UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 000-33309

Registrant’s telephone number, including area code: 1-800-648-4287

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Common Stock - $0.001 par value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [  ] Yes [X] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [  ] Yes [X] No

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 last 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 (§ 229.405 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 if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

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 Act). [  ] Yes [X] No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $4,768,125 based on the average of the bid and ask price on June 30, 2015.  

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.

Table of Contents

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PART I

FORWARD LOOKING STATEMENTS

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.

The information in this Annual 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 Form 10-K for the fiscal year ended December 31, 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 Form 10-K 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 Annual 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.

ITEM 1. BUSINESS.

GENERAL

We were incorporated under the laws of the State of Delaware on March 2, 2000, under the original name 411 Place.com Inc.  On February 28, 2001, we changed our name to Artescope, Inc., on July 29, 2002, we changed our name to GlobeTrac Inc., on July 11, 2012, we changed our name to Poly Shield Technologies Inc. and on August 25, 2014, we changed our name to Triton Emission Solutions Inc.

On July 11, 2012, we effected a consolidation of our issued and outstanding common stock on a one-for-three basis (the “Reverse Split”), without decreasing our authorized capital. Upon completion of the Reverse Split,  we had an authorized capital of 205,000,000 shares, par value of $0.001 per share, consisting of 200,000,000 shares of common stock and 5,000,000 shares of preferred stock with 33,394,441 shares of common stock issued and outstanding. Neither Triton nor any of our subsidiaries, Ecolutions, Inc. and Triton Emission Solutions International AB., have been involved in any bankruptcy, receivership or similar proceedings. Except as described above, there have been no material reclassifications, mergers, consolidations, purchases or sales of a significant amount of assets not in the ordinary course of our business during the past three fiscal years.

BUSINESS OF TRITON EMISSION SOLUTIONS

We are in the business of developing and marketing emission abatement technologies for the marine industry worldwide.

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A market for emission abatement technologies in the marine industry has emerged due to the introduction of more stringent regulations proposed by International Maritime Organization (“IMO”) in 2008, which came in force on July 1, 2010. These regulations govern sulfur and nitrogen emission levels in Emissions Control Areas (“ECA”). Currently there are two ECA’s in effect: a European ECA and a North-American ECA.  As of January 1, 2015, the sulfur emission limits for ships operating in both ECA’s were lowered to 0.1% by mass, as compared to 1.0% by mass limit, which was in effect prior to that date. Outside of the ECA’s, global sulfur fuel limits have been reduced from 4.50% to 3.50% in 2012, and is expected to be further reduced to 0.50% in 2020 or 2025 depending on an IMO review to be completed in 2020 to determine the availability of fuels that would enable the implementation of this standard.

In order to meet these regulations, vessels operating in the ECA zones can use any one of three different compliance options:

·

Switch to low-sulfur fuels;

·

Convert engines to run on cleaner liquefied natural gas (LNG); or

·

Install an exhaust gas scrubber or fuel purification system directly on a ship to decrease the amount of sulfur in regular heavy fuels.

All three of these options currently have their own significant disadvantages. First, current low-sulfur fuels are more expensive than standard fuels, resulting in significantly higher operational costs. Second, most ships and ship engines are not currently equipped for LNG, requiring high capital costs to retrofit current ships and engines to use LNG.  Finally, the majority of existing exhaust scrubbers are cost-ineffective due to the amount of space they require.  In addition, the size and added weight of existing scrubbers can affect the stability of a ship. Also, existing exhaust scrubbers require the addition of certain chemicals to control pH and neutralize sulphur oxide, which adds significant cost.  

Our DSOX Fuel Purification Systems (the “DSOX-20” or “DSOX System”), when fully commissioned and verified, will provide a low-cost alternative to using high cost, low-sulfur fuels by allowing ship operators to clean the sulphur content from standard fuels.  The DSOX Systems also incorporate our Bio-Scrubber technology, removing alkali metals from existing fuels, decreasing maintenance costs and increasing the useful life of existing engines.

Our Njord Exhaust Gas Scrubber System (the “Njord Scrubber”) 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.  

Products and Technologies

Njord Exhaust Gas Scrubber System Overview

Currently our main efforts are directed towards research, development and marketing of our Njord Exhaust Gas Scrubber System.  The main purpose and goal of the Njord System is to clean the exhaust gases from excess sulfur following the internal combustion process within ships engine.

Njord System is the latest addition to our emission control solutions, which can be used as a standalone system installed inside a ship’s funnel or in conjunction with our DSOX-20.  Its fairly small size and capability of working in both, open and closed loop modes makes the system versatile for installation on new builds as well as for retrofitting existing vessels. Its unique design does not require addition of any chemicals and results in a minimal back pressure allowing for an extended longevity of a ships’ engine.

DSOX Pre-Combustion Fuel Purification System Overview

Our DSOX-20 System is a patent pending pre-combustion de-sulfurization technology which was designed to remove alkali metals, such as sulfur and sodium, from heavy marine fuel. The DSOX-20 is based on our patent pending Bio Scrubber platform, integrating it with additional new proprietary technologies that we acquired from Mr. Norling, our President and Chief Technical Officer (“CTO”), in March 2014. These additional technologies react with and release the sulfur in the heavy marine fuel, allowing for an even cleaner by-product.

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DSOX-20 can be installed on a ship without disruption to the ship’s operations as a completely independent fuel treatment system with its own fuel oil separators and fuel quality monitoring system.

Bio Scrubber Technology Overview

The Bio Scrubber is a patent pending system designed to significantly reduce the maintenance cost and premature failure of gas turbine engines by removing alkali metals that are usually present in fuel.

Salt, calcium and other alkali metal substances in the fuel stock result in high temperature corrosion and premature failure in gas turbine engine components. During combustion in a gas turbine, sodium from the fuel creates high temperature corrosion of the hot-section components of the gas turbine, such as nozzle, guide vanes and rotor blades, resulting in accelerated oxidation. In some cases, this accelerated oxidation can reduce the operational life of a gas turbine by more than 50%.

By removing alkali metals from the fuel, the Bio Scrubber not only prolongs the life of gas turbine engines, it also significantly reduces operating and maintenance costs.  

We acquired our patent application rights to the Bio Scrubber technology directly from Mr. Norling.

Third Party Exhaust Scrubbers

In addition to developing our own exhaust scrubber and fuel purification systems, under the terms of our Collaboration, Master Distributorship and License Agreements with Green Tech Marine, AS, we act as the exclusive distributor for the Exhaust Scrubber  (the “GTM Exhaust Scrubber”) in North America (the United States, Canada and Mexico) and Singapore, and a non-exclusive distributor for the GTM Exhaust Scrubber for the rest of the world.

The main purpose of the GTM Exhaust Scrubber is to remove sulfur oxides and other particulate matter from exhaust gas produced by ships during normal operations to comply with current and upcoming IMO emissions regulations.  Under the regulations, instead of using low-sulfur fuel to limit sulfur oxide emissions, a ship can use an alternative means of achieving the same level of sulfur oxide emissions, as long as these alternative means are certified as compliant by the ship’s flag state.  The GTM Exhaust Scrubber can be easily installed on any ship by replacing ship’s exhaust silencer without any need for structural modifications.

Additional benefits of this system are:

·

Runs only on seawater;

·

With addition of magnesium can be used to remove nitrogen oxides;

·

Can be operated as open and closed loop;

·

Leaves small environmental footprint;

·

Minimizes any possible changes in stability of a ship due to its low weight; and

·

Energy efficient.

Key Product Markets

We mainly market our DSOX and Njord Systems (collectively, the “Emission Technologies”) to the marine industry, although they can be used in many other land-based non-marine applications. Due to the relatively small size and light weight of our Emission Technologies, they can be installed on almost any type of marine vessel and can be customized to fit any size engine. Our Emission Technologies can be installed on a ship at any time during the normal operation. However, dry dock would still be preferable for seawater intake and overboard installations. In cases where dry dock is not an option, these installations can be done during dive operations while a ship is in service.

There are approximately 65,000 ships worldwide, including bulk carriers, tankers, container ships, cargo ships and passenger/cruise ships.   Of this worldwide fleet, approximately 21,000 ships operate in ECA waters on regular basis and 14,000 ships on a daily basis. According to the Exhaust Gas Cleaning System Association (“EGCSA”) there are currently 400 exhaust gas cleaning systems (the “EGCS”) installed or on order.

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According to a presentation made by CE Delft and the UCL Energy Institute at the EGCSA Annual Meeting[1], a preliminary analysis shows that the most important constraints on exhaust scrubber use are the availability of repair yards and regulatory uncertainty.  Scrubbers that can operate partly in no-discharge mode are expected to become more attractive. The presenters estimated that, at a fuel cost difference of $100 per metric tonne, 2,000 to 5,000 ships may be equipped annually from 2018 onwards (provided that 2020 compliance requirements are maintained).

With stringent emission standards of 0.5% sulfur in fuel expected to come into effect in Europe and worldwide in 2020 or 2025, pending IMO decision which is scheduled for 2018, it is expected that the scrubber market will encompass all ships spending extensive time in international waters as currently it is the most cost-effective solution to complying with the regulations.

Major Customers

We currently have purchase and sales agreements for a limited number of our DSOX Systems with LMS Ship Management Inc. (“LMS”) and Magical Cruise Company, Limited (“DCL”).  In addition, we have a binding term sheet agreement with Prestige Cruise Holdings, Inc. (“Prestige”).  The loss of any of LMS, DCL or Prestige as customers would likely have a material adverse effect on our current business and our future business prospects.

LMS Ship Management Inc.

On or about June 19, 2014, we began the installation of our first DSOX System in Mobile, Alabama for LMS Ship Management Inc. (“LMS”), pursuant to our Sales and Purchase Agreement with LMS dated effective July 18, 2013 (the “LMS Agreement”). The DSOX System being installed for LMS represents a combination of two DSOX-15 Systems. Originally, the LMS Agreement 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 and install the combined unit as a stand-alone on-shore system.

Installation of the DSOX System for LMS is currently suspended. We have encountered several delays due to the unique design of the system, which required numerous additional engineering and mechanical changes. Once we resume and complete installation, we will work with LMS to obtain certification that the installed system meets current Marine Environmental Protection Committee (the “MEPC”) sulfur oxide limits for marine fuel set out in MARPOL Annex VI (the “Current MEPC Standards”). If we are unable to obtain certification for the installed system, then LMS will have the option to apply the amounts paid by them towards the purchase price of our Njord Scrubbers.

