SCIO DIAMOND TECHNOLOGY CORP, 10-Q filed on 11/14/2014
Quarterly Report
Document And Entity Information
6 Months Ended
Sep. 30, 2014
Nov. 10, 2014
Document Information [Line Items]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Sep. 30, 2014 
 
Document Fiscal Year Focus
2015 
 
Document Fiscal Period Focus
Q2 
 
Entity Registrant Name
Scio Diamond Technology Corp 
 
Entity Central Index Key
0001488934 
 
Current Fiscal Year End Date
--03-31 
 
Entity Filer Category
Smaller Reporting Company 
 
Trading Symbol
SCIO 
 
Entity Common Stock, Shares Outstanding
 
52,991,811 
CONDENSED BALANCE SHEETS (USD $)
Sep. 30, 2014
Mar. 31, 2014
Current Assets:
 
 
Cash and cash equivalents
$ 4,960 
$ 47,987 
Accounts receivable, net
0 
42,085 
Other receivables
0 
89,192 
Inventory, net
197,091 
152,817 
Prepaid expenses
35,512 
79,078 
Prepaid rent
23,050 
23,050 
Total current assets
260,613 
434,209 
Property, plant and equipment
 
 
Facility
899,499 
899,499 
Manufacturing equipment
3,184,809 
3,171,656 
Other equipment
71,059 
71,059 
Total property, plant and equipment
4,155,367 
4,142,214 
Less accumulated depreciation
(1,339,098)
(1,029,212)
Net property, plant and equipment
2,816,269 
3,113,002 
Intangible assets, net
8,853,429 
9,240,640 
Prepaid rent, noncurrent
30,763 
42,288 
Other assets
20,000 
20,000 
TOTAL ASSETS
11,981,074 
12,850,139 
Current Liabilities:
 
 
Notes payable
1,541,132 
1,412,060 
Accounts payable
773,832 
671,782 
Customer deposits
41,726 
179,610 
Accrued expenses
578,869 
573,126 
Total current liabilities
2,935,559 
2,836,578 
Other liabilities
101,118 
84,144 
TOTAL LIABILITIES
3,036,677 
2,920,722 
Common stock $0.001 par value, 75,000,000 shares authorized; 52,287,645 and 50,739,312 shares issued and outstanding at September 30, 2014 and March 31, 2014, respectively
52,288 
50,739 
Additional paid-in capital
25,247,091 
24,476,940 
Accumulated deficit
(16,353,982)
(14,597,262)
Treasury stock, 1,000,000 shares at September 30, 2014 and March 31, 2014
(1,000)
(1,000)
Total stockholders' equity
8,944,397 
9,929,417 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$ 11,981,074 
$ 12,850,139 
CONDENSED BALANCE SHEETS (Parenthetical) (USD $)
Sep. 30, 2014
Mar. 31, 2014
Common stock, par value (in dollars per share)
$ 0.001 
$ 0.001 
Common stock, shares authorized
75,000,000 
75,000,000 
Common stock, shares issued
52,287,645 
50,739,312 
Common Stock, Shares, Outstanding
52,287,645 
50,739,312 
Treasury stock, shares
1,000,000 
1,000,000 
CONDENSED STATEMENTS OF OPERATIONS (USD $)
3 Months Ended 6 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Revenue
 
 
 
 
Product revenue, net
$ 103,976 
$ 236,235 
$ 183,314 
$ 495,215 
Licensing revenue
0 
0 
375,000 
0 
Revenue, net
103,976 
236,235 
558,314 
495,215 
Cost of goods sold
 
 
 
 
Cost of goods sold
407,345 
533,677 
781,768 
1,227,787 
Gross deficit
(303,369)
(297,442)
(223,454)
(732,572)
General and administrative expenses
 
 
 
 
Professional and consulting fees
(93,239)
478,537 
166,996 
992,899 
Salaries and benefits
163,832 
188,601 
560,700 
425,438 
Rent, equipment lease and facilities expense
37,884 
37,892 
72,031 
75,248 
Marketing costs
8,179 
13,167 
18,867 
26,416 
Depreciation and amortization
200,124 
200,018 
400,248 
399,892 
Corporate general and administrative
58,106 
83,554 
182,259 
185,360 
Loss from operations
(678,255)
(1,299,211)
(1,624,555)
(2,837,825)
Other expense
 
 
 
 
Interest expense
(70,238)
(42,364)
(132,165)
(46,946)
Net loss
$ (748,493)
$ (1,341,575)
$ (1,756,720)
$ (2,884,771)
Basic:
 
 
 
 
Weighted average number of shares outstanding (in shares)
50,706,794 
49,319,257 
50,702,418 
48,820,118 
Loss per share (in dollars per share)
$ (0.01)
$ (0.03)
$ (0.03)
$ (0.06)
Fully diluted:
 
 
 
 
Weighted average number of shares outstanding (in shares)
50,706,794 
43,319,257 
50,702,418 
48,820,188 
Loss per share (in dollars per share)
$ (0.01)
$ (0.03)
$ (0.03)
$ (0.06)
CONDENSED STATEMENTS OF CASH FLOW (USD $)
6 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Cash flows from operating activities:
 
 
Net loss
$ (1,756,720)
$ (2,884,771)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
Depreciation and amortization
760,829 
745,170 
Expense for stock and inventory issued in exchange for services
34,200 
365,018 
Employee stock based compensation
155,000 
133,409 
Inventory write down
68,722 
0 
Changes in assets and liabilities:
 
 
Decrease in accounts receivable
42,085 
67,951 
Decrease in other receivables
89,192 
0 
Decrease/(increase) in prepaid expenses and rent
(8,642)
30,482 
Decrease/(increase) in inventory and other assets
(112,996)
96,304 
Increase in accounts payable
102,050 
370,643 
Increase/(decrease) in customer deposits
(137,884)
44,807 
Increase/(decrease) in accrued expenses
17,743 
(70,015)
Increase in other liabilities
16,974 
16,974 
Net cash used in operating activities
(729,447)
(1,084,028)
Cash flows from investing activities:
 
 
Purchase of property, plant and equipment
(13,152)
(22,536)
Net cash used in investing activities
(13,152)
(22,536)
Cash flows from financing activities:
 
 
Proceeds from note payable
129,072 
974,105 
Finance charges paid on note payable
0 
(84,105)
Proceeds from sale of common stock - net of fees
570,500 
129 
Net cash provided by financing activities
699,572 
890,129 
Change in cash and cash equivalents
(43,027)
(216,435)
Cash and cash equivalents, beginning of period
47,987 
223,257 
Cash and cash equivalents, end of period
4,960 
6,822 
Cash paid for:
 
 
Interest
0 
18,874 
Income taxes
0 
0 
Non-cash investing and financing activities:
 
 
Payment of accrued expenses with stock
$ 12,000 
$ 0 
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY (USD $)
Total
Common Stock
Additional Paid in Capital
Treasury Stock
Accumulated Deficit
Balance at Mar. 31, 2014
$ 9,929,417 
$ 50,739 
$ 24,476,940 
$ (1,000)
$ (14,597,262)
Balance (in Shares) at Mar. 31, 2014
 
50,739,312 
 
(1,000,000)
 
Common stock issued in exchange for consulting services
34,200 
80 
34,120 
0 
0 
Common stock issued in exchange for consulting services (in shares)
 
80,000 
 
0 
 
Common stock issued in exchange for past consulting services
12,000 
50 
11,950 
0 
0 
Common stock issued in exchange for past consulting services (in shares)
 
50,000 
 
 
 
