F3

F4

PROPERTY, PLANT AND EQUIPMENT UNDER CONSTRUCTION

The Company capitalizes customized equipment built to be used in the future day to day operations at cost. Once complete and available for use, the cost for accounting purposes is transferred to property, plant and equipment, where normal depreciation rates apply.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets, generally 5 to 7 years. Maintenance and repairs are charged to operations as incurred. Significant renewals and betterments are capitalized.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company follows the Accounting Standards Codification (“ASC”) Topic 360, which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the assets' carrying amounts may not be recoverable. In performing the review for recoverability, if future undiscounted cash flows (excluding interest charges) from the use and ultimate disposition of the assets are less than their carrying values, an impairment loss represented by the difference between its fair value and carrying value, is recognized. Properties held for sale are recorded at the lower of the carrying amount or the expected sales price less costs to sell. Management reviewed certain assets for impairment in the first quarter of 2012 (see Note 7 for details).

PATENTS AND TRADEMARKS

Patents and trademarks are measured at the cost incurred to acquire them from an independent third party (see Note 3). Topic 350-20, Goodwill, and 350-30, General Intangibles Other than Goodwill, in the Accounting Standards Codification ("ASC") requires intangible assets with a finite life be tested for impairment whenever events or circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated discounted cash flow used in determining the fair value of the asset. Future impairment tests for Patent and Trademarks will be performed annually in the fiscal fourth quarter, or sooner if warranted.

Patents and trademarks will be amortized on a straight-line basis over their estimated useful lives of five years. Amortization expense was $0 for the six and three month periods ended June 30, 2013 and 2012.

F7

For the three month periodsperiod ended March 31, 2013 and 2012June 30, 2014 shipping and handling revenuesrecoveries amounted to $25,944$7,755 which is included in cost of revenues. For the three month period ended June 30, 2013 shipping and $13,496, respectively.handling recoveries included in revenue amounted to $25,944.

RESEARCH AND DEVELOPMENT

The Company is engaged in research and development work. Research and development costs are charged as an operating expense of the Company as incurred. Any grant money received for research and development work is used to offset these expenditures.

For the six month periods ended June 30, 20132014 and 2012,2013, the Company expensed $240,611$353,066 and $314,318,$240,611, net of grant revenues, respectively, towards research and development costs.For the three month periods ended June 30, 20132014 and 2012,2013, the Company expensed $158,871$176,329 and $185,770,$158,871, net of grant revenues, respectively, towards research and development costs.

For the six month periods ended June 30, 20132014 and 2012,2013, gross research and development expense, excluding any offsetting grant revenues, amounted to $281,557$353,066 and $314,318,$281,557, respectively, and grant moneyrevenues amounted to $0 and $40,946, and $0, respectively.For the three month periods ended June 30, 20132014 and 2012,2013, gross research and development expense, excluding any offsetting grant revenues, amounted to $199,817$176,329 and $185,770,$158,871, respectively, and grant money amounted to $40,946$0 and $0, respectively.

FOREIGN CURRENCY TRANSLATION

The functional currency of the Company and its foreign subsidiaries is the U.S. dollar. All of the Company’s revenue and materials purchased from suppliers are denominated in, or linked to, the U.S. dollar. Transactions denominated in currencies other than the functional currency are converted to the functional currency on the transaction date, and any resulting assets or liabilities are further translated at each reporting date and at settlement. Gains and losses recognized upon such translations are included within foreign exchange gain (loss)(gain) / loss in the unaudited consolidated condensed statements of operations and comprehensive loss.income / (loss).