LMS has the option to purchase up to 40 additional DSOX Systems on substantially same terms as the two original DSOX Systems contemplated under the LMS Agreement. This option was set to expire on December 31, 2015. On January 20, 2015, we entered into an agreement with LMS dated as of December 12, 2015, extending the deadline for LMS to exercise its option to December 31, 2015, and in November 2015, we extended the deadline to December 31, 2016. As of the date of this report on Form 10-K, LMS has not exercised its option to purchase additional DSOX Systems.   

Magical Cruise Company, Limited

On April 15, 2014, we entered into a Purchase and Services Agreement (the “DCL Agreement”) with Magical Cruise Company, Limited (“DCL”) regarding the procurement and installation of our DSOX-15 System.  Under the terms of the DCL Agreement, we agreed to sell to DCL, and install on one of DCL’s vessels, one DSOX-15 System, with options for the purchase of up to ten additional DSOX-15 Systems.

Since our DSOX-15 model was superseded by the newer and improved DSOX-20 model, we reached a verbal agreement with DCL to upgrade the installation to the DSOX-20 at no extra cost.

__________________

[1] Jasper Faber and Tristan Smith (February 25, 2016), Assessment of Fuel Oil Availability (Stakeholder Consultation), presented at the Exhaust Gas Cleaning Systems Association 2016 Annual Workshop and AGM. Retrieved from: http://www.egcsa.com/wp-content/uploads/Assessment-of-Fuel-Oil-Availability_EGCSA_StakeholderConsultation.pdf

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Under the terms of the DCL Agreement, DCL has options to purchase additional DSOX Systems as follows:

(a)

DCL has the option to purchase up to three additional DSOX Systems on the same price terms as the initial DSOX System, exercisable within the later of 90 days after certification is obtained (see below) for the initial DSOX System or 180 days after the expiration of the deadline for obtaining certification; and

(b)

DCL has a separate option to purchase up to seven additional DSOX Systems, again on the same price terms as the initial DSOX System.  This separate option is exercisable by DCL at any time prior to December 31, 2020.

The installation of the DSOX System onboard the DCL vessel began during the third quarter of our fiscal 2014 and was completed on April 3, 2015. Immediately after the completion of installation we commenced commissioning and certification process of our DSOX System, which required additional optimization of various elements of the installation. In August 2015 the commissioning process was suspended due to the scheduled dry-dock maintenance of the DCL vessel.

As of the date of this report on Form 10-K we are working on creating a step by step test plan to complete the testing and certification process onboard the vessel to ensure that  the DSOX System installed onboard the vessel meets current MEPC Standards. The plan, once prepared, will have to be approved by DCL’s management and Lloyd’s Register prior for us recommencing the testing.

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 Scrubbers.  

Prestige Cruise Holdings, Inc.

On August 19, 2013, we entered into a binding term sheet agreement (the “Term Sheet”) with Prestige Cruise Holdings, Inc. (“Prestige”) for the purchase and installation of two DSOX-15 Systems aboard ships operated and maintained by Prestige. In addition, the Term Sheet called for Prestige to be provided with options, exercisable by December 31, 2014, to purchase up to seven additional DSOX-15 Systems.

Prestige paid us the deposit for two DSOX-15 Systems in September of 2013.  It was expected that the Term Sheet would be replaced by a formal definitive agreement by August 31, 2013. However, due to the acquisition of Prestige by Norwegian Cruise Line Holdings Ltd., we have not yet reached a definitive agreement with Prestige, and we have not begun the installation of any DSOX units on any ships managed by Prestige.  We continue to have periodic communications with Prestige and they have indicated that they intend to proceed with the purchase of our DSOX Systems as set forth in the Term Sheet.

Competition

Even though the requirement for reduced SOx levels has been enacted since January 1, 2015, the market for emission abatement technologies, such as our DSOX-20 and Njord, is still in the early growing stage. There are approximately 20 various manufacturers of EGCS who provide technologies similar to ours. New competitors are also rapidly entering the industry in expectation of further reduction of SOx levels outside of ECA zones to 0.5% in 2020 or 2025; which exact date for enactment will depend on a review to be completed by IMO Marine Environment Protection Committee in 2018 to determine the availability of fuel to enable implementation of this standard.

Currently our main competitors in this industry are Ecospec, Wärtsilä, Alfa Laval, Ecospray and Clean Marine. LAB, Ionada, and Fuji Electric are some of the new competitors that have entered the industry recently. Many of our competitors are however limited to operating their closed loop with addition of various chemicals increasing operating costs and risks due to the nature and sensitivity of these chemicals. They also provide hybrid systems, which can operate both, closed and open loops, including open loop with chemical dosing.

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Distribution and Supply Methods

We are using third party suppliers, with whom we have entered into various agreements, for production, as well as installation of our DSOX Systems and other Emission Technologies. To ensure the high standards of installation and customer satisfaction, Mr. Norling, our Chief Technical Officer, provides continuous training on the proper handling and installation procedures, as well as maintenance of our Emission Technologies.

Patent Rights, License Agreements and Royalty Rights

DSOX Technology Rights

The technologies that form the basis of our DSOX Pre-Combustion Fuel Purification System are covered by certain patent applications that were either filed by us or filed by Mr. Norling and subsequently transferred to us.

In 2013, Mr. Norling assigned US and European patent applications covering the Bio Scrubber technology to us under the terms of his previous employment agreement with us.

On March 10, 2014, pursuant to a Technology Transfer Agreement between us and Mr. Norling, Mr. Norling sold to us additional technology rights covering all technologies owned by him as of that date that relate to the abatement and reduction of emissions and exhausts from internal combustion engines through the pre-treatment of input fuels, the treatment of exhaust gases produced by such engines, or any combination thereof (collectively, the “Norling Emission Technologies”).  These included all of Mr. Norling’s right in two patent applications filed by Mr. Norling that relate to the removal of sulfur from diesel fuel. In consideration for these technologies, we agreed to release to Mr. Norling 54,000,000 shares of our common stock that were issued to Mr. Norling under his prior employment agreement with us and subject to escrow restrictions.  Under the Technology Transfer Agreement, Mr. Norling acknowledged and agreed that he was not entitled to the release of any of these shares under his previous employment agreement and that the 54,000,000 shares were being released to Mr. Norling in consideration for the technology rights transferred to us.  The remaining 100,000,000 shares of common stock previously issued to Mr. Norling under his prior employment agreement were subsequently surrendered and cancelled.

In July 2014, we filed an additional patent application covering the process of using our DSOX-20 System in combination with an exhaust gas scrubber.

GTM Contracts

Our rights to the GTM Exhaust Scrubber technology are governed by Collaboration, Master Distributor and License Agreements with Green Tech Marine, AS (now Yara Marine Technologies), a Norwegian corporation (“Green Tech Marine” or “Yara”).  We acquired our rights under these agreements through our acquisition of Ecolutions.  

Distribution Rights

Under the terms of our Collaboration Agreement and Master Distributor Agreement with Yara we have been granted exclusive distribution rights for the GTM Exhaust Scrubber for all of North America (the United States, Canada and Mexico) and Singapore.  In addition, we have non-exclusive distribution rights for the rest of the world (excluding any existing Yara customers and customers not generated by us). Subject to certain early termination rights for non-compliance, our distribution rights to the GTM Exhaust Scrubber extend for a term ending on the earlier of:

(a)

November 15, 2022; and

(b)

The date that is three months after the Manufacturing Readiness Date.

License Rights

In addition to the distribution rights set out in the Collaboration Agreement and the Master Distributor Agreement, Yara has provided us with an exclusive license to manufacture, sell and distribute the GTM Exhaust Scrubber and the related technologies in North America and Singapore, and non-exclusive rights to the rest of the world (excluding any existing Yara customers and customers not generated by us.)

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Our license rights extend to November 15, 2022, subject to certain early termination rights for non-compliance.  The License Agreement with Yara will automatically renew for successive ten year periods at no additional cost, unless either party gives written notice of termination at least 90 days prior to the then current term.  We are not required to pay any consideration to Yara to maintain our license rights.

Other Business Segments

Teak Shield License Agreement

Under the terms of the Teak Shield License acquired on March 12, 2012, we have a worldwide license to sell fluoropolymer coatings based on Teak Shield’s proprietary formulas (the “Shield Products”).  

Under the March 12, 2012 License Agreement to acquire the rights under the Teak Shield Agreement, we issued to the Teak Shield Licensors 1,666,667 shares of our common stock and agreed to pay Teak Shield a royalty equal to $100,000 per year. In addition to our license rights, we also paid to the Teak Shield Licensors $250,000 for the right to purchase all of their rights and interests in the Teak Shield fluoropolymer products and formulas (the “Teak Shield Option”) during the term of the Teak Shield Agreement.  

To exercise the Teak Shield Option, we were required to pay to the Teak Shield Licensors an additional $2,750,000.  In addition, if we were to exercise the Teak Shield Option, the Teak Shield Licensors would have been entitled to a perpetual 5% royalty on Teak Shield fluoropolymer products sold by us, with a minimum $100,000 yearly royalty payment.  

On or about June 24, 2014, we completely amended and restated our license agreement for the Teak Shield fluoropolymer coatings (the “Amended Teak Shield License”).  Under the terms of the Amended Teak Shield License, we were granted a non-exclusive right to resell the fluoropolymer coating products, which will be sold to us by Teak Shield at the lowest price charged by Teak Shield to third party purchasers. Under the terms of the Amended Teak Shield License our option to purchase all of Teak Shield’s rights to its fluoropolymer products as well as the requirement for the payment of royalties were terminated. The Amended Teak Shield License extends for an initial period of six years.

As of the date of this Annual Report on Form 10-K we have not made any sales of the Teak Shield fluoropolymer coatings.

WebTech Royalty Agreement

We were a party to a certain royalty agreement with WebTech Wireless Inc. (“WebTech”), which terminated on October 31, 2015. Pursuant to the royalty agreement we were entitled to a 6% royalty on gross sales made by WebTech to qualified potential customers related to our former wireless tracking and telematics equipment business.  

Expenditures on Research and Development During the Last Two Fiscal Years

During the year ended December 31, 2015, we incurred $71,874 in expenses associated with the research and further development of our DSOX System for LMS and to a minor extent with the development of our Njord System.

During the year ended December 31, 2014, we incurred $53,140,029 in research and development costs which were mainly associated with the acquisition of the Norling Emission Technologies, pursuant to our Technology Transfer Agreement between us and Mr. Norling, and, to a minor extent, with costs associated with the LMS project, it being our first and unique installation, and patent applications we filed during the year.

