| Summary of Significant Accounting Policies | 2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES Use of Estimates The accompanying financial statements
are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) and
require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements. The use of estimates may also affect the reported
amounts of revenues and expenses during the reporting periods. Significant estimates made by management include among others, fair
value of derivative liabilities, realization of capitalized assets, valuation of equity instruments, and deferred income tax asset
valuation allowances. Actual results could differ from those estimates. Revenue Recognition The Company recognizes revenue when
all four of the following criteria are met: (i) persuasive evidence that an arrangement exists; (ii) delivery of the products and/or
services has occurred; (iii) the selling price is fixed or determinable; and (iv) collectability is reasonably assured. The Company
does not grant customers the right to return the products after such products have been accepted. Amounts billed for shipping and
handling are recorded as a component of net sales and the cost incurred for freight is included as a component of operating expenses
in the statements of operations. Cash and Cash Equivalents The Company considers demand deposits,
U.S. treasury securities and highly-liquid debt investments purchased with original maturities of three months or less to be cash
equivalents. The Company did not have any cash equivalents as of September 30, 2016 and June 30, 2016. The Company maintains its cash in major
banks. From time to time, the Companys cash balances exceed the Federal Deposit Insurance Corporation limit. The Company
has not experienced and does not anticipate any losses relating to these amounts. Inventory Inventory consists primarily of manufactured
nano materials and is comprised of raw materials, labor and manufacturing overhead. Inventory is stated at the lower of cost, determined
on a first-in, first-out basis, or market. An inventory reserve is created when potentially slow-moving or obsolete inventories
are identified in order to reflect the appropriate inventory value. While the Companys inventory is not perishable and does
not degrade with time, the Company recorded a reserve as its inventory was over one year old and there is no certainty that the
inventory will be sold. At September 30, 2016 and June 30, 2016, all inventory was reserved. Property and Equipment Property and equipment is stated at
cost, less accumulated depreciation. Repairs and maintenance of equipment are charged to expense as incurred. Expenditures for
major renewals and betterments that extend the useful lives of property and equipment are capitalized. Gains or losses on dispositions
of property and equipment are included in the results of operations when realized. Depreciation is computed using the straight-line
method over the estimated useful lives of the related assets, ranging from three to seven years. Leasehold improvements are amortized
over the shorter of terms of the leases or their estimated useful lives. Depreciation expense on assets acquired under capital
leases is included in depreciation expense. Patents Costs incurred in applying for patents
relating to the Companys process for production of nanopowders have been capitalized. Patents are amortized to reflect the
pattern of economic benefits consumed, on a straight-line basis, over the estimated periods benefited. As of September 30, 2016,
ten patents have been issued and two patent applications are pending approval. Amortization relating to issued patents was not
significant during the periods presented. Additional significant costs may be required for the continued development of end-use
applications for the Companys technology. Patents costs are reviewed periodically as to if any patents are no longer being
pursued and associated costs should be written off. Impairment of Long-Lived Assets Long-lived assets and intangible assets
to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The Company evaluates potential impairment by comparing the carrying amount of the assets with
the estimated undiscounted future cash flows associated with them. Should the review indicate that an asset is not recoverable,
the Companys carrying value of the asset would be reduced by the estimated shortfall to fair value. Fair Value of Financial Instruments
and Certain Other Assets and Liabilities GAAP establishes a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair value as follows:
● Level 1: Observable inputs such as quoted prices in active markets;
● Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
● Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions The Companys financial instruments
consist of cash, accounts receivable, accounts payable, and accrued expenses. The carrying amounts of such assets and liabilities
approximate their respective fair values because of the short-term nature of these items. The carrying amounts of the Companys
debt agreements approximate their fair values as interest approximates current market rates for similar instruments. Derivative
liabilities recorded in connection with convertible debt agreements are reported at estimated fair value with changes in fair value
reported in results of operations. Other than derivative liabilities referenced
above, the Company did not have any assets or liabilities that are measured at fair value on a recurring or nonrecurring basis
during the three months ended September 30, 2016 and the year ended June 30, 2016. The following details the fair value
measurement within the fair value hierarchy of the Companys financial assets and liabilities at September 30, 2016.
