SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

COMMISSION FILE NUMBER  000-33309

TRITON EMISSION SOLUTIONS INC.

(Exact name of registrant as specified in its charter)

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.  [X] Yes  [  ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  [X] Yes  [  ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 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 [X] No  

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  As of November 16, 2015, the Registrant had 88,120,005 shares of common stock outstanding.

Table of Contents

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PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X, and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three and nine month periods ended September 30, 2015 are not necessarily indicative of the results that can be expected for the year ending December 31, 2015.

Unless the context otherwise requires, all references in this report to “Triton,” “the Company,” “we,” “us,” or “our” are to Triton Emission Solutions Inc., collectively with its subsidiaries Ecolutions, Inc., and Triton Emission Solutions International AB.

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TRITON EMISSION SOLUTIONS INC.

CONSOLIDATED BALANCE SHEETS

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

F-1

TRITON EMISSION SOLUTIONS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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

F-2

TRITON EMISSION SOLUTIONS INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

(Unaudited)

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

F-3

TRITON EMISSION SOLUTIONS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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

F-4

TRITON EMISSION SOLUTIONS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS

Triton Emission Solutions Inc. (the “Company”) was incorporated in the state of Delaware on March 2, 2000 and is listed on the OTCQB under the symbol “DSOX”. On August 25, 2014, the Company changed its name from Poly Shield Technologies Inc. to Triton Emission Solutions Inc. On November 13, 2014, the Company established a wholly owned subsidiary in Sweden, Triton Emission Solutions International AB (the “Subsidiary”).

The Company’s main focus is the development and marketing of its proprietary DSOX Fuel Purification (the “DSOX”) and Njord Exhaust Gas Scrubber (the “Njord”) Systems, designed to remove sulfur from marine fuel and exhaust gases. The technology is currently aimed at the maritime industry which includes vessels for cruise-line, freight shipping and tanker companies.

Basis of presentation

The unaudited interim consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.  They do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements included in the Annual Report on Form 10-K of the Company for the year ended December 31, 2014. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three and nine months ended September 30, 2015, are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.  For further information, these unaudited interim consolidated financial statements and the related notes should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2014, included in the Company’s report on Form 10-K.

Reclassifications

Certain prior period amounts in the accompanying unaudited consolidated interim financial statements have been reclassified to conform to the current period’s presentation.  These reclassifications had no effect on the consolidated results of operations or financial position for any period presented.

Going Concern

The accompanying unaudited consolidated interim financial statements have been prepared assuming the Company will continue as a going concern. Continuation as a going concern is dependent upon the ability of the Company to obtain the necessary financing to meet its obligations and pay its liabilities arising from normal business operations when they come due and ultimately upon its ability to achieve profitable operations.  The outcome of these matters cannot be predicted with any certainty at this time and raises substantial doubt that the Company will be able to continue as a going concern.  These unaudited interim consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.  Management intends to obtain additional funding by borrowing funds from its directors and officers, issuing promissory notes and/or a private placement of common stock.

F-5

NOTE 2 - RELATED PARTY TRANSACTIONS

Amounts due to related parties, other than notes payable to related parties (Notes 5 and 6), at September 30, 2015 and December 31, 2014:

Amounts are unsecured, due on demand and bear no interest.  

During the nine months ended September 30, 2015 and 2014, the Company incurred the following expenses with related parties:

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NOTE 3 - AGREEMENTS

Employment Agreement with CEO

On March 6, 2015, the Company entered into an employment agreement (the “Aasen Agreement”) with Mr. Aasen, pursuant to which Mr. Aasen has agreed to join the Company as its CEO and a Director, effective on March 23, 2015. Mr. Aasen is entitled to an annual base salary of $270,000 per year beginning March 23, 2015. In addition to the base salary, the Company granted Mr. Aasen options to purchase up to 3,000,000 restricted shares of the Company’s common stock at an exercise price of $0.50 per share (the “Aasen Options”). 1,000,000 of the Aasen Options vested on March 23, 2015. The remaining 2,000,000 Aasen Options will vest at a rate of 500,000 shares per year, beginning March 23, 2016. Upon a change-in-control, any options that have not vested will immediately vest and become exercisable.  The options expire 5 years after the vesting date. During the nine months ended September 30, 2015 the Company recorded $239,009 (September 30, 2014 - $Nil) as stock-based compensation associated with the grant of Aasen Options.

Employment Agreement with CEO of the Subsidiary

On January 6, 2015, the Subsidiary entered into an employment agreement effective as of December 1, 2014, pursuant to which Mr. Karlsson agreed to act as the Subsidiary’s President and Chief Executive Officer. Mr. Karlsson is entitled to an annual base salary of $120,000 per year beginning on December 1, 2014. In addition, the Company granted Mr. Karlsson options to purchase up to 100,000 shares of the Company’s common stock at an exercise price of $0.50 per share (the “Karlsson Options”). The Karlsson Options vest on December 1, 2015 and expire on December 1, 2020. During the nine months ended September 30, 2015 the Company recorded $15,509 (September 30, 2014 - $Nil) as stock-based compensation associated with the grant of Karlsson Options.

Consulting Agreement for Investor Relations Services

On September 4, 2015, the Company entered into a Consulting Agreement (the “Consulting Agreement”) with an unrelated party (the “Consultant”) for investor relations services. The term of the Consulting Agreement is one year, expiring on September 4, 2016.

In consideration for the Consultant agreeing to provide his services to the Company, the Company issued the Consultant 25,000 shares of its common stock with a fair value of $0.10 per share for a total of $2,500 and reserved further 75,000 shares of its common stock for issuance in equal instalments of 25,000 shares each on December 4, 2015, March 4, 2016 and June 4, 2016 (Note 7). In addition to the shares of its common stock, the Company issued the Consultant warrants to purchase up to 250,000 shares of its common stock at an exercise price of $0.50 per share, expiring on August 1, 2018, subject to earlier termination in the event that the Consultant ceases to act as a consultant of the Company prior to September 4, 2016.

The fair value of the warrants issued for the Consulting Agreement was calculated to be $12,163 and was expensed at the time of issuance. The fair value of the warrants granted was determined using the Black-Scholes Option pricing model at the grant date using the following assumptions:

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NOTE 4 - EQUIPMENT

Amortization schedule for the equipment at September 30, 2015 and December 31, 2014:

The equipment consists of testing and laboratory tools and machinery, which is amortized on a straight-line basis over its useful life of five years.

NOTE 5 - NOTES AND ADVANCES PAYABLE

The tables below summarize the short-term loans outstanding as at September 30, 2015 and December 31, 2014:

All loans are unsecured and due on demand.

On April 7, 2015, the Company received a demand notice to repay outstanding notes payable totaling $198,000 and $282,942 (CAD$378,972) of which $141,855 (CAD$190,000) of the principal amount accrues interest at a rate of 6% per annum, compounded monthly. On April 17, 2015, the Company made a payment of $100,000 and submitted a proposal for extended repayment terms.

On July 28, 2015, the Company received a second demand notice from the Lenders, requesting repayment of the balance owed on the above noted loans. On August 4, 2015, the Company reached an agreement with the Lenders to extend the repayment of the outstanding loans in consideration for a $10,000 extension fee (paid and recorded as part of financing costs on the statement of operations). The Company agreed to repay the remaining balance under the non-interest bearing and 6% interest bearing loans in two equal installments, due September 26, 2015 and November 25, 2015.

On September 26, 2015, the Company reached a verbal agreement with the Lenders to extend the agreed upon repayments until mutually agreed upon date, which repayment dates have not yet been determined.

F-8

On July 28, 2015, the Company entered into a loan agreement with its President and CTO, Rasmus Norling, whereby Mr. Norling agreed to lend to the Company $200,000 in exchange for an unsecured promissory note. The principal amount accumulates interest at 6% per annum compounded monthly and is due on demand and not earlier than 90 days following execution of the loan agreement. As of September 30, 2015, the Company recorded $2,110 as interest expense associated with this loan.