In 2014, Mr. Norling sold to us additional technology rights covering all technologies owned by him that relate to the abatement and reduction of emissions and exhausts from internal combustion engines through the pre-treatment of input fuels, the treatment of exhaust gases produced by such engines, or any combination thereof. These included all of Mr. Norling’s right in two patent applications filed by Mr. Norling that relate to the removal of sulfur from diesel fuel. In consideration for these technologies, we agreed to release to Mr. Norling 54,000,000 shares of our common stock, valued at $52,380,000, that were previously issued to Mr. Norling under his prior employment agreement with us and were subject to escrow restrictions.

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Under the Technology Transfer Agreement, Mr. Norling acknowledged and agreed that he was not entitled to the release of any of the shares escrowed under his previous employment agreement and that the 54,000,000 shares were released to Mr. Norling in consideration for the technology rights transferred to us.  The remaining 100,000,000 shares issued to Mr. Norling and held in escrow under his prior employment agreement were subsequently surrendered and cancelled.

Number of Total Employees and Number of Full Time Employees

As of the date of this Annual Report, we have five full time employees. In addition, our subsidiary, Triton Emission Solutions International AB., has two full time employees.

In addition to our full time employees we also expect to continue to outsource consulting, legal and accounting services to third parties, as well as use services of external manufacturers, installers, marketing and distribution consultants, as we believe that the use of third party services is most cost-effective for the current level of operations.

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 Annual Report on Form 10-K 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 Annual Report.

Risk Factors Associated with our Emission Abatement Technologies Line of Business

We have earned only limited revenues from the sale of products or services related to our Emission Technologies.

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 and Njord 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 was halted in October 2015 due to the vessel’s scheduled maintenance in dry-dock. Since then, shore based chemical testing has been continuing for the DCL Project. We expect to continue onboard testing in late April/May 2016. As a result, we have not yet recorded revenue from the LMS or DCL Projects, and there is no assurance that our DSOX Systems as well as future installations of the Njord Systems 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.

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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 Njord System, 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, the previously scheduled reduction of the sulfur oxide limit in non-ECA zones may be postponed from its original 2020 implementation to 2025. There can be also no assurance that other reductions in limits will be implemented as planned.  A change in the current and upcoming IMO regulations may have a significant material impact on our financial results.

Reduction in the price of marine fuel could adversely affect our financial results.

The need for emission control systems is directly associated with the difference (spread) in price between regular marine fuel and more refined marine fuel.  If the price of refined marine fuel continues to decrease, as seen by current market trends, the ship owners and operators may chose to use more refined fuels such as marine gas oil (MGO) that have a lower sulfur content than heavy marine fuel, without any need for costly installation of additional emission control systems.  

Unforeseen complications during the installation of our DSOX 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.

General Risk Factors

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 expertise in the emission abatement industry, some of our competitors may have top management with greater experience and 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, our primary source of revenue was from royalties received from WebTech on the sale of global wireless tracking and telematics equipment from qualified customers. Our royalty agreement with Webtech expired on October 31, 2015, which stopped the cash flow from this source. Until we are able to start generating revenue from the sale of our emission abatement technologies, our operations will continue to be reliant on our ability to generate funds through 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.

9

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;

·

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

·

inability to supply products due to factors such as work stoppages, plant shutdowns or regulatory changes and exogenous factors, like severe weather.

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.

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

Disruptions to credit and financial markets, 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 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 disruptions in the global credit and financial markets.

Global economic downturns may have a negative effect on our business and operations.

Global economic downturns cause 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, may decide to reduce purchases or inventories, or may cease to continue in business. In addition, our supplier 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.

Such conditions may make it very difficult to forecast operating results, make business decisions and identify and address material business risks and 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 debt obligations 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.

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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 58.4% 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 (See “Security Ownership of Certain Beneficial Holders and Management”).  In addition, Mr. Kopple is the principal of KF Business Ventures, LP, our principal creditor, which has loaned to us a total of $5,900,000 under the First KF Loan, the Second KF Loan, and the Thirds 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.

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. Rasmus 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.

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As of December 31, 2015, we owed approximately $5,343,748 under the terms of the KFBV Loans. 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 KFBV Loans 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 or re-negotiate the terms of our debt obligations.

We have not raised significant financing from any sources other than the KFBV Loans, 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 KFBV Loan Agreements.  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, which could potentially 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.

As of December 31, 2015, we owed a total of $5,343,748 to KFBV under the terms of the KFBV Loans, consisting of the full principal amount of all advances made to that date plus accrued interest thereon.  Subsequent to our year end, KFBV advanced to us an additional $1,200,000 in principal under the terms of the Third KF Loan Agreement, bringing the total principal amount payable to KFBV under the KFBV Loans to $5,900,000.  Outstanding principal plus interest under the KFBV Loans is due on January 15, 2017.   

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 KFBV Loans 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.

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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.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

Our principal executive office is located at 151 San Francisco St., Suite 201 San Juan, Puerto Rico 00901. The lease agreement is on a month-to-month basis at $2,750 per month.

Our business and mailing virtual office is located at 980 North Federal Highway, Suite 110, Boca Raton, FL 33432. The lease agreement commenced on December 1, 2015 for the period of 12 months, expiring on November 30, 2016, at a cost of $99 per month.

ITEM 3. LEGAL PROCEEDINGS.

We are not a party to any pending legal proceedings and, to the best of our knowledge, none of our properties or assets are the subject of any pending legal proceedings.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

MARKET INFORMATION

Quotations for our common stock are entered on the OTC Link alternative trading system on the OTCQB marketplace under the symbol “DSOX.” The table below gives the high and low bid information for each fiscal quarter for the last two fiscal years. The bid information was obtained from OTC Markets Group Inc. and reflects inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

HOLDERS OF RECORD

As of April 12, 2016, we had approximately 58 holders of record, according to a shareholders’ list provided by our transfer agent as of that date. The number of registered shareholders does not include the beneficial owners of common stock held in street name. The transfer agent for Triton’s common stock is Pacific Stock Transfer Company with an address at 6725 Via Austi Pkwy, Suite 300, Las Vegas, NV 89119 and their telephone number is 702-361-3033.

DIVIDENDS

We have not declared any dividends on our common stock during the past two fiscal years or at any time in our history other than stock dividends. Under the provisions of the Delaware General Corporation Law (the “DGCL”), we may only declare dividends:

(1)

Out of our “surplus” as calculated in accordance with the provisions of the DGCL; or

(2)

If there is no “surplus” then out of our net profits for the fiscal year in which the dividend is declared or the preceding fiscal year.

“Surplus” is calculated under the DGCL as the excess of our net assets over our statutory capital, generally meaning the par value of our outstanding common stock.  Dividends may not be declared out of net profits if our statutory capital has been diminished by depreciation in the value of our property or by losses or otherwise to an amount less than the aggregate amount of the statutory capital represented the outstanding shares of any class of stock having a preference on the distribution of our assets.  We do not currently have any outstanding class of capital stock other than our common stock.

Except as provided for under the DGCL, dividends are declared at the sole discretion of our Board of Directors. We do not expect to declare any dividends in the foreseeable future as we expect to spend any funds legally available for the payment of dividends on the development of our business.

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RECENT SALES OF UNREGISTERED SECURITIES

During our fiscal year ended December 31, 2015, we completed the following unregistered sales of our equity securities:

·

On September 4, 2015, we entered into a consulting agreement with an independent consultant. As consideration for the consultant’s agreement to provide us with investor relations services we issued the consultant 25,000 shares at the time of the execution of the consulting agreement, and reserved for issuance further 75,000 shares of our common stock. 50,000 of the reserved shares were issued on December 4, 2015 and March 4, 2016 in equal tranches of 25,000 shares each.  The remaining 25,000 shares are scheduled to be issued on June 4, 2016. In addition to the shares of our common stock we issued the consultant non-transferrable warrants to purchase up to 250,000 shares of our common stock at a price of $0.50 per share expiring on August 1, 2018. The shares and warrants were issued 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 the consultant that he is an accredited investor, as that term is defined in Regulation D.

·

On December 17, 2015, we agreed to issue warrants for the purchase of up to an aggregate of 8,000,000 shares of our common stock to KF Business Ventures, LP (“KFBV” or the “Lender”). The warrants were issued as additional consideration for the Lender agreeing to lend us up to $1,500,000 (the “Third KFBV Loan”) under the terms of our loan agreement dated January 8, 2016 (the “Third KF Loan Agreement”). The warrants were issued on January 8, 2016, are exercisable at a price of $0.10 per share and expire on January 15, 2021.  On the same day we also agreed to amend the terms of the 18,854,546 warrants (the “Existing Warrants”) previously issued to the Lender under the terms of our first loan agreement with KFBV dated January 15, 2014, as amended (the “First KF Loan Agreement”) and our second loan agreement with KFBV dated July 28, 2014, as amended (the “Second KF Loan Agreement”, the First KF Loan Agreement and the Second KF Loan Agreement together being the “Existing Loan Agreements”). The exercise price for the Existing Warrants was reduced to $0.10 per share and the expiration date for the Existing Warrants was extended to January 15, 2021. In addition, we exercised our right to extend the maturity date of the Existing Loan Agreements to January 15, 2017, by agreeing to issue to the Lender warrants to purchase up to 2,531,652 shares of our common stock for an exercise price of $0.10 per share expiring on September 1, 2021. The transaction was completed on January 8, 2016, when we entered into a formal definitive agreement with KFBV. Robert C. Kopple, our Chairman and a member of the Board of Directors, is the principal of the Lender.  The warrants were issued pursuant to the exemptions from registration provided by Rule 506 of Regulation D of the Securities Act of 1933 on the basis of representations provided by the Lender that it is an “accredited investor” as defined in Rule 501 of Regulation D.

·

During the year ended December 31, 2015, we granted options to purchase a total of up to 700,000 shares of our common stock to employees of our Company and our Subsidiary. The options are exercisable at a price of $0.50 per share and vest at various dates over the next twelve months expiring 5 years following the respective vesting date. Exercise of the options is contingent on the availability of an applicable exemption from the registration and prospectus exemptions of applicable securities laws. As at December 31, 2015 options to acquire up to 100,000 shares of our common stock were forfeited.

PENNY STOCK RULES

The SEC has adopted regulations that regulate broker-dealer practices in connection with transactions in “penny stocks.”  “Penny stocks” are generally defined as being any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer who recommends our common stock to persons other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit their market price and liquidity of our securities. The application of the “penny stock” rules may affect your ability to resell our securities.

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ITEM 6. SELECTED FINANCIAL DATA.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and Item 10(f) of Regulation SK and are not required to provide the information required under this item.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements contained in this Annual Report on Form 10-K constitute "forward-looking statements". These statements, identified by words such as “plan,” "anticipate," "believe," "estimate," "should," "expect" and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements reflect the current views of management with respect to future events and are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from those described in the forward-looking statements. Such risks and uncertainties include those set forth under this caption "Management's Discussion and Analysis" and elsewhere in this Form 10-K. We do not intend to update the forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information. We advise you to carefully review the reports and documents we file from time to time with the United States Securities and Exchange Commission (the “SEC”).