Common stock issued for cash @ $0.30 per share
570,500 
1,902 
568,598 
0 
0 
Common stock issued for cash @ $0.30 per share (in shares)
 
1,901,666 
 
0 
 
Common stock returned to Company and cancelled
0 
(1,000)
1,000 
0 
0 
Common stock returned to Company and cancelled (in shares)
 
(1,000,000)
 
0 
 
Employee stock based compensation
155,000 
517 
154,483 
0 
0 
Employee stock based compensation (in shares)
 
516,667 
 
0 
 
Net loss for the six months ended September 30, 2014
(1,756,720)
0 
0 
0 
(1,756,720)
Ending Balance at Sep. 30, 2014
$ 8,944,397 
$ 52,288 
$ 25,247,091 
$ (1,000)
$ (16,353,982)
Ending Balance (in Shares) at Sep. 30, 2014
52,287,645 
52,287,645 
 
(1,000,000)
 
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY (Parenthetical)
6 Months Ended
Sep. 30, 2014
Issue price per unit (in dollars per share)
$ 0.30 
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Organization and Business
 
Scio Diamond Technology Corporation (referred to herein as the “Company”, “we”, “us” or “our”) was incorporated under the laws of the State of Nevada as Krossbow Holding Corp. on September 17, 2009. The Company’s focus is on man-made diamond technology development and commercialization.
 
Going Concern
 
The Company has generated very little revenue to date and consequently its operations are subject to all risks inherent in the establishment and commercial launch of a new business enterprise.
 
These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management has responded to these circumstances by taking the following actions:
 
⋅
On-going solicitation of investment in the Company in the form of private placements of common shares, secured and unsecured debt to accredited investors;
 
⋅
Focused efforts on new business development opportunities to generate revenues and diversify our customer base;
 
⋅
Enhanced efforts on optimizing production for existing manufacturing capabilities; and
 
⋅
Continued to explore strategic joint ventures, technology licensing agreements and dedicated contract manufacturing to expand company revenue and cash flow, including our recently agreed to joint venture in China.
 
In the opinion of management, these actions will be sufficient to provide the Company with the liquidity it needs to meet its obligations and continue as a going concern. There can be no assurance, however, that the Company will successfully implement these plans. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
 
Accounting Basis
 
The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.
 
In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the Company’s financial position as of September 30, 2014 and March 31, 2014 and the results of operations and cash flows for the three and six month interim periods ended September 30, 2014 and 2013. Interim amounts have not been audited, and the results of operations for the interim periods herein are not necessarily indicative of the results of operations to be expected for future periods or the year. The balance sheet at March 31, 2014 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Form 10-K Annual Report of the Company for the year ended March 31, 2014.
 
In accordance with Accounting Standards Codification (“ASC”) 323, Investments—Equity Method and Joint Ventures, the Company uses the equity method of accounting for investments in corporate joint ventures for which the Company has the ability to exercise significant influence but does not control and is not the primary beneficiary. Significant influence typically exists if the Company has a 20% to 50% ownership interest in the venture unless predominant evidence to the contrary exists. Under this method of accounting, the Company records its proportionate share of the net earnings or losses of equity method investees and a corresponding increase or decrease to the investment balances. Cash payments to equity method investees such as additional investments, loans and advances and expenses incurred on behalf of investees, as well as payments from equity method investees such as dividends, distributions and repayments of loans and advances are recorded as adjustments to investment balances. When the Company’s carrying value in an equity method investee is reduced to zero, no further losses are recorded in the Company’s financial statements unless the Company guaranteed obligations of the equity method investee or has committed additional funding.   When the equity method investee subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.  The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable.
 
Basic and Diluted Net Loss per Share
 
Net loss per share is presented under two formats: basic net loss per common share, which is computed using the weighted average number of common shares outstanding during the period, and diluted net loss per common share, which is computed using the weighted average number of common shares outstanding, and the weighted average dilutive potential common shares outstanding, computed using the treasury stock method. Currently, for all periods presented, diluted net loss per share is the same as basic net loss per share as the inclusion of weighted average shares of common stock issuable upon the exercise of options and warrants would be anti-dilutive.
 
The following table summarizes the number of securities outstanding at each of the periods presented, which were not included in the calculation of diluted net loss per share as their inclusion would be anti-dilutive:
 
 
 
 
September 30,
 
 
 
 
2014
 
 
2013
 
Common stock options and warrants
 
 
6,459,295
 
 
9,338,045
 
 
Allowance for Doubtful Accounts
 
An allowance for uncollectible accounts receivable is maintained for estimated losses from customers’ failure to make payment on accounts receivable due to the Company. Management determines the estimate of the allowance for uncollectible accounts receivable by considering a number of factors, including: (1) historical experience, (2) aging of accounts receivable and (3) specific information obtained by the Company on the financial condition and the current credit worthiness of its customers. The Company has determined that an allowance was not necessary at September 30, 2014 or March 31, 2014.
 
Other Receivables
 
As of March 31, 2014, the Company considered a pending insurance settlement over the actions of a Company supplier of $89,192 as an other receivable. This settlement was paid during the six months ended September 30, 2014.
 
Inventories
 
Inventories are stated at the lower of average cost or market. The carrying value of inventory is reviewed and adjusted based upon slow moving and obsolete items. Inventory costs include material, labor, and manufacturing overhead and are determined by the “first-in, first-out” (FIFO) method. The components of inventories are as follows:
 
 
 
September 30,
 
March 31,
 
 
 
2014
 
2014
 
Raw materials and supplies
 
$
24,557
 
$
35,543
 
Work in process
 
 
19,071
 
 
25,611
 
Finished goods
 
 
153,463
 
 
91,663
 
 
 
$
197,091
 
$
152,817
 
 
During the six months ended September 30, 2014, we continued to experience selling prices lower than cost. As a result during the six months ended September 30, 2014, we recorded a lower of cost or market write down of $68,722 for inventory produced during the six months ended September 30, 2014. The estimation of the total write-down involves management judgments and assumptions including assumptions regarding future selling price forecasts, the estimated costs to complete, disposal costs and a normal profit margin.
 
Property, Plant and Equipment
 
Depreciation of property, plant and equipment is on a straight line basis beginning at the time it is placed in service, based on the following estimated useful lives:
 
 
 
Years
 
Machinery and equipment
 
3–15
 
Furniture and fixtures
 
3–10
 
Engineering equipment
 
5–12
 
 
Leasehold improvements are depreciated over the lesser of the remaining term of the lease or the life of the asset (generally three to seven years).
 
Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.
 
Intangible Assets
 
Intangible assets, such as acquired in-process research and development costs, are considered to have an indefinite useful life until such time as they are put into service at which time they will be amortized on a straight-line basis over the shorter of their economic or legal useful life. Management evaluates indefinite life intangible assets for impairment on an annual basis and on an interim basis if events or changes in circumstances between annual impairment tests indicate that the asset might be impaired. The ongoing evaluation for impairment of its indefinite life intangible assets requires significant management estimates and judgment. Management reviews definite life intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairment charges during the three and six months ended September 30, 2014 or 2013.
 
Fair Value Measurement
 
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy prescribed by the accounting literature contains three levels as follows:
 
Level 1— Quoted prices in active markets for identical assets or liabilities.
 
Level 2— Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
Level 3— Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
 
The carrying value of cash and cash equivalents, accounts receivable, other assets and trade accounts payable approximates fair value due to the short-term nature of these instruments.
 
Revenue Recognition
 
We recognize product revenue when persuasive evidence of an arrangement exists, delivery of products has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. For our Company, this generally means that we recognize revenue when we or our fabrication vendor has shipped finished product to the customer. Our sales terms do not allow for a right of return except for matters related to any manufacturing defects on our part. The Company recognizes licensing and development revenues in accordance with the contractual terms of the agreements.
 
