amount for notes payable (written promise to pay), due to related parties. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer).
The cash inflow from a long-term borrowing made from related parties where one party can exercise control or significant influence over another party; including affiliates, owners or officers and their immediate families, pension trusts, and so forth. Alternate caption: Proceeds from Advances from Affiliates.
The cash outflow for the payment of a long-term borrowing made from a related party where one party can exercise control or significant influence over another party; including affiliates, owners or officers and their immediate families, pension trusts, and so forth. Alternate caption: Payments for Advances from Affiliates.
Amount equal to the present value (the principal) at the beginning of the lease term of minimum lease payments during the lease term (excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, together with any profit thereon) net of payments or other amounts applied to the principal through the balance sheet date.
Sum of the carrying values as of the balance sheet date of all debt, including all short-term borrowings, long-term debt, and capital lease obligations.
Sum of the carrying values as of the balance sheet date of all debt, including all short-term borrowings, long-term debt, and capital lease obligations.
Principal amount of long-term debt and capital lease obligation maturing in the second fiscal year following the latest fiscal year. Excludes interim and annual periods when interim periods are reported on a rolling approach, from latest balance sheet date.
Principal amount of long-term debt and capital lease obligation maturing in the next fiscal year following the latest fiscal year. Excludes interim and annual periods when interim periods are reported on a rolling approach, from latest balance sheet date.
The notice period to terminate the agreement, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days.
The monthly amount as of the balance sheet date that the entity must expend to satisfy the terms of disclosed arrangements (excluding long-term commitments) in which the entity has agreed to expend funds to procure goods or services from one or more suppliers, other than under a long-term purchase commitment or an unconditional purchase obligation.
Amount of rent expense incurred for leased assets, including but not limited to, furniture and equipment, that is not directly or indirectly associated with the manufacture, sale or creation of a product or product line.
Term of lessee's operating lease, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents reported fact of one year, five months, and thirteen days.
Amount of expense for salary and wage arising from service rendered by officer. Excludes allocated cost, labor-related nonsalary expense, and direct and overhead labor cost included in cost of good and service sold.
Amount of required minimum rental payments for operating leases having an initial or remaining non-cancelable lease term in excess of one year due in the fifth fiscal year following the latest fiscal year. Excludes interim and annual periods when interim periods are reported on a rolling approach, from latest balance sheet date.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
Period from grant date that an equity-based award exercisable, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days.
The aggregate amount of noncash, equity-based employee remuneration. This may include the value of stock or unit options, amortization of restricted stock or units, and adjustment for officers' compensation. As noncash, this element is an add back when calculating net cash generated by operating activities using the indirect method.
Period which an employee's right to exercise an award is no longer contingent on satisfaction of either a service condition, market condition or a performance condition, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days.
The estimated dividend rate (a percentage of the share price) to be paid (expected dividends) to holders of the underlying shares over the option's term.
The estimated measure of the percentage by which a share price is expected to fluctuate during a period. Volatility also may be defined as a probability-weighted measure of the dispersion of returns about the mean. The volatility of a share price is the standard deviation of the continuously compounded rates of return on the share over a specified period. That is the same as the standard deviation of the differences in the natural logarithms of the stock prices plus dividends, if any, over the period.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
The number of shares under options that were cancelled during the reporting period as a result of occurrence of a terminating event specified in contractual agreements pertaining to the stock option plan.
Period from grant date that an equity-based award expires, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days.
Expected term of share-based compensation awards, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days.
Fair value of options vested. Excludes equity instruments other than options, for example, but not limited to, share units, stock appreciation rights, restricted stock.
The number of shares into which fully or partially vested stock options outstanding as of the balance sheet date can be currently converted under the option plan.
The weighted-average price as of the balance sheet date at which grantees can acquire the shares reserved for issuance on vested portions of options outstanding and currently exercisable under the stock option plan.
The number of shares under options that were cancelled during the reporting period as a result of occurrence of a terminating event specified in contractual agreements pertaining to the stock option plan.
The weighted average grant-date fair value of options granted during the reporting period as calculated by applying the disclosed option pricing methodology.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
The floor of a customized range of exercise prices for purposes of disclosing shares potentially issuable under outstanding stock option awards on all stock option plans and other required information pertaining to awards in the customized range.
The number of shares reserved for issuance pertaining to the outstanding exercisable stock options as of the balance sheet date in the customized range of exercise prices for which the market and performance vesting condition has been satisfied.
The number of shares reserved for issuance pertaining to the outstanding stock options as of the balance sheet date for all option plans in the customized range of exercise prices.
The ceiling of a customized range of exercise prices for purposes of disclosing shares potentially issuable under outstanding stock option awards on all stock option plans and other required information pertaining to awards in the customized range.
The weighted average price as of the balance sheet date at which grantees could acquire the underlying shares with respect to all outstanding stock options which are in the customized range of exercise prices.
Weighted average remaining contractual term of outstanding stock options, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days.
Weighted average price at which grantees could have acquired the underlying shares with respect to equity instrument other than options that have expired.
The number of shares reserved for issuance pertaining to the outstanding equity instruments other than options as of the balance sheet date in the customized range of exercise prices.
The weighted average price as of the balance sheet date at which grantees could acquire the underlying shares with respect to all outstanding equity instruments other than options which are in the customized range of exercise prices.
Weighted average remaining contractual term of outstanding equity instruments other than options, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days.
The notice period to terminate the agreement, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days.
The monthly amount as of the balance sheet date that the entity must expend to satisfy the terms of disclosed arrangements (excluding long-term commitments) in which the entity has agreed to expend funds to procure goods or services from one or more suppliers, other than under a long-term purchase commitment or an unconditional purchase obligation.
The amount for notes payable (written promise to pay), due to related parties. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer).
The cash inflow from a long-term borrowing made from related parties where one party can exercise control or significant influence over another party; including affiliates, owners or officers and their immediate families, pension trusts, and so forth. Alternate caption: Proceeds from Advances from Affiliates.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
The cash outflow for the payment of a long-term borrowing made from a related party where one party can exercise control or significant influence over another party; including affiliates, owners or officers and their immediate families, pension trusts, and so forth. Alternate caption: Payments for Advances from Affiliates.
Period which an employee's right to exercise an award is no longer contingent on satisfaction of either a service condition, market condition or a performance condition, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days.
The number of shares under options that were cancelled during the reporting period as a result of occurrence of a terminating event specified in contractual agreements pertaining to the stock option plan.
Line items represent financial concepts included in a table. These concepts are used to disclose reportable information associated with domain members defined in one or many axes to the table.
For an entity that discloses a concentration risk in relation to quantitative amount, which serves as the "benchmark" (or denominator) in the equation, this concept represents the concentration percentage derived from the division.
Amount of revenue recognized from goods sold, services rendered, insurance premiums, or other activities that constitute an earning process. Includes, but is not limited to, investment and interest income before deduction of interest expense when recognized as a component of revenue, and sales and trading gain (loss).