General

The inclusion of supplementary analytical and related information herein may require us to make estimates and assumptions to enable us to fairly present, in all material respects, our analysis of trends and expectations with respect to our results of operations and financial position taken as a whole. Actual results may vary from the estimates and assumptions we make.

Results of Operation

Revenues

Our revenue increased by 124.7% to $88,199 during the year ended December 31, 2015, from $39,250 during the year ended December 31, 2014. The increase in revenue was attributed to $72,029 in consulting fees charged by our wholly owned subsidiary, Triton International, on the use and installation of emission abatement technologies. In addition, we recorded $16,170 in royalty revenue from our agreement with WebTech Wireless (“WebTech”), which terminated on October 31, 2015.

We did not record any revenue from our main operations, being installation and servicing of our Emission Technologies, as at December 31, 2015 as the installation of our DSOX Systems for LMS and DCL projects were not completed.

16

Operating Expenses

During the year ended December 31, 2015, our operating expenses decreased by $53,475,604 or 96.1% from $55,621,556 for the year ended December 31, 2014, to $2,145,952 for the year ended December 31, 2015.  This change was mainly associated with the decrease in our research and development costs of $53,068,155, or 99.9%, following the acquisition from Mr. Norling of emission abatement technologies during our fiscal 2014.

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

·

During the year ended December 31, 2015, our administrative, consulting and management fees decreased by $99,488, $460,403 and $360,000, respectively. These decreases were mainly associated with restructuring of our administrative functions and transition to the payroll system, which is reflected in a $1,094,596 increase to our costs associated with salaries and wages.

·

During the year ended December 31, 2015, our advertising and marketing expenses decreased by $357,374 relative to the same period in fiscal 2014. The decrease was associated with the shift of our efforts from building a public awareness for our Company and products to our installation projects.  

·

Our concentration on the installation projects as well as our efforts to control operating costs resulted in a decrease to our professional fees of $169,150 from $256,030 incurred during the year ended December 31, 2014, to $86,880 incurred during the year ended December 31, 2015.

·

During the year ended December 31, 2015, our travel and entertainment expenses decreased by $97,776, 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.

·

Our insurance expense increased by $11,431, from $139,822 incurred during the year ended December 31, 2014, to $151,253 incurred during the year ended December 31, 2015, which resulted form 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. The increase to the insurance costs was in part offset by adjustment to our 2014 - 2015 year insurance coverage. During the year ended December 31, 2015, our web design and maintenance fees decreased by $96,764 to $10,841. 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 June 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 December 31, 2014.

Other Items

During the year ended December 31, 2015, we recorded $2,016,764 (2014 - $603) 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 KF Loans.

During the year ended December 31, 2015, we recorded $292,741 in financing costs, of which $251,360 were associated with the fair value of the warrants we issued to KFBV pursuant to the Third KF Loan Agreement, repricing and extension of the original warrants issued under the First and the Second KF Loan Agreements, and the fair value of the extension warrants we issued to KFBV when we exercised our option to extend the maturity of the First and the Second KF Loans. Additional $31,381 in financing costs were associated with the legal fees we incurred to secure the KF Loans, and $10,000 we paid Quarry Bay Capital LLC and Tradex Capital Corp. in consideration for an extension on repayment of their loans.

Our interest expense associated with obligations other than the KF Loans decreased by $131,486, or 81.7% from $160,869 for the year ended December 31, 2014, to $29,383 for the year ended December 31, 2015. This decrease was associated with repayment of the Acamar Loan on September 19, 2014.

During the year ended December 31, 2015, we recorded $704,540 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 year ended December 31, 2014, our stock-based compensation amounted to $300,524 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.

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The above items were offset by a gain of $1,461,084 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, the Second KF Loan and the Third 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 December 31, 2015, as compared to the market price of the stock at December 31, 2014, or at the time of issuance of the warrants. During the year ended December 31, 2014, we recorded a gain on change in the fair value of derivative liability of $9,003,419, which also resulted from the decrease in the market value of our common stock at December 31, 2014, as compared to the value of the stock at the time of issuance of the warrants.

In addition to the transactions described above, during the year ended December 31, 2014, we recorded the following transactions:

·

$7,168,224 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;

·

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;

·

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

·

$42,841 impairment charge on the GTM Contracts.  

We did not have similar transactions during the year ended December 31, 2015.

Liquidity and Capital Resources

Working Capital

As of December 31, 2015, we had a cash balance of $112,138, a working capital deficit of $4,718,453, of which $945,962 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 KF Loans, and $2,335,498 was attributed to the conversion feature included in the Third KF Loan Agreement, and cash flows used in operations of $2,381,386 for the year then ended. During the year ended December 31, 2015, we funded our operations with $1,500,000 we received pursuant to the Second and Third KF Loans; $600,000 we received pursuant to the Bridge Loans with Mr. Norling and KF Business Ventures LP.; and, to a minor extent, with the cash we received from royalties and consulting fees.

Our balance sheets for the years ended December 31, 2015 and 2014 do not reflect the full amount payable on account of principal and interest under the KF Loans.  Since the warrants issued as partial consideration for the KF Loans and conversion feature available under the Third KF Loan Agreement were determined to be a derivative liability, pursuant to the guidance provided by ASC 815, the proceeds were allocated to the warrants and conversion feature, with amount over and above cash proceeds recorded as financing costs. The principals of the First KF Loan, the Second KF Loan and the Third KF Loan were assigned a $Nil value, and are being accreted over the life of the loans using an implied interest rate of 1,130% on the First KF Loan, 1,729% on the Second KF Loan, and 2,339% on the Third KF Loan.

As of December 31, 2015, we owed a total of $5,343,748 to KFBV under the terms of the First KF Loan, the Second KF Loan and the Third KF Loan, consisting of $4,700,000 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 KF Loans are due and payable on January 15, 2017, when the value of the loans will amount to $7,021,659, unless prepaid earlier.  A description of the KF Loans is provided under “Net Cash Provided by Financing Activities”.

18

During the year ended December 31, 2015, we arranged for an additional bridge financing for $400,000 with our CTO and President, Rasmus Norling (the “Norling Bridge Loan”) and for $200,000 with KFBV (the “KF Bridge Loan”), each party agreed to advance us the funds in exchange for the Notes 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.  As a condition precedent for us entering into the Third KF Loan Agreement, Mr. Norling and KFBV agreed to extend the due dates of their respective bridge loans to December 31, 2016.

In April 2015, Quarry Bay Capital LLC (“Quarry Bay”) and Tradex Capital Corp. (“Tradex”) provided us with a demand notice for the repayment of demand loans advanced to us during 2012 through 2014.  (Quarry Bay and Tradex loans and advances are hereinafter referred to as “Quarry and Tradex Loans”).

In April 2015, we made arrangements to pay $100,000 of the total amount outstanding under Quarry and Tradex Loans (which amount has been paid), with the balance to be repaid in 90 days following the first payment.  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. Concurrently with entering into the Third KF Loan Agreement, we renegotiated the repayment terms of the Quarry and Tradex Loans, and agreed to make $50,000 monthly payments until such time that all Quarry and Tradex Loans are paid in full.

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 year ended December 31, 2015 came from our Second and Third KF Loans, and bridge loans with 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, the Second KF Loan and the Third KF Loan, which will become due and payable on January 15, 2017, as amended.  

There is no assurance that we will be able to generate sufficient cash from our operations to repay the amounts owing under the KF Loans 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, or re-negotiate the terms of our debt obligations. Our ability to raise financing from sources is restricted under the terms of the KF Loan Agreements.  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, the Second KF Loan, or the Third 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 year ended December 31, 2015, was $2,381,386. This cash was primarily used to cover our cash operating expenses of $2,123,780, increase our work in progress by $222,364, 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 Scrubber.

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We also decreased our wages payable and accounts payable by $24,862 and $60,857, respectively. In addition, increases in our accounts receivable of $23,189 further increased the cash we used in operations. These uses of cash were offset by a $15,777 decrease in our prepaid expenses, $6,394 increase in accrued liabilities, $22,112 increase in amounts due to related parties, and $29,383 increase in interest accrued on short-term notes and advances payable.

Net cash used in operating activities during the year ended December 31, 2014, was $2,311,909. This cash was primarily used to cover our cash operating expenses of $3,365,430 and increase our work in progress by $337,471, which was associated with payments we made to our contractors for the manufacturing of the DSOX Systems as well as to acquire necessary parts and equipment. We used $36,526 to reduce the amounts due to related parties, $12,687 to reduce our trade accounts payable, and $221 to increase our accounts receivable associated with the royalty revenue from WebTech. 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 decrease in prepaid expenses of $203,894, increase in our accrued liabilities of $44,768, and increase in wages payable of $55,895, which were associated with withholding taxes payable on the 4th quarter payroll, and increases in interest accrued on the notes and advances payable of $160,869.

Non-cash transactions

During the year ended December 31, 2015, our net loss was further increased by the following expenses that did not have any impact on cash used in operations:

·

$704,540 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;

·

$282,741 in financing costs associated with the KF Loans, which resulted from the difference between the fair value of the warrants issued as consideration for the Third KF Loan and repricing and extension of the warrants issued as consideration for the First KF Loan and the Second KF Loan;

·

$2,016,764 in 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 KF loans;

·

$9,869 in amortization expense we recorded on our testing and laboratory equipment; and

·

$16,663 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 $4,500 being a market value of 50,000 shares of our common stock we issued to Mr. Lipp on September 4, and December 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:

·

$1,461,084 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, the Second KF Loan, and the Third 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 December 31, 2015 was significantly lower compared to the price at December 31, 2014 this resulted in gain on revaluation; and

·

$53,176 gain that resulted from foreign exchange fluctuations on Canadian Dollar denominated loans and advances we received.

During the year ended December 31, 2014, our net loss was further increased by the following expenses that did not have any impact on cash used in operations:

·

$52,380,000 in research and development costs, which were associated with the acquisition of the Norling Emission Technologies, pursuant to our Technology Transfer Agreement between us and Mr. Norling. In consideration for these technologies, we agreed to release to Mr. Norling 54,000,000 shares of Custodial Stock, valued at $52,380,000;

20

·

$7,599,443 in financing costs associated with the First KF Loan and the Second KF Loan, which resulted from the difference between the fair value of the warrants issued as consideration for the First KF Loan and the Second KF Loan and actual cash proceeds received from these loans; in addition we recorded $603 in accretion expense associated with these loans;

·

$13,620 in amortization expense we recorded on our intangible assets as well as testing and laboratory equipment;

·

$7,168,224 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;

·

$135,548 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 $88,548 being a fair market value of warrants to purchase up to 250,000 shares of our common stock;

·

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

·

$300,524 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 and fair value of the options to purchase up to 100,000 shares of our common stock we issued to Anders Karlsson  as compensation for his appointment as the CEO, President and a director of our Subsidiary; and

·

$150,000 impairment we recorded on the loan we advanced to our former subsidiary, as well as $42,841 impairment we recorded on GTM Contracts.

