14. EQUITY

3 Months Ended

Dec. 31, 2014

Notes to Financial Statements

14. EQUITY

Series A Convertible Preferred Stock

On January 26, 2015, the Board of Directors and the Nevada Secretary of State approved a Certificate of Designations, Preference and Rights for Series A Convertible Preferred Stock. The Company’s Series A Preferred is $0.10 par value, with 50,000,000 shares authorized and as of January 13, 2015, we had 3,000,000 shares issued and outstanding. Each holder of outstanding shares of Series A Preferred shall be entitled to the number of votes equal to the number of whole shares of common stock of the Corporation into which the shares of Series A Preferred held by such holder are then convertible as of the applicable record date. The Company cannot not amend, alter or repeal any preferences, rights, or other terms of the Series A Preferred so as to adversely affect the Series A Preferred, without the written consent or affirmative vote of the holders of at least sixty-six and two-thirds percent (66.66%) of the then outstanding shares of Series A Preferred, voting as a separate voting group, given by written consent or by vote at a meeting called for such purpose for which notice shall have been duly given to the holders of the Series A Preferred.

During the three months ended December 31, 2014, the Company sold 3,000,000 Series A Preferred to one accredited investor of Series A Convertible Preferred Stock totaling $300,000 that is convertible into 3,000,000 shares of common stock at $0.10 over the next five years.  The Preferred Series A has voting rights and may not be called. The Company also issued (i) a Series C five year Warrant for 3,000,000 shares of common stock at $0.20 per share, which is callable at $0.40 per share; and (ii) ) a Series D five year Warrant for 3,000,000 shares of common stock at $0.30 per share, which is callable at $0.60 per share. The Preferred Series A and Series C and D Warrants have registration rights upon the closing of the offering. A notice filing under Regulation D will be filed with the SEC upon the closing of the offering.

Common Stock

Unless otherwise indicated, all of the following sales or issuances of Company securities were conducted under the exemption from registration as provided under Section 4(2) of the Securities Act of 1933 (and also qualified for exemption under 4(5), formerly 4(6) of the Securities Act of 1933, except as noted below). All of the shares issued were issued in transactions not involving a public offering, are considered to be restricted stock as defined in Rule 144 promulgated under the Securities Act of 1933 and stock certificates issued with respect thereto bear legends to that effect. 

The Company has compensated consultants and service providers with restricted common stock during the development of our technology and when our capital resources were not adequate to provide payment in cash.

All of the following transactions were to accredited investors.

The following equity issuances occurred during the three months ended December 31, 2014:

On December 14, 2014, we entered into an Advisory Agreement with Lester Garfinkel for financial consulting services. Under the Advisory Agreement, Mr. Garfinkel was awarded 25,000 shares of our common stock. The shares were valued at $0.20 per share by the parties. We expensed $2,500 during the three months ended December 31, 2014 or $0.10, the closing price on December 14, 2014.

Warrants to Purchase Common Stock

The following warrant issuances occurred during the three months ended December 31, 2014:

The Company issued (i) a Series C five year Warrant for 3,000,000 shares of common stock at $0.20 per share, which is callable at $0.40 per share; and (ii) ) a Series D five year Warrant for 3,000,000 shares of common stock at $0.30 per share, which is callable at $0.60 per share. During the three months ended December 31, 2014, the Company sold 3,000,000 Series A Preferred to one accredited investor of Series A Convertible Preferred Stock totaling $300,000 that is convertible into 3,000,000 shares of common stock at $0.10 over the next five years.

During the three months ended December 31, 2014, the Company expensed $0 related to warrants.

A summary of the warrants issued as of December 31, 2014 were as follows:

	December 31, 2014
			Weighted
			Average
			Exercise
	Shares		Price
Outstanding at beginning of period		128,555,286	$	0.175
Issued		6,000,000		0.250
Exercised		-		-
Forfeited		-		-
Expired		-		-
Outstanding at end of period		134,555,286	$	0.178
Exerciseable at end of period		134,555,286

A summary of the status of the warrants outstanding as of December 31, 2014 is presented below:

		December 31, 2014
		Weighted		Weighted				Weighted
		Average		Average				Average
Number of		Remaining		Exercise		Shares		Exercise
Warrants		Life ( In Years)		Price		Exerciseable		Price
	6,330,000		2.86	$	0.10-.13		6,330,000	$	0.10-.13
	52,300,000		3.38		0.150		52,300,000		0.150
	75,925,286		3.59		0.200		75,925,286		0.200
	134,555,286		3.50		0.178		134,555,286		0.178

The significant weighted average assumptions relating to the valuation of the Company’s warrants for the period ended December 31, 2014 were as follows:

Dividend yield	0%
Expected life	3
Expected volatility	90%
Risk free interest rate	0.7%

There were vested warrants of 5,830,000 as of December 31, 2014 with an aggregate intrinsic value of $58,300.