Recent Accounting Pronouncements
 
In July 2013, the FASB issued ASC 2013-11, “Income Taxes – Presentation of an Unrecognized Tax benefit When a Net Operation Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”) which is part of Accounting Standards Codification (“ASC”) 740: Income Taxes. The new guidance requires an entity to present an unrecognized tax benefit and an NOL carryforward, a similar tax loss or a tax credit carryforward on a net basis as part of a deferred tax asset, unless the unrecognized tax benefit is not available to reduce the deferred tax asset component or would not be utilized for that purpose, then a liability would be recognized. ASU 2013-11 is effective for annual and interim periods for fiscal years beginning after December 15, 2013. The Company adopted this new standard for the fiscal year ended March 31, 2015 and the adoption has not had a significant impact on its financial statements.
 
In May 2014, the FASB issued ASU 2014-9 “Revenue from Contracts with Customers (Topic 606).” This guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. The Company will adopt this standard in fiscal year 2018. The Company has not yet determined the effect, if any, that the adoption of this standard will have on the Company’s financial position or results of operations.
 
There are currently no other accounting standards that have been issued but not yet adopted by the Company that will have a significant impact on the Company’s financial position, results of operations or cash flows upon adoption.
INTANGIBLE ASSETS
INTANGIBLE ASSETS
NOTE 2 — INTANGIBLE ASSETS
 
Intangible assets, such as acquired in-process research and development costs, are considered to have an indefinite useful life until such time as they are put into service at which time they will be amortized on a straight-line basis over the shorter of their economic or legal useful life.
 
Intangible assets consist of the following:
 
 
 
 
 
September 30,
 
March 31,
 
 
 
Life
 
2014
 
2014
 
Patents, gross
 
6.75 – 19.46
 
$
8,135,063
 
$
8,135,063
 
In-process research and development
 
Indefinite
 
 
2,250,435
 
 
2,250,435
 
 
 
 
 
 
10,385,498
 
 
10,385,498
 
Accumulated amortization
 
 
 
 
(1,532,069)
 
 
(1,144,858)
 
Net intangible assets
 
 
 
$
8,853,429
 
$
9,240,640
 
 
Total amortization expense for the three and six months ending September 30, 2014 was $193,710 and $387,211, respectively. The amortization expense for the three and six months ended September 30, 2013 was $193,753 and $387,506, respectively.
 
Total annual amortization expense of finite lived intangible assets is estimated to be as follows:
 
Fiscal Year Ending
 
 
 
Six months ending March 31, 2015
 
$
387,420
 
March 31, 2015
 
 
774,840
 
March 31, 2016
 
 
774,840
 
March 31, 2017
 
 
774,840
 
March 31, 2018
 
 
774,840
 
Thereafter
 
$
3,116,214
 
NOTES PAYABLE
NOTES PAYABLE
NOTE 3 — NOTES PAYABLE
 
On June 21, 2013, the Company entered into a loan agreement with Platinum Capital Partners, LP (“Platinum”) providing for a $1 million secured revolving line of credit that the Company may draw on to fund working capital and other corporate purposes.  Borrowings under the loan agreement accrue interest at the rate of 18% per annum, payable monthly on or before the last calendar day of each month, and a service charge of 3% applies to late payments.  The loan agreement also provides for payment of an accommodation fee of up to 10% of the commitment amount as provided in the loan agreement, and payment of a monthly collateral monitoring fee of $2,000 per month for the first six months and $1,000 per month for the last six months of the term of the loan agreement.  The loan agreement contains a number of restrictions on the Company’s business, including restrictions on its ability to merge, sell assets, create or incur liens on assets, make distributions to its shareholders and sell, purchase or lease real or personal property or other assets or equipment.  The loan agreement also contains affirmative covenants and events of default.  The Company may prepay borrowings without premium or penalty upon notice to Platinum as provided in the loan agreement.  Under a security agreement entered into in connection with the loan agreement, the Company granted Platinum a first priority security interest in the Company’s inventory, equipment, accounts and other rights to payments and intangibles as security for the loan.
 
On October 11, 2013, the Company entered into a First Amendment to Loan Agreement (the “First Amendment”), which amended the Original Loan Agreement (as amended by the First Amendment, the “Amended Loan Agreement”) to provide for an additional $500,000 of borrowing capacity (the “Additional Loan” and, together with the original Loan, the “Loan”) under the existing $1 million secured revolving line of credit established under the Original Loan Agreement. On October 11, 2013, $280,750 was drawn on the Additional Loan, $30,750 of which was retained by Platinum to cover applicable fees. Borrowings accrue interest at the rate of 18% per annum, payable monthly on or before the last calendar day of each month. An interest reserve of $133,500 has been set aside from the proceeds of the New Note to make required payments of interest, provided that interest billed to the Company will first be deducted from a $90,000 reserve established under the Original Note for payments of interest on the Original Note, until that reserve has been exhausted. The Amended Loan Agreement also provides for payment of an accommodation fee of $25,000 and a closing fee of $3,250, the amounts of which were retained by Platinum out of amounts drawn on the Additional Loan on October 11, 2013. The Company’s obligations under the Amended Loan Agreement are not guaranteed by any other party. The Company may prepay borrowings without premium or penalty upon notice to Platinum as provided in the Amended Loan Agreement. The Loan is secured by a security agreement, under which the Company grants Platinum first priority security interest in the Company’s inventory, equipment, accounts and other rights to payments and intangibles as security for the Loan. The New Note provided for monthly interest payments commencing November 2013 and for repayment of all amounts drawn, together with accrued interest, on June 20, 2014.
 
The Company has utilized funds drawn on the Original Loan and the Additional Loan to fund its ongoing operations. The Company capitalized financing costs related to the Platinum loans of $150,750 that were amortized over the life of the loans.
 
The Platinum loans matured on June 20, 2014 and the Company went into default status on the loans. Platinum did not take any action related to this default. At September 30, 2014, the total due Platinum including all accrued interest and fees was $1,563,618.
 
The Company and Platinum agreed to a Second Amendment to the Loan Agreement on October 16, 2014 as discussed in Note 8- SUBSEQUENT EVENTS.
CAPITAL STOCK
CAPITAL STOCK
NOTE 4 — CAPITAL STOCK
 
The authorized capital of the Company is 75,000,000 common shares with a par value of $  0.001 per share.
 
At the request of the Board of Directors, the Company entered into an agreement, effective April 12, 2014, with Mr. Joseph Cunningham to provide consulting services to the Company. Under this agreement, the Company agreed to provide Mr. Cunningham $4,000 and 20,000 shares of common stock per month in exchange for his professional services to the Company. This contract expired in August 2014. During the six months ended September 30, 2014, the Company issued 80,000 shares to Mr. Cunningham. These shares were valued at an average of $0.43 per share based on the closing price of the shares on the date of grant and the Company recognized $34,200 in professional and consulting fee expense for these shares during the six months ended September 30, 2014.
 
On July 15, 2014, the Board of Directors approved the issuance and sale of up to 2,000,000 shares of common stock to accredited investors at a price of $0.30. On September 25, 2014, the Board agreed to increase the size of the offering up to 6,666,667 shares to raise up to $2,000,000. During the three months ended September 30, 2014, the Company issued 1,901,666 shares of common stock, at a price of $0.30 per share, for total cash proceeds of $570,500.
 
The Company had 52,287,645 shares of common stock issued and outstanding as of September 30, 2014 of which 1,000,000 were held in treasury.
 