The above non-cash expenses were offset by the following items without affecting our cash flow:

·

$9,003,419 gain we recorded on 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 December 31, 2014 was significantly lower than the price at the time of issuance of the warrants, this resulted in gain on revaluation;

·

$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;

·

$170,833 gain we recorded when we reversed the royalty fees payable pursuant to our Teak Shield License, which was terminated when we signed a Restated and Amended Teak Shield License Agreement on June 24, 2014; and

·

$27,000 gain that resulted from foreign exchange fluctuations on Canadian Dollar denominated loans and advances we received.

Net Cash Provided by Financing Activities

During the year ended December 31, 2015, we received $1,200,000 from KF Business Ventures LP (“KFBV”) pursuant to our Second KF Loan Agreement and $300,000 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 bridge loan from KFBV and $400,000 bridge loans from Rasmus Norling, our CTO and President. These financing activities were reduced by $150,000 we paid to Quarry Bay Capital LLC and Tradex Capital Corp as partial repayment of loans and advances we received from these lenders during our fiscal 2012 through 2014.

During the year ended December 31, 2014, we received $2,000,000 from KF Business Ventures LP (“KFBV”) pursuant to our First KF Loan Agreement and $1,200,000 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.

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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, by that Amendment No. 2 to Loan Agreement dated September 8, 2014, and by that Amendment to First KF Loan Agreement, Second KF Loan Agreement and KF Bridge Loan Agreement dated January 8, 2016, which was earlier contemplated under that Binding Letter Agreement between the Company and the Lender dated December 17, 2015   (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”). The First KF Loan was advanced in four equal �nstalments of $500,000 each, the first �nstalment of which was advanced on execution of the Letter Agreement. Subsequent advances were subject to the condition precedent that we enter into satisfactory arrangements with Mr. Norling to amend the terms and conditions associated with the release and forfeiture of the Custodial Stock issued to Mr. Norling under his previous employment agreement with us. This condition precedent was satisfied on March 10, 2014. As such, on March 31, 2014, we received a second �nstalment of $500,000, and on May 1, 2014 and June 3, 2014 – the third and fourth �nstalments.  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.

Amounts payable under the First KF Loan Agreement, as amended, accumulate interest at a rate of 10% per annum, compounded monthly.

On December 17, 2015, we exercised our right to extend the maturity date of the First KF Loan to January 15, 2017, by issuing to KFBV warrants to acquire up to additional 1,194,332 shares of our common stock with an initial exercise price of $0.10 per share expiring on September 1, 2021 (the “First Loan Extension Warrants”).

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 10,448,878 shares of our common stock, including the First Loan Extension Warrants, as follows:

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 5,224,439 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.

Second Loan Agreement with KF Business Ventures LP

On July 28, 2014, we entered into a second loan agreement (the “Second Loan Agreement”) with KFBV, which was amended by that Amendment to First KF Loan Agreement, Second KF Loan Agreement and KF Bridge Loan Agreement dated January 8, 2016, which was earlier contemplated under that Binding Letter Agreement between the Company and the Lender dated December 17, 2015. Under the Second KF Loan Agreement KFBV agreed to lend to us up to $2,400,000, to be advanced in eight equal �nstalments of $300,000 each, beginning on September 1, 2014, with the remaining �nstalments advanced on the first day of each consecutive calendar month thereafter (the “Second KF Loan”). 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.

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In addition, we agreed to appoint Robert C. Kopple, the principal of KFBV as Chairman of our Board of Directors (see “Changes in Executive Officers and Directors”).  Under the terms of the Second 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.

Amounts payable under the Second KF Loan Agreement, as amended, accumulate interest at a rate of 10% per annum, compounded monthly.

On December 17, 2015, we exercised our right to extend the maturity date of the Second KF Loan to January 15, 2017, by issuing to KFBV warrants to acquire up to additional 1,337,320 shares of our common stock with an initial exercise price of $0.10 per share expiring on September 1, 2021 (the “Second KF Loan Extension Warrants”).

Following are the warrants we granted to KFBV in connection with the Second KF Loan, including the Second Loan Extension Warrants:

The warrants issued to KFBV in connection with the Second KF Loan may be exercised by way of a cashless exercise for a total of up to 5,468,660 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.

Third Loan Agreement with KF Business Ventures LP

On December 17, 2015, we entered into a binding letter agreement with KFBV, which was superseded by a formal definitive Loan Agreement signed on January 8, 2016 (the “Third KF Loan Agreement”). Under the Third KF Loan Agreement KFBV agreed to lend to us up to $1,500,000, to be advanced in five equal �nstalments of $300,000 each, beginning on December 17, 2015, with the remaining �nstalments advanced on the first day of each consecutive calendar month thereafter (the “Third KF Loan”). Advances under the Third KF Loan were conditional upon (1) our agreeing to amend the terms of the 9,254,546 warrants previously issued to KFBV under the terms of the First KF Loan Agreement, as amended, and 9,600,000 warrants previously issued to the Lender under the terms of the Second KF Loan Agreement, (the “Existing Warrants”) such that the exercise price for the Existing Warrants was reduced to $0.10 per share and the expiration date for the Existing Warrants was extended to January 15, 2021; and (2) our issuing to KFBV additional non-transferrable share purchase warrants for a total of 8,000,000 shares of our common stock, exercisable at a price of $0.10 per share expiring on January 15, 2021.

The warrants issued to KFBV in connection with the Third KF Loan may be exercised by way of a cashless exercise for a total of up to 4,000,000 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.

At the discretion of the Lender the principal and accrued but unpaid interest under the Third KF Loan may be converted into shares of the Company’s common stock at a conversion price of $0.10 per share, in minimum increments of $250,000 (the “Third KF Loan Conversion Feature”).

As of December 31, 2015, we owed a total of $5,343,748 to KFBV under the terms of the First KF Loan, the Second KF Loan and the Third KF Loan (cumulatively referred in this Form 10-K as “KF Loans”) consisting of the full principal amount of all advances made to that date plus accrued interest thereon.  Subsequent to our fiscal 2015 year end, KFBV advanced to us an additional $1,200,000 in principal under the terms of the Third KF Loan Agreement, bringing the total principal amount payable to KFBV as at the date of the filing of this Annual Report under the KF Loans to $5,900,000.

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Net Cash Used in Investing Activities

During the year ended December 31, 2015, we paid $11,354 acquiring necessary equipment for testing our DSOX Fuel Purification Systems. We did not have similar transactions during the fiscal 2014.

During the year ended December 31, 2014, we loaned $150,000 to our former subsidiary, New World Technologies Group, Inc. Since the collectability of the loan could not be assured, the loan was impaired.  

Going Concern

The notes to our financial statements at December 31, 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 Teak Shield contract has not generated any revenue.  Our emission abatement technologies have generated only limited revenue.

We have accumulated a deficit of $69,890,583 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 Annual 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 of 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 the projects have not been completed; 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.

Principals of Consolidation

The consolidated 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

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

Survey revenue

We recognize the revenue from ship surveys when the service has been provided and the income is determinable and collectability is reasonably assured.

24

Revenue from the installation and servicing of the Fuel Purification Systems

We recognize the revenue 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 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 December 31, 2015 and 2014, our allowance for doubtful accounts was $0.

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 Exchange Risk

We are subject to foreign exchange risk on our royalty revenue, 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 Share-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.

25

Fair Value of Financial Instruments

Our financial instruments include cash, accounts receivable, loan receivable, accounts payable, notes and advances payable, amounts due to related parties, long-term loan and derivative liability. 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 December 31, 2015, we had $50,393 in cash on deposit with a large chartered Canadian bank, $30,482 on deposit with large US bank, and $31,263 on deposit with Swedish bank. Of these deposits approximately $38,130 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 consists of income from our consulting services and is 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 source of revenue income and as a consequence, concentration of credit risk is limited. At December 31, 2015, we had $27,111 in accounts receivable outstanding.

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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f) of Regulation SK and are not required to provide the information required under this item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of Triton Emission Solutions Inc.

We have audited the accompanying consolidated balance sheets of Triton Emission Solutions Inc. (the “Company”) as of December 31, 2015 and 2014 and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2015 and 2014 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, the Company has not generated revenues since inception, has incurred losses in developing its business, and further losses are anticipated.  The Company requires additional funds to meet its obligations and the costs of its operations.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans in this regard are described in Note 1.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ DMCL

DALE MATHESON CARR-HILTON LABONTE LLP

CHARTERED PROFESSIONAL ACCOUNTANTS

Vancouver, Canada

April 11, 2016

F-1

TRITON EMISSION SOLUTIONS INC.

CONSOLIDATED BALANCE SHEETS

(EXPRESSED IN US DOLLARS)

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

F-2

TRITON EMISSION SOLUTIONS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(EXPRESSED IN US DOLLARS)

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

F-3

TRITON EMISSION SOLUTIONS INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

(EXPRESSED IN US DOLLARS)

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

F-4

TRITON EMISSION SOLUTIONS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(EXPRESSED IN US DOLLARS)

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

F-5

TRITON EMISSION SOLUTIONS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(EXPRESSED IN US DOLLARS)

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 (DSOX and Njord hereinafter collectively referred to as the “Fuel Purification 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.

Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As of December 31, 2015, the Company has not achieved profitable operations and has a working capital deficit of $4,718,453 and has accumulated a deficit of $69,890,583. Continuation as a going concern is dependent upon the ability of the Company to obtain the necessary financing to meet 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 raise substantial doubt that the Company will be able to continue as a going concern. These 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.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and are presented in US dollars.

Principals of consolidation

The consolidated financial statements include the accounts of Triton Emission Solutions Inc. and its wholly-owned subsidiaries, Ecolutions Inc., Poly Shield Technologies (BVI) Ltd., Poly Shield Technologies (UK) Limited, and the Subsidiary. On consolidation, all intercompany balances and transactions are eliminated.

During the year ended December 31, 2015, the Company dissolved two inactive subsidiaries Poly Shield Technologies (BVI) Ltd. and Poly Shield Technologies (UK) Limited.