PRODUCT WARRANTIES

The Company provides for estimated warranty costs at the time of sale and accrues for specific items at the time their existence is known and the amounts are determinable. The Company estimates warranty costs using standard quantitative measures based on industry warranty claim experience and evaluation of specific customer warranty issues. The Company currently estimates warranty costs as 2% of revenue. Withrevenue for on-road products and, effective July 1, 2013, the recent re-verification of the LongMile-S™, Horizon™ Phoenix™ and Lonestar™Company revised its warranty accrual for off-road products ESW has estimated a one-time charge of $1,000,000 related to its assumption of warranties for legacy Cleaire products in the field. ESW has also estimated a one-time charge of $504,900 as a potential one-off warranty expenses associated with the ThermaCat, the warranty charges are based on estimating number of operational units, average remaining life and cost of warrantable failure. These amounts,as well as the 2% provision have been included in warranty provision as of June 30, 2013.

F9

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, a new standard on revenue recognition. The new standard will supersede existing revenue recognition guidance and apply to all entities that enter into contracts to provide goods or services to customers. The guidance also addresses the measurement and recognition of gains and losses on the sale of certain non-financial assets, such as real estate, property and equipment. The new standard will become effective for us beginning with the first quarter of 2017 and can be adopted either retrospectively to each reporting period presented or as a cumulative effect adjustment as of the date of adoption. We are currently evaluating the impact of adopting this new guidance on our consolidated financial statements.

NOTE 54 - CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and highly liquid investments purchased with original maturities of generally 90 days or less at the date of purchase. At June 30, 20132014 and December 31, 2012,2013, all of the Company'sCompany’s cash and cash equivalents consisted of cash.

NOTE 5 – INVENTORY

F10

At June 30, 20132014 and December 31, 2012,2013, the Company had $122,827$314,847 and $350,431,$431,022, respectively, of customized equipment under construction.

F11

NOTE 108 – SENIOR SECURED CONVERTIBLE PROMISSORY NOTES

On March 22, 2013, the Company entered into a note subscription agreement and a security agreement (the “Agreements”) and issued senior secured convertible promissory notes (the “Notes”“March 2013 Notes”) to four accredited investors who are currently shareholders (the “Holders”) and may be deemed affiliates of the Company.Company (Note 12). Pursuant to the Agreements and the March 2013 Notes, the Holders made initial loans of $1,400,000 to the Company.

On April 23, 2013 and June 27, 2013, the Company issued additional Notes in the principal amount of $1,600,000 and $2,000,000, respectively, to the Senior Secured Lenders.Holders pursuant to the Agreements (together with the March 2013 Notes, the “Existing Notes”). The Existing Notes are duemature on March 22, 2018. The Existing Notes are a part of a senior secured convertible loan facility of up to $5,000,000 which is now fully drawn down.

The Existing Notes bear interest at a rate of 10% per annum compounded quarterly. Interest is payable semi-annually in arrears in cash and at the Company’s election, during the term of the Existing Notes, up to two accrued and unpaid semi-annual interest payments can be payable in the Company’s common stock valued at the lesser of $80 per share, subject to adjustment (“Conversion Price”), or the market value of the Company’s common stock, with interest payments commencing September 30, 2013. 

At the option of the Holders, all principal, and interest amounts outstanding under all of the Notes (as defined below) may be exchanged for shares of the Company’s common stock at the Conversion Price. The Conversion Price is subject to an anti-dilution adjustment in the event the Company at any time, while the Notes are outstanding, issues equity securities including common stock or any security convertible or exchangeable for shares of common stock for no consideration or for consideration less than $80 per share. The anti-dilution protection excludes shares of common stock issuable upon the exercise of options or other securities granted to directors, officers, bona fide consultants and employees of the Company issued pursuant to a boardBoard approved option or incentive plan or stock, warrants or other securities issued to a bank or other financial institution.

The Notes are secured by a lien on and a security interest in all assets of the following wholly ownedwholly-owned subsidiaries of the Company: TFI, ESWCT, ESWA and ESWT, excluding certain collateral subject to pre-existing liens. 