The Company had 5,566,795 warrants outstanding with a weighted average exercise price of $1.53 per share as of September 30, 2014. No warrants were issued in the six months ended September 30, 2014.
SHARE-BASED COMPENSATION
SHARE-BASED COMPENSATION
NOTE 5 — SHARE-BASED COMPENSATION
 
The Company currently has one equity-based compensation plan under which stock-based compensation awards can be granted to directors, officers, employees and consultants providing bona fide services to or for the Company. The Company’s 2012 Share Incentive Plan was adopted on May 7, 2012 (the “2012 Share Incentive Plan” or “Plan”) and allows the Company to issue up to 5,000,000 share of its common stock pursuant to awards granted under the 2012 Share Incentive Plan. The Plan permits the granting of stock options, stock appreciation rights, restricted or unrestricted stock awards, phantom stock, performance awards, other stock-based awards, or any combination of the foregoing. The only awards that have been issued under the Plan are stock options. Because the Plan has not been approved by our shareholders, all such stock option awards are non-qualified stock options.
 
On September 25, 2014, the Company entered into a severance agreement with our former Chief Executive Officer, Mr. Michael McMahon, whereby the Company granted him 416,667 shares of fully vested restricted common stock valued at $0.30 per share for a total value of $125,000. In addition, the Company agreed to provide Mr. McMahon 100,000 shares of restricted stock as compensation for the vested options that expired due to his termination. The Company valued these shares at $0.30 per share and recognized $30,000 in stock based compensation expense during the three months ended September 30, 2014.
 
The following sets forth the options to purchase shares of the Company’s stock issued and outstanding as of September 30, 2014:
 
 
 
 
Weighted-
 
 
Weighted-Average
 
 
 
 
Average Exercise
 
 
Remaining
 
Options
 
 
Shares
 
Price
 
 
Contractual Term
 
Options Outstanding March 31, 2014
 
 
4,342,500
 
$
0.77
 
 
1.75
 
Granted
 
 
—
 
 
—
 
 
—
 
Exercised
 
 
—
 
 
—
 
 
—
 
Expired/cancelled
 
 
(3,450,000)
 
 
0.83
 
 
—
 
Options Outstanding September 30, 2014
 
 
892,500
 
$
0.51
 
 
1.31
 
Exercisable at September 30, 2014
 
 
418,125
 
$
0.69
 
 
0.68
 
 
A summary of the status of non-vested shares as of September 30, 2014 and changes during the six months ended September 30, 2014 is presented below.
 
 
 
 
 
 
Weighted Average
 
 
 
 
 
 
Grant-Date
 
Non-vested Shares
 
 
Shares
 
Fair Value
 
Non-vested at March 31, 2014
 
 
2,414,792
 
$
0.49
 
Granted
 
 
—
 
 
—
 
Vested
 
 
(122,000)
 
 
0.43
 
Expired/cancelled: non-vested
 
 
(1,818,417)
 
 
0.56
 
Non-vested at September 30, 2014
 
 
474,375
 
$
0.23
 
 
The following table summarizes information about stock options outstanding by price range as of September 30, 2014:
 
 
 
 
Options Outstanding
 
 
Options Exercisable
 
 
 
 
 
 
 
Weighted Average
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Remaining
 
 
 
 
 
 
 
 
 
 
 
Number
 
 
Contractual Life
 
Weighted Average
 
 
Number of
 
Weighted Average
 
Exercise Price
 
 
Outstanding
 
 
(years)
 
Exercise Price
 
 
Shares
 
Exercise Price
 
$
0.80
 
 
7,500
 
 
0.77
 
$
0.80
 
 
5,500
 
$
0.80
 
$
0.70
 
 
435,000
 
 
0.62
 
 
0.70
 
 
395,000
 
 
0.70
 
$
0.33
 
 
450,000
 
 
1.99
 
 
0.33
 
 
17,625
 
 
0.33
 
 
 
 
 
892,500
 
 
1.31
 
$
0.51
 
 
418,125
 
$
0.69
 
 
The Company initially issued options with exercise prices of $0.70 or $0.80 per share which were the prices of recent equity capital investment. However, in December 2012, the Company decided to change the exercise price policy by utilizing the stock market closing price on the day that the options were granted by our Board of Directors. All subsequent exercise prices have been determined in this manner.
 
The intrinsic value of options outstanding at September 30, 2014 and March 31, 2014 was $0 and $0, respectively.
 
The non-vested options outstanding vest based on the Company meeting various operating metrics and cash flow targets. The Company estimates the fair value of options granted on the grant date utilizing the Black-Scholes Option model. For the six months ended September 30, 2014 and 2013, the Company recognized $0 and $133,409, respectively, as compensation cost for options issued, and recorded related deferred tax asset of $0 for all periods.
 
At September 30, 2014, unrecognized compensation cost related to non-vested awards was $108,979. This cost is expected to be recognized over a weighted average period of 1.87 years. The total fair value of shares vested during the six months ended September 30, 2014 and 2013 was $52,580 and $133,409, respectively.
RELATED PARTIES
RELATED PARTIES
NOTE 6 — RELATED PARTIES
 
During the three months ended September 30, 2014, Bern McPheely, Chairman of the Board and a director of the Company, purchased 133,333 shares of the Company’s common stock for $40,000 and Lewis Smoak, a director of the Company, purchased 333,333 shares of the Company’s common stock for $100,000.
LITIGATION
LITIGATION
NOTE 7 — LITIGATION
 
On October 15, 2013, plaintiff Mark P. Sennott, as Trustee of the Sennott Family Charitable Trust, (“Sennott”) filed a complaint derivatively, on behalf of ADI, in the Federal Court, against Edward S. Adams (our then Chairman), Michael R. Monahan (a former member of the Company’s Board of Directors), the law firm of Adams Monahan, LLP, Loblolly, Inc., which was formerly known as Scio Diamond Technology Corporation, and the Company (collectively, “Sennott Defendants”). This derivative complaint on ADI’s behalf (the “ADI Derivative Complaint”) alleges claims for breach of fiduciary duty, constructive fraud and unjust enrichment.
 
The ADI Derivative Complaint was effectively settled on June 23, 2014 when the Company entered into a settlement agreement (the “Settlement Agreement”) by and among Edward S. Adams, Michael R. Monahan, Gerald McGuire, James Korn, Bruce Likly, Theodorus Strous, and Robert C. Linares, their present and past affiliates, such as Apollo Diamond, Inc., Apollo Diamond Gemstone Corporation, Adams Monahan LLP, Focus Capital Group, Inc. and Oak Ridge Financial Services Group, Inc., family members and spouses (the “Adams Group”), and Thomas P. Hartness, Kristoffer Mack, Paul Rapello, Glen R. Bailey, Marsha C. Bailey, Kenneth L. Smith, Bernard M. McPheely, James Carroll, Robert M. Daisley, Ben Wolkowitz, Craig Brown, Ronnie Kobrovsky, Lewis Smoak, Brian McPheely, Mark P. Sennott, the Sennott Family Charitable Trust, and their affiliates (the “Save Scio Group”), pursuant to which the Company and the Save Scio Group settled the previously pending consent contest for the election of directors. Pursuant to the Settlement Agreement, on June 23, 2014, Messrs. Adams, Strous, Linares and McGuire resigned as directors effective immediately; the Board expanded the size of the Board to 7 directors and appointed Messrs. McPheely, Wolkowitz, Smoak and Leaverton (the “Save Scio Nominees”) to fill all but one of the resulting vacancies. In addition, the Company agreed to nominate each of Messrs. Korn and Likly (the “Adams Group Nominees”) and the Save Scio Nominees for election to the Board at the Company’s 2014 annual meeting of stockholders. Pursuant to the Settlement Agreement, the Adams Group and the Save Scio Group must vote their shares of Common Stock for the other’s nominees for the next three years, and will also have replacement rights in the event these nominees are unable to serve as directors.
 