Accounting estimates

The preparation of these consolidated financial statements in conformity with US GAAP 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. Actual results could differ from those estimates. The Company regularly evaluates estimates and assumptions related to the fair value of intangible assets, fair value of the derivative liability, useful life and recoverability of equipment, fair value of stock-based compensation, fair value of financial instruments and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

F-6

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 and the income is determinable and collectability is reasonably assured.

Revenue from the installation and servicing of the DSOX and Njord 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.

Income taxes

Income tax expense is based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Loss per share

Basic loss per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of common shares outstanding during the reporting period. Diluted net income per common share includes the potential dilution that could occur upon exercise of the options and warrants to acquire common stock computed using the treasury stock method which assumes that the increase in the number of shares is reduced by the number of shares which could have been repurchased by the Company with the proceeds from the exercise of the options and warrants.

Long-lived assets

In accordance with ASC 360, “Property, Plant, and Equipment”, the Company tests 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. Recoverability is assessed 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. The Company amortizes the cost of equipment over their estimated useful lives on a straight-line basis over 5 years.

F-7

Foreign currency translations

Foreign denominated monetary assets and liabilities are translated into their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenues and expenses are translated at average rates of exchange during the period. Related translation adjustments as well as gains or losses resulting from foreign currency transactions are reported as a component of general and administrative expenses on a statement of operations.

Financial instruments

The Company’s financial instruments include cash, accounts receivable, accounts payable, notes and advances payable, and amounts due to related parties. The fair values of these financial instruments approximate their carrying values.

Derivative financial instruments

Derivative financial instruments that are not classified as equity and are not used in hedging relationships are measured at fair value. These include derivative warrant liabilities and derivative conversion options liabilities. Subsequent changes to the estimated fair values are recorded in the statement of operations.

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. The company recognizes 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.

Recent accounting 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 the financial statements of the Company.

NOTE 3 - RELATED PARTY TRANSACTIONS

Amounts due to related parties, other than notes payable to related parties (Notes 8 and 9), at December 31, 2015 and 2014:

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

F-8

The Company incurred the following expenses with related parties:

NOTE 4 - AGREEMENTS

Employment and Management Consulting Agreement with President, CTO and former CEO

On December 1, 2012 (and as amended on December 30, 2013 and February 28, 2014), the Company entered into an employment agreement with its President, CTO and former CEO (the “Executive”). This agreement became effective on February 5, 2013 (“Effective Date”). Under the terms of the employment agreement, the Executive was appointed the Company’s CEO and received a signing bonus of $180,000 and a salary of $180,000 per annum. The Company issued 154,000,000 shares of its common stock with a fair value of $81,620,000, which were placed in escrow and were to be released to the Executive upon delivery of bona fide contracts for the sale or lease of products or services at a rate of one share for each $0.25 in revenue. Escrowed stock was to be released in increments of 1,250,000 shares of common stock.

On March 10, 2014, the Company and the Executive terminated the Employment Agreement and entered into a technology transfer agreement (the “Technology Transfer Agreement”) whereby the Executive transferred the title of certain patent applications to the Company in return for the release of 54,000,000 of the aforementioned 154,000,000 shares. The remaining 100,000,000 shares were cancelled (Notes 6 and 11).

On March 10, 2014, the Company entered into a management consulting agreement (the “Management Consulting Agreement”) with the Executive whereby the Executive agreed to provide consulting services to the Company in return for a monthly fee of $22,500 and the issuance of 10,000,000 warrants with an exercise price of $1.00, expiring on March 10, 2017 (Note 3 and 11). The Executive may choose to exercise the warrants for up to 5,000,000 shares of common stock by way of a cashless exercise.

During the year ended December 31, 2014, the fair value of the warrants issued for the Management Consulting Agreement was $7,168,224 and was expensed at the time of issuance (Note 9).

F-9

During the year ended December 31, 2014, the Company commenced to compensate the Executive with salaries and the related fees are being recorded as payroll, and the Company remits all required federal and state taxes based on prescribed tax rates.

Management Consulting Agreement with CFO

On June 25, 2014, the Company entered into a management consulting agreement (the “Management Agreement with CFO”) with its CFO.  Under the terms of the Management Agreement with CFO, the Company agreed to pay management fee of $7,500 per month.  The Management Agreement with CFO was effective retroactively beginning as of April 1, 2014 and was set to expire on June 25, 2017.  During the year ended December 31, 2015, the Company and its CFO reached a mutual agreement to terminate the Management Agreement with CFO, however, the CFO agreed to continue to provide his services on a month-to-month basis, which services are being included as part of the administrative and consulting fees billed by a company controlled by the CFO. During the year ended December 31, 2015, management fees incurred to the CFO were $22,500 (2014-$67,500) and administrative fees incurred to a company controlled by the CFO were $157,500 (2014-$265,000).

Management Consulting Agreement with Senior VP of Business Development

On June 25, 2014, the Company entered into a management consulting agreement (the “Senior VP Management Agreement”) with its Senior VP of Business Development.  Under the terms of the Senior VP Management Agreement, the Company agreed to pay management fee of $22,500 per month. The Senior VP Management Agreement was effective retroactively beginning as of April 1, 2014 and expires on June 25, 2017.  The Company may terminate the Management Agreement at any time with ninety days written notice.  The Senior VP of Business Development may terminate the Senior VP Management Agreement at any time with sixty days written notice.

During the year ended December 31, 2015, the Company commenced to compensate the Senior VP of Business Development with salaries and the related fees are being recorded as payroll. The Company remits all required federal and state taxes based on prescribed tax rates.

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 year ended December 31, 2015, the fair value of the Aasen Options was $414,304, of which $268,103 was recognized as stock-based compensation (Notes 3 and 11).

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 vested on December 1, 2015 and expire on December 1, 2020. During the year ended December 31, 2015, the fair value of the Karlsson Options was $21,257, of which $19,119 was recognized as stock-based compensation (Notes 3 and 11).

F-10

Consulting Agreements for Investor Relations Services

On September 3, 2014, the Company entered into a Consulting Agreement (the “2014 Consulting Agreement”) with an unrelated party (the “Consultant”) for investor relations services. The term of the 2014 Consulting Agreement was one year, expiring on September 3, 2015. On September 4, 2015, upon expiry of the 2014 Consulting Agreement, the Company entered into a subsequent Consulting Agreement (the “2015 Consulting Agreement”) with the Consultant on substantially same terms as the 2014 Consulting Agreement. The term of the 2015 Consulting Agreement is one year, expiring on September 4, 2016.

In consideration for the Consultant agreeing to provide the services to the Company, the Company is required to issue its common stock as follows:

In addition to the issuance of its common stock, on September 3, 2014, 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 3, 2015 (Note 11). The fair value of the warrants issued for the 2014 Consulting Agreement was $88,548 and was expensed at the time of issuance.

On September 4, 2015, the Company issued the Consultant additional 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 2015 Consulting Agreement was $12,163 and was expensed at the time of issuance (Note 11).

Employment Agreement with former VP of Engineering

On May 1, 2015, the Company entered into an employment agreement pursuant to which Mr. Buczek agreed to act as the Company’s Product Manager. Mr. Buczek is entitled to an annual base salary of $84,000 per year beginning on May 1, 2015. In addition, the Company granted Mr. Buczek options to purchase up to 500,000 shares of the Company’s common stock at an exercise price of $0.50 per share (the “Buczek Options”). The Buczek Options vested on May 1, 2015 and expire on May 1, 2020. The fair value of the options was calculated to be $63,660 and was expensed at the time of issuance (Notes 3 and 11).

NOTE 5 - DISTRIBUTION AND LICENSE RIGHTS

Teak Shield License

On March 12, 2012, the Company entered into a license agreement with Teak Shield (the “Teak Shield License”), whereby the Company acquired a license to market and sell Teak Shield’s licensed products. In exchange, the Company agreed to pay a 5% royalty, with a minimum $100,000 annual royalty payment, and agreed to issue 1,666,667 shares.  As at December 31, 2013, management determined that the Teak Shield License was fully impaired.

F-11

On June 24, 2014, the Company reached an agreement to amend the Teak Shield License (the “Amended Teak Shield License”).  Both parties agreed to release each other from any and all obligations pursuant to the original Teak Shield License, which resulted in reversal of the accrued royalty fees of $170,833. The Amended Teak Shield License has an initial term of 6 years and may be automatically renewed for successive two-year terms. The Company is not required to pay a royalty and no additional consideration is required in order to maintain the licensing rights. As at December 31, 2015, the Company was not a party to any agreements or arrangements that would result in an obligation pursuant to the Amended Teak Shield License.

GTM Contracts

On January 31, 2013, the Company issued 100,000 shares of its common stock with a fair value of $53,000 as a purchase price for all of the issued and outstanding shares in the capital of Ecolutions, Inc. (“Ecolutions”) which held the rights to the intellectual property of Green Tech Marine AS (“GTM”). As a result of acquiring Ecolutions, the Company acquired distribution and license rights to the Exhaust Scrubber, a proprietary exhaust gas scrubber technology developed by GTM (“GTM Contracts”).

The GTM Contracts are in effect until November 15, 2022, and may be automatically renewed for a further ten year period unless either party gives written notice of termination at least 90 days prior to the then current term.  

As at December 31, 2014, management determined that the GTM Contracts were fully impaired and recorded an impairment charge of $42,841.

NOTE 6 - TECHNOLOGY TRANSFER AGREEMENT

On March 10, 2014, the Company entered into a Technology Transfer Agreement with the Executive (Note 4). Under the terms of the Technology Transfer Agreement, the Executive agreed to sell to the Company all of his right, title and interest in and to all technologies owned by him that relate to the abatement and reduction of emissions and exhausts from internal combustion engines through the pre-treatment of input fuels, the treatment of exhaust gases produced by such engines, or any combination thereof (collectively, the “Technology”), including all of the Executive’s right, title and interest in and to certain patent applications for the Technology.

In consideration for the Technology, the Company agreed to release 54,000,000 of the total 154,000,000 shares of common stock that were previously issued to the Executive and held in escrow, subject to forfeiture or release upon the fulfillment of certain performance conditions as set out in the Employment Agreement. The remaining 100,000,000 shares were cancelled (Notes 3 and 11).  

The fair value of the 54,000,000 shares which were released for the Technology was $52,380,000 and has been recorded as research and development costs.

NOTE 7 - EQUIPMENT

Amortization schedule for the equipment:

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

F-12

NOTE 8 - NOTES AND ADVANCES PAYABLE

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

Quarry Bay and Tradex Loans and Advances

On April 7, 2015, the Company received a demand notice to repay outstanding notes payable issued to Quarry Bay Capital LLC. and Tradex Capital Corp.

