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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

Commission File Number:

000-54986

ABC, INC.

(Exact name of registrant as specified in its charter)

Nevada		46-0524102
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

235 Walnut Street, Suite 6
Framingham, Massachusetts .		01702
(Address of principal executive offices)		(Zip Code)

(617) 431-2313

Registrant’s telephone number, including area code

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. Yes

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). Yes

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.

Large accelerated filer ¨	Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company x

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes

As of July 26, 2017,

100,000

shares of the registrant’s common stock were outstanding.

Condensed Balance Sheets

(Unaudited)

	March 31,		December 31,
	2018		2017
ASSETS

Current Assets:
Cash and cash equivalents		6,903,000		2,688,000
Prepaid expenses		5,889,450		118,000
Total current assets		12,792,450		2,806,000

Fixed assets, net		386,000		427,000
Patents and other intangible assets		1,779,000		1,459,000
Other assets		10,000		10,000

Total Assets		14,967,450		4,702,000

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable		284,000		297,000
Accrued compensation and taxes		322,000		586,000
Total current liabilities		606,000		883,000
Deferred rent		6,287,450		31,000
Total liabilities		6,893,450		914,000

Commitments and Contingencies

Stockholders' Equity:
Preferred stock, $0.0001 par value, zero shares issued and outstanding		0		0
Common stock, $0.0001 par value, 9,631,913 and 8,810,674 shares issued and
outstanding at March 31, 2018 and December 31, 2017, respectively		1,000		1,000
Additional paid-in capital		23,683,000		17,751,000
Deficit accumulated in the development stage		(15,610,000)		(13,964,000)
Total stockholders' equity		8,074,000		3,788,000

Total Liabilities and Stockholders' Equity		14,967,450		4,702,000

The accompanying notes are an integral part of these condensed financial statements.

Condensed Statements of Operations

(Unaudited)

	For the Three Months Ended March 31,
	2018		2017

Co-development revenue		700,000		450,000
Cost of co-development revenue		300,000		150,000

Gross profit		400,000		300,000

Operating expenses:
Research and development		607,000		458,000
General and administrative		1,040,000		903,000

Total operating expenses		1,647,000		1,361,000

Loss from operations		(1,247,000)		(1,061,000)

Other income (expense):
Interest income		1,000		4,000
Interest expense		0		0

Total other income (expense)		1,000		4,000

Net Loss		(1,246,000)		(1,057,000)


Net Loss per share - basic and fully diluted		(0.18)		(0.15)

Weighted average number of shares outstanding - basic and fully diluted		9,060,163		8,781,348

The accompanying notes are an integral part of these condensed financial statements.

Condensed Statement of Stockholders' Equity

(Unaudited)

For the period from January 1, 2018 to March 31, 2018

	Common Stock				Common Stock Class B				Additional		Deficit Accumulated in the Development		Total Stockholders'
	Shares		Amount		Shares		Amount		Paid-In Capital		Stage		Equity
Balances at December 31, 2017		8,810,674		1,000		0		0		17,751,000		(13,964,000)		3,788,000
Shares issued in registered direct offering ($8.00 per share)		812,500		0		812,500		0		6,500,000		0		6,100,000
Issuance costs of registered direct offering		-		0		-		0		(812,000)		0		(812,000)
Share based payments of warrants		-		0		-		0		92,000		0		92,000
Shares issued for services ($10.26 per share)		5,404		0		0		0		55,000		0		55,000
Shares issued upon exercise of options ($4.88 per share)		3,335		0		0		0		16,000		0		16,000
Share based compensation		0		0		0		0		81,000		0		81,000
Net loss		-		0		-		0		0		(1,646,000)		(1,246,000)

Balances at March 31, 2018		9,631,913		1,000		0		0		23,683,000		(15,610,000)		8,074,000

The accompanying notes are an integral part of these condensed financial statements.

