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2. Summary of significant accounting policies
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Sep. 30, 2011
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| Significant Accounting Policies [Text Block] |
2. Summary
of significant accounting policies
Development
stage enterprise
The
Company is a development stage enterprise. All losses
accumulated since the inception of the Company have been
considered as part of the Company’s development stage
activities.
The
Company’s focus is on product development and marketing
of proprietary devices that are designed to reduce operation
costs of petrochemical pipeline transport and fuel efficiency
of diesel engines and has not yet generated meaningful
revenues. The technologies are called
“AOT” and “ELEKTRA”. The
Company is currently in the mid-late stages of developing its
AOT™ and ELEKTRA™ technologies for commercial
applications. Expenses have been funded though the
sale of company stock, convertible notes and the exercise of
warrants. The Company has taken actions to secure
the intellectual property rights to the AOT™ and
ELEKTRA™ technologies and is the worldwide exclusive
licensee for patent pending technologies associated with the
development of ELEKTRA™.
Estimates
The
preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Certain significant
estimates were made in connection with preparing the
Company’s financial statements. Actual results could
differ from those estimates.
Loss
per share
Basic
loss per share is computed by dividing net loss available to
common stockholders by the weighted average number of common
shares outstanding during the period. Diluted loss per share
reflects the potential dilution, using the treasury stock
method that could occur if securities or other contracts to
issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then
shared in the loss of the Company. In computing diluted loss
per share, the treasury stock method assumes that outstanding
options and warrants are exercised and the proceeds are used
to purchase common stock at the average market price during
the period. Options and warrants may have a dilutive effect
under the treasury stock method only when the average market
price of the common stock during the period exceeds the
exercise price of the options and warrants. For the nine
month period ended September 30, 2011 and 2010, the dilutive
impact of outstanding stock options of 22,177,892 and
4,865,265 respectively, and outstanding warrants of
40,552,211 and 21,421,651 have been excluded because their
impact on the loss per share is anti-dilutive.
Stock-Based
Compensation
The
Company periodically issues stock options and warrants to
employees and non-employees in non-capital raising
transactions for services and for financing costs. The
Company accounts for stock option and warrant grants issued
and vesting to employees based on the authoritative guidance
provided by the Financial Accounting Standards Board whereas
the value of the award is measured on the date of grant and
recognized over the vesting period. The Company accounts for
stock option and warrant grants issued and vesting to
non-employees in accordance with the authoritative guidance
of the Financial Accounting Standards Board whereas the value
of the stock compensation is based upon the measurement date
as determined at either a) the date at which a performance
commitment is reached, or b) at the date at which the
necessary performance to earn the equity instruments is
complete. Non-employee stock-based compensation charges
generally are amortized over the vesting period on a
straight-line basis. In certain circumstances where there are
no future performance requirements by the non-employee,
option grants are immediately vested and the total
stock-based compensation charge is recorded in the period of
the measurement date.
The
fair value of the Company's common stock option grant is
estimated using the Black-Scholes option pricing model, which
uses certain assumptions related to risk-free interest rates,
expected volatility, expected life of the common stock
options, and future dividends. Compensation expense is
recorded based upon the value derived from the Black-Scholes
option pricing model, and based on actual experience. The
assumptions used in the Black-Scholes option pricing model
could materially affect compensation expense recorded in
future periods.
Accounting
for Warrants and Derivatives
The
Company evaluates all of its financial instruments to
determine if such instruments are derivatives or contain
features that qualify as embedded derivatives. For derivative
financial instruments that are accounted for as liabilities,
the derivative instrument is initially recorded at its fair
value and is then re-valued at each reporting date, with
changes in the fair value reported in the consolidated
statements of operations. For stock-based
derivative financial instruments, the Company uses a
probability weighted average series Black-Scholes-Merton
option pricing models to value the derivative instruments at
inception and on subsequent valuation dates.
The
classification of derivative instruments, including whether
such instruments should be recorded as liabilities or as
equity, is evaluated at the end of each reporting
period. Derivative instrument liabilities are
classified in the balance sheet as current or non-current
based on whether or not net-cash settlement of the derivative
instrument could be required within 12 months of the balance
sheet date.
Fair
value of financial instruments
Effective
January 1, 2008, fair value measurements are determined by
the Company's adoption of authoritative guidance issued by
the FASB, with the exception of the application of the
statement to non-recurring, non-financial assets and
liabilities as permitted. The adoption of the authoritative
guidance did not have a material impact on the Company's fair
value measurements. Fair value is defined in the
authoritative guidance as the price that would be received to
sell an asset or paid to transfer a liability in the
principal or most advantageous market for the asset or
liability in an orderly transaction between market
participants at the measurement date. A fair value hierarchy
was established, which prioritizes the inputs used in
measuring fair value into three broad levels as
follows:
Level 1—Quoted
prices in active markets for identical assets or
liabilities.
Level 2—Inputs,
other than the quoted prices in active markets, are
observable either directly or indirectly.
Level 3—Unobservable
inputs based on the Company's assumptions.
The
Company is required to use observable market data if such
data is available without undue cost and effort
The
following table presents certain investments and liabilities
of the Company’s financial assets measured and recorded
at fair value on the Company’s condensed consolidated
balance sheets on a recurring basis and their level within
the fair value hierarchy as of September 30, 2011 and
December 31, 2010.
Recent
Accounting Pronouncements
In
May 2011, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(ASU) No. 2011-04, “Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in
U.S. GAAP and IFRSs”. ASU No. 2011-4 does
not require additional fair value measurements and is not
intended to establish valuation standards or affect valuation
practices outside of financial reporting. The ASU is
effective for interim and annual periods beginning after
December 15, 2011. The Company will adopt the ASU as
required. The ASU will affect the Company’s fair
value disclosures, but will not affect the Company’s
results of operations, financial condition or
liquidity.
In
June 2011, the FASB issued ASU No. 2011-05,
“Presentation of Comprehensive Income”. The
ASU eliminates the option to present the components of other
comprehensive income as part of the statement of changes in
shareholders’ equity, and instead requires consecutive
presentation of the statement of net income and other
comprehensive income either in a continuous statement of
comprehensive income or in two separate but consecutive
statements. ASU No. 2011-5 is effective for
interim and annual periods beginning after December 15,
2011. The Company will adopt the ASU as required.
It will have no effect on the Company’s results of
operations, financial condition or liquidity.
In
September 2011, the FASB issued ASU
2011-08, “Testing Goodwill for
Impairment”, an update to existing guidance on the
assessment of goodwill impairment. This update
simplifies the assessment of goodwill for impairment by
allowing companies to consider qualitative factors to
determine whether it is more likely than not that the fair
value of a reporting unit is less than its carrying amount
before performing the two step impairment review
process. It also amends the examples of events or
circumstances that would be considered in a goodwill
impairment evaluation. The amendments are effective for
annual and interim goodwill impairment tests performed for
fiscal years beginning after December 15, 2011. Early
adoption is permitted. The Company is currently
evaluating the affects adoption of ASU
2011-08 may have on its goodwill
impairment testing.
Other
recent accounting pronouncements issued by the FASB
(including its Emerging Issues Task Force), the AICPA, and
the Securities Exchange Commission (the "SEC") did not or are
not believed by management to have a material impact on the
Company's present or future consolidated financial
statements.
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