On April 17, 2015, the Company made a payment of $100,000. 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. The lenders agreed to extend the repayment term of 50% of the amount outstanding to September 26, 2015 and the repayment term of the remaining 50% balance to November 25, 2015. As at December 31, 2015, the Company repaid a total of $150,000. Subsequent to December 31, 2015, the Company repaid an additional $150,000. The repayments were applied to non-interest bearing loans only.  

Norling Bridge Loans

On July 28, 2015 and November 6, 2015, the Company entered into a two separate bridge loan agreements (the “Norling Loans”) with its President and CTO, Rasmus Norling.  Pursuant to the Norling Loans, Mr. Norling agreed to lend to the Company total of $400,000 in exchange for unsecured promissory notes.

The loans have an effective interest rate of 6%, respectively, and are due December 31, 2016.

As of December 31, 2015, the Company recorded $6,995 as interest expense associated with the Norling Loans.

F-13

KF Business Ventures Bridge Loan

On August 31, 2015, the Company entered into a bridge 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 “KFBV Bridge Loan”).

The loan has an effective interest rate of 6%, and is due December 31, 2016.

As of December 31, 2015, the Company recorded $4,041 as interest expense associated with the KFBV Bridge Loan.

Acamar Loan

On April 19, 2012, the Company signed a loan agreement with Acamar Investments, Inc. (“Acamar”) for $260,000, repayable on June 30, 2014 (as amended) (the “Acamar Loan”). The Acamar Loan bore an effective rate of 51% per annum and was secured by the Teak Shield License (Note 5). On September 18, 2014, the Company reached an agreement with Acamar to release the Company from its obligations under the Acamar Loan upon the payment of $300,000 (the “Cash Consideration”).

As at September 18, 2014, the total principal payable under the Acamar Loan was $380,688 and accrued interest totaled $146,159, the Company had also recorded $11,474 as penalty on late repayments of interest. Upon the payment of the Cash Consideration, the Company recorded a gain of $238,321 on the settlement of debt.

During the year ended December 31, 2014, the Company paid total of $250,159 in interest.

NOTE 9 - LONG-TERM LOANS AND DERIVATIVE LIABILITY

First KF Business Ventures Loan Agreement

On January 15, 2014, the Company entered into a binding letter agreement with KF Business Ventures LP (“KFBV”), a company controlled by a director of the Company (the “Lender”), which was superseded by the formal definitive loan agreement signed on February 11, 2014, and further amended on March 10, 2014, September 8, 2014, and on December 17, 2015 (the “First KF Loan Agreement”). Under the First KF Loan Agreement the Lender agreed to lend to the Company up to $2,000,000 in four equal instalments 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 instalments 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%, which was due primarily to the recording of non-cash accretion interest.

In consideration for the First KF Loan Agreement, as amended on March 10, 2014 (the “March Amendment”), the Company issued to the Lender non-transferrable share purchase warrants to purchase a total of 6,904,546 shares exercisable at a price of $1.00 per share (the “First KF Warrants”) (Note 11). Warrants for 2,450,000 shares had an original expiry date of January 15, 2015, and warrants for 4,454,546 shares had an original expiry date of January 15, 2018. At the discretion of the Lender the First KF Warrants for up to 3,452,273 shares of common stock could have been acquired by way of a cashless exercise.

The First KF Warrants included a down-round provision whereby the exercise price of the First KF Warrants could have been adjusted to the lowest offering price of any options, warrants or shares issued subsequent to the issuance of the First KF Warrants (the “Down-Round Provision”). The First KF Warrants were determined to be a derivative under ASC 815; therefore, at initial measurement, the proceeds were allocated to the fair value of the warrants first and any residual proceeds to the principal of the First KF Loan.

At issuance date, the fair value of the First KF Warrants was $5,128,110 and a value of $Nil was allocated to the principal.

F-14

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 by issuing additional share purchase warrants (the “First Extension Warrants”) equal to one-half of the outstanding principal and unpaid interest as at January 15, 2016. The Extension Warrants were to 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 the Lender 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 and 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 the First KF Warrants (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 September Warrants also included the Down-Round Provision (Note 11).

The incremental increase in the fair value of the Amended Warrants and the fair value of the September Warrants was determined to be $970,893 and was recorded as a financing cost during the year ended December 31, 2014.

On December 17, 2015 (the “December Amendment Date”), as part of the second definitive Letter Agreement with KFBV (the “Second KF Letter Agreement”), which was superseded by a formal Loan Agreement dated January 8, 2016, the Company agreed to decrease the exercise price for Amended Warrants and September Warrants from $0.50 per share to $0.10 per share and extend the expiration date of warrants to January 15, 2021. In addition, the Company exercised its option to extend the maturity of the First KF Loan to January 15, 2017 by issuing the Lender 1,194,332 First Extension Warrants, being an equivalent to one-half of the outstanding principal and unpaid interest on the First KF Loan as at January 15, 2016. First Extension Warrants have an initial exercise price of $0.10 per share expiring on September 1, 2021 (Note 11).

The incremental increase in the fair value of the Amended Warrants and September Warrants and the fair value of the First Extension Warrants was determined to be $167,706 and has been recorded as a financing cost.

During the year ended December 31, 2015, the Company recognized accretion expense of $1,303,522 (2014 - $567).

At December 31, 2015, the fair value of the derivative liabilities associated with the warrants issued pursuant to the First KF Loan Agreement was $296,033 (2014 - $1,203,944).

During the year ended December 31, 2014, the fair values of the Amended Warrants and September Warrants were determined using the Black-Scholes Option pricing model at the grant date, and were revalued at the reporting dates using the following assumptions:

At December 17, 2015, the fair value of the First Extension Warrants was determined using the Binomial Lattice model, and the fair values of the Amended Warrants, September Warrants as well as the First Extension Warrants were revalued using the Binomial Lattice model at December 31, 2015 using the following assumptions:

F-15

Second KF Business Ventures Loan Agreement

On July 28, 2014, the Company entered into a second loan agreement with the Lender (the “Second KF Loan Agreement”). Under the Second KF Loan Agreement, the Lender 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 was January 15, 2016, with an option to further extend the maturity date to January 15, 2017 by issuing additional share purchase warrants (the “Second Extension Warrants”) equal to one-half of the outstanding principal and unpaid interest as at January 15, 2016. The Second KF Loan is unsecured and has an effective interest rate of 1,729%, which was due primarily to the valuation of the warrants issued as consideration for the Second KF Loan.

In consideration for the Second KF Loan Agreement, the Company issued to the Lender 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 (the “Second KF Warrants”) (Note 11). At the discretion of the Lender the Second KF Warrants for up to 4,800,000 shares of common stock can be acquired by way of a cashless exercise.

The Second KF Warrants were determined to be a derivative under ASC 815; therefore, at initial measurement, the proceeds were allocated to the fair value of the Second KF Warrants first and any residual proceeds to the loan principal.

At issuance date, the fair value of the Second KF Warrants was $5,388,652 and a value of $Nil was allocated to the principal.

On December 17, 2015, as part of the Second KF Letter Agreement, which was superseded by a formal Loan Agreement dated January 8, 2016, the Company agreed to decrease the exercise price for the Second KF Warrants from $0.50 per share to $0.10 per share and extend the expiration date of these warrants to January 15, 2021. The Second KF Warrants included a down-round provision whereby the exercise price of the Second KF Warrants could have been adjusted to the lowest offering price of any options, warrants or shares issued subsequent to the issuance of the Second KF Warrants.  In addition, the Company exercised its option to extend the maturity of the Second KF Loan to January 15, 2017 by issuing the Lender 1,337,320 Second Extension Warrants, being an equivalent to one-half of the outstanding principal and unpaid interest as at January 15, 2016. Second Extension Warrants have an initial exercise price of $0.10 per share expiring on September 1, 2021 (Note 11).

The incremental increase in the fair value of the Second KF Warrants and the fair value of the Second Extension Warrants was determined to be $83,656 and has been recorded as a financing cost.

During the year ended December 31, 2015, the Company recognized accretion expense of $713,241 (2014 - $36).

At December 31, 2015, the fair value of the derivative liabilities associated with the Second KF Warrants and Second Extension Warrants was $375,369 (2014 - $1,787,241).

During the year ended December 31, 2014, the fair value of Second KF Warrants was calculated using the Black-Scholes Option pricing model at the grant date, and was revalued at the reporting date using the following assumptions:

F-16

During the year ended December 31, 2015, the fair value of Second KF Warrants and Second Extension Warrants was revalued using the Binomial Lattice model at the December Amendment Date and at the reporting date using the following assumptions:

Third KF Business Ventures Loan Agreement

On December 17, 2015, the Company entered into a Second KF Letter Agreement with the Lender, which was ratified by the formal definitive loan agreement signed on January 8, 2016 (the “Third KF Loan Agreement”). Under the Third KF Loan Agreement, the Lender agreed to lend to the Company $1,500,000 (the “Third KF Loan”), to be advanced in five equal instalments of $300,000 each, commencing on execution of the Second KF Letter Agreement, and on the first day of each consecutive calendar month thereafter until fully advanced.

As of December 31, 2015, the Company received $300,000 under the Third KF Loan Agreement; the remaining $1,200,000 was recorded as a loan receivable and were received subsequent to December 31, 2015.

The maturity date under the Third KF Loan Agreement is January 15, 2017. The Third KF Loan is unsecured and has an effective interest rate of 2,339%, which was due primarily to the recording of non-cash accretion interest. At the discretion of the Lender the principal and accrued but unpaid interest under the Third KF Loan may be converted into shares of the Company’s common stock at a conversion price of $0.10 per share, in minimum increments of $250,000 (the “Third KF Loan Conversion Feature”). The Down-Round Provision is included in the Third KF Loan Conversion Feature.

In consideration for the Third KF Loan Agreement, the Company issued to the Lender non-transferrable share purchase warrants for a total of 8,000,000 shares of the Company’s common stock, exercisable at a price of $0.10 per share for a period expiring January 15, 2021 (the “Third KF Warrants”). At the discretion of the Lender the Third KF Warrants for up to 4,000,000 shares of common stock can be acquired by way of a cashless exercise (Note 11). The Down-Round Provision is included in the Third KF Warrants.

The Third KF Warrants and the Third KF Loan Conversion Feature were determined to be derivatives under ASC 815; therefore, at initial measurement, the proceeds were allocated to the Third KF Warrants and the Third KF Loan Conversion Feature on a pro-rata basis first and any residual proceeds to the principal.

At issuance date, the fair value of the Third KF Warrants and the Third KF Loan Conversion Feature was $509,760 and $990,239 respectively and a value of $1 was allocated to the principal.