On August 31, 2015, the Company entered into a loan agreement with KF Business Ventures LP (“KFBV”), a company controlled by a director of the Company, whereby KFBV agreed to lend to the Company $200,000 in exchange for an unsecured promissory note. The principal amount accumulates interest at 6% per annum compounded monthly and is due on demand and not earlier than 90 days following execution of the loan agreement. As of September 30, 2015, the Company recorded $986 as interest expense associated with this loan.

NOTE 6 - KF BUSINESS VENTURES LP LOANS AND DERIVATIVE LIABILITY

First KFBV Loan Agreement

On January 15, 2014, the Company entered into a binding letter agreement with KFBV which was superseded by the formal definitive loan agreement signed on February 11, 2014, and further amended on March 10, 2014, and September 8, 2014 (the “First KF Loan Agreement”). Under the First KF Loan Agreement KFBV agreed to lend to the Company up to $2,000,000 in four equal installments of $500,000 each (the “First KF Loan”). Pursuant to the First KF Loan Agreement (as amended on March 10, 2014) the principal and interest were to become payable in 18 equal monthly installments commencing on January 1, 2015, with the  Company having the right to prepay the First KF Loan at any time in increments of not less than $250,000.  The First KF Loan is unsecured and has effective interest rate of 1,130%.

In consideration for the First KF Loan Agreement, as amended on March 10, 2014 (the “March Amendment”), the Company issued to KFBV non-transferrable share purchase warrants to purchase a total of 6,904,546 shares exercisable at a price of $1.00 per share (Note 7). Warrants for 2,450,000 shares were to expire on January 15, 2015, and warrants for 4,454,546 shares expire on January 15, 2018. The Lender may choose to exercise the warrants for up to 3,452,273 shares of common stock by way of a cashless exercise. The warrants have a down-round provision whereby the exercise price of the warrants are adjusted to the lowest offering price of any options, warrants or shares issued subsequent to the issuance of these warrants (the “Down-Round Provision”).

The warrants were determined to be a derivative under ASC 815; therefore, at initial measurement, the proceeds were allocated to the warrants first and any residual proceeds to the loan.

At issuance date, the fair value of the warrants was $5,128,110 and a value of $Nil was allocated to the loan. A financing charge of $3,128,110 was recorded on the transaction.

On September 8, 2014, the Company entered into a Second Amendment Agreement (the “September Amendment”) to extend the maturity of the First KF Loan to January 15, 2016, and replace 18 equal monthly instalments with a one-time payment of principal and accrued interest. Furthermore, the Company was given an option to further extend the repayment of the First KF Loan to January 15, 2017.

The extension to January 15, 2017, may be granted upon the Company issuing to KFBV additional share purchase warrants (the “Extension Warrants”) that will be equal to one-half of the outstanding principal and unpaid interest as at January 15, 2016. The Extension Warrants will have an initial exercise price of $0.50 per share expiring on September 1, 2021.

As consideration for the September Amendment, the Company issued to KFBV additional warrants for the purchase of up to 2,350,000 shares (the “September Warrants”), with an initial exercise price of $0.50 per share expiring on January 15, 2019, with cashless exercise rights for up to 1,175,000 shares. In addition, the Company agreed to decrease the exercise price for all warrants previously issued to KFBV under the First KF Loan (the “Amended Warrants”) from $1.00 per share to $0.50 per share and extend the expiration date of warrants for up to 2,450,000 shares of the Company’s common stock from January 15, 2015 to January 15, 2016. The 2,350,000 warrants also have the Down-Round Provision.

F-9

The incremental increase in the fair value of the Amended Warrants and the fair value of the September Warrants was determined to be $1,477,842 and has been recorded as a financing cost.

During the nine months ended September 30, 2015, the Company recognized accretion expense of $219,527 (September 30, 2014 - $276,050).

At September 30, 2015, the fair value of the derivative liability associated with the warrants was $236,061 (December 31, 2014 - $1,203,944).

The fair values of the warrants and adjustments were determined using the Black-Scholes Option pricing model at the grant date, and were revalued at the reporting dates using the following assumptions:

Second KF Business Ventures Loan Agreement

On July 28, 2014, the Company entered into a second loan agreement with KFBV (the “Second KF Loan Agreement”). Under the Second KF Loan Agreement, KFBV agreed to lend to the Company $2,400,000 (the “Second KF Loan”), to be advanced in eight equal instalments of $300,000 each, commencing on September 1, 2014, and on the first day of each consecutive calendar month thereafter until fully advanced.   

The initial maturity date under the Second KF Loan Agreement is January 15, 2016, which can be extended to January 15, 2017. The Second KF Loan is unsecured and has an effective interest rate of 1,729%.

The extension may be granted upon the Company issuing to KFBV additional share purchase warrants (the “Extension Warrants”) that will equal to one-half of the outstanding principal and unpaid interest as at January 15, 2016. The Extension Warrants will have an initial exercise price of $0.50 per share and expiring on September 1, 2021.

In consideration for the Second KF Loan Agreement, the Company issued to KFBV non-transferrable share purchase warrants for a total of 9,600,000 shares of the Company’s common stock, exercisable at a price of $0.50 per share for a period expiring September 1, 2019 (Note 7). KFBV may choose to exercise the warrants for up to 4,800,000 shares of common stock by way of a cashless exercise. The warrants have the Down-Round Provision.

The warrants were determined to be a derivative under ASC 815; therefore, at initial measurement, the proceeds were allocated to the warrants first and any residual proceeds to the loan.

At issuance date, the fair value of the warrants was $5,388,652 and a value of $Nil was allocated to the loan. A financing charge of $2,988,652 has been recorded on the transaction.

During the nine months ended September 30, 2015, the Company recognized accretion expense of $105,948 (September 30, 2014 - $51,955).

At September 30, 2015, the fair value of the derivative liability associated with the warrants was $471,421 (December 31, 2014 - $1,787,241).

F-10

The fair value of the warrants issued under the Second KF Loan Agreement was calculated using the Black-Scholes Option pricing model at the grant date, and was revalued at the reporting date using the following assumptions:

Summary of the derivative liability associated with the warrants under the First and Second KF Loan Agreements as at September 30, 2015:

KF Business Ventures Deferred Financing Costs

The Company recorded $37,150 in legal fees associated with securing both KF Loans. These fees are amortized over the remaining life of the loans; as of September 30, 2015, the Company recorded $27,029 (September 30, 2014 - $Nil) in financing costs associated with the amortization of these legal fees.

NOTE 7 - SHARE CAPITAL

On September 4, 2015, pursuant to the Consulting Agreement with an unrelated party for investor relations services the Company issued 25,000 shares of its common stock with a fair value of $2,500 and reserved further 75,000 shares of its common stock for issuance in equal instalments of 25,000 shares each on December 4, 2015, March 4, 2016 and June 4, 2016 (Note 3).

Warrants

On September 4, 2015, pursuant to the Consulting Agreement with an unrelated party for investor relations services the Company issued non-transferrable warrants to purchase up to 250,000 shares of its common stock at an exercise price of $0.50 per share, expiring on August 1, 2018. The warrants are subject to earlier termination in the event that the Consulting Agreement is terminated prior to September 4, 2016.

A continuity of warrants for the nine months ended September 30, 2015 and the year ended December 31, 2014 is as follows:

F-11

At September 30, 2015, the weighted-average exercise price and remaining contractual life of the outstanding share purchase warrants were $0.67 and 2.46 years, respectively.

Details of warrants outstanding as at September 30, 2015 are as follows:

Options

Effective September 8, 2014, the Company adopted the 2014 Stock Option Plan (the "2014 Plan"). The 2014 Plan allows the Company to grant awards to its officers, directors and employees.  In addition, the Company may grant awards to individuals who act as consultants to the Company, so long as those consultants do not provide services connected to the offer or sale of the Company’s securities in capital raising transactions and do not directly or indirectly promote or maintain a market for the Company’s securities.  

The Company reserved a total of 13,200,000 shares of its common stock for issuance under the 2014 Plan. However, under the terms of the 2014 Plan, at any time after January 1, 2015, the Company can increase the number of authorized shares available under the 2014 Plan up to 15% of the total number of shares of common stock then outstanding.