As of November 10, 2014, the parties to the ADI Derivative Complaint are waiting for the Federal Court to issue an order approving the dismissal of the litigation.
 
On May 16, 2014 the Company received a subpoena issued by the SEC ordering the provision of documents and related information concerning various corporate transactions between the Company and its predecessors and other persons and entities.  The Company is fully cooperating with this inquiry.
 
The Company recognizes legal fees for litigation as they are incurred as professional and consulting fees. The Company then submits the expenses to our insurance carrier for reimbursement under our insurance policy. During the three months ended September 30, 2014, our insurance carrier paid $312,824 in payments for prior period legal fees, including $84,306 from the prior fiscal year, resulting in a net amount of $(93,239) in professional and consulting fees reported for the period. For the six months ended September 30, 2014, our insurance carrier paid $168,015 for past legal fees from the prior fiscal year.
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS
NOTE 8 — SUBSEQUENT EVENTS
 
On October 2, 2014, the Company entered into a Memorandum of Understanding (the “MOU”) with Renaissance Diamonds, Inc., (“Renaissance”). The MOU represents the good faith intentions of the Company and Renaissance to collaborate through a joint venture to develop procedures and recipes and market and sell lab-grown fancy-colored diamonds. The Company and Renaissance are working towards a definitive agreement and the Company is currently evaluating the financial impact of the MOU on its operations.
 
On October 16, 2014, the Company entered into a Second Amendment to Loan Agreement (“Amendment No. 2”) with Platinum Capital Partners, LP, to its existing loan agreement dated as of June 21, 2013 with the Lender, as modified by the First Amendment to Loan Agreement dated as of October 11, 2013. Under the terms of Amendment No. 2, Platinum, among other things, consolidated the Company’s credit facilities into one $1,500,000 note and deferred $63,619 of interest that was due and payable on September 30, 2014 under the Loan Agreement until December 19, 2014. The Company also executed two new promissory notes concurrently with Amendment No. 2: (i) a Revolving Promissory Note dated as of October 16, 2014 in the principal amount of $1,500,000 in favor of Platinum (the “New Revolving Promissory Note”), which replaced the Company’s Promissory Note dated as of June 21, 2013, in the principal amount of $1,000,000 in favor of Platinum, and the Company’s Promissory Note dated as of October 9, 2013, in the principal amount of $500,000 in favor of Platinum; and (ii) a Deferred Interest Promissory Note dated as of September 30, 2014, in the principal amount of $63,619 in favor of Platinum (the “Deferred Interest Promissory Note”). The New Revolving Promissory Note has a maturity date of June 30, 2015 and interest on the outstanding principal accrues at a rate of 18% per annum, compounded annually. The Deferred Interest Promissory Note has a maturity date of December 19, 2014 and interest on the outstanding principal accrues at a rate of 18% per annum, compounded annually.
 
On July 15, 2014, the Board of Directors approved the issuance and sale of up to 2,000,000 shares of common stock to accredited investors at a price of $0.30. On September 25, 2014, the Board agreed to increase the size of the offering up to 6,666,667 shares of common stock to raise up to $2,000,000. The Company does not anticipate incurring any material expenses related to the offering. Through November 10, 2014, the Company has issued 2,605,832 shares under this offering and raised $781,750. These funds have been used to meet current operating requirements and the Company needs to continue to raise additional capital to fund continuing operations.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
Going Concern 
Going Concern
 
The Company has generated very little revenue to date and consequently its operations are subject to all risks inherent in the establishment and commercial launch of a new business enterprise.
 
These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management has responded to these circumstances by taking the following actions:
 
⋅
On-going solicitation of investment in the Company in the form of private placements of common shares, secured and unsecured debt to accredited investors;
 
⋅
Focused efforts on new business development opportunities to generate revenues and diversify our customer base;
 
⋅
Enhanced efforts on optimizing production for existing manufacturing capabilities; and
 
⋅
Continued to explore strategic joint ventures, technology licensing agreements and dedicated contract manufacturing to expand company revenue and cash flow, including our recently agreed to joint venture in China.
 
In the opinion of management, these actions will be sufficient to provide the Company with the liquidity it needs to meet its obligations and continue as a going concern. There can be no assurance, however, that the Company will successfully implement these plans. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Accounting Basis 
Accounting Basis
 
The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.
 
In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the Company’s financial position as of September 30, 2014 and March 31, 2014 and the results of operations and cash flows for the three and six month interim periods ended September 30, 2014 and 2013. Interim amounts have not been audited, and the results of operations for the interim periods herein are not necessarily indicative of the results of operations to be expected for future periods or the year. The balance sheet at March 31, 2014 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Form 10-K Annual Report of the Company for the year ended March 31, 2014.
 
In accordance with Accounting Standards Codification (“ASC”) 323, Investments—Equity Method and Joint Ventures, the Company uses the equity method of accounting for investments in corporate joint ventures for which the Company has the ability to exercise significant influence but does not control and is not the primary beneficiary. Significant influence typically exists if the Company has a 20% to 50% ownership interest in the venture unless predominant evidence to the contrary exists. Under this method of accounting, the Company records its proportionate share of the net earnings or losses of equity method investees and a corresponding increase or decrease to the investment balances. Cash payments to equity method investees such as additional investments, loans and advances and expenses incurred on behalf of investees, as well as payments from equity method investees such as dividends, distributions and repayments of loans and advances are recorded as adjustments to investment balances. When the Company’s carrying value in an equity method investee is reduced to zero, no further losses are recorded in the Company’s financial statements unless the Company guaranteed obligations of the equity method investee or has committed additional funding.   When the equity method investee subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.  The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable.
Basic and Diluted Net Loss per Share 
Basic and Diluted Net Loss per Share
 
Net loss per share is presented under two formats: basic net loss per common share, which is computed using the weighted average number of common shares outstanding during the period, and diluted net loss per common share, which is computed using the weighted average number of common shares outstanding, and the weighted average dilutive potential common shares outstanding, computed using the treasury stock method. Currently, for all periods presented, diluted net loss per share is the same as basic net loss per share as the inclusion of weighted average shares of common stock issuable upon the exercise of options and warrants would be anti-dilutive.
 
The following table summarizes the number of securities outstanding at each of the periods presented, which were not included in the calculation of diluted net loss per share as their inclusion would be anti-dilutive:
 
 
 
 
September 30,
 
 
 
 
2014
 
 
2013
 
Common stock options and warrants
 
 
6,459,295
 
 
9,338,045
 
Allowance for Doubtful Accounts 
Allowance for Doubtful Accounts
 
An allowance for uncollectible accounts receivable is maintained for estimated losses from customers’ failure to make payment on accounts receivable due to the Company. Management determines the estimate of the allowance for uncollectible accounts receivable by considering a number of factors, including: (1) historical experience, (2) aging of accounts receivable and (3) specific information obtained by the Company on the financial condition and the current credit worthiness of its customers. The Company has determined that an allowance was not necessary at September 30, 2014 or March 31, 2014.
Other Receivables 
Other Receivables
 
As of March 31, 2014, the Company considered a pending insurance settlement over the actions of a Company supplier of $89,192 as an other receivable. This settlement was paid during the six months ended September 30, 2014.
Inventories 
Inventories
 
Inventories are stated at the lower of average cost or market. The carrying value of inventory is reviewed and adjusted based upon slow moving and obsolete items. Inventory costs include material, labor, and manufacturing overhead and are determined by the “first-in, first-out” (FIFO) method. The components of inventories are as follows:
 
 
 
September 30,
 
March 31,
 
 
 
2014
 
2014
 
Raw materials and supplies
 
$
24,557
 
$
35,543
 
Work in process
 
 
19,071
 
 
25,611
 
Finished goods
 
 
153,463
 
 
91,663
 
 
 
$
197,091
 
$
152,817
 
 
During the six months ended September 30, 2014, we continued to experience selling prices lower than cost. As a result during the six months ended September 30, 2014, we recorded a lower of cost or market write down of $68,722 for inventory produced during the six months ended September 30, 2014. The estimation of the total write-down involves management judgments and assumptions including assumptions regarding future selling price forecasts, the estimated costs to complete, disposal costs and a normal profit margin.
Property, Plant and Equipment 
Property, Plant and Equipment
 
Depreciation of property, plant and equipment is on a straight line basis beginning at the time it is placed in service, based on the following estimated useful lives:
 
 
 
Years
 
Machinery and equipment
 
3–15
 
Furniture and fixtures
 
3–10
 
Engineering equipment
 
5–12
 
 
Leasehold improvements are depreciated over the lesser of the remaining term of the lease or the life of the asset (generally three to seven years).
 
Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.
Intangible Assets 
Intangible Assets
 
Intangible assets, such as acquired in-process research and development costs, are considered to have an indefinite useful life until such time as they are put into service at which time they will be amortized on a straight-line basis over the shorter of their economic or legal useful life. Management evaluates indefinite life intangible assets for impairment on an annual basis and on an interim basis if events or changes in circumstances between annual impairment tests indicate that the asset might be impaired. The ongoing evaluation for impairment of its indefinite life intangible assets requires significant management estimates and judgment. Management reviews definite life intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairment charges during the three and six months ended September 30, 2014 or 2013.
Fair Value Measurement 
Fair Value Measurement
 
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy prescribed by the accounting literature contains three levels as follows:
 
Level 1— Quoted prices in active markets for identical assets or liabilities.
 
Level 2— Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
Level 3— Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
 
The carrying value of cash and cash equivalents, accounts receivable, other assets and trade accounts payable approximates fair value due to the short-term nature of these instruments.
Revenue Recognition 
Revenue Recognition
 
We recognize product revenue when persuasive evidence of an arrangement exists, delivery of products has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. For our Company, this generally means that we recognize revenue when we or our fabrication vendor has shipped finished product to the customer. Our sales terms do not allow for a right of return except for matters related to any manufacturing defects on our part. The Company recognizes licensing and development revenues in accordance with the contractual terms of the agreements.
Recent Accounting Pronouncements 
Recent Accounting Pronouncements
 
In July 2013, the FASB issued ASC 2013-11, “Income Taxes – Presentation of an Unrecognized Tax benefit When a Net Operation Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”) which is part of Accounting Standards Codification (“ASC”) 740: Income Taxes. The new guidance requires an entity to present an unrecognized tax benefit and an NOL carryforward, a similar tax loss or a tax credit carryforward on a net basis as part of a deferred tax asset, unless the unrecognized tax benefit is not available to reduce the deferred tax asset component or would not be utilized for that purpose, then a liability would be recognized. ASU 2013-11 is effective for annual and interim periods for fiscal years beginning after December 15, 2013. The Company adopted this new standard for the fiscal year ended March 31, 2015 and the adoption has not had a significant impact on its financial statements.
 
In May 2014, the FASB issued ASU 2014-9 “Revenue from Contracts with Customers (Topic 606).” This guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. The Company will adopt this standard in fiscal year 2018. The Company has not yet determined the effect, if any, that the adoption of this standard will have on the Company’s financial position or results of operations.
 
There are currently no other accounting standards that have been issued but not yet adopted by the Company that will have a significant impact on the Company’s financial position, results of operations or cash flows upon adoption.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
Summary of anti-dilutive securities excluded from the calculation of diluted net loss per share 
 
 
 
September 30,
 
 
 
 
2014
 
 
2013
 
Common stock options and warrants
 
 
6,459,295
 
 
9,338,045
 
Schedule of components of inventories 
 
 
 
September 30,
 
March 31,
 
 
 
2014
 
2014
 
Raw materials and supplies
 
$
24,557
 
$
35,543
 
Work in process
 
 
19,071
 
 
25,611
 
Finished goods
 
 
153,463
 
 
91,663
 
 
 
$
197,091
 
$
152,817
 
Schedule of estimated useful lives of property, plant and equipment 
 
 
Years
 
Machinery and equipment
 
3–15
 
Furniture and fixtures
 
3–10
 
Engineering equipment
 
5–12
 
INTANGIBLE ASSETS (Tables)
Schedule of intangible assets 
Intangible assets consist of the following:
 
 
 
 
 
September 30,
 
March 31,
 
 
 
Life
 
2014
 
2014
 
Patents, gross
 
6.75 – 19.46
 
$
8,135,063
 
$
8,135,063
 
In-process research and development
 
Indefinite
 
 
2,250,435
 
 
2,250,435
 
 
 
 
 
 
10,385,498
 
 
10,385,498
 
Accumulated amortization
 
 
 
 
(1,532,069)
 
 
(1,144,858)
 
Net intangible assets
 
 
 
$
8,853,429
 
$
9,240,640
 
Schedule of estimated annual amortization expense of intangible assets 
Total annual amortization expense of finite lived intangible assets is estimated to be as follows:
 
Fiscal Year Ending
 
 
 
Six months ending March 31, 2015
 
$
387,420
 
March 31, 2015
 
 
774,840
 
March 31, 2016
 
 
774,840
 
March 31, 2017
 
 
774,840
 
March 31, 2018
 
 
774,840
 
Thereafter
 
$
3,116,214
 
SHARE-BASED COMPENSATION (Tables)
Schedule of options to purchase shares of the Company's stock issued and outstanding 
The following sets forth the options to purchase shares of the Company’s stock issued and outstanding as of September 30, 2014:
 
 
 
 
Weighted-
 
 
Weighted-Average
 
 
 
 
Average Exercise
 
 
Remaining
 
Options
 
 
Shares
 
Price
 
 
Contractual Term
 
Options Outstanding March 31, 2014
 
 
4,342,500
 
$
0.77
 
 
1.75
 
Granted
 
 
—
 
 
—
 
 
—
 
Exercised
 
 
—
 
 
—
 
 
—
 
Expired/cancelled
 
 
(3,450,000)
 
 
0.83
 
 
—
 
Options Outstanding September 30, 2014
 
 
892,500
 
$
0.51
 
 
1.31
 
Exercisable at September 30, 2014
 
 
418,125
 
$
0.69
 
 
0.68
 
Summary of the status of non-vested shares 
A summary of the status of non-vested shares as of September 30, 2014 and changes during the six months ended September 30, 2014 is presented below.
 
