Grant of Stock Options

The Company granted members of the Board of Directors stock options to purchase a total of 6,500,000 shares of common stock. The stock options vest over one year, exercisable at $0.05 and will expire in 10 years. Total fair value of the stock options amounted to $325,000 which will be expensed over its vesting period.

Agreements

The Company executed employment agreements effective April 1, 2017 with two officers of the Company. The agreements are for a period of two years and will require payment of salary in the aggregate of $308,000 per year. In addition, the Company also granted these two officers stock options to purchase a total of 3,250,000 shares of common stock. The stock options vest over a two-year period, exercisable at a price range of $0.07 through $0.40 per share and will expire in 10 years. Total fair value of the stock options amounted to $165,000 which will be expensed over its vesting period.

The Company executed a separation agreement and release effective April 1, 2017 with the Company’s Chief Executive Officer (CEO). As part of the agreement, the Company agreed to pay the CEO a total of $613,000 in equal installment basis over 24 months. In addition, the Company also immediately vested the stock option granted to him in January 2017 to purchase 1,000,000 shares of common stock at $0.05 per share. As a result of the modification, the Company will record stock compensation expense of $70,000 to account the fair value of the modified options.

A member of the Company’s Board of Directors resigned effective April 1, 2017. In lieu of cash for Committee fees payable to the Director, the Company immediately vested the stock option granted to him in January 2017 to purchase 1,500,000 shares of common stock at $0.05 per share. As a result of the modification, the Company will record stock compensation expense of $105,000 to account the fair value of the modified options.

Issuance of Convertible Notes

From January 1, 2017 up to March 31, 2017, the Company issued convertible notes in aggregate of $248,600 in exchange for cash of $226,000. The notes are unsecured, convertible into 4,972,000 shares in common stock of the Company at a conversion price of $0.05 per share and mature in one year. In connection with these notes, the Company also issued warrants to purchase 2,486,000 shares of common stock of the Company at an exercise price of $0.05 per share and expiring one year from the date of issuance. As a result, the Company will record a note discount of $248,600 to account for the relative fair value of the warrants, the notes’ beneficial conversion feature and original issue discount which will be amortized as interest expense over the life of the notes.

Conversion of Convertible Notes

From January 1, 2017 up to March 22 2017, Company issued 1,181,400 shares of common stock upon conversion of previously issued convertible notes in aggregate value of $59,000.

AOT Testing Agreement

In November 2016, the Company executed an agreement with Cenovus FCCL Limited (“Cenovus”), a Canadian company, for the field testing of the Company’s AOT equipment at a fixed cost of $50,000. As the part of the agreement, Cenovus will pay the Company $25,000 in January 2017. The balance of $25,000 will be due upon completion of the test analysis and final report. The field testing was performed in January 2017. Final analysis and test report is scheduled to be completed in April 2017. Upon completion of the field testing and collection of the amount due, the Company will recognize the $50,000 as revenue.