On September 8, 2014, the Company granted options to acquire up to 2,500,000 shares of the Company’s common stock to a Director (the “Options”). These Options were issued under the 2014 Plan.  The Options vest at a rate of 500,000 shares per year, beginning September 1, 2014, and have initial exercise price of $0.50 per share, subject to adjustment in the event that the Company subsequently issues any shares of its common stock or any options, warrants, convertible instruments or similar instruments at a purchase, exercise or conversion price less than $0.50 per share. The Options expire 5 years after the vesting date thereof. During the nine month period ended September 30, 2015, the Company expensed stock based compensation of $308,735 associated with this grant (September 30, 2014 - $253,163).

On December 1, 2014, the Company granted options to acquire up to 100,000 shares of the Company’s common stock at an exercise price of $0.50 per share to the CEO and President of the Subsidiary. These Options were issued under the 2014 Plan (Note 3). The Options vest on December 1, 2015, and expire on December 1, 2020, subject to certain early termination conditions. During the nine month period ended September 30, 2015, the Company expensed stock based compensation of $15,509 associated with this grant.

On March 6, 2015, the Company granted options to acquire up to 3,000,000 shares of the Company’s common stock at an exercise price of $0.50 per share to the CEO and a director of the Company. These Options were issued under the 2014 Plan (Note 3). Options to acquire up to 1,000,000 restricted shares of the Company’s common stock vested on March 23, 2015. The remaining 2,000,000 options vest at a rate of 500,000 shares per year, beginning March 23, 2016. The options expire 5 years after the vesting date. During the nine months ended September 30, 2015, the Company recorded $239,009 as stock-based compensation associated with the grant of these options.

On May 1, 2015, the Company granted options to acquire up to 500,000 shares of the Company’s common stock at an exercise price of $0.50 per share to the former VP of Engineering and a former director of the Company, who continues to be an employee of the Company. These Options were issued under the 2014 Plan. The options vested at the grant date and expire on May 1, 2020. During the nine months ended September 30, 2015, the Company recorded $63,660 as stock-based compensation associated with the grant of these options.

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On May 1, 2015, the Company granted options to acquire up to 100,000 shares of the Company’s common stock at an exercise price of $0.50 per share to an employee of its Subsidiary. These Options were issued under the 2014 Plan. The options vest on May 5, 2016, and expire on May 5, 2021, subject to certain early termination conditions. During the nine months ended September 30, 2015, the Company recorded $5,222 as stock-based compensation associated with the grant of these options.

On June 1, 2015, the Company granted options to acquire up to 100,000 shares of the Company’s common stock at an exercise price of $0.50 per share to an employee of its Subsidiary. These Options were issued under the 2014 Plan. The options vested at the grant date and expire on June 1, 2020, subject to certain early termination conditions. During the nine months ended September 30, 2015, the Company recorded $9,285 as stock-based compensation associated with the grant of these options.

On July 8, 2015, the Company granted options to acquire up to 100,000 shares of the Company’s common stock at an exercise price of $0.50 per share to its employee. These Options were issued under the 2014 Plan. The options vested at the grant date and expire on July 8, 2020, subject to certain early termination conditions. During the nine months ended September 30, 2015, the Company recorded $9,366 as stock-based compensation associated with the grant of these options.

A continuity of options for the nine month period ended September 30, 2015 and the year ended December 31, 2014 is as follows:

At September 30, 2015, the weighted-average exercise price and remaining contractual life of the outstanding options to purchase the shares of the Company’s common stock were $0.50 and 6.08 years, respectively.

Details of options outstanding as at September 30, 2015 are as follows:

NOTE 8 - SUBSEQUENT EVENT

On November 6, 2015, the Company entered into a loan agreement with its President and CTO, Rasmus Norling, whereby Mr. Norling agreed to lend to the Company additional $200,000 in exchange for an unsecured promissory note. The loan is in addition to the first loan agreement with Rasmus Norling, dated July 8, 2015. The principal amount accumulates interest at 6% per annum compounded monthly and is due on demand and not earlier than 90 days following execution of the loan agreement.

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

Cautionary Statement Regarding Forward-Looking Statements

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

The forward-looking statements in this Quarterly Report on Form 10-Q for the interim period ended September 30, 2015, are subject to risks and uncertainties that could cause actual results to differ materially from the results expressed in or implied by the statements contained in this report. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives requires the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate.

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

OVERVIEW

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

Currently our main efforts are directed towards development and marketing of our DSOX-20 Pre-Combustion Fuel Purification System (the “DSOX-20”, or “DSOX System”), which superseded our previous DSOX-15 model, to various divisions of the marine industry, including, but not limited, to cruise, cargo and tanker ships.

In addition to the DSOX System, we have developed an exhaust gas scrubber that we call the “Njord”, which can be used in conjunction with our DSOX–20 or installed as a standalone system, depending on the space allowed in a ship’s funnel.  

The discussion provided in this Quarterly Report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the United States Securities and Exchange Commission (the “SEC”) on April 15, 2015.  

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Update on Current Projects

Magical Cruise Company, Limited (the “DCL Project”)

As of the date of this Quarterly Report on Form 10-Q our commissioning and certification process of the DSOX System installed onboard a Magical Cruise Company, Limited (“DCL”) vessel has been suspended due to the scheduled dry-dock maintenance of the DCL vessel. We completed the installation of the DSOX System in April 2015, and once the vessel’s maintenance is completed, will continue with optimization of the various elements of the installation in order to successfully obtain certification. If we are unable to obtain certification for the installed system, then DCL will have the option of applying amounts paid by them for the initial DSOX System towards the purchase price of our Njord exhaust scrubber.  

LMS Ship Management Inc. (the “LMS Project”)

On or about June 19, 2014, we began the installation of our first DSOX System in Mobile, Alabama for LMS Ship Management Inc. (“LMS”). The DSOX System being installed for LMS represents a combination of two DSOX-15 Systems. Originally, our agreement with LMS called for installation of two separate DSOX-15 Systems onboard two cargo ships operated and managed by LMS.  However, in discussions with LMS, it was agreed that we would combine the two DSOX Systems into one combined stand-alone on-shore system.

During the first quarter of fiscal 2015 we suspended the LMS Project in order to allow us to focus on commissioning the DCL Project.  As of the date of this Quarterly Report on Form 10-Q the LMS Project remains suspended. Due to the similarities of the DSOX Systems for both projects, we are planning to apply the technological improvements and the knowledge from the DCL Project to the LMS Project, which we expect will be restarted shortly after completion of the DCL Project.  

Njord Prototype

In August 2015 our subsidiary, Triton International, began construction of the Njord Prototype, which, once completed, will be used in our initial testing and analysis of the benefits of the Njord System in controlling exhaust emissions prior to an actual installation onboard a ship. In addition to testing, the Njord Prototype will be used in our marketing and sales initiatives, since it is being constructed as a fully functional yet miniature version of the final Njord System that could be installed onboard virtually any vessel.

RECENT CORPORATE DEVELOPMENTS

The following significant developments occurred during the quarter ended September 30, 2015, and up to the date of the filing of this report:

Bridge Financing

On July 28, 2015, we entered into a loan agreement (the “First Norling Loan”) with Paer Tomas Rasmus Norling, our President and Chief Technical Officer, whereby Mr. Norling agreed to lend us $200,000. The principal amount under the First Norling Loan accumulates interest at 6% per annum, compounded monthly, and is due on demand following 90 days after the execution of the First Norling Loan.

On August 31, 2015, we entered into a loan agreement (the “Third KF Loan Agreement”) with KF Business Ventures, LP (“KFBV”), of which Robert C. Kopple, Chairman of our Board of Directors, is the principal. Under the terms of the Third KF Loan Agreement, KFBV agreed to lend us $200,000 in exchange for an unsecured Promissory Note. Outstanding principal under the Third KF Loan Agreement bears interest at a rate of 6% per annum, compounded monthly, until the outstanding principal amount is paid in full. The loan is payable on demand, however not earlier than 90 days following execution of the Third KF Loan Agreement.

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On November 6, 2015, we entered into a loan agreement (the “Second Norling Loan”) with Paer Tomas Rasmus Norling, whereby Mr. Norling agreed to lend us additional $200,000. The principal amount under the Second Norling Loan accumulates interest at 6% per annum, compounded monthly, and is due on demand following 90 days after the execution of the Second Norling Loan.

Consulting Agreement

On September 4, 2015, we entered into a Consulting Agreement (the “Second Consulting Agreement”) with Robert Lipp, an unrelated party, on substantially the same terms as the consulting agreement between us and Mr. Lipp dated for reference September 3, 2014 which expired on September 3, 2015.  Under the terms of the Second Consulting Agreement, Mr. Lipp agreed to continue providing the Company with investor relations services for a term of one year, expiring on September 4, 2016.

In consideration for Mr. Lipp agreeing to continue providing his services to us, we agreed to issue Mr. Lipp 100,000 shares of our common stock in four equal quarterly installments of 25,000 shares each. The first installment was issued on September 4, 2015 with a fair value of $2,500. In addition to the shares of our common stock, we agreed to grant Mr. Lipp non-transferrable warrants to purchase up to 250,000 shares of our common stock at an exercise price of $0.50 per share, expiring on August 1, 2018, subject to earlier termination in the event that Mr. Lipp ceases to act as our consultant prior to September 4, 2016.

RESULTS OF OPERATIONS

Three Months Summary

Nine Months Summary

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Revenues

Our revenue increased by 324.5% to $11,390 during the three months ended September 30, 2015, from $2,683 during the three months ended September 30, 2014. The increase in revenue was attributed to $8,130 in consulting fees charged by our wholly owned subsidiary, Triton International, on the use and installation of emission abatement technologies. In addition, we recorded $3,260 in royalty revenue from our agreement with WebTech Wireless (“WebTech”), which terminated on October 31, 2015.

On a year-to-date basis, our revenue increased by $32,075, or 101.8% from $31,493 we recorded during the nine months ended September 30, 2014 to $63,568 we recorded during the nine months ended September 30, 2015. The increase was mainly associated with $48,445 generated by Triton International for consulting fees on the use and installation of emission abatement technologies. This revenue was offset by the $1,370 decrease in royalty revenue from our agreement with WebTech, and lack of revenue from ship surveys.

Operating Expenses

During the three month period ended September 30, 2015 our operating expenses decreased by 74.1% to $529,389 from $2,047,776 during the three months ended September 30, 2014.  This change was mainly associated with our efforts to control our overall operating costs, suspension of our LMS Project for the installation of the land-based DSOX System, and completion of the installation phase of the DSOX System on board a vessel operated by DCL.

During the nine month period ended September 30, 2015, our operating expenses decreased by 67.5% to $1,589,258 from $4,887,410 for the nine months ended September 30, 2014.

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

·

Our research and development costs during the period ended September 30, 2015 increased by $54,269 to $71,271 incurred during this period. These increases were associated with the LMS Project, as majority of work done on the project was determined to be a part of further development of our DSOX System; cost of the system arrangement report we’ve ordered from a third party consulting firm, which outlined the best positioning of our DSOX-20 systems onboard Radiance class vessels; and costs to maintain our patent applications.

·

Our amortization expense decreased by $2,840,248, from $2,847,448 recorded during the nine month period ended September 30, 2014 to $7,200 recorded during the nine month period ended September 30, 2015. The greater amortization expense for 2014 was associated with emission abatement technologies we acquired from Mr. Norling on March 10, 2014, which initially were recorded as an intangible asset, subject to amortization, and were expensed at December 31, 2014 as research and development costs.  

·

Our insurance expense increased by $5,721, from $99,573 incurred during the nine month period ended September 30, 2014 to $105,294 incurred during the nine month period ended September 30, 2015. Although the requirement to acquire extended Marine and Workers Compensation insurance, in order to comply with our agreements for the installation and servicing of the DSOX Systems, resulted in $26,860 increase to the insurance costs, this increase was offset by adjustment to our 2014 – 2015 year insurance coverage, which resulted in a credit of $21,139 to the fees we paid previously.

·

During the nine month period ended September 30, 2015, our travel and entertainment expenses decreased by $75,602, relative to the same period in fiscal 2014. This decrease was mainly associated with our concentration on installations of our DSOX Systems, which resulted in reduced travel requirements.

·

During the nine month period ended September 30, 2015, our advertising and marketing expenses decreased by $276,667 and $83,974, respectively, relative to the same period in fiscal 2014. The decreases were associated with the shift of our efforts from building a public awareness for our Company and products to our  installation projects.  

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·

During the nine month period ended September 30, 2015, our administrative, consulting and management fees decreased by $106,750, $460,403 and $337,500, respectively. These decreases were mainly associated with restructuring of our administrative functions and transition to the payroll system, which is reflected in a $963,670 increase to our costs associated with salaries and wages.

·

Our concentration on the installation projects as well as our efforts to control operating costs resulted in a decrease to our professional fees of $170,225 from $206,647 incurred during the nine month period ended September 30, 2014 to $36,422 incurred during the nine month period ended September 30, 2015.

·

During the nine month period ended September 30, 2015, our web design and maintenance fees decreased by $101,024 to $6,581. The greater web design fees during the fiscal 2014 were associated with the redesign of our corporate website, which we continue to maintain and update as required.  

·

On September 24, 2014, we signed a Restated and Amended Teak Shield License Agreement, which resulted in termination of our obligations pursuant to the original Teak Shield License. As a result, we were released from any and all obligations pursuant to the original Teak Shield License, which resulted in reversal of the royalty fees of $170,833 we recorded at September 30, 2014.

Other Items

During the nine month period ended September 30, 2015, we recorded $325,475 in accretion expense that resulted from the difference between the stated interest rate and the implied interest rate we used to determine the fair value of the proceeds we received pursuant to the First KF Loan and the Second KF Loan. During the same period in fiscal 2014, our accretion expense was determined to be $328,005, and resulted from initial recognition of warrants issued for the First KF Loan and the Second KF Loan as a non-derivative liability, resulting in a greater portion of the loan proceeds being subject to accretion.

During the nine month period ended September 30, 2015, we recorded $32,191 in financing costs. These costs were associated with $22,191 legal fees we incurred to secure the First KF Loan and the Second KF Loan, and with $10,000 we paid Quarry Bay Capital LLC and another unrelated third party lender in consideration for an extension on repayment of their loans.

Our interest expense associated with obligations other than the KF Loans decreased by $242,681, or 93.5% from $259,504 for the nine month period ended September 30, 2014, to $16,823 for the nine month period ended September 30, 2015. This decrease was associated with repayment of the Acamar Loan on September 19, 2014.

During the nine month period ended September 30, 2015, we recorded $650,786 in stock-based compensation in respect of options to acquire up to 6,400,000 shares of our common stock (subject to certain vesting conditions) we granted to our directors, officers and employees under the 2014 Plan. During the nine month period ended September 30, 2014, our stock-based compensation amounted to $253,163 and was associated with the options to acquire up to 2,500,000 shares of our common stock (subject to certain vesting conditions) we granted to the chairman of our board of directors.

The above items were offset by a gain of $2,283,703 on a change in the fair value of the derivative liability associated with the fair value of the warrants we issued to KF Business Ventures LP pursuant to the First KF Loan and the Second KF Loan. The change in the fair value of the derivative liability was a result of the decrease in the market price of our common stock at September 30, 2015, as compared to the market price of the stock at December 31, 2014.  

In addition to the transactions described above, during the nine month period ended September 30, 2014, we recorded the following transactions:

·

$9,677,730 in non-cash consulting fees associated with the fair value of the warrants to acquire up to 10,000,000 shares of our common stock we issued to Mr. Norling as part of his Management Consulting Agreement with us;

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·

Forgiveness of debt of $238,321, which we recorded when we settled $538,321 due and payable to Acamar for a one-time payment of $300,000; and  

·

Impairment charge of $150,000 on the loans to our former subsidiary, New World Technologies Group, Inc.