Effective October 1, 2013 the Company elected to pay and paid interest on the Existing Notes in the form of common stock, as per the terms of the Existing Notes. The Company issued 8,000 shares as interest payment to four note holders for interest accrued up to September 30, 2013 totaling $200,000. The conversion price of the shares was $25 for the interest payment, which was based upon the market value of the Company’s common stock on the date of payment (determined by calculating the average closing price of the Company’s common stock for the twenty trading days preceding such date).The Company further agreed to conduct a rights offering to all of its holders of common stock, offering the right to purchase up to their pro-rata Company ownership amount of senior secured convertible promissory notes.notes substantially similar to the Existing Notes. 

On February 12, 2014, the Securities and Exchange Commission declared effective a Form S-1 Registration Statement under the Securities Act Of 1933 originally filed by the Company on December 23, 2013 (“Registration Statement”). The Registration Statement relates to the subscription rights offering to existing Company shareholders that the Company agreed to conduct in connection with the 2013 issuance of senior secured convertible promissory notes to accredited investors. The Registration Statement registers an aggregate of $4,596,929 new 10% Senior Secured Convertible Promissory Notes due 2018 (the “New Notes” and, together with the Existing Notes, the “Notes”) as well as potential 152,899 shares of common stock issuable upon conversion of the Notes and, if applicable, as payment of interest on the Notes by the Company. In March, 2014, the Company filed a form 424B3 with the Securities And Exchange Commission (the “prospectus”) and commenced the rights offering by mailing the prospectus and related documents to the Company’s shareholders of record as of February 13, 2014. The rights offering was completed on May 9, 2014, and on May 23, 2014 the Company issued New Notes, in the principal amount of $122,486, to the shareholders that participated in the rights offering. The New Notes mature on March 22, 2018.

Effective April 1, 2014, the Company elected to pay and paid interest on the Existing Notes in the form of common stock, as per the terms of the Notes. The Company issued 5,126 shares as interest payment to the holders of the Existing Notes for interest accrued up to March 31, 2014 totaling $256,300. The conversion price of the shares was $50 for the interest payment, which was based upon the market value of the Company’s common stock on the date of payment (determined by calculating the average closing price of the Company’s common stock for the twenty trading days preceding such date). Per the terms of the Notes, up to two interest payments could be paid in the Company’s common stock. The Company has used both options to pay interest in the form of the Company’s common stock, future interest payments on the Notes will be paid in cash.

F11

On March 22, 2013,April 23, 2013, and June 27, 2013 and May 23, 2014, the Company recorded a discount on the Notes equal to the fair value of the conversion option derivative liability.liability (Note 9). This discount is amortized using the effective interest rate method at an interest rate of 9.6%, 17.3% and 38.3% for the March 22, April 23 and June 27, 2013 Notes, respectively, over the term of the Notes.The May 23, 2014 Notes were discounted on recognition by $56,639 and the discount will be amortized using the effective interest rate method at a rate of 16.5% over the term of the Note.

During the six month periods ended June 30, 2014 and 2013, accretion of discount on the Notes amounted to $199,566 and $46,437, respectively. During the three month periods ended June 30, 2014 and 2013, accretion of discount on the Notes amounted to $104,792 and $44,381, respectively.

During the six month periods ended June 30, 20132014 and 2012,2013, interest expense on the Notes amounted to $72,311$258,725 and $0,$72,311, respectively. During the three month periods ended June 30, 20132014 and 2012,2013, interest expense on the Notes amounted to $68,811$130,203 and $0,$68,811, respectively.

For the periods ended June 30, 2014 and December 31, 2013, interest expense accrued on the Notes included in accrued liabilities on the consolidated condensed balance sheets amounted to $130,203 and $127,777, respectively.

F13

The fair value of the conversion option derivative liability was $4,117,424$2,921,551 at June 30, 20132014 and $0$1,131,745 at December 31, 2012. The change in the fair value of the conversion option derivative liability of $1,038,323 was recorded as a loss in the unaudited consolidated condensed statement of operations for the six months ended June 30, 2013. The change in the fair value of the conversion option derivative liability of $1,733,168 was recorded as a loss in the consolidated condensed statement of operations for the six month period ended June 30, 2014 and $1,038,323 was recorded as a loss in the six month period ended June 30, 2013.The change in the fair value of the conversion option derivative liability of $547,653 was recorded as a loss in the consolidated condensed statement of operations for the three month period ended June 30, 2014 and $1,330,893 was recorded as a loss in the unaudited consolidated condensed statement of operations for the three monthsmonth period ended June 30, 2013.