Fair Value Measurement
Total Fair Value Level 1 Level 2 Level 3
Derivative liabilities $ 54,164 $ - $ - $ 54,164 The following details the fair value
measurement within the fair value hierarchy of the Companys financial assets and liabilities at June 30, 2016.
Fair Value Measurement
Total Fair Value Level 1 Level 2 Level 3
Derivative liabilities $ 7,387 $ - $ - $ 7,387 There were no transfers among Level
1, Level 2 and Level 3 during the three months ended September 30, 2016 and the year ended June 30, 2016. The fair values of derivative liabilities
were estimated using the Black-Scholes-Merton pricing model and the following assumptions for the three months ended September
30, 2016 and the year ended June 30, 2016:
September 30, 2016 June 30, 2016
Risk free interest rate 0.4% - 1.1 % 0.5% - 1.0 %
Expected term 1 - 5 years 1 - 5 years
Expected volatility 87.0% - 136.1 % 86.8% - 131.7 %
Dividend yield - - The change in fair value of the derivative
liabilities during the three months ended September 30, 2016 and the year ended June 30, 2016 are summarized as follows:
Fair value at June 30, 2015 $ 1,141,700
Issuance of derivative liabilities 871,611
Change in fair value (2,020,698 )
Fair value at June 30, 2016 7,387
Change in fair value 46,777
Fair value at September 30, 2016 $ 54,164 Derivative Liabilities A derivative is an instrument whose
value is derived from an underlying instrument or index such as a future, forward, swap, option contract, or other
financial instrument with similar characteristics, including certain derivative instruments embedded in other contracts and for
hedging activities. As a matter of policy, we do not invest in separable financial derivatives or engage in hedging transactions.
However, we have entered into certain financing transactions that involve financial equity instruments containing certain features
that have resulted in the instruments being deemed derivatives. We may engage in other similar complex financing transactions in
the future, but not with the intention to enter into derivative instruments. Derivatives are measured at fair value using the Black-Scholes-Merton
model and marked to market through earnings. However, such new and/or complex instruments may have immature or limited markets.
As a result, the pricing models used for valuation of derivatives often incorporate significant estimates and assumptions. Changes
in these subjective assumptions can materially affect the estimate of the fair value of derivative liabilities and, consequently,
the related amount recognized as loss due to change in fair value of derivative liabilities on the consolidated statement of operations.
Furthermore, depending on the terms of a derivative, the valuation of derivatives may be removed from the financial statements
upon exercise or conversion of the underlying instrument into some other security. The classification of a derivative instrument
is reassessed at each balance sheet date. If the classification changes as a result of events during a reporting period, the instrument
is reclassified as of the date of the event that caused the reclassification. There is no limit on the number of times a contract
may be reclassified. Research and Development Costs Research and development costs are expensed
as incurred. Costs incurred for research and development for new or improved processes to produce nanocatalysts as well as end
use applications for the nanocatalysts are expensed until the production process or applications have been determined to be commercially
viable. Costs incurred after the production process is viable and a working model of the equipment has been completed will be capitalized
as long-lived assets. Income Taxes Deferred income taxes are recognized
for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting
amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. The provision for income taxes represents the tax payable for the period, if any, and the change
during the period in deferred tax assets and liabilities. The Company provides for tax contingencies,
if any, for federal, state and local exposures relating to audit results, tax planning initiatives and compliance responsibilities.
The development of these reserves requires judgments about tax issues, potential outcomes and timing. Although the outcome of such
matters is uncertain, in managements opinion adequate provisions for income taxes have been made for potential liabilities
emanating from these reviews. If actual outcomes differ materially from these estimates, they could have a material impact on the
Companys results. Loss Per Share The Company calculates basic loss per
share by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding.