We did not have similar transactions during the nine month period ended September 30, 2015.

Liquidity and Capital Resources

Our financial position was as follows at September 30, 2015 and December 31, 2014:

As of September 30, 2015, we had a cash balance of $157,756, a working capital deficit of $3,421,572, of which $ 707,482 was attributed to the fair value of the derivate liability associated with the warrants we issued to KF Business Ventures LP as partial consideration for the First KF Loan and the Second KF Loan, and cash flows used in operations of $1,885,472 for the nine months then ended. During the nine month period ended September 30, 2015, we funded our operations with $1,400,000 we received pursuant to the Second and Third KF Loans, $200,000 we received pursuant to the First Norling Loan and, to a minor extent, with the cash we received from royalties and consulting fees.

Our balance sheet at September 30, 2015, does not reflect the full amount payable on account of principal and interest under the First KF Loan and the Second KF Loan.  Since the warrants issued as consideration for the First KF Loan and the Second KF Loan were determined to be a derivative liability, pursuant to the guidance provided by ASC 815, the proceeds were allocated to the warrants, with amount over and above cash proceeds recorded as financing costs. The loan portion of the debt was assigned a $Nil value, and is being accreted over the life of the loans using an implied interest rate of 1,130% on the First KF Loan and 1,729% on the Second KF Loan.

As of September 30, 2015, we owed a total of $4,917,602 to KFBV under the terms of the First KF Loan and the Second KF Loan, consisting of $4,400,000 in principal amount of all advances made to that date plus accrued interest thereon calculated using the stated interest rate of 10% per annum compounded monthly.  The First KF Loan and the Second KF Loan are due and payable on January 15, 2016, when the value of the loans will amount to $5,063,314, unless prepaid earlier.  We may extend the due date of the First KF Loan and the Second KF Loan to January 15, 2017, provided that we issue additional warrants to KFBV.  Extending the due date of these loans may result in a dilution of the interests of our stockholders. A description of the First KF Loan and the Second KF Loan is provided under “Net Cash Provided by Financing Activities”.

During the quarter ended September 30, 2015, we arranged for an additional bridge financing totaling $400,000 with our CTO and President, Rasmus Norling (the “First Norling Loan”) and with KFBV (the “Third KF Loan”), each party agreed to advance us $200,000 in exchange for a Note Payable accruing interest at a rate of 6% per annum, compounded monthly, and payable on demand following 90 days after the execution date of respective loan agreement.  

Subsequent to the quarter ended September 30, 2015, on November 6, 2015, Mr. Norling agreed to advance us further $200,000 under substantially the same terms as the First Norling Agreement.

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In April 2015, Quarry Bay Capital LLC and another unrelated third party lender provided us with a demand notice for the repayment of demand loans advanced to us during 2012 through 2014.  A total of $198,000 and $282,942 (CAD$378,972) was outstanding under the loans at the time the demand notice was provided $141,855 (CAD$190,000) of the principal amount advanced accrues interest at a rate of 6% per annum, compounded monthly. The remaining principal amounts were advanced interest free. In April 2015, we made arrangements to pay $100,000 of the total amount outstanding (which amount has been paid), with the balance to be repaid in 90 days.  In August 2015 we made additional arrangements with the lenders whereby we have agreed to repay the amounts owing in two equal installments, due September 26, 2015 and November 25, 2015 in consideration for an “extension fee” of $10,000, which extension fee has been paid. On September 26, 2015, we reached a verbal agreement with the lenders to extend the agreed upon repayments until mutually agreed upon date, which repayment dates have not yet been determined.

We did not generate sufficient cash flows from our operating activities to satisfy our cash requirements for fiscal 2015.  Our only significant source of financing during the nine month period ended September 30, 2015 came from our loans from KFBV and Mr. Norling.  The amount of cash that we have generated from our operations to date is significantly less than our current debt obligations, including our debt obligations under the First KF Loan and the Second KF Loan, which will become due and payable on January 15, 2016.  

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

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

Cash Flows

Net Cash Used in Operating Activities

Net cash used in operating activities during the nine month period ended September 30, 2015, was $1,885,472. This cash was primarily used to cover our cash operating expenses of $1,574,450 and increase our work in progress by $205,164, which was associated with payments we made to our contractors for the manufacturing of the DSOX Systems, to acquire necessary parts and equipment, and to build the prototype of our Njord exhaust scrubber. We also decreased our wages payable by $48,646, and reduced our accounts payable and accrued liabilities by $26,401 and $36,880, respectively. In addition, increases in our accounts receivable of $33,655 further increased our cash used in operations. These uses of cash were offset by a $22,401 decrease in our prepaid expenses, $500 increase in amounts due to related parties, and $16,823 increase in interest accrued on short-term notes and advances payable.

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Net cash used in operating activities during the nine months ended September 30, 2014, was $1,715,061. This cash was primarily used to cover our cash operating expenses of $2,222,915 and increase our work in progress by $889,903, which was associated with payments we made to our contractors for the manufacturing of the first DSOX System as well as to acquire necessary parts and equipment. In addition we used $13,503 to reduce amounts due to related parties and $157,931 to reduce our accrued liabilities, which were in part associated with the reversal of royalty fees payable for the Teak Shield License. These uses of cash were offset by $975,000 we received as a deposit under the Purchase and Services Agreement with DCL. The uses of cash were further offset by  decreases in prepaid expenses of $198,844, increases in our accounts payable of $135,480 and increases in interest accrued on the notes and advances payable of $259,504.

Non-cash transactions

During the nine months ended September 30, 2015, our net income was further decreased by the following expenses that did not have any impact on cash used in operations:

·

$650,786 in stock-based compensation associated with the fair value of options to purchase up to 6,400,000 shares of our common stock we granted to our directors, officers and employees under our 2014 Stock Option Plan;

·

$22,191 in financing costs associated with legal fees to secure the First KF Loan and the Second KF Loan and $325,475 accretion expense that resulted from the difference between the stated interest rate and implied interest rate we used to determine the fair value of the proceeds we received pursuant to the above loans;

·

$7,200 in amortization expense we recorded on our testing and laboratory equipment; and

·

$14,663 in in stock-based compensation for investor relation services pursuant to the Consulting Agreement we entered into on September 4, 2015 with Robert Lipp, which comprised of $2,500 being a market value of 25,000 shares of our common stock we issued to Mr. Lipp on September 4, 2015 and $12,163 being a fair market value of warrants to purchase up to 250,000 shares of our common stock.

The negative effects of the above non-cash transactions were offset by the following items:

·

$2,283,703 gain we recorded on the revaluation of the derivative liability associated with the warrants we issued to KF Business Ventures LP as consideration for the First KF Loan and the Second KF Loan. Pursuant to the guidance provided by ASC 815, the derivative liability must be revalued at each reporting period based on the value of the underlying variable on the specific date; since the price of our common stock at September 30, 2015 was significantly lower compared to the price at December 31, 2014 this resulted in gain on revaluation; and

·

$43,800 gain that resulted from foreign exchange fluctuations on Canadian Dollar denominated loans and advances we received.

During the nine months ended September 30, 2014, our net loss was affected by the following items that did not have any impact on cash used in operations:

·

$328,005 accretion expense that resulted from the difference between stated interest rate and implied interest rate we used to determine the fair value of the proceeds we received pursuant to the First KF Loan and the Second KF Loan;

·

$2,847,448 in amortization expense we recorded on our intangible assets as well as testing and laboratory equipment;

·

$9,677,730 in non-cash consulting fees associated with the fair value of the warrants to purchase up to 10,000,000 shares of our common stock we issued to Mr. Norling as part of his Management Consulting Agreement with us;

·

$164,341 in stock-based compensation for investor relation services pursuant to the Consulting Agreement we entered into on September 3, 2014 with Robert Lipp, which comprised of $47,000 being a market value of 100,000 shares of our common stock and $117,341 being a fair market value of warrants to purchase up to 250,000 shares of our common stock;

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·

$46,410 in compensation for web design services being fair value of 51,000 shares of our common stock;

·

$253,163 in stock-based compensation associated with the fair value of the options to purchase up to 2,500,000 shares of our common stock we issued to Mr. Kopple as compensation for his appointment as our Director and Chairman.  

