Subsequent Events

6 Months Ended

Jun. 30, 2013

7. Subsequent Events

Note Payable to an Affiliate

In September 2013, the Company issued a nine month unsecured note with a face value of $45,000 and 500,000 restricted shares of common stock to an affiliate of the Company in exchange for $54,325 in cash. The imputed annual rate of interest was calculated to be 18.4% and is to be repaid in nine equal monthly installments.

Convertible Debentures and Warrants

From July through March 2014, the Company sold $1,701,113 of 5% Original Issue Discount Unsecured Convertible Debentures (the “Debentures”) to accredited investors for aggregate consideration of $1,616,376. The Debentures mature in six to twelve months, carry a fixed conversion price ranging from $.045 to $0.0573 per share, an annual interest rate ranging from 10% to 16% and are convertible into 37,752,273 shares of common stock at maturity. The Company received net cash proceeds of approximately $1,488,000 after payment of fees and expenses of approximately $128,000. In addition, the Company issued the holders of the Debentures detachable five-year warrants to purchase 18,876,136 additional shares of common stock and issued to the placement agent of the offering warrants to purchase 504,716 shares of common stock all at an exercise price ranging from $0.0745 to $0.090 per share.

In November 2013, the holders of Convertible Debentures with an aggregate face value of $264,211, interest rate of 16% and conversion prices ranging from $0.0573 to $0.099 per share exchanged their debentures for new debentures with a conversion price of $0.045 per share and an interest rate of 10%. In addition, associated with these new Convertible Debentures, the Company increased the face value by $36,895, which was the accrued interest at the time of exchange, to $301,106. The maturity date for the new debentures is November 30, 2014. In addition, the Company issued new five-year warrants to purchase 3,145,662 shares of common stock with an exercise price of $0.09 per share in exchange for warrants to purchase 1,660,948 shares of common stock with exercise prices ranging from $0.0745 to $0.1287 per share.

Common Stock

In November 2013, a holder of a Convertible Debenture with a face value of $210,526 converted his Convertible Debenture into 3,674,101 shares of restricted common stock. In addition, associated with this Convertible Debenture, the Company paid $25,378 in accrued interest by issuing 442,905 shares of common stock.

In February 2014, an affiliate of the Company exercised a portion of his stock options into 931,200 shares of restricted common stock at an exercise price of $0.02 for proceeds to the Company of $18,624.

Subsequent events have been evaluated through the date financial statements are filed with the Securities and Exchange Commission.