 
 
 
 
 
Weighted Average
 
 
 
 
 
 
Grant-Date
 
Non-vested Shares
 
 
Shares
 
Fair Value
 
Non-vested at March 31, 2014
 
 
2,414,792
 
$
0.49
 
Granted
 
 
—
 
 
—
 
Vested
 
 
(122,000)
 
 
0.43
 
Expired/cancelled: non-vested
 
 
(1,818,417)
 
 
0.56
 
Non-vested at September 30, 2014
 
 
474,375
 
$
0.23
 
Summary of information about stock options outstanding by price range 
The following table summarizes information about stock options outstanding by price range as of September 30, 2014:
 
 
 
 
Options Outstanding
 
 
Options Exercisable
 
 
 
 
 
 
 
Weighted Average
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Remaining
 
 
 
 
 
 
 
 
 
 
 
Number
 
 
Contractual Life
 
Weighted Average
 
 
Number of
 
Weighted Average
 
Exercise Price
 
 
Outstanding
 
 
(years)
 
Exercise Price
 
 
Shares
 
Exercise Price
 
$
0.80
 
 
7,500
 
 
0.77
 
$
0.80
 
 
5,500
 
$
0.80
 
$
0.70
 
 
435,000
 
 
0.62
 
 
0.70
 
 
395,000
 
 
0.70
 
$
0.33
 
 
450,000
 
 
1.99
 
 
0.33
 
 
17,625
 
 
0.33
 
 
 
 
 
892,500
 
 
1.31
 
$
0.51
 
 
418,125
 
$
0.69
 
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details)
6 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Common stock options and warrants (in shares)
6,459,295 
9,338,045 
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) (USD $)
Sep. 30, 2014
Mar. 31, 2014
Inventories
 
 
Raw materials and supplies
$ 24,557 
$ 35,543 
Work in process
19,071 
25,611 
Finished goods
153,463 
91,663 
InventoryNet
$ 197,091 
$ 152,817 
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2)
6 Months Ended
Sep. 30, 2014
Machinery and equipment |
Maximum
 
Property, Plant and Equipment
 
Estimated useful lives
15 years 
Machinery and equipment |
Minimum
 
Property, Plant and Equipment
 
Estimated useful lives
3 years 
Furniture and fixtures |
Maximum
 
Property, Plant and Equipment
 
Estimated useful lives
10 years 
Furniture and fixtures |
Minimum
 
Property, Plant and Equipment
 
Estimated useful lives
3 years 
Engineering equipment |
Maximum
 
Property, Plant and Equipment
 
Estimated useful lives
12 years 
Engineering equipment |
Minimum
 
Property, Plant and Equipment
 
Estimated useful lives
5 years 
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Textual) (USD $)
Sep. 30, 2014
Mar. 31, 2014
Other Receivables
 
 
Other Receivables
 
$ 89,192 
Inventory reserves
$ 68,722 
 
Maximum
 
 
Other Receivables
 
 
Equity Method Investment, Ownership Percentage
50.00% 
 
Minimum
 
 
Other Receivables
 
 
Equity Method Investment, Ownership Percentage
20.00% 
 
INTANGIBLE ASSETS (Details) (USD $)
6 Months Ended
Sep. 30, 2014
Mar. 31, 2014
Sep. 30, 2014
In-process research and development
Mar. 31, 2014
In-process research and development
Sep. 30, 2014
Patent
Mar. 31, 2014
Patent
Sep. 30, 2014
Patent
Minimum
Sep. 30, 2014
Patent
Maximum
INTANGIBLE ASSETS
 
 
 
 
 
 
 
 
Finite-Lived Intangible Assets, Gross
$ 10,385,498 
$ 10,385,498 
$ 2,250,435 
$ 2,250,435 
$ 8,135,063 
$ 8,135,063 
 
 
Accumulated amortization
(1,532,069)
(1,144,858)
 
 
 
 
 
 
Net intangible assets
$ 8,853,429 
$ 9,240,640 
 
 
 
 
 
 
Amortization period
 
 
 
 
 
 
6 years 9 months 
19 years 5 months 16 days 
INTANGIBLE ASSETS (Details 1) (USD $)
Sep. 30, 2014
Estimated annual amortization expense of intangible assets
 
Six months ending March 31, 2015
$ 387,420 
March 31, 2015
774,840 
March 31, 2016
774,840 
March 31, 2017
774,840 
March 31, 2018
774,840 
Thereafter
$ 3,116,214 
INTANGIBLE ASSETS (Details Textual) (USD $)
3 Months Ended 6 Months Ended
Sep. 30, 2014
Sep. 30, 2013
Sep. 30, 2014
Sep. 30, 2013
Amortization of Intangible Assets
$ 193,710 
$ 193,753 
$ 387,211 
$ 387,506 
NOTES PAYABLE (Details Textual) (USD $)
6 Months Ended 1 Months Ended
Sep. 30, 2014
Line of Credit
Oct. 11, 2013
Line of Credit
Jun. 21, 2013
Line of Credit
Sep. 30, 2014
Line of Credit
Maximum
Oct. 11, 2013
Amended Loan Agreement
Oct. 11, 2013
Additional Loan
Notes payable
 
 
 
 
 
 
Maximum borrowing capacity
 
 
$ 1,000,000 
 
 
 
Annual interest rate (as a percent)
18.00% 
 
 
 
18.00% 
 
Service charge on late payment (as a percent)
3.00% 
 
 
 
 
 
Accommodation fees (as a percent)
 
 
 
10.00% 
 
 
Periodic collateral monitoring fee for the first six months
2,000 
 
 
 
 
 
Periodic collateral monitoring fee for the last six months
1,000 
 
 
 
 
 
Additional borrowing capacity
 
 
 
 
500,000 
 
Loan draw
 
 
 
 
 
280,750 
Applicable fees
 
 
 
 
 
30,750 
Interest reserve established
 
90,000 
 
 
 
133,500 
Accommodation fees
 
 
 
 
25,000 
 
Closing fee
 
 
 
 
3,250 
 
Financing costs capitalized
 
150,750 
 
 
 
 
Outstanding balance
$ 1,563,618 
 
 
 
 
 
CAPITAL STOCK (Details Textual) (USD $)
6 Months Ended 6 Months Ended 0 Months Ended 6 Months Ended
Sep. 30, 2014
Sep. 25, 2014
Mar. 31, 2014
Jul. 15, 2014
Accredited Investors
Sep. 30, 2014
Common Stock
Apr. 12, 2014
Mr Joseph Cunningham
Sep. 30, 2014
Mr Joseph Cunningham
CAPITAL STOCK
 
 
 
 
 
 
 
Common stock, shares authorized
75,000,000 
 
75,000,000 
 
 
 
 
Common stock, par value (in dollars per share)
$ 0.001 
 
$ 0.001 
 
 
 
 
Consulting Expenses
 
 
 
 
 
$ 4,000 
 
Common stock issued in exchange for consulting services per month (in shares)
 
 
 
 
 
20,000 
 
Common stock issued in exchange for consulting services (in shares)
 
 
 
 
80,000 
 
80,000 
Common stock price in exchange for consulting services (in dollars per shares)
 
 
 
$ 0.30 
 
 
$ 0.43 
Common stock issued in exchange for consulting services
34,200 
 
 
 
80 
 
34,200 
Common stock, issued (in shares)
52,287,645 
 
50,739,312 
 
52,287,645 
 
 
Common stock, outstanding (in shares)
52,287,645 
 
50,739,312 
 
 
 
 
Shares held in treasury
1,000,000 
 
1,000,000 
 
 
 
 
Warrants outstanding
5,566,795 
 
 
 
 
 
 
Class of Warrant or Right Issued
0 
 
 
 
 
 
 
Class of Warrant or Right, Exercise Price of Warrants or Rights
$ 1.53 
 
 
 
 
 
 
Common Stock, Capital Shares Reserved for Future Issuance
 
6,666,667 
 
2,000,000 
 
 
 
Development Stage Entities, Stock Issued, Shares, Issued for Cash
 
 
 