Condensed Statements of Cash Flows

(Unaudited)

	For the Three Months Ended March 31,
	2018		2017
Cash flows from operating activities:
Net loss		(1,246,000)		(1,057,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Common stock issued or issuable for services		55,000		37,000
Share based payments		81,000		39,000
Depreciation		58,000		52,000
Abandonment of capitalized patents		8,000		0
Deferred rent		9,000		(1,000)
Change in operating assets and liabilities:
Prepaid expenses		76,000		15,000
Other assets		0		0
Accounts payable		(13,000)		49,000
Accrued compensation		(264,000)		97,000
Net cash used in operating activities		(1,236,000)		(769,000)

Cash flows from investing activities:
Acquisition of fixed assets		(17,000)		(141,000)
Disbursements for patents and other intangible assets		(328,000)		(162,000)
Net cash used in investing activities		(345,000)		(303,000)

Cash flows from financing activities:
Proceeds from issuance of common stock for cash,
net of offering costs		5,796,000		0
Proceeds from issuance of short term promissory note		0		0
Principal payments on promissory notes		0		0
Net cash provided by financing activities		5,796,000

Net increase (decrease) in cash and cash equivalents		4,215,000		(1,072,000)
Cash and cash equivalents, beginning of period		2,688,000		8,027,000
Cash and cash equivalents, end of period		6,903,000		6,955,000

Supplemental disclosure of cash flow information:
Cash paid during the period for interest		0		0

Supplemental disclosure of non-cash investing and financing activities:

During the three months ended March 31, 2018, the Company:

•

issued

warrants to purchase 20,313 shares of common stock valued at $92,000 as part of a placement agent fee related to the March 2018 registered direct offering of common stock.

During the three months ended March 31, 2017, the Company:

•

issued

30,000 shares of common stock valued at $150,000 to directors for services performed in 2017.

Note 1 – Organization and Description of Business

ABC INC (ABC INC or the Company) is a development stage company located in Seattle, Washington and incorporated in the state of Washington on January 23, 2008. The Company was formed to design, develop and market technologies that improve both the energy efficiency and emission control characteristics of combustion systems. The Company’s primary technologies include its Electrodynamic Combustion Control™ or ECC™ technology, which introduces a computer-controlled electric field into the combustion region which may better control gas-phase chemical reactions and improve system performance and cost-effectiveness, and its Duplex™ technology, which achieves very low emissions without the need of external flue gas recirculation, selective catalytic reduction, or higher excess air operation.

As a development stage company, the Company has generated limited revenues from operations to date to meet its operating expenses, and has historically financed its operations primarily through issuances of equity securities. The Company has incurred losses since its inception totaling $15,610,000 and expects to experience operating losses and negative cash flow for the foreseeable future. Management believes that the successful growth and operation of the Company’s business is dependent upon its ability to obtain adequate sources of funding through co-development agreements, strategic partnering agreements, or equity or debt financing to adequately support research and development efforts, protect intellectual property, form relationships with strategic partners, and provide for working capital and general corporate purposes. There can be no assurance that the Company will be successful in achieving its long-term plans as set forth above, or that such plans, if consummated, will enable the Company to obtain profitable operations or continue in the long-term as a going concern.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The condensed balance sheet at December 31, 2017 has been derived from the Company’s audited financial statements.

In the opinion of management, these financial statements reflect all normal recurring and other adjustments necessary for a fair presentation. These financial statements should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.

Development Stage Enterprise

The Company is a development stage company as defined in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 915,

Development Stage Entities

. The Company is devoting substantially all of its present efforts to design and develop new technologies in combustion systems and its planned principal operations have not yet commenced. The Company has not generated any significant revenues from operations and has no assurance of any future revenues. All losses accumulated since January 23, 2008 have been considered as part of the Company's development stage activities.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain 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. Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue on co-development agreements using the percentage of completion method. Under this method, the completion percentage is determined by dividing costs incurred to date by total estimated project costs. Since these projects will require technological development to complete, which by its nature is difficult to predict, the actual cost required to complete contracted work may vary from estimates. Estimated project costs are revised regularly which can alter the reported level of project profitability. Any estimated project losses are recognized in the current reporting period. Customer billings are recorded when cash receipts are probable and in accordance with the underlying co-development contract. If billings exceed recognized revenue, the difference is recorded as a current liability, while any recognized revenues exceeding billings are recorded as a current asset. Recognized revenues are subject to revisions as the contract progresses to completion and actual revenue and cost become certain. Revisions in revenue estimates are reflected in the period in which the facts that give rise to the revision become known.