NOTE 1210 - INCOME TAXES

The Company calculates itsWe calculate our interim income tax expense by estimatingprovision in accordance with ASC 270, Interim Reporting, and ASC 740,Accounting for Income Taxes. At the end of each interim period, we estimate the annual effective tax rate and applyingapply that rate to our ordinary quarterly earnings. The tax expense or benefit related to significant, unusual, or extraordinary items is recognized in the year-to-date ordinary income atinterim period in which those items occur. In addition, the endeffect of changes in enacted tax laws, rates, or tax status is recognized in the interim period in which the change occurs.

The computation of the period. The Company records a tax valuation allowance when it is more likely than not that it will not be able to recover the value of its deferred tax assets. As of June 30, 2013 and 2012, the Company calculated itsannual estimated annualized effective tax rate at 0%each interim period requires certain estimates and 0%, respectively,significant judgment, including the expected operating income (loss) for both the United Statesyear, projections of the proportion of income (loss) earned and Canada.taxed in various states, permanent and temporary differences as a result of differences between amounts measured and recognized in accordance with tax laws and financial accounting standards, and the likelihood of recovering deferred tax assets generated in the current year. The Company had noaccounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained, or as the tax environment changes.

Income tax expense on its $4,582,452 pre-tax lossof $112,190 and $0 reflects an effective tax rate of 6.0% and 0% for the six months ended June 30, 2013.2014 and 2013, respectively. Our effective tax rate differs from the statutory rate primarily due to benefits from a release of valuation allowance related to current year projected income. The Company recognized no incomecompany still maintains a full valuation allowance on all its remaining deferred tax expense based on its $684,268 pre-tax loss for the six months ended June 30, 2012.assets.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized

We are subject to taxation in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes interest accrued on uncertain tax positions as well as interest received from favorable tax settlements within interest expense. The Company recognizes penalties accrued on unrecognized tax benefits within generalUnited States and administrative expenses. As of June 30, 2013 and 2012, the Company had no uncertain tax positions.

F14

For the six month period ended June 30, 2013:2014, $74,272 (June 30, 2013 - $152,245) has been recorded in officers’ compensation and directors’ fees related to the vesting of restricted stock grants. For the three month period ended June 30, 2014, $28,582 (June 30, 2013 - $0) has been recorded in officers’ compensation and directors’ fees related to the vesting of restricted stock grants.

STOCK OPTIONS

A summary of option transactions, including those granted pursuant to the terms of certain employment and other agreements follows:

At June 30, 2014 and December 31, 2013, the outstanding options have a weighted average remaining life of 13 months and 19 months, respectively. No stock options were granted during the six and three month periods ended June 30, 2014 and 2013.

During the six month periods ended June 30, 2014 and 2013, $0 and $20,708, respectively, of stock option expense has been recorded in officers’ compensation and directors’ fees (three month periods ended June 30, 2014 and 2013, $0 and $0, respectively), in the consolidated condensed statements of operations and comprehensive income / (loss). At June 30, 2014, the Company had outstanding options as follows:

NOTE 13 - STOCKHOLDERS' EQUITYRESTRICTED STOCK PLAN

Effective November 6, 2011,On March 20, 2013, the Board approved restrictedCompany received the written consent of shareholders holding a majority of the outstanding shares of the Company’s common stock grantson a proposal to 7 Board membersapprove and adopt the Environmental Solutions Worldwide, Inc. 2013 Stock Plan (the “2013 Stock Plan”). The 2013 Stock Plan replaces the Company’s 2010 Stock Incentive Plan, which replaced the Company’s 2002 Stock Option Plan.  While previously granted awards under the Company’s 2010 stock incentive plan. As perStock Incentive Plan and 2002 Stock Option Plan will remain in effect in accordance with the terms of the grant eachindividual awards, the 2013 Stock Plan will replace the Company’s 2010 Stock Incentive Plan and 2002 Stock Option Plan for future grants.

