NOTE 11 – EQUITY TRANSACTIONS

In October 2013, we initiated a private placement ("October 2013 PP") for the sale of a unit comprised of 70,000 shares and 35,000 warrants for $50,000. Each warrant is exercisable for a period of five years at an exercise price of $1.00 per share. A total of 64.25 units (4,497,500 common shares and 2,248,750 warrants) were sold in 2013 for gross proceeds of $3,212,500 and proceeds net of $254,800 in offering costs were $2,957,700. In addition to the commission, a warrant was issued for 50,000 shares, exercisable for a period of five years at $1.00 per share. The fair market value of the common stock warrant was determined using the Black-Scholes valuation model and resulted in a valuation of $0.115. As such, the $0.715 unit price was allocated $0.60 and $0.115 to the common stock and warrant, respectively.

During the nine months ended September 30, 2014, we sold a total of 4.125 Units (consisting of 1,155,000 shares of common stock and 577,500 warrants) for gross proceeds of $825,000 less $49,000 in offering costs for net proceeds of $776,000.

During the nine months ended September 30, 2014, the Company issued 472,841 shares of common stock in connection with the cashless exercise of 796,700 common stock options.

During the nine months ended September 30, 2014, the Company issued 1,324,000 shares of common stock in connection with the exercise of warrants at $0.50 per share, resulting in proceeds of $662,000.

During the nine months ended September 30, 2014, we issued 500,000 shares of common stock for consulting services valued at $550,000. The consulting services are related to financial advisory services, potential strategic acquisition evaluations, strategic planning and market evaluations.

During the nine months ended September 30, 2014, we issued 1,200,000 shares of common stock for a 15% equity interest in a related entity, valued at $1,212,000 and we issued 1,000,000 shares of common stock to a related party for intellectual property, valued at $1,050,000. (See Note 10.)

Stock Options

We do not have a qualified stock option plan, but have issued stock purchase warrants and stock options on a discretionary basis to employees, directors, service providers and outside consultants.

During the three months ended September 30, 2014, we granted 70,000 options to purchase common stock, with a weighted-average exercise price of $1.10 and a weighted-average fair value of $0.38 per option. During the nine months ended September 30, 2014, we granted 670,000 options to purchase common stock, with a weighted-average exercise price of $1.01 and a weighted-average fair value of $0.67 per option.

During the three and nine months ended September 30, 2013, we granted 555,000 and 855,000 options, respectively to purchase common stock, with a weighted-average exercise price of $0.71 and $0.72, respectively, and a weighted-average fair value of $0.30 and $0.28, respectively, per option.

During the three and nine months ended September 30, 2014, 30,700 and 796,700 stock options were exercised, respectively, with a weighted-average exercise price of $0.50 and $0.51, respectively. Additionally, 117,000 stock options were forfeited during the three and nine months ended September 30, 2014, with a weighted-average exercise price of $0.96.

NOTE 11 – EQUITY TRANSACTIONS, continued

During the three months ended September 30, 2013, no options were exercised. During the nine months ended September 30, 2013, 45,900 stock options were exercised, with a weighted-average exercise price of $0.50. No options were forfeited during the three and nine months ended September 30, 2013.

All options issued were valued using the Black-Scholes option pricing model. The table below sets forth the assumptions used in valuing such options.

Equity-based compensation expense related to options granted is amortized on a straight-line basis over the service period during which the right to exercise such options fully vests. For the three and nine months ended September 30, 2014, our equity-based compensation expense related to options was $45,000 and $180,000, respectively, which was included in “Selling, general and administrative expenses” in our Condensed Consolidated Statements of Operations. For the three and nine months ended September 30, 2013, our equity-based compensation expense related to options was $16,600 and $27,600, respectively, which was included in “Selling, general and administrative” in our Condensed Consolidated Statements of Operations. As of September 30, 2014, $332,600 of such expense remained unrecognized which reflects the unamortized portion of the value of such options issued.

Non-controlling Interest

The non-controlling interest presented in our condensed consolidated financial statements reflects a 46% non-controlling equity interest in PWS (see Note 7) and a 15% non-controlling equity interest in Reach. Net loss attributable to non-controlling interest, as reported on our condensed consolidated statements of operations, represents the net loss of PWS and Reach attributable to the non-controlling equity interest. The non-controlling interest is reflected within stockholders’ equity on the condensed consolidated balance sheet.