NOTE 12 – EQUITY TRANSACTIONS

Common Stock – Authorized common stock of the Company consists of 70,000,000 shares of $.001 par value, of which 47,911,975 shares were issued and outstanding at December 31, 2013.

Preferred Stock – Authorized preferred stock consists of 5,000,000 shares of preferred stock, $.001 par value, no shares of preferred stock are issued and outstanding.

2013 Common Stock Transactions

During 2013, we executed subscription agreements for the sale of units in two separate private placements.

In December 2012, we initiated a private placement (“December 2012 PP”) for the sale of a unit comprised of 200,000 shares and 100,000 warrants for $50,000. Each warrant is exercisable for a period of three years at an exercise price of $.50 per share. A total of 14.58 units (2,916,000 shares) were sold in 2013 for proceeds of $729,000. The fair market value of the common stock warrant was determined using the Black-Scholes valuation model and resulted in a valuation of $.035. As such, the $.25 unit price was allocated $.20 and $.05 to the common stock and warrant, respectively.

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 shares) were sold in 2013 for gross proceeds of $3,212,500 and proceeds net of $254,800 in commission weres $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 $.115. As such, the $.715 unit price was allocated $.60 and $.115 to the common stock and warrant, respectively.

In June 2013, we sold 15,000 shares of common stock for $6,300 or $.42 per share.

In 2013, we issued 112,500 shares of common stock for consulting services valued at $66,100.

On December 31, 2013, the holder of a related party note payable converted the note payable and accrued interest totaling $61,400 into 122,080 shares of common stock (see Note 10).

In 2013 we issued 14,500 shares of common stock upon exercise of a common stock option.

2012 Common Stock Transactions

During 2012, we executed subscription agreements for the sale of units in various private placements. Each unit was priced at $50,000 and was comprised of 250,000 shares our common stock and 125,000 warrants. Each warrant is exercisable for a period of five years at an exercise price of $0.50 per share. Under the 2012 Private Placements, we sold a total of 5,825,000 shares of common stock and 2,912,500 warrants for net cash proceeds of $