The 2013 Stock Plan authorizes the granting of the 7 Board members will receive 75 shares vesting in equal parts on December 31, 2011, December 31, 2012awards to employees (including officers) and December 31, 2013 subjectdirectors of, and consultants to, the executionCompany and its subsidiaries in the form of any combination of non-statutory stock options (“NSOs”), incentive stock options (“ISOs”), stock appreciation rights (“SARs”), shares of restricted stock, restricted stock units (“RSUs”) and performance shares and share units, other stock-based awards in the requisite grant agreements. Stock-based compensation expense will be recorded based onCommittee’s discretion, and dividend equivalent rights (collectively, “Awards”). Under the vesting terms ofPlan, the grants. Of the vested shares 350 restrictedCompany may deliver authorized but unissued shares of common stock, treasury shares of common stock, and shares of common stock acquired by the Company for the purposes of the Plan.  Each Award will be evidenced by an agreement between the recipient and the Company setting forth the terms of the Award, as determined by the Committee.  A maximum of 20,000 shares of common stock will be available for grants pursuant to Awards under the Plan.  The maximum number of shares of common stock with respect to which any individual may be granted Options or Stock Appreciation Rights during any one calendar year is 2,500 shares. 

The 2013 Stock Plan is administered by the Compensation Committee.  The Compensation Committee has authority, subject to ratification by the Board, to interpret the 2013 Stock Plan, adopt administrative regulations, determine the recipients of Awards, and determine and amend the terms of Awards.

F14

Shares of restricted common stock issued were valued at the quoted market price on the dates of grant. During the six month periods ended June 30, 2014 and 2013, $74,272 and $152,245, respectively, has been recorded in officers’ compensation and directors’ fees in the consolidated condensed statements of operations and comprehensive income / (loss) for the fair value of the vested portion of each grant of restricted common stock. During the three month periods ended June 30, 2014 and 2013, $28,582 and $0, respectively, has been recorded in officers’ compensation and directors’ fees in the consolidated condensed statements of operations and comprehensive income / (loss) for the fair value of the vested portion of each grant of restricted common stock. These amounts along with stock option expense have been issued asincluded in stock-based compensation in the consolidated condensed statements of June 30, 2013.changes in stockholders equity.

(1) Effective December 10, 2012, the Board, on the recommendation of its compensation committee, approved a one-time grant of 4,114 shares of restricted common stock from treasury to a member of the Company’s Board for services rendered as Executive Chairman, 2,057 shares of which were issued upon the date of grant, and 2,057 shares of which were issued on February 28, 2013.grant. The shares of common stock were issued from treasury not under the Company’s 2010 stock incentive plan.

Shares Effective February 28, 2013, the Company issued 2,057 shares of restricted common stock issued above were valued at $152,245 from treasury, in accordance with the quoted market pricegrant.

 (2) Effective December 31, 2013, the Company issued 3,620 shares of restricted common stock valued at $123,345 to seven board members under the 2013 Stock Plan as per the approved board compensation structure.

(3) Effective December 31, 2013, the Company issued 658 shares of restricted common stock valued at $17,108 to two executive officers under the 2013 Stock Plan as per their approved executive compensation arrangements. Effective January 12, 2012, the Board, on the datesrecommendation of grant. Duringits compensation committee, approved a management incentive plan which includes a 10% restricted stock pool for management. Key participants of this plan will be executive officers. Secondary participants will include other management and certain other employees. The program provides for 5 year vesting. The equity grants are effective subject to the six month periods endedexecution of the requisite grant agreements. Stock-based compensation expense will be recorded as of the vesting terms of the grants. Effective June 30, 2014, the Company issued 658 shares of restricted common stock valued at $17,108 to two executive officers under the 2013 and 2012, $152,243 and $0, respectively,Stock Plan as per their approved executive compensation arrangements.