 
1,901,666 
 
 
Development Stage Entities, Equity Issuance, Per Share Amount
$ 0.30 
 
 
 
$ 0.30 
 
 
Development Stage Entities, Stock Issued, Value, Issued for Cash
570,500 
 
 
 
1,902 
 
 
Common Stock, Potential Value, Future Issuance
 
$ 2,000,000 
 
 
 
 
 
SHARE-BASED COMPENSATION (Details) (USD $)
6 Months Ended 12 Months Ended
Sep. 30, 2014
Mar. 31, 2014
Options
 
 
Options outstanding at beginning of period (in shares)
4,342,500 
 
Granted (in shares)
0 
 
Exercised (in shares)
0 
 
Expired/Cancelled (in shares)
(3,450,000)
 
Options outstanding at the end of the period (in shares)
892,500 
4,342,500 
Options exercisable at the end of the period (in shares)
418,125 
 
Weighted Average Exercise Price
 
 
Options outstanding at the beginning of the period (in dollars per share)
$ 0.77 
 
Granted (in dollars per share)
$ 0 
 
Expired/cancelled (in dollars per share)
$ 0.83 
 
Options outstanding at the end of the period (in dollars per share)
$ 0.51 
$ 0.77 
Options exercisable at the end of the period (in dollars per share)
$ 0.69 
 
Weighted-Average Remaining Contractual Term
 
 
Options outstanding
1 year 3 months 22 days 
1 year 9 months 
Exercisable at the end of the period
8 months 5 days 
 
SHARE-BASED COMPENSATION (Details 1) (USD $)
6 Months Ended
Sep. 30, 2014
Shares
 
Non-vested at the beginning of the period (in shares)
2,414,792 
Granted (in shares)
0 
Vested (in shares)
(122,000)
Expired/cancelled: non-vested (in shares)
(1,818,417)
Non-vested at the end of the period
474,375 
Weighted Average Grant-Date Fair Value
 
Non-vested at the beginning of the period (in dollars per share)
$ 0.49 
Granted (in dollars per share)
$ 0 
Vested (in dollars per share)
$ 0.43 
Expired/cancelled: non-vested (in dollars per share)
$ 0.56 
Non-vested at the end of the period (in dollars per share)
$ 0.23 
SHARE-BASED COMPENSATION (Details 2) (USD $)
6 Months Ended
Sep. 30, 2014
Options Outstanding
 
Number Outstanding
892,500 
Weighted Average Remaining Contractual Life
1 year 3 months 22 days 
Weighted Average Exercise Price (in dollars per share)
$ 0.51 
Options Exercisable
 
Number of Shares
418,125 
Weighted Average Exercise Price (in dollars per share)
$ 0.69 
Exercise Price One
 
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
 
Exercise Price
$ 0.80 
Options Outstanding
 
Number Outstanding
7,500 
Weighted Average Remaining Contractual Life
9 months 7 days 
Weighted Average Exercise Price (in dollars per share)
$ 0.80 
Options Exercisable
 
Number of Shares
5,500 
Weighted Average Exercise Price (in dollars per share)
$ 0.80 
Exercise Price Two
 
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
 
Exercise Price
$ 0.70 
Options Outstanding
 
Number Outstanding
435,000 
Weighted Average Remaining Contractual Life
7 months 13 days 
Weighted Average Exercise Price (in dollars per share)
$ 0.70 
Options Exercisable
 
Number of Shares
395,000 
Weighted Average Exercise Price (in dollars per share)
$ 0.70 
Exercise Price three
 
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
 
Exercise Price
$ 0.33 
Options Outstanding
 
Number Outstanding
450,000 
Weighted Average Remaining Contractual Life
1 year 11 months 26 days 
Weighted Average Exercise Price (in dollars per share)
$ 0.33 
Options Exercisable
 
Number of Shares
17,625 
Weighted Average Exercise Price (in dollars per share)
$ 0.33 
SHARE-BASED COMPENSATION (Details Textual) (USD $)
1 Months Ended 3 Months Ended 6 Months Ended
Sep. 25, 2014
Sep. 30, 2014
Sep. 30, 2014
Sep. 30, 2013
Mar. 31, 2014
May 7, 2012
Number of shares of common stock authorized under the 2012 Share Incentive Plan
 
 
 
 
 
5,000,000 
Granted (in dollars per share)
 
 
$ 0 
 
 
 
Unrecognized compensation cost related to nonvested awards
 
$ 108,979 
$ 108,979 
 
 
 
Weighted average period to recognize unrecognized compensation expense related to nonvested awards
 
 
1 year 10 months 13 days 
 
 
 
Fair value of options vested
 
 
52,580 
133,409 
 
 
Intrinsic value of options outstanding
 
0 
0 
 
0 
 
Total compensation costs
 
 
0 
133,409 
 
 
Stock Issued During Period, Shares, Restricted Stock Award, Gross
416,667 
100,000 
 
 
 
 
Shares Issued, Price Per Share
$ 0.30 
$ 0.30 
$ 0.30 
 
 
 
Stock Issued During Period, Value, Restricted Stock Award, Gross
125,000 
30,000 
 
 
 
 
Deferred tax asset recorded, relating to recognized compensation cost
 
$ 0 
$ 0 
$ 0 
 
 
Maximum [Member]
 
 
 
 
 
 
Granted (in dollars per share)
 
 
$ 0.80 
 
 
 
Minimum [Member]
 
 
 
 
 
 
Granted (in dollars per share)
 
 
$ 0.70 
 
 
 
RELATED PARTIES (Details Textual) (USD $)
3 Months Ended
Sep. 30, 2014
Bern McPheely
 
Related Party Transaction [Line Items]
 
Stock Issued During Period, Shares, New Issues
133,333 
Stock Issued During Period, Value, New Issues
$ 40,000 
Lewis Smoak
 
Related Party Transaction [Line Items]
 
Stock Issued During Period, Shares, New Issues
333,333 
Stock Issued During Period, Value, New Issues
$ 100,000 
LITIGATION (Details Textual) (USD $)
3 Months Ended 6 Months Ended 12 Months Ended
Sep. 30, 2014
Sep. 30, 2014
Mar. 31, 2014
Litigation
 
 
 
Litigation Settlement, Expense
 
$ (93,239)
 
Malpractice Loss Contingency, Insurance Recoveries
$ 312,824 
$ 168,015 
$ 84,306 
SUBSEQUENT EVENTS (Details Textual) (USD $)
0 Months Ended
Sep. 25, 2014
Jul. 15, 2014
Accredited Investors
Nov. 10, 2014
Subsequent events
Oct. 16, 2014
Subsequent events
Revolving Promissory Note
Oct. 16, 2014
Subsequent events
Revolving Promissory Note
Replaced With June 2013 Promissory Note
Oct. 16, 2014
Subsequent events
Revolving Promissory Note
Replaced With June 2013 Promissory Note
Oct. 16, 2014
Subsequent events
Deferred Interest Promissory Note
Subsequent events
 
 
 
 
 
 
 
Common Stock, Capital Shares Reserved for Future Issuance
6,666,667 
2,000,000 
 
 
 
 
 
SharePrice
 
$ 0.30 
 
 
 
 
 
Common stock issued under the offering
 
 
2,605,832 
 
 
 
 
Value of common stock issued under the offering
 
 
$ 781,750 
 
 
 
 
Line of Credit Facility, Amount Outstanding
 
 
 
1,500,000 
1,000,000 
500,000 
63,619 
Line of Credit Facility, Interest Rate at Period End
 
 
 
18.00% 
 
 
18.00% 
Common Stock, Potential Value, Future Issuance
$ 2,000,000