The negative effects of the above non-cash transactions were offset by the following items:

·

$238,321 gain we recorded as forgiveness of debt when we reached an agreement with Acamar Investments, Inc. to release us of our obligations under the Acamar Loan for a one-time payment of $300,000, which we made on September 19, 2014.

·

$15,693 gain that resulted from foreign exchange fluctuations on Canadian Dollar denominated loans and advances we received.

Net Cash Provided by Financing Activities

During the nine months ended September 30, 2015, we received $1,200,000 from KF Business Ventures LP (“KFBV”) pursuant to our Second KF Loan Agreement, and $200,000 pursuant to our Third KF Loan Agreement. Robert C. Kopple, Chairman of our Board of Directors, is the principal of KFBV. In addition, we received $200,000 from Rasmus Norling, our President and Chief Technical Officer, pursuant to our First Norling Agreement. During the same period we used $100,000 to reduce our non-interest bearing loans with unrelated parties.

During the nine months ended September 30, 2014, we received $2,000,000 from KF Business Ventures LP pursuant to our First KF Loan Agreement and $600,000 pursuant to our Second KF Loan Agreement. In addition, we received an advance for the total of $48,286 (CAD$50,000) from an unrelated party. These financing activities were reduced by $404,000 we paid under the Acamar Loan.

First Loan Agreement with KF Business Ventures LP

On January 15, 2014, we entered into a binding letter agreement (the “Letter Agreement”) with KFBV, which was superseded by a formal definitive Loan Agreement signed on February 11, 2014, and further amended by that Amendment No. 1 to Loan Agreement dated March 10, 2014 and by that Amendment No. 2 to Loan Agreement dated September 8, 2014 (as amended, the “First KF Loan Agreement”). Under the First KF Loan Agreement, KFBV agreed to lend to us up to $2,000,000 (the “First KF Loan”). Under the terms of the First KF Loan Agreement, we may not incur additional debt financing (other than trade payables incurred in the ordinary course of business), sell any material assets, sell any of our equity securities, which may result in a change in control, or engage in any corporate reorganization while any amounts remain outstanding under those agreements without KFBV’s prior written consent.

The First KF Loan accumulates interest at a rate of 10% per annum, compounded monthly, with the full principal plus interest due and payable on January 15, 2016.   We may prepay the outstanding balance under the First KF Loan at any time in increments of not less than $250,000.

As additional consideration for KFBV agreeing to loan us the funds and certain amendments made to the First KF Loan Agreement we issued to KFBV non-transferrable warrants for the purchase of up to 9,254,546 shares of our common stock as follows:

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The warrants issued to KFBV in connection with the First KF Loan may be exercised by way of a cashless exercise for a total of up to 4,627,273 shares of our common stock. If, at any time prior to the expiration date of these warrants, we issue additional shares of common stock, or options, warrants, convertible notes or similar rights to acquire shares of our common stock for a purchase, exercise or conversion price per share less than the exercise price of these warrants, the exercise price will be adjusted to equal such lower price.

We may extend the maturity date of the First KF Loan to January 15, 2017, by issuing to KFBV additional share purchase warrants equal to one-half of the outstanding principal and unpaid interest at January 15, 2016, with an initial exercise price of $0.50 per share and expiring on September 1, 2021.  

Second Loan Agreement with KF Business Ventures LP

On July 28, 2014, we entered into a second loan agreement (the “Second KF Loan Agreement”) with KFBV for an additional $2,400,000. Advances under the Second KF Loan were conditional upon (1) our agreeing to amend the First KF Loan Agreement (see “First Loan Agreement with KF Business Ventures LP”); (2) our issuing to KFBV non-transferrable share purchase warrants for a total of 9,600,000 shares of our common stock, exercisable at a price of $0.50 per share for a period expiring September 1, 2019, with cashless exercise rights for up to 4,800,000 shares; and (3) our agreeing with KFBV on a monthly budget for our Company. In addition, we agreed to appoint Robert C. Kopple, the principal of KFBV as Chairman of our Board of Directors.  Under the terms of the First and Second KF Loan Agreements, we may not incur additional debt financing (other than trade payables incurred in the ordinary course of business), sell any material assets, sell any of our equity securities, which may result in a change in control, or engage in any corporate reorganization while any amounts remain outstanding under those agreements without KFBV’s prior written consent.

Amounts payable under the Second KF Loan Agreement accumulate interest at a rate of 10% per annum, compounded monthly and will become payable in full on January 15, 2016. We may extend the maturity date of the loan to January 15, 2017, by issuing the Lender additional share purchase warrants equal to one-half of the outstanding principal and unpaid interest at January 15, 2016, with an initial exercise price of $0.50 per share and expiring on September 1, 2021.  

As of September 30, 2015, we owed a total of $4,917,602 to KFBV under the terms of the First KF Loan and the Second KF Loan, consisting of the full principal amount of all advances made to that date plus accrued interest thereon.   

Third Loan Agreement with KF Business Ventures LP

On August 31, 2015, we entered into a third loan agreement (the “Third KF Loan Agreement”) with KFBV for an additional $200,000. Under the terms of the Third KF Loan Agreement, the outstanding principal bears interest at a rate of 6% per annum and is compounded monthly. The loan is payable on demand, however not earlier than 90 days following execution of the Third KF Loan Agreement.

Net Cash Used in Investing Activities

During the nine month period ended September 30, 2015, we paid $11,354 acquiring the necessary equipment for testing our DSOX Fuel Purification Systems. We did not have similar transactions during the same period in fiscal 2014.

Going Concern

The notes to our financial statements at September 30, 2015, disclose our uncertain ability to continue as a going concern. We were in the business of selling, marketing, distributing and installing global wireless tracking and telematics equipment in Europe until November 1, 2004, when we exchanged our rights to sell, market, distribute and install global wireless tracking and telematics equipment in Europe as well as specific assets and liabilities, for a royalty of 6% on future gross sales to qualified customers in Europe. This royalty agreement ended on October 31, 2015, which ended the revenue from this source. Our emission abatement technologies have begun generating revenue only recently.  To date revenue related to these technologies has been limited to consulting on the use and implementation of these systems and conducting surveys on ships for the potential installation of our emission abatement systems.

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We have accumulated a deficit of $66,517,748 since inception and increased sales will be required to fund and support our operations. We plan to mitigate our losses in future years by controlling our operating expenses and actively seeking contracts for our emission abatement technologies. As of the date of this Quarterly Report we have been contracted to install a land-based DSOX Fuel Purification System for LMS Ship Management Inc. (“LMS”), install DSOX System on board a vessel operated by Magical Cruise Company, Limited (“DCL”), and entered into a Term Sheet Agreement for installation of two DSOX Systems for Prestige Cruise Holding Inc.  Despite these contracts we cannot provide assurance that we will be successful in generating additional sales. In addition, we have yet to record revenue from our LMS and DCL contracts, since LMS Project has been suspended awaiting results of the onboard testing of the DCL Project, which has been deferred due to the vessel’s scheduled maintenance in a dry-dock, with  only shore based chemical testing continuing for the DCL Project; we also have no assurance that we will be able to record revenues from subsequent installations in the future.  The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Off-Balance Sheet Arrangements

None.  

CRITICAL ACCOUNTING POLICIES

An appreciation of our critical accounting policies is necessary to understand our financial results. These policies may require management to make difficult and subjective judgments regarding uncertainties, and as a result, such estimates may significantly impact our financial results. The precision of these estimates and the likelihood of future changes depend on a number of underlying variables and a range of possible outcomes. Other than our accounting for our royalty revenue, our critical accounting policies do not involve the choice between alternative methods of accounting. We have applied our critical accounting policies and estimation methods consistently.

Principles of Consolidation

The unaudited consolidated interim financial statements include the accounts of Triton Emission Solutions Inc. and our wholly-owned subsidiaries, Ecolutions, Inc., and Triton Emission Solutions International AB. On consolidation, we eliminate all significant intercompany balances and transactions.

Revenue Recognition

Royalty revenue

Royalty revenue is recognized when pervasive evidence of an agreement exists, when it is received or when the royalty income is determinable and collectability is reasonably assured.

Survey and consulting revenue

Revenue is realized when the service has been provided, the income is determinable and collectability is reasonably assured.

Revenue from the installation and servicing of the Fuel Purification Systems

Revenue is recognized using the completed contract method whereby revenue is only recognized when all the following conditions have been met: pervasive evidence of an agreement exists, when delivery of the product has occurred and title has transferred or services have been provided, and when collectability is reasonably assured.

Deposits received prior to the delivery of goods and services are recorded as unearned revenue.

Accounts Receivable

Receivables represent valid claims against debtors for royalties and services arising on or before the balance sheet date and are reduced to their estimated net realizable value.  An allowance for doubtful accounts is based on an assessment of the collectability of all past due accounts. At September 30, 2015 and 2014, our allowance for doubtful accounts was $0.

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Long-lived Assets

In accordance with ASC 360, “Property, Plant, and Equipment”, we tests our long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. We assess the recoverability based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount exceeds fair value.

Equipment

Equipment is stated at cost and is amortized over its estimated useful life on a straight-line basis over 5 years.

Foreign Currency Translation and Transaction

The functional currency for the parent company is the U.S. dollar, the functional currency for the Company’s Swedish subsidiary is the Swedish krona. The Company translates assets and liabilities to U.S. dollars using exchange rates in effect at the reporting date, and translates revenues and expenses using average exchange rates during the period. Exchange gains and losses arising from the translation of foreign entity financial statements are included as a component of other comprehensive income or loss.  

Transactions denominated in currencies other than the functional currency of the legal entity are re-measured to the functional currency of the legal entity at the exchange rates in effect on the date of a transaction.  Any associated transactional currency re-measurement gains and losses are recognized in current operations.

Foreign Exchange Risk

We are subject to foreign exchange risk on our royalty and consulting revenue and some purchases which are denominated in Canadian dollars and/or Swedish kronor. Foreign currency risk arises from the fluctuation of foreign exchange rates and the degree of volatility of these rates relative to the U.S. dollar.  Foreign exchange rate fluctuations may adversely impact our results of operations as exchange rate fluctuations on transactions denominated in currencies other than our functional currency result in gains and losses that are reflected in our Statement of Operations. To the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currency-denominated transactions will result in increased net revenue. Conversely, our net revenue will decrease when the U.S. dollar strengthens against foreign currencies. We do not believe that we have any material risk due to foreign currency exchange.

Stock Options and other Stock-based Compensation

For equity awards, such as stock options, total compensation cost is based on the grant date fair value and for liability awards, such as stock appreciation rights, total compensation cost is based on the settlement value. We recognize the stock-based compensation expense for all awards over the service period required to earn the award, which is the shorter of the vesting period or the time period an employee becomes eligible to retain the award at retirement.

Work in Progress

Work in progress consists of cost of parts and equipment, as well as fees charged by external consultants required to build the Fuel Purification Systems and has been recorded at the lower of cost and net realizable value.

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Fair Value of Financial Instruments

Our financial instruments include cash, accounts receivable, loan receivable, accounts payable, accrued liabilities, notes and advances payable, and amounts due to related parties. The fair values of these financial instruments approximate their carrying values due to their short maturities.

Concentration of Credit Risk

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and trade accounts receivable.

At September 30, 2015, we had $52,528 in cash on deposit with a large chartered Canadian bank, $21,593 on deposit with large U.S. bank, $1,790 on deposit with Swedish bank and $81,845 in trust with a large payroll processing firm. Of these deposits approximately $26,738 was insured.  As part of our cash management process, we perform periodic evaluations of the relative credit standing of these financial institutions.  We have not experienced any losses in cash balances and do not believe we are exposed to any significant credit risk on our cash.

Accounts receivable consisted of royalty and consulting income, and at September 30, 2015 included insurance fees receivable due to adjustments to premiums we paid on 2014 – 15 workers compensation and marine insurance policies. These amounts were not collateralized.  We continually monitor the financial condition of our customers to reduce the risk of loss. We routinely assess the financial strength of our sources of revenue income and as a consequence, concentration of credit risk is limited. At September 30, 2015, we had $37,649 in accounts receivable outstanding, of which $2,263 was attributable to our royalty revenue from WebTech, $21,139 – to insurance premiums receivable, and $13,200 and 1,047 – to consulting fees and value added taxes, respectively, which were receivable by our wholly owned subsidiary, Triton International.

Recent Accounting Standards and Pronouncements

Recent accounting pronouncements issued by the Financial Accounting Standards Board or other authoritative standards groups with future effective dates are either not applicable or are not expected to be significant to our financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES.

In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by our management, with the participation of our Chief Executive Officer and the Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”) as of September 30, 2015. Based on the evaluation, our management concluded, as of the end of the period covered by this report, that our disclosure controls and procedures were effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

During the quarter ended September 30, 2015, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS.

None.

Item 1A. RISK FACTORS.

The following are certain risk factors that could affect our business, financial position, results of operations or cash flows. These risk factors should be considered along with the forward-looking statements contained in this Quarterly Report on Form 10-Q because these factors could cause our actual results or financial condition to differ materially from those projected in forward-looking statements. The following discussion is not an all-inclusive listing of risks, although we believe these are the more material risks that we face. If any of the following occur, our business, financial position, results of operations or cash flows could be negatively affected. We caution the reader to keep these risk factors in mind and refrain from attributing undue certainty to any forward-looking statements, which speak only as of the date of this Quarterly Report.

We have earned only limited revenues from the sale of products or services related to the DSOX-15, DSOX-20 and Njord.

Our current principal business focus is on the research, development and marketing of products and services related to our Emission Technologies.  However, our efforts in this area are in the development stage and we have earned only limited revenues related to this technology. There is also no assurance that we will be able to earn revenues from this businesses line in the future.

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

Although we have entered into sales contracts with LMS and DCL, and have a term sheet agreement with Prestige, for the installation of our DSOX Systems, and we have completed installation of our DSOX System on board a DCL vessel, we have not yet obtained certification that our DSOX System installed on board the DCL vessel meets current MEPC standards. In addition, we have temporarily suspended our efforts on the LMS Project awaiting results of the onboard testing of the DCL Project, which has been deferred due to the vessel’s scheduled maintenance in a dry-dock, with  only shore based chemical testing continuing for the DCL Project. As a result, we have not yet recorded revenue from the LMS or DCL Projects, and there is no assurance that the emission abatement systems installed by us will obtain certification under Current MEPC Standards.

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

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

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

We expect the majority of our future revenue to come from sales of our DSOX-20 Fuel Purification System, and our newly developed exhaust gas scrubber Njord, which are heavily dependent on current and future IMO Regulations being enforced by international signatories to MARPOL Annex VI.  Currently the United States, Canada and the E.U. have Emission Control Area’s (ECA) in place that apply stringent engine emission standards and fuel sulfur limits to ships that operate in these ECA’s as set under MARPOL Annex VI.  While sulfur oxide limit restrictions in these ECA’s have been reduced to the expected 0.1% by mass limit on January 1, 2015, there can be no assurance that the additional reductions in limits will continue to occur as scheduled.  A change in the current and upcoming IMO regulations could have a significant material impact on our financial results.

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

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

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

Although our Board of Directors and Executive Officers have extensive business experience and relevant experience in the emission abatement industry, some of our competitors may have top management with greater experience in the emission abatement industry. They may also have greater financial resources than we do at this time. We intend to continue attracting experienced management, sales and consulting teams to develop our business and our products. However, since we have no history of earning revenue in this business line, there is no assurance that our business efforts will prove successful.

Our royalty agreement with WebTech Wireless (“WebTech”) expired on October 31, 2015.

From November 2004 up to the date of the filing of this Quarterly Report, our revenue included royalties received from WebTech on the sale of global wireless tracking and telematics equipment from qualified customers. However, our royalty agreement with Webtech expired on October 31, 2015, which stopped the cash flow from this source. Should we be unable to realize revenue from the sale of our emission abatement technologies, our operations will become completely reliant on our ability to generate funds through the equity and debt financing.

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

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

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

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

·

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

·

competition from other products;

·

changes in customer preferences;

·

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

·

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

·

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

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

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

Domestic and foreign credit and financial markets have experienced extreme disruption in the past seven years, including volatility in security prices, diminished liquidity and credit availability, declining valuations of certain investments and significant changes in the capital and organizational structures of certain financial institutions. We are unable to predict the likely duration and severity of the continuing disruption in the credit and financial markets or of any related adverse economic conditions. These market conditions may limit our ability to access the capital necessary to grow and maintain our business. Accordingly, we may be forced to delay raising capital, issue shorter tenors than we prefer or pay unattractive interest rates, which could increase our interest expense, decrease our profitability and significantly reduce our financial flexibility. Overall, our results of operations, financial condition and cash flows could be materially adversely affected by the disruptions in the global credit and financial markets.

The global economic downturn may have a negative effect on our business and operations.

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

The timing, strength or duration of any recovery in the global economic markets remains uncertain, and there can be no assurance that market conditions will improve in the near future or that our results will not continue to be materially and adversely affected. Such conditions make it very difficult to forecast operating results, make business decisions and identify and address material business risks. There can be no assurance that the economy and our operating results will continue to improve, that the economy will not experience another significant downturn. In such an event, our operating results, financial condition and business could be adversely affected.

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

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

Our Chief Technical Officer, Senior Vice President of Business Development and Chairman of our Board each hold a significant amount of our outstanding Common Stock.  Together, they hold approximately 58% of our common stock and are able to exert considerable influence over our actions.

Rasmus Norling, a director and our Chief Technical Officer and President, and Mitchell Miller, a director and our Senior Vice President of Business Development, each own approximately 23.1% of our outstanding common stock.  Robert C. Kopple, Chairman of our Board of Directors, owns approximately 12.2% of our outstanding common stock.  Mr. Kopple and Mr. Norling also own a significant number of warrants and options to purchase additional shares of our common stock, further increasing the number of shares beneficially owned by our executive officers and members of our Board of Directors.  In addition, Mr. Kopple is the principal of KF Business Ventures, LP, our principal creditor, which has loaned to us a total of $4,600,000 under the First KF Loan, the Second KF Loan and the Third KF Loan.

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

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The loss of key members of our senior management team could disrupt the management of our business.

We believe that our success depends on the continued contributions of the members of our senior management team, including Mr. Norling, our Chief Technical Officer and one of our principal stockholders. The loss of Mr. Norling’s services could impair our ability to identify and secure new customer contracts, to maintain good customer relationships and to otherwise manage our business, which could have a material adverse effect on our financial performance and our ability to compete.

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

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

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

·

economic, political and social instability;

·

currency restrictions and exchange rate fluctuations;

·

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

·

import and export quotas;

·

longer payment cycles and problems collecting accounts receivable;

·

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

·

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

·

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

·

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

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

As of September 30, 2015, we owed approximately $4,917,602 under the terms of the First KF Loan and the Second KF Loan, which will become due and payable on January 15, 2016.  In addition to these amounts, we have other significant short term liabilities.  There is no assurance that we will be able to service our debt obligations when due.  

We have generated only limited cash from our operations to date.  The amount of cash that we have generated from our operations to date is significantly less than our current debt obligations.  There is no assurance that we will be able to generate sufficient cash from our operations to repay the amounts owing under the First KF Loan and the Second KF Loan when due, or to service our other debt obligations.  If we are unable to generate sufficient cash flow from our operations to repay the amounts owing when due, we may be required to raise additional financing from other sources, exercise our limited deferral rights under the terms of the First  KF Loan and the Second KF Loan, or re-negotiate the terms of our debt obligations.

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We have not raised significant financing from any sources other than our loans with KF Business Ventures LP. and our bridge financing with Mr. Rasmus Norling, and there is no assurance that we will be able to raise additional financing in the future in amounts sufficient to repay our obligations under these loans or on commercially reasonable terms. In addition, our ability to raise financing from other sources is restricted under the terms of the First KF Loan Agreement and the Second KF Loan Agreement.  Under the terms of the KF Loan Agreements, we may not incur additional debt financing (other than trade payables incurred in the ordinary course of business), sell any material assets, sell any of our equity securities, which could potentially result in a change in control, or engage in any corporate reorganization while any amounts remain outstanding under those agreements without the prior written consent from the lender, KF Business Ventures, LP (“KFBV”).

As of September 30, 2015, we owed a total of $4,917,602 to KFBV under the terms of the First KF Loan and the Second KF Loan, consisting of the full principal amount of all advances made to that date plus accrued interest thereon. Outstanding principal plus interest under the First KF Loan and the Second KF Loan is due on January 15, 2016. We may extend the maturity date for these loans by one year to January 15, 2017, provided that we issue additional share purchase warrants to KFBV in an amount equal to one-half of the outstanding principal plus interest with an initial exercise price of $0.50 per share and expiring on September 1, 2021.  Exercising this deferral right could significantly dilute the interests of our existing stockholders.

If we are unable to pay our debt obligations when due, we may need to seek to re-negotiate the terms of our debt obligations.  Although Robert C. Kopple, the Chairman of our Board of Directors, is the principal of KFBV, there is no assurance that we will be able to re-negotiate the terms of the First KF Loan or the Second KF Loan if necessary.  If we are unable to pay our debt obligations when due and we are subsequently unable to re-negotiate the terms of our debt obligations, our business could fail and our investors could lose their investment.

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

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

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

·

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

·

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

·

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

·

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

·

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

·

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

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

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

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

On September 4, 2015, we issued to Robert Lipp 25,000 shares of our common stock and non-transferrable warrants to purchase up to 250,000 shares of our common stock in consideration for Mr. Lipp’s agreement to provide the Company with investor relations services. The shares and warrants were issued to Mr. Lipp pursuant to the exemption from the registration requirements of the Securities Act of 1933 provided by Rule 506 of Regulation D on the basis of representations provided by Mr. Lipp that he is an accredited investor, as that term is defined in Regulation D.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

Option Grants to Employees

On July 8, 2015, we granted options to purchase a total of up to 100,000 shares of our common stock to an employee of our Company. The options vested immediately, are exercisable at a price of $0.50 per share and expire on July 8, 2020.  The exercise of the options is contingent on the availability of an applicable exemption from the registration and prospectus exemptions of applicable securities laws.

ITEM 6. EXHIBITS.

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

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21

Notes:

(1)

Filed as an exhibit to our Registration statement on Form SB-2 filed on August 2, 2001.

(2)

Filed as an exhibit to our Quarterly Report on Form 10-QSB filed on April 15, 2003.

(3)

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

(4)

Filed as an exhibit to our Current Report on Form 8-K filed on March 16, 2012.

(5)

Filed as an exhibit to our Current Report on Form 8-K filed on April 23, 2012.

(6)

Filed as an exhibit to our Current Report on Form 8-K filed on July 13, 2012.

(7)

Filed as an exhibit to our Current Report on Form 8-K filed on November 6, 2012.

(8)

Filed as an exhibit to our Current Report on Form 8-K filed on December 7, 2012.

(9)

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

(10)

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

(11)

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

(12)

Filed as an exhibit to our Quarterly Report on Form 10-Q filed on May 14, 2013.

(13)

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

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(14)

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

(15)

Filed as an exhibit to our Current Report on Form 8-K filed on December 9, 2013.

(16)

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

(17)

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

(18)

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

(19)

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

(20)

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

(21)

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

(22)

Filed as an exhibit to our Quarterly Report on Form 10-Q filed on August 14, 2014.

(23)

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

(24)

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

(25)

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

(26)

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

(27)

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

(28)

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

(29)

Filed as an exhibit to our Current Report on Form 8-K filed on August 27, 2014.

(30)

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

(31)

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

(32)

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

(33)

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

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SIGNATURES

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.

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