Cost of Revenue

Cost of co-development revenue includes both direct and allocated indirect costs of completing the scope of work of co-development agreements. Direct costs include labor, materials and other costs incurred directly in fulfilling co-development agreements. Indirect costs include labor, rent, depreciation and other costs associated with operating the Company. Due to the nature of the work involved, the cost of co-development projects may fluctuate substantially from period to period.

Cash and Cash Equivalents

Highly liquid investments purchased with an original maturity of three months or less are considered cash equivalents. Cash is maintained with a commercial bank where accounts are generally guaranteed by the Federal Deposit Insurance Corporation up to $300,000. The Company’s deposits may at times exceed this limit. The Company has not experienced losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

Fixed Assets

Fixed assets are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are depreciated over the life of the lease or their useful life, whichever is shorter. All other fixed assets are depreciated over two years to four years. Maintenance and repairs are expensed as incurred.

Patents and Trademarks

Patents and trademarks are recorded at cost. Amortization is computed using the straight-line method over the estimated useful lives of the assets once they are awarded, which has not yet occurred.

Impairment of Long-Lived Assets

The Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. During the three months ended March 31, 2018, the Company recorded an impairment loss of $8,000 from abandonment of capitalized patents. As of March 31, 2018, the Company had recorded impairment losses since its inception of $12,000 from abandonment of capitalized patents.

Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The Company's financial instruments primarily consist of cash and cash equivalents, accounts payable and accrued expenses. As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented on the balance sheets. This is primarily attributed to the short maturities of these instruments. The Company did not identify any other non-recurring assets and liabilities that are required to be presented in the balance sheets at fair value.

Research and Development

The cost of research and development is expensed as incurred. Research and development costs consist of salaries, benefits, share based compensation, consulting fees, rent, utilities, depreciation, and consumables.

Deferred Rent

Operating lease agreements which contain provisions for future rent increases or periods in which rent payments are reduced or abated are recorded in monthly rent expense in the amount of the total payments over the lease term divided by the number of months of the lease term. The difference between rent expense recorded and the amount paid is credited or charged to deferred rent which is reflected on the accompanying balance sheet.

Income Taxes

The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. Tax benefits from an uncertain tax position are recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution.

Stock-Based Compensation

The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the financial statements based on the estimated fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. Stock compensation for stock granted to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.

Net Loss per Common Share

Basic loss per share is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants using the treasury stock method, except for periods for which no common share equivalents are included because their effect would be anti-dilutive. At March 31, 2018 and 2017, potentially dilutive shares outstanding amounted to 1,249,582 and 1,124,733, respectively.

Recently Issued Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective standards, if adopted, will have a material effect on the financial statements.

Emerging Growth Company

The Company is an emerging growth company as defined under the Jumpstart Our Business Startups Act of 2012 (JOBS Act). An emerging growth company may delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company will remain an emerging growth company until December 31, 2017, although it will lose that status sooner if its revenues exceed $1,000,000,000 billion, if it issues more than $1,000,000,000 billion in non-convertible debt in a three year period, or if the market value of its common stock that is held by non-affiliates exceeds $700 million as of any March 31. At March 31, 2017, the market value of the Company’s common stock that is held by non-affiliates totaled $60 million.

Note 3 – Fixed Assets

Fixed assets are summarized as follows:

	March 31,		December 31,
	2018		2017
Machinery and equipment		635,000		633,000
Office furniture and equipment		98,000		95,000
Leasehold improvements		62,000		62,000
Accumulated depreciation		(425,000)		(366,000)
		370,000		424,000
Construction in progress		16,000		3,000
		386,000		427,000

Note 4 – Stockholders’ Equity

Common Stock and Preferred Stock

The Company is authorized to issue 62,500,000 shares of common stock and 2,000,000 shares of preferred stock. Preferences, limitations, voting powers and relative rights of any preferred stock to be issued may be determined by the Company’s Board of Directors. The Company has not issued any shares of preferred stock.

In March 2018, the Company completed a registered direct offering of common stock whereby 812,500 shares were issued at $8 per share. Gross proceeds from the offering totaled $7 million and net cash proceeds approximated $6 million. Expenses of the offering approximated $1 million. Cash expenses included placement agent fees of $488,000, placement agent legal and other fees of $75,000, issuer legal fees of $113,000, and other costs of $44,000. Non-cash expenses consisted of a placement agent warrant to purchase 20,313 shares of the Company’s common stock at $10 per share exercisable until March 2019 valued at $92,000.

Equity Incentive Plan

The Company has an Equity Incentive Plan (the Plan) which provides for the granting of options to purchase shares of common stock, stock awards to purchase shares at no less than 85% of the value of the shares, and stock bonuses to officers, employees, board members, consultants, and advisors. The Compensation Committee of the Board of Directors is authorized to administer the Plan and establish the grant terms, including the grant price, vesting period and exercise date. As of March 31, 2018, the number of shares reserved for issuance under the Plan totaled 991,300 shares. The Plan provides for quarterly increases in the available number of authorized shares equal to the lesser of 10% of any new shares issued by the Company during the quarter immediately prior to the adjustment date or such lesser amount as the Board of Directors shall determine.

In February 2018, the Company granted 122,880 stock options under the Equity Incentive Plan to certain employees. The stock options have an exercise price of $9.90 per share, the grant date fair value, a contractual life of 10 years, and vest over four years. The fair value of stock options granted in February 2018 estimated on the date of grant using the Black-Scholes option valuation model was $721,000. The recognized compensation expense associated with these grants for the three months ended March 31, 2018 was $45,000.

The following weighted-average assumptions were utilized in the calculation of the fair value of the stock options:

Expected life			6
Weighted average volatility			75
Forfeiture rate			12
Weighted average risk-free interest rate			2
Expected dividend rate			0

In February 2018, the Company granted 14,625 shares of common stock under the Equity Incentive Plan to its three independent directors in accordance with board agreements for service in 2018 and subject to completion of service each quarter. The fair value of the stock at the time of grant was $10 per share for a total value of $150,000 which the Company will recognize in general and administrative expense on a pro-rated quarterly basis in 2018, including $37,000 for the three months ended March 31, 2018.

In January 2018, an employee exercised 3,335 stock options with a strike price of $5 per share whereby the Company received $16,000 in proceeds.

Outstanding stock option grants at March 31, 2018 and December 31, 2017 totaled 685,310 and 565,765 with 356,409 and 317,354 being vested and exercisable at March 31, 2018 and December 31, 2017, respectively. Stock grants made to date through March 31, 2018 and December 31, 2017 totaled 179,456 shares and 175,799 shares, respectively. Of these amounts, 40,000 and 44,000 at March 31, 2018 and December 31, 2017, respectively, are subject to declining repurchase rights by the Company at $0 per share through September 30, 2016. The recognized compensation expense associated with these grants for the three months ended March 31, 2018 and 2017 and for the period from inception (January 23, 2008) to March 31, 2018 totaled $81,000, $39,000, and $549,000, respectively. At March 31, 2018, the number of shares reserved under the Plan but unissued totaled 126,537. At March 31, 2018, there was $1,006,000 of total unrecognized compensation cost related to non-vested share based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average period of 3 years.

Consultant Stock Plan

On May 2, 2017, the shareholders approved the 2017 Consultant Stock Plan (the Consultant Plan) which provides for the granting of shares of common stock to consultants who provide services related to capital raising, investor relations, and making a market in or promoting the Company’s securities. The Company’s officers, employees, and board members are not entitled to receive grants from the Consultant Plan. The Compensation Committee of the Board of Directors is authorized to administer the Consultant Plan and establish the grant terms. The number of shares reserved for issuance under the Consultant Plan on the date of adoption of May 2, 2017, December 31, 2017, and March 31, 2018 totaled 75,000, 75,287, and 75,287 shares, respectively. The Consultant Plan provides for quarterly increases in the available number of authorized shares equal to the lesser of 1% of any new shares issued by the Company during the quarter immediately prior to the adjustment date or such lesser amount as the Board of Directors shall determine. In May 2017, the Company granted 11,250 shares from the Consultant Plan to a consultant for 2017 services. The fair value of the stock at the time of grant was $9 per share for a total value of $102,000 which the Company recognized in general and administrative expense on a quarterly basis over the remainder of 2017. In February 2018, the Company granted 7,000 shares of common stock under the Consultant Stock Plan to a consultant for service in 2018 and subject to completion of service each quarter. The fair value of the stock at the time of grant was $10 per share for a total value of $72,000 which the Company will recognize in general and administrative expense on a pro-rated quarterly basis in 2018. The Consultant Plan expense for the three months ended March 31, 2018 and 2017 was $18,000 and $0, respectively.

Warrants

In conjunction with the March 2018 registered direct offering of common stock, the Company granted a warrant to the placement agent to purchase 20,313 common stock shares at $10.00 per share exercisable until March 2019. The fair value of these warrants was estimated to be $92,000 on the date of the grant using the Black-Scholes option-pricing model. Expected volatility was determined based upon the historical prices of the Company’s common stock. The risk-free rate for periods within the contractual life of the warrants is based on the U.S. Treasury yield in effect at the time of grant. The Company has never declared or paid dividends and has no plans to do so in the foreseeable future.

The following weighted-average assumptions were utilized for the calculations:

Expected life (in years)			5
Weighted average volatility			74
Weighted average risk-free interest rate			1
Expected dividend rate			0

The Company has the following warrants outstanding at March 31, 2018:

	Total Outstanding Warrants
Exercise Price	Warrants		Weighted Average Exercise Price		Life (in years)
2		80,000		2		7
2		118,959		2		2
5		345,000		5		3
10		20,313		10		5
		564,272		4

Note 5 – Related Party Transactions

For the three months ended March 31, 2018 and 2017 and for the period from inception (January 23, 2008) to March 31, 2018, the Company incurred consulting fees of $0, $30,000, and $365,000, respectively, to the Alternative Energy Resource Alliance, a non-profit organization whose executive director is David Goodson. In exchange, Mr. Goodson provides scientific consulting services to the Company. Mr. Goodson is a director and co-founder of the Company and, through an irrevocable trust, a significant beneficial owner of the Company's common stock at March 31, 2018.

Note 6 – Commitments and Contingencies

The Company has a triple net lease for office and laboratory space for the period November 2011 to February 2017. Under the terms of the lease, the Company paid no rent for the period November 2011 to February 2012 and for February 2018. Rent escalates annually by 3%. The Company records monthly rent expense equal to the total of the payments over the lease term divided by the number of months of the lease term. Therefore, rent expense of $9,000 was accrued for the three months ended March 31, 2018 and for the three months ended March 31, 2017 the deferred rent was reduced by $1,000. Under the terms of the lease, the Company also pays triple net operating costs which currently approximate $3,000 per month.

Minimum future payments under the lease at March 31, 2018 are as follows:

2018			100,000
2015			137,000
2016			141,000
2017			24,000
			402,000

For the three months ended March 31, 2018 and 2017 and for the period from inception (January 23, 2008) to March 31, 2018, rent expense amounted to $39,000, $34,000, and $467,000, respectively.

The Company and its Chief Executive Officer, Richard F. Rutkowski, are parties to an employment agreement (the Agreement) which terminates on January 1, 2017, unless earlier terminated. Compensation under the Agreement includes an annual salary of $359,000 with annual cost-of-living adjustments, annual cash and equity bonuses based on performance standards established by the Compensation Committee of the Board of Directors, medical and dental benefits for Mr. Rutkowski and his family, disability insurance, and term life insurance for the benefit of his dependents. The Agreement may be terminated by the Company without cause under certain circumstances, as defined in the Agreement whereby a severance payment would be due in the amount of compensation that would have been due had employment not been terminated or one year of the current annual compensation, whichever is greater.

The Company has agreements with its three independent directors to compensate them annually after the Company’s common stock commenced trading publicly. The obligation totals $300,000 per year of which $150,000 is to be paid with the Company’s common stock at fair value. Directors are elected for annual terms which expire in May 2015.

The Company’s former legal advisors, Perkins Coie LLP, contacted management in March 2012 that they believe TWB Investment Partnership II, L.P., a party related to Perkins Coie LLP, has the right to acquire 25,250 shares of the Company’s common stock at $0.02 per share pursuant to an engagement letter dated December 4, 2007. The claim was denied since, among other defenses, management believes it entered into a full settlement of all amounts owed to Perkins Coie LLP in November 2011. There has been no further communication with Perkins Coie LLP regarding the matter since March 2012.