(4) As of June 30, 2014, $57,163 (December 31, 2013 - $0) has been recorded in officers’as stock-based compensation and directors’ fees inunder shares to be issued related to the condensed consolidated statements of operations and comprehensive loss for the fair value of each grantvesting of restricted common shares. These amounts along with stock option expense (Note 14) have been included as stock-based compensationgrants in the consolidated condensed statementstatements of changes in stockholdersstockholders’ equity.

NOTE 14 - STOCK OPTIONS AND WARRANT GRANTS

 A summaryThe following tables show the outstanding equity awards (unvested portion of option transactions, including those granted pursuant to the terms of certain employment and other agreements is as follows:

Atrestricted stock grants) at June 30, 2013 and December 31, 2012, the outstanding options have a weighted average remaining life of 19 months and 23 months, respectively.2014.

No stock options were granted during the six month periods ended June 30, 2013 and 2012.

The Black-Scholes option-pricing model used by the Company to calculate options and warrant values was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock purchase options and warrants. The model also requires highly subjective assumptions, including future stock price volatility and expected time until exercise, which greatly affect the calculated values.

F15

During the six month period ended June 30, 2013 and 2012, $20,708and$41,417 respectively, of stock option expense has been recorded in officers’ compensation and directors’ fees in the unaudited consolidated condensed statements of operations and comprehensive loss.

At June 30, 2013, the Company had outstanding options as follows:

Warrants issued in connection with various private placements of equity securities are treated as a capital transaction and no income statement recognition is required.

No warrants were issued during the six month periods ended June 30, 2013 and 2012.

NOTE 1512 - RELATED PARTY TRANSACTIONSAND BALANCES

In addition to fees and salaries as well as reimbursement of business expenses, transactions with related parties include:

·On April 19, 2011, the Company'sCompany’s Board ratified a Services Agreement (the "Orchard Agreement"“Orchard Agreement”) between the Company and Orchard Capital Corporation ("Orchard"(“Orchard”) which was approved by the Company'sCompany’s Compensation Committee and was effective January 30, 2011. Under the Orchard Agreement, Orchard agreed to provide services that may be mutually agreed to by and between Orchard and the Company including those duties customarily performed by the Chairman of the Board and executive of the Company as well as providing advice and consultation on general corporate matters and other projects as may be assigned by the Company'sCompany’s Board as needed. Orchard is controlled by Richard Ressler. Certain affiliated entities of Orchard as well as Richard Ressler own shares of the Company. On August 1, 2013, the Company’s Board ratified a change to the terms of the Orchard Agreement increasing compensation under the agreement to $430,000 from $300,000 per annum.

During the six month periods ended June 30, 20132014 and 2012,2013, management fees charged to operations amounted to $150,000$215,000 and $150,000, respectively. During the three month periods ended June 30, 20132014 and 2012,2013, management fees charged to operations amounted to $75,000$107,500 and $75,000, respectively. At

As at June 30, 2013, $75,0002014, $107,500 (December 31, 20122013 - $75,000)$107,500) is included in accounts payable.accrued liabilities.

·Mr. Nitin Amersey, a director of the Company, is listed as a control person with the Securities and Exchange Commission of Bay City Transfer Agency Registrar Inc., the Company'sCompany’s transfer agent, and of Freeland Venture Resources Inc., which provides Edgar filing services to the Company.

For the six month period ended June 30, 2014, the Company paid $28,576 to Bay City Transfer Agency Registrar Inc., for services rendered and $13,950 to Freeland Venture Resources Inc., for services rendered. For the three month period ended June 30, 2014, the Company paid $12,397 to Bay City Transfer Agency Registrar Inc., for services rendered and $2,370 to Freeland Venture Resources Inc., for services rendered. For the six month period ended June 30, 2013, the Company paid $45,829 to Bay City Transfer Agency Registrar Inc., for services rendered and $12,200 to Freeland Venture Resources Inc., for services rendered. For the three month period ended June 30, 2013, the Company paid $715 to Bay City Transfer Agency Registrar Inc., for services rendered and $7,880 to Freeland Venture Resources Inc., for services rendered.

