Stockholders' Deficiency

3 Months Ended

Mar. 31, 2014

Notes to Financial Statements

Note 8. STOCKHOLDERS' DEFICIENCY

Stock Sales

During the year ended December 31, 2013, the company sold 7,187,500 shares of stock and warrants (one share of stock and one warrant equals one unit) as part of a private placement memorandum; 1,000,000 of the units were sold for $.25 per unit with the stock warrants exercisable at $.36 per share, 250,000 of the units were sold for $.20 per unit with the stock warrants exercisable at $.24 per share and 5,937,500 of the units were sold to existing private placement investors for $.16 per unit with the stock warrants exercisable at $.24 per share. Additionally, stock options and warrants were exercised for the purchase of 906,162 shares at a purchase price ranging from $.0032 to $.021 per share.

Options

On February 1, 2012, the Board approved and granted 600,000 stock options to three of its employees, with an exercise price of $.25 per share with a vesting schedule of 60% on the first anniversary of the grant, 20% on the second anniversary of the grant and the final 20% on the third anniversary of the grant. On November 26, 2012, the Board approved and granted 3,000,000 stock options to the Company’s president and CEO, with an exercise price of $.25 per share with a vesting schedule of 33 and 1/3% on the first anniversary of the grant, 33 and 1/3% on the second anniversary of the grant and the final 33 and 1/3% on the third anniversary of the grant.

The following table summarizes the activity for all stock options:

	Number of Options			Range of Exercise Price		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years		Weighted Average Grant Date Fair Value
Outstanding options as of January 1, 2013		44,725,371		$	.00320-$.25000	$	.01993		6.08	$	.03561
Options granted		-
Options cancelled/expired		(3,370,248	)	$	.02131-	$	.02131		-	$	.01168
				$	.00320
Options exercised		(593,618	)	$	.02131	$	.01819		5.78	$	.02433
Outstanding options as of December 31, 2013		40,761,505		$	.00320-$.25000	$	.03704		5.55	$	.03285
Options granted		-			-		-		-		-
Options cancelled/expired		-			-		-		-		-
Options exercised		-			-		-		-		-
Outstanding options as of March 31, 2014		40,761,505		$	.00320-$.25000	$	.03704		5.30	$	.03285

The following table provides information about options under the Plan that are outstanding and exercisable as of March 31, 2014: 

		Options Outstanding			Options Exercisable
Exercise Price		As of December 31, 2013		Weighted Average Contractual Life Remaining	As of December 31, 2013
$	.00320		10,056,677	5.51 years		10,056,677
$	.02131		27,104,828	4.80 years		27,104,828
$	.25000		3,600,000	8.52 years		1,480,000
			40,761,505			38,641,505

Included in the above table are 6,541,614 options to non-employees and 34,219,891 to officers, directors and employees of the Company.

Warrants

The Company has 19,411,928 and 18,154,428 warrants outstanding as of March 31, 2014 and December 31, 2013, respectively. For the period ending March 31, 2014, 1,527,500 warrants were issued at an exercise price of $0.24 as follows: 1,340,000 warrants were issued in connection with the new debt issuances and debt modifications and the Company issued 187,500 warrants in exchange for services.

On October 18, 2013, the Company extended any unexpired Common Stock Purchase Warrants for one additional year for all unexpired warrants issued in connection with investments in the PPM and the follow-up PPM.

This table summarizes the activity for all warrants: 

	Number of	Exercise
	Warrants	Price	Expiration Date
Outstanding Warrants from
January 1, 2011	1,291,928	$.02131	July, 2015
Warrants Granted	400,000	$.36000	October, 2014
	400,000	$.36000	November, 2014
	200,000	$.36000	December, 2014
	225,000	$.25000	July, 2014
Outstanding Warrants from		$.02131-	Expiration dates
December 31, 2011	2,516,928	$.36000	As listed above
Warrants Granted	312,500	$.00500	May, 2014
	900,000	$.36000	January, 2015
	200,000	$.36000	February, 2015
	100,000	$.36000	March, 2015
	80,000	$.36000	April, 2014
	1,460,000	$.36000	April, 2015
	80,000	$.36000	May, 2014
	320,000	$.36000	May, 2015
	80,000	$.36000	June, 2014
	340,000	$.36000	June, 2015
	80,000	$.36000	July, 2014
	120,000	$.36000	July, 2015
	80,000	$.36000	August, 2014
	40,000	$.36000	September, 2014
	2,500,000	$.24000	May, 2016
	200,000	$.24000	June, 2016
	500,000	$.24000	September, 2015
	100,000	$.24000	October, 2016
Outstanding Warrants from		$.00500-	Expiration dates
December 31, 2012	10,009,428	$.36000	As listed above
Warrants Granted	120,000	$.36000	January, 2015
	40,000	$.36000	February, 2015
	40,000	$.36000	March, 2015
	1,000,000	$.36000	March, 2016
	40,000	$.36000	April, 2015
	40,000	$.36000	May, 2015
	3,906,250	$.24000	May, 2016
	62,500	$.24000	June, 2015
	312,500	$.24000	June, 2016
	62,500	$.24000	July, 2015
	250,000	$.24000	July, 2016
	62,500	$.24000	August, 2015
	62,500	$.24000	September, 2015
	781,250	$.24000	September, 2016
	62,500	$.24000	October, 2015
	156,250	$.24000	October, 2016
	62,500	$.24000	November, 2015
	781,250	$.24000	November, 2016
	62,500	$.24000	December, 2015
Outstanding Warrants from		$.00500-	Expiration dates
December 31, 2013	17,914,428	$.36000	As listed above
Warrants Granted	62,500	$.24000	January, 2016
	1,340,000	$.24000	January, 2017
	62,500	$.24000	February, 2016
	62,500	$.24000	March, 2016
Outstanding Warrants as of		$.00500-	Expiration dates
March 31, 2014	19,441,928	$.36000	As listed above

The warrants for 1,219,928 shares issued prior to January 1, 2011, include certain provisions that protect the holders from a decline in the stock price of the Company. As a result of those provisions, the Company recognizes the warrants as liabilities at their fair values on each reporting date.

As shown in footnote 6, the Company has recorded a warrant liability of $148,280 and $159,330 as of March 31, 2014 and December 31, 2013, respectively, which is based on the Black-Scholes valuation model to estimate the fair value of the warrants.

The significant assumptions considered by the model were the remaining term of the warrants, the fair value per share stock price of $.16 and $.17, a risk free treasury rate for 1.25 years and 1.5 years of .2075% and .2600% at March 31, 2014 and December 31, 2013, respectively and an expected volatility of 60%.