5. STOCKHOLDERS EQUITY

9 Months Ended

Sep. 30, 2013

Equity [Abstract]

STOCKHOLDERS EQUITY

Preferred Stock

It is the Company’s intention to initiate an offering (the “Series C Offering”) of a new Series C Preferred Stock (“Series C Preferred”) during the fourth quarter of 2013. In anticipation of the Series C Offering, the Company has received advance subscriptions in the amount of $569,000 from outside investors, which amounts are reflected as a Stock Subscription Payable under Current Liabilities on the Company’s balance sheet. If the Series C Offering is not consummated, the Company will be obligated to return the advanced funds.

Common Stock

In January of 2013, $5,760 was received and 240,000 shares of common stock were issued in an exercise of warrants.

On January 30, 2013, 74,993 shares of stock with a market value of $3,382 were issued according to the terms of the Forbearance Agreement related to the June 21, 2011 Note Payable (see Note 3 "Significant Transaction - Forbearance Agreement").

On February 4, 2013, 400,000 shares of common stock were issued in conversion of $9,688 of the May 30, 2012 Convertible Note and on February 19, 2013, 1,587,301 shares were issued in conversion of $50,000 of debentures.  The Company issued an additional 500,000 shares of common stock with a market value of $40,000 to a consultant on February 21, 2013, according to the terms of the engagement agreement.

In February of 2013, 400,000 shares of common stock were issued in conversion of $12,880 of the May 30, 2012 Convertible Note. The Company also issued 500,000 shares of common stock with a market value of $40,000 to a consultant according to the terms of the engagement agreement.

On April 2, 2013, the Company issued 350,000 shares of common stock in conversion of $13,802 of principal and interest on the May 30, 2012 Convertible Note.  On April 4, 2013, the Company issued 500,000 shares of common stock with a market value of $41,000 to a consultant according to the terms of the engagement agreement. On April 4, 2013, the Company issued 300,000 shares of common stock with a market value of $24,600 to a consultant according to the terms of the engagement agreement.

On May 13, 2013, the Company issued 288,603 shares of common stock in conversion of $12,525 of principal and interest on the May 30, 2012 Convertible Note.  On May 8, 2013, the Company issued 1,948,051 shares of common stock in conversion of $75,000 of principal of the 2012 Debentures and 500,000 shares of common stock with a market value of $35,000 to a consultant according to the terms of the engagement agreement.

On June 4, 2013, the Company issued 1,029,334 shares of common stock in the cashless exercise of 1,299,769 stock purchase warrants and 500,000 shares of common stock with a market value of $32,500 to a consultant according to the terms of the engagement agreement.  On June 24, 2013, the Company also issued 350,000 shares of common stock in conversion of $15,027 of principal of unrelated party debt.

On July 11, 2013, the Company issued 250,000 shares of Common Stock with a market value of $17,250 to various sales representatives as part of a sales incentive program. On July 16, 2013, the Company issued 304,361 shares of Common Stock in conversion of $13,848 of principal and interest on the May 30, 2012 Convertible Note. On July 17, 2013, the Company issued 100,000 shares of common stock with a market value of $7,500 to a consultant according to the terms of the engagement agreement.  On July 26, the Company issued 102,459 shares of Common stock with a market value of $6,148 for an extension of the Tonaquint forbearance agreement.

On August 13, 2013, the Company issued 380,000 shares of Common Stock in conversion of $13,832 of principal on the May 30, 2012 Convertible Note. On August 15, 2013, the Company issued 100,000 shares of common stock with a market value of $5,700 to a consultant according to the terms of the engagement agreement and 2,435,064 shares of Common Stock in conversion of $75,000 of debentures.

On September 2, 2013, the Company issued 415,667 shares of Common Stock in conversion of $15,043 of principal and interest on the May 30, 2012 Convertible Note. On September 13, 2013, the Company issued 100,000 shares of common stock with a market value of $6,300 to a consultant according to the terms of the engagement agreement. On September 25, the Company issued 110,668 shares of Common stock with a market value of $7,083 for an extension of the Tonaquint forbearance agreement.

Warrants

A summary of the status of the warrants granted for the nine month period ended September 30, 2013, and changes during the period then ended is presented below:

For the Nine Months Ended September 30, 2013
	Shares		Weighted Average Exercise Price
Outstanding at beginning of period		12,099,968	$	0.65
Granted		7,115,544		0.15
Exercised		1,539,769		0.02
Forfeited		375,000		0.09
Expired		375,000		1.00
Outstanding at end of period		16,925,743	$	0.38

On June 19, 2013, the Company issued a total of 725,000 stock purchase warrants with a five year term to a lender as part of a note payable agreement.  Of the 725,000 warrants issued, 350,000 are immediately exercisable at $0.09 per share.  The remaining 375,000 warrants are exercisable at $0.09 per share only upon the Company’s default under the terms of the note payable agreement. The original value of the warrants calculated using the American Option Binomial Model was $46,400.

On June 25, 2013, the company issued 175,000 stock purchase warrants to a lender related to a note purchase agreement.  The five year warrants are immediately exercisable into common stock at $0.09 per share.  The original value of the warrants calculated using the American Option Binomial Model was $12,950.

On August 12, 2013 the Company issued 200,000 stock purchase warrants with a five year term to a lender as part of a note payable agreement.  The warrants are immediately exercisable at $0.075 per share.  The original value of the warrants calculated using the American Option Binomial Model was $11,200.

On September 26, 2013, the Company issued the WelldDyne Warrant (see Note 3 “Significant Transactions”). The warrant allows the purchase shares of the Company’s Common Stock equal to the lesser of (a) 4.9% of the issued and outstanding Common Stock (on a fully-diluted basis), or (b) 4,500,000 shares. The WellDyne Warrant has a term of five years and an exercise price of $0.06, subject to adjustment as provided for therein. The original value of the warrants calculated using the American Option Binomial Model was $306,000.

On September 30, 2013, the Company recorded 1,515,544 warrants exercisable at $0.44 per share.  The warrants have an expiration date of August 22, 2016 and were issued to an advisory and investment services firm.

		As of September 30, 2013						As of September 30, 2013
		Warrants Outstanding						Warrants Exercisable
Range of Exercise Prices		Number Outstanding		Weighted-Average Remaining Contract Life		Weighted- Average Exercise Price		Number Exercisable		Weighted-Average Exercise Price
$	0.06		4,500,000		5.0	$	0.06		4,500,000	$	0.06
	0.08		550,000		4.4		0.08		550,000		0.08
	0.09		1,125,000		4.6		0.09		750,000		0.09
	0.15		1,571,300		3.9		0.15		1,571,300		0.15
	0.25		120,000		2.1		0.25		120,000		0.25
	0.40		1,299,999		1.0		0.40		1,299,999		0.40
	0.44		1,515,544		2.9		0.44		1,515,544		0.44
	0.50		2,614,450		0.7		0.50		2,614,450		0.50
	0.60		975,000		3.0		0.60		975,000		0.60
	0.75		120,000		2.1		0.75		120,000		0.75
	1.00		2,534,450		0.6		1.00		2,534,450		1.00
$	0.06-1.00		16,925,743		2.9	$	0.38		16,550,743	$	0.38

Stock Options

A summary of the status of the stock options granted for the nine month period ended September 30, 2013, and changes during the period then ended is presented below:

For the Nine Months Ended September 30, 2013
	Options		Weighted Average Exercise Price
Outstanding at beginning of period		5,043,500	$	0.15
Granted		-		-
Exercised		-		-
Forfeited		1,100,000	$	0.15
Expired		-		-
Outstanding at end of Period		3,943,500	$	0.15

		As of September 30, 2013						As of September 30, 2013
		Stock Options Outstanding						Stock Options Exercisable
Exercise Price		Number Outstanding		Weighted-Average Remaining Contract Life		Weighted- Average Exercise Price		Number Exercisable		Weighted-Average Exercise Price
$	0.15		3,943,500		3.89		0.15		3,510,165	$	0.15