At June 30, 2014, accounts payable includes $0 (December 31, 2013 - $1,000) due to these entities.

During the six month periods ended June 30, 20132014 and 2012,2013 the Company incurred fees to these entities controlled bypaid Mr. Amersey amounting to $58,029$18,000 and $2,351, respectively.$15,000, respectively, as fees, for services performed as audit committee chairperson. During the three month periods ended June 30, 20132014 and 2012,2013 the Company incurredpaid Mr. Amersey $9,000 and $7,500, respectively, as fees, to these entities amounting to $8,595 and $1,050, respectively.for services performed as audit committee chairperson.

·Mr. John Dunlap, a director of the Company, is the President of Dunlap Group, which provides consulting services to the Company related to regulatory and regulatory compliance matters. During the six month periods ended June 30, 20132014 and 2012,2013, the Company paid fees to Dunlap Group amounting to $4,353 and $20,996, and $0, respectively.During the three month periodperiods ended June 30, 20132014 and 2012,2013, the Company paid fees to Dunlap Group amounting to $960 and $8,683, respectively.

During the six month periods ended June 30, 2014 and 2013 the Company paid Mr. Dunlap $18,000 and $15,000, respectively, as fees, for services performed as compensation committee chairperson.During the three month periods ended June 30, 2014 and 2013 the Company paid Mr. Dunlap $9,000 and $7,500, respectively, as fees, for services performed as compensation committee chairperson.

During six month periods ended June 30, 2014 and 2013 the Company paid each of Mr. John Suydam and Mr. Zohar Loshitzer $10,000 and $0, respectively.

·Atrespectively, as fees, for serving as a director of the Company. During three month periods ended June 30, 2014 and 2013 accounts payable includes $25,360 (December 31, 2012 - $0) due to directorsthe Company paid each of Mr. John Suydam and companies controlled by directorsMr. Zohar Loshitzer $5,000 and $0, respectively, as fees for serving as a director of the Company.

·

F16

Effective December 10, 2012, the Board approved a one-time grant of 4,114 shares of restricted common stock from treasury to Mr. Mark Yung, a member of the Company’s Board, for services rendered as Executive Chairman, 2,057 shares of which were issued upon the date of grant, and 2,057 shares of which were issued on February 28, 2013 (Note 11). The issued shares were valued at the quoted market price on the grant date. During the six month periods ended June 30, 2014 and 2013, $0 and $152,245, respectively, has been recorded in officers’ compensation and directors’ fees in the consolidated condensed statements of operations and comprehensive income / (loss) for the fair value related to the grant of restricted common stock to Mr. Yung. The shares of common stock were issued from treasury, not under the Company’s 2010 stock incentive plan. During the three month periods ended June 30, 2014 and 2013, no expense was incurred with respect to such shares.

On March 22, 2013,April 23, 2013, and June 27, 2013 and May 23, 2014, the Company issued an aggregate amount of $5,000,000$5,064,423 unsecured convertible promissory notes to certain shareholders and deemed affiliates of certain members of the Board of Directors.Directors (Note 8). During the six month periods ended June 30, 20132014 and 2012,2013, interest expense on the Notes amounted to $72,311$255,877 and $0,$72,311, respectively. During the three month periods ended June 30, 20132014 and 2012,2013, interest expense on the Notes amounted to $127,355 and $68,811, respectively. At June 30, 2014 and $0,December 31, 2013, interest expense accrued on the Notes included in accrued liabilities on the consolidated condensed balance sheets amounted to $127,355 and $127,777, respectively.As of June 30, 2014 the Company has issued 5,126 shares as interest payment (December 31, 2013 – 8,000 shares).

F16

The following is a summary of the minimum annual lease payments for the Pennsylvania and San DiegoCalifornia leases: