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2. Summary of significant accounting policies
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Dec. 31, 2011
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| Significant Accounting Policies [Text Block] |
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 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 for cash. 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 AOT™
and ELEKTRA™.
Going
concern
The
accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of
assets and the settlement of liabilities and commitments in
the normal course of business. As reflected in the
accompanying financial statements, the Company had a net
loss of $10,856,547 and a negative cash flow from
operations of $4,723,952 for the year ended December 31,
2011, and had a working capital deficiency (excluding
derivative liabilities) of $1,548,082 and a
stockholders’ deficiency of $3,105,282 at December
31, 2011. These factors raise substantial doubt about
the Company’s ability to continue as a going concern.
The ability of the Company to continue as a going concern
is dependent upon the Company’s ability to raise
additional funds and implement its business plan. The
financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as
a going concern.
At
December 31, 2011 we have cash on hand totaling $617,797
and subsequent to December 31, 2011, the Company raised an
additional $1,215,440 through the issuance of its
convertible notes. (see "Note 12"). In order to
fund our operations and the repayment of our outstanding
notes, we may have to raise additional funds. At December
31, 2011, these notes included, the Fall 2009
Notes due in January 2012, the Winter 2011 Notes due in
February 2012, the Fall 2011 Notes in October 2012 and the
Fall 2011#2 Notes due in December 2012 These
Notes total $1,720,460 and we expect substantially all of
these Notes will be converted into stock. In addition
to the funds required to continue to operate our business,
including without limitation the expenses we will incur in
connection with the license and research and development
agreements with Temple University, costs associated with
product development and commercialization of the AOT and
ELEKTRA technologies, costs to manufacture and ship our
products, costs to design and implement an effective system
of internal controls and disclosure controls and
procedures, costs of maintaining our status as a public
company by filing periodic reports with the SEC, costs to
settle a certain law suit, and costs required to protect
our intellectual property. In addition, we have substantial
contractual commitments, including without limitation
salaries to our executive officers pursuant to employment
agreements, certain severance payments to a former officer
and consulting fees, during 2012 and beyond.
No
assurance can be given that any future financing will be
available or, if available, that it will be on terms that
are satisfactory to the Company. At present, we have
relatively few financing options available to us.
Revenue
Recognition Policy
The
Company recognizes revenue based upon meeting four
criteria:
The
Company co-develops with, and licenses from, its
intellectual property as a joint-agreement with Temple
University of Philadelphia, PA. The
Company’s business model is to contract with
suppliers and manufacturers of oilfield equipment to sell
into the oilfield pipeline market. The Company negotiates
an initial contract with the customer fixing the terms of
the sale and then receive a letter of credit or full
payment in advance of shipment. Upon shipment, the Company
will recognize the revenue associated with the sale of the
products to the customer.
Property
and equipment and depreciation
Property
and equipment are stated at cost. Depreciation is computed
using the straight-line method based on the estimated
useful lives of the assets, generally ranging from three to
ten years. Expenditures for major renewals and improvements
that extend the useful lives of property and equipment are
capitalized. Expenditures for repairs and maintenance are
charged to expense as incurred. Leasehold improvements are
amortized using the straight-line method over the shorter
of the estimated useful life of the asset or the lease
term.
Impairment
of long-lived assets
Our
long-lived assets, such as property and equipment, are
reviewed for impairment at least annually, or when events
and circumstances indicate that depreciable or amortizable
long lived assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are
less than the carrying amount of those assets. When
specific assets are determined to be unrecoverable, the
cost basis of the asset is reduced to reflect the current
value.
We
use various assumptions in determining the current fair
value of these assets, including future expected cash flows
and discount rates, as well as other fair value measures.
Our impairment loss calculations require us to apply
judgment in estimating future cash flows, including
forecasting useful lives of the assets and selecting the
discount rate that reflects the risk inherent in future
cash flows.
If
actual results are not consistent with our assumptions and
judgments used in estimating future cash flows and asset
fair values, we may be exposed to future impairment losses
that could be material to our results. Based
upon management’s annual review, no impairments were
recorded for the years ended December 31, 2011 and December
31, 2010.
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 years ended
December 31, 2011 and 2010, the dilutive impact of
outstanding stock options of 24,067,892 and 4,837,488;
outstanding warrants of 49,106,280, and 22,979,068 and
notes convertible into 6,836,016 and 1,839,763 shares
respectively, have been excluded because their impact
on the loss per share is anti-dilutive.
Income
taxes
Income
taxes are recognized for the amount of taxes payable or
refundable for the current year and deferred tax
liabilities and assets are recognized for the future tax
consequences of transactions that have been recognized in
the Company’s financial statements or tax returns. A
valuation allowance is provided when it is more likely than
not that some portion or all of the deferred tax asset will
not be realized.
Stock-Based
Compensation
The
Company periodically issues stock options and warrants to
employees and non-employees in non-capital raising
transactions for services and for financing costs. The
Company accounts for stock option and warrant grants issued
and vesting to employees based on the authoritative
guidance provided by the Financial Accounting Standards
Board whereas the value of the award is measured on the
date of grant and recognized over the vesting period. The
Company accounts for stock option and warrant grants issued
and vesting to non-employees in accordance with the
authoritative guidance of the Financial Accounting
Standards Board whereas the value of the stock compensation
is based upon the measurement date as determined at either
a) the date at which a performance commitment is reached,
or b) at the date at which the necessary performance to
earn the equity instruments is complete. Non-employee
stock-based compensation charges generally are amortized
over the vesting period on a straight-line basis. In
certain circumstances where there are no future performance
requirements by the non-employee, option grants are
immediately vested and the total stock-based compensation
charge is recorded in the period of the measurement
date.
The
fair value of the Company's 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 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.
Business
and credit concentrations
The
Company’s cash balances in financial institutions at
times may exceed federally insured limits. As of
December 31, 2011 and 2010, before adjustments for
outstanding checks and deposits in transit, the Company had
$597,581 and $111,223, respectively, on deposit with two
banks. The deposits are federally insured up to $250,000 on
each bank.
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.
Fair
value of financial instruments
Effective
January 1, 2008, fair value measurements are determined by
the Company's adoption of authoritative guidance issued by
the FASB, with the exception of the application of the
statement to non-recurring, non-financial assets and
liabilities as permitted. The adoption of the authoritative
guidance did not have a material impact on the Company's
fair value measurements. Fair value is defined
in the authoritative guidance as the price that would be
received to sell an asset or paid to transfer a liability
in the principal or most advantageous market for the asset
or liability in an orderly transaction between market
participants at the measurement date. A fair value
hierarchy was established, which prioritizes the inputs
used in measuring fair value into three broad levels as
follows:
Level 1—Quoted
prices in active markets for identical assets or
liabilities.
Level 2—Inputs,
other than the quoted prices in active markets, are
observable either directly or indirectly.
Level 3—Unobservable
inputs based on the Company's assumptions.
The
Company is required to use of observable market data if
such data is available without undue cost and
effort.
The
following table presents certain investments and
liabilities of the Company’s financial assets
measured and recorded at fair value on the
Company’s consolidated balance sheets on a
recurring basis and their level within the fair value
hierarchy as of December 31, 2011 and
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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