NOTE

– COMMON STOCK

January 2013,

the Company revised its then existing agreement with the law firm of Brownstein Hyatt Farber Schreck LLP (“Brownstein”), a related party. Under this agreement, the Company is to issue up to a total of

400,000

shares of the Company’s common stock, with

100,000

shares earned upon the achievement of each of

four

enumerated milestones as follows:

100,000

shares earned upon the execution of the revised agreement;

ii.

100,000

shares earned upon receipt by the Company of a final judicial order dismissing all legal challenges to the Final Environmental Impact Report for the Project;

iii.

100,000

shares earned upon the signing of binding agreements for more than

51%

of the Project’s annual capacity; and

iv.

100,000

shares earned upon the commencement of construction of all of the major facilities contemplated in the Final Environmental Impact Report necessary for the completion and delivery of the Project.

All shares earned upon achievement of any of the

four

milestones will be payable

three

years from the date earned.

The

first

of the

four

milestones was satisfied in

January 2013,

and at that time, the Company recorded a stock compensation expense for the

first

100,000

shares earned. In

May 2016,

the

second

milestone was earned when a

three

-judge Appellate judge panel unanimously sustained the

six

trial court decisions and validated the Project's environmental review and approvals. As a result, the Company accrued and recognized stock compensation in

2016

in the amount of

$520,000

for the

second

of the

four

milestones. Because the shares were payable

three

years from the date earned, the fair value of these shares was measured by applying a discount which was determined by using the Finnerty model for discounts for lack of marketability. In

December 2017,

the Company eliminated the holding period for these shares which required the Company to re-measure the award at the time the shares were issued. The Company recognized additional stock compensation during the

fourth

quarter of

2017

in the amount of

$171,000

to reflect the issuance of these shares. Additionally, the Company incurred direct expenses to Brownstein associated with the Water Project of approximately

$1.9

million and

$1.8

million in

2018

and

2017,

respectively.

October 2, 2017,

the Company agreed to issue an aggregate of

264,096

shares (the “Shares”) of the Company’s common stock with an aggregate value of

$3.3

million in connection with a Payoff Agreement the Company entered into with prior lenders on

May 24, 2017.

Effective upon the delivery of the Shares, outstanding warrants registered in the name of the prior lenders (the

“2016

Warrants”), pursuant to which the prior lenders had a right to purchase up to

357,500

shares of the Company’s common stock, were cancelled. The Company recorded a

$3.1

million expense in

2017

for the issuance of these shares and cancellation of the warrants. The expense is included in interest expense.