Diluted loss per share is computed similar to basic loss per share, except that the denominator is increased to include the number
of additional common shares that would have been outstanding if such additional common shares had been issued and were dilutive. Potential common shares, consisting
of options and warrants, totaling 15,193,141 and 12,923,761, have been excluded from the computations of diluted net loss per share
because the effect would have been anti-dilutive for the three months ended September 30, 2016 and 2015, respectively. Stock-Based Compensation The Company measures all employee stock-based
compensation awards using the Black-Scholes-Merton valuation model and allocates the related expense over the requisite service
period. The expected volatility is based on the historical volatility of the Companys stock as determined by its private
placement offerings and recent market activity. The expected life of the award is based on the simplified method. The Company accounts for nonemployee
stock-based transactions using the fair value of the consideration received (i.e. the value of the goods or services) or the fair
value of the equity instruments issued, whichever is more reliably measurable. Going Concern The accompanying
financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred recurring
losses from operations from inception and has limited working capital. As of September 30, 2016, the Company had an accumulated
deficit of approximately $47.8 million. In addition, at September 30, 2016 the Company is in default on certain of its debt obligations. The Companys
activities will necessitate significant uses of working capital during and beyond fiscal 2017. Additionally, the Companys
capital requirements will depend on many factors, including the success of its continued research and development efforts and the
status of competitive products. The Company plans to continue financing its operations with cash received from financing activities.
The Company has engaged U.S. Capital Partners and Avalon Securities for a proposed issuance of up to $5.0 million of 8% Series
A convertible preferred stock. The Company has completed the due diligence phase and both firms are in the process of presenting
the offering to potential accredited investors. The Company anticipates that, if the issuance is partially or completely successful,
some or all of the issuance will be received by December 31, 2016. Should the issuance not be successful, then absent another form
of financing or capital raise, the Company expects it will not be able to service current obligations and anticipates that it will
have to liquidate assets and will no longer operate as a going concern. The financial statements do not include any adjustments
that might result for the outcome of this uncertainty. The Company currently has sufficient cash for operations through November
2016. Risks and Uncertainties The Company faces risks and uncertainties
relating to its ability to successfully implement and fulfill its strategy. Among other things, these risks include the ability
to obtain revenues; manage operations; competition; attract, retain and motivate qualified personnel; maintain and develop new
strategic relationships; and the ability to anticipate and adapt to the changing nanotechnology market and any changes in government
regulations. Therefore, the Company may be subject
to the risks of delays in consummating contracts with customers and suppliers, raising sufficient capital to achieve its objectives
and other uncertainties, including financial, operational, technological, regulatory and other risks associated with an emerging
business, including the potential risks of business failure. The Company has evaluated events subsequent
to September 30, 2016 through the date that the accompanying condensed financial statements were filed with the Securities and
Exchange Commission for transactions and other events which may require adjustment or disclosure in such financial statements.
The Company did not have any material transactions or other events. Recent Accounting Pronouncements The FASB issued ASU 2016-2, Leases In August 2014, the FASB issued ASU
2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40). This ASU provides guidance to determine
when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to assess
an entitys ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances.
ASU 2014-15 will be effective for all entities in the first annual period ending after December 15, 2016. Earlier adoption is permitted.
ASU 2014-15 will be effective for the Company beginning June 30, 2017. The Company does not believe that this pronouncement will
have a significant impact on its financial statements. In May 2014, the FASB issued ASU 2014-09,
as amended by ASU 2015-14, Revenue from Contracts with Customers (Topic 606), which is the new comprehensive revenue
recognition standard that will supersede all existing revenue recognition guidance under U.S. GAAP. The standards core
principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that
reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In July 2015,
the FASB issued ASU 2015-14 to defer the effective date by one year to December 15, 2017 for interim and annual reporting periods
beginning after that date and permitted early adoption of the standard, but not before the original effective date of December
15, 2016. The Company is currently evaluating the impact of adopting this guidance. |