During the year ended December 31, 2015, the Company recognized accretion expense of $1.

At December 31, 2015, the fair value of the derivative liability associated with the Third KF Warrants and the Third KF Loan Conversion Feature was $274,560 and $2,335,498, respectively.

The fair value of the Third KF Warrants was calculated using the Binomial Lattice model at the grant date, and was revalued at the reporting date using the following assumptions:

F-17

The fair value of the Third KF Loan Conversion Feature was calculated using the Binomial Lattice model at the date of the Second KF Letter Agreement, and was revalued at the reporting date using the following assumptions:

Summary of the Derivative Liabilities - Conversion Feature

A summary of the derivative liabilities associated with the Conversion Feature under the KF Loan Agreements is as follows:

Summary of the Derivative Liabilities - Warrants

A summary of the derivative liabilities associated with the warrants under the KF Loan Agreements and their amendments is as follows:

F-18

KF Business Ventures Deferred Financing Costs

The Company recorded $50,538 (2014 - $25,000) in legal fees associated with securing the KFBV Loans. These fees are amortized over the remaining life of the loans; as of December 31, 2015, the Company recorded $31,380 (2014 - $4,839) in financing costs associated with the amortization of these legal fees.

NOTE 10 - IMPAIRMENT OF LOAN

During the year ended December 31, 2014, the Company advanced a total of $150,000 to its former subsidiary, New World Technologies Group Inc. The loans bear interest at 6% per year compounded monthly and are due on demand. At December 31, 2014, the amount receivable was impaired due to uncertainty of collectability.

NOTE 11 - SHARE CAPITAL

On April 1, 2014, the Company recorded an obligation to issue 51,000 shares of its common stock with a fair value of $46,410 for the consulting and website design services. As of December 31, 2015, these shares remained unissued.

On September 3, 2014, pursuant to the 2014 Consulting Agreement with the Consultant for investor relations services, the Company issued 100,000 shares of its common stock with a fair value of $47,000 (Note 4).

On September 4, 2015, pursuant to the 2015 Consulting Agreement with the Consultant for investor relations services, the Company issued 25,000 shares of its common stock with a fair value of $2,500.

On December 4, 2015, pursuant to the 2015 Consulting Agreement with the Consultant for investor relations services, the Company issued further 25,000 shares of its common stock with a fair value of $2,000.

As of December 31, 2015, the Company has reserved further 50,000 shares of its common stock for issuance on March 4, 2016 (issued with the fair value of $1,250) and June 4, 2016 (Note 4).

Warrants

A continuity schedule of warrants is as follows:

Details of warrants outstanding as at December 31, 2015 are as follows:

At December 31, 2015, the weighted-average exercise price and remaining contractual life of the outstanding share purchase warrants were $0.33 and 4.09 years, respectively.

F-19

Warrants Issued Pursuant to KF Business Ventures Loan Agreements

On January 15, 2014, in consideration for the First KF Loan the Company issued to KF Business Ventures LP. non-transferrable share purchase warrants for a total of 6,200,000 shares of the Company’s common stock, exercisable at a price of $1.00 per share (collectively, the “First KF Warrants”).  First KF Warrants for 2,200,000 shares of the Company’s common stock were expiring on January 15, 2015, and First KF Warrants for 4,000,000 shares of the Company’s common stock were expiring on January 15, 2018. At discretion of the Lender the First KF Warrants could have been exercised by way of cashless exercise for a total of up to 3,100,000 shares (Note 9).

On March 10, 2014, in consideration for the March Amendment, the Company issued to the Lender additional non-transferrable share purchase warrants for a total of 704,546 shares of the Company’s common stock with an exercise price of $1.00 per share (collectively, the “Additional Warrants”).  The Additional Warrants to purchase a total of 250,000 shares of the Company’s common stock were expiring on January 15, 2015, with the remaining 454,546 Additional Warrants expiring on January 15, 2018. At discretion of the Lender the Additional Warrants could have been exercised by way of cashless exercise for a total of up to 352,273 shares (Note 9).

On July 28, 2014, in consideration for the Second KF Loan Agreement, the Company issued to the Lender 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, with cashless exercise rights for up to 4,800,000 shares (Note 9).

On September 8, 2014, as consideration for the September Amendment, the Company agreed to extend the expiration date for 2,450,000 warrants previously issued to the Lender under the First KF Loan Agreement and the First Amendment from January 15, 2015 to January 15, 2016, and decrease the exercise price for all warrants previously issued to the Lender from $1.00 per share to $0.50 per share (Note 9).

In addition, the Company issued to the Lender additional warrants for the purchase of up to 2,350,000 shares of the Company’s common stock, with an initial exercise price of $0.50 per share and expiring on January 15, 2019, with cashless exercise rights for up to 1,175,000 shares (Note 9).

On December 17, 2015, in consideration for the Third KF Loan Agreement, the Company agreed to issue to the Lender non-transferrable share purchase warrants for a total of 8,000,000 shares of the Company’s common stock, exercisable at a price of $0.10 per share for a period expiring January 15, 2021, with cashless exercise rights for up to 4,000,000 shares (Note 9).

On December 17, 2015, as consideration for the Third KF Loan Agreement, the Company agreed to extend the expiration date for 18,854,546 warrants previously issued to the Lender under the First KF Loan Agreement, as amended, and the Second KF Loan Agreement to January 15, 2021, and decrease the exercise price for all warrants previously issued to the Lender from $0.50 per share to $0.10 per share (Note 9).

In addition, on December 17, 2015, the Company agreed to issue to the Lender the First Extension Warrants for the purchase of up to 1,194,332 shares of the Company’s common stock and Second Extension Warrants for the purchase of up to 1,337,320 shares of the Company’s common stock (Note 9). The First and the Second Extension Warrants have an initial exercise price of $0.10 per share and expire on September 1, 2021. At discretion of the Lender, the warrants issued under the First KF Loan Agreement can be exercised by way of cashless exercise for a total of up to 5,224,439, and the warrants issued under the Second KF Loan Agreement can be exercised by way of cashless exercise for a total of up to 5,468,660 shares (Note 9).

The aforementioned warrants (the “KF Loan Warrants”) include a down-round provision whereby the exercise price of the KF Loan Warrants may be adjusted to the lowest offering price of any options, warrants or shares issued subsequent to the issuance of the KF Loan Warrants.

During the year ended December 31, 2014, the fair values of the KF Loan Warrants, with exception of the Third KF Warrants, First Extension Warrants, and Second Extension Warrants, was calculated using the Black-Scholes Option pricing model at the issuance and amendment dates and were revalued at the reporting dates.  The fair values and the assumptions of the Black-Scholes Option pricing model are disclosed in Note 9.

F-20

During the year ended December 31, 2015, the fair values of the KF Loan Warrants including amendments were calculated using the Binomial Lattice model at the issuance and amendment dates and were revalued at the reporting dates.  The fair value and the assumptions of the Binomial Lattice model are disclosed in Note 9.  

Other Warrant Issuances

On March 10, 2014, in consideration for the Management Consulting Agreement with the Executive, the Company issued non-transferrable share purchase warrants to purchase a total of 10,000,000 shares of the Company’s common stock with an initial exercise price of $1.00 per share. The warrants expire on March 10, 2017. The Executive may choose to exercise the warrants for up to 5,000,000 shares of common stock by way of a cashless exercise (Note 4).

The fair value of the warrants was determined using the Black-Scholes Option pricing model at the grant date using the following assumptions:

On September 3, 2014, pursuant to the 2014 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 were subject to earlier termination in the event that the Consulting Agreement was terminated prior to September 3, 2015 (Note 4).

On September 4, 2015, pursuant to the 2015 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 2015 Consulting Agreement is terminated prior to September 4, 2016 (Note 4).

The fair value of the warrants granted was determined using the Black-Scholes Option pricing model at the grant date using the following assumptions:

Options

A summary of options is as follows:

The total fair value of options granted during the year ended December 31, 2015 using the Black-Scholes Option pricing model was $509,325 (2014 - $930,023).

At December 31, 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 $0.34 and 5.62 years, respectively.

F-21

Details of options outstanding as at December 31, 2015 are as follows:

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. The Options expire 5 years after the vesting date thereof. On December 17, 2015, the Options were repriced to $0.10 in accordance with the provisions under the Stock Option Agreement with the Director.

During the year ended December 31, 2015, the fair value of these Options was $625,285, of which $298,387 was recognized as stock-based compensation during the year ended December 31, 2014 and the remaining $326,898 was recognized during the year ended December 31, 2015 (Notes 3 and 4).

The fair value was determined using the Black-Scholes Option pricing model at the grant date using the following assumptions:

On December 1, 2014, the Company granted options to acquire up to 100,000 shares of the Company’s common stock at an initial exercise price of $0.50 per share to the CEO and President of the Subsidiary. These Options were issued under the 2014 Plan. The Options vested on December 1, 2015, and expire on December 1, 2020, subject to certain early termination conditions. During the year ended December 31, 2015, the fair value of these Options was $21,256, of which $2,137 was recognized as stock-based compensation during the year ended December 31, 2014 and the remaining $19,119 was recognized during the year ended December 31, 2015 (Notes 3 and 4).

F-22

The fair value was determined using the Black-Scholes Option pricing model at the grant date using the following assumptions:

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. Options to acquire up to 1,000,000 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 year ended December 31, 2015, the fair value of these Options was $414,304, of which $268,103 was recognized as stock-based compensation during the year ended December 31, 2015 and the remaining $145,201 will be recognized in the subsequent period (Notes 3 and 4).

The fair value was determined using the Black-Scholes Option pricing model at the grant date using the following assumptions:

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 year ended December 31, 2015, the Company recorded $63,660 as stock-based compensation associated with the grant of these options (Notes 3 and 4).

The fair value was determined using the Black-Scholes Option pricing model at the grant date using the following assumptions:

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 year ended December 31, 2015, the Company recorded $8,382 as stock-based compensation associated with the grant of these options, which was determined using the Black-Scholes Option pricing model at the grant date using the following assumptions:

F-23

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 were forfeited at December 31, 2015 in accordance with the termination provisions available under the 2014 Plan. During the year ended December 31, 2015, the Company recorded $9,284 as stock-based compensation associated with the grant of these options, which was determined using the Black-Scholes Option pricing model at the grant date using the following assumptions:

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 year ended December 31, 2015, the Company recorded $9,366 as stock-based compensation associated with the grant of these options, which was determined using the Black-Scholes Option pricing model at the grant date using the following assumptions:

NOTE 12 - INCOME TAXES

The reported income taxes differ from the amounts obtained by applying statutory rates to the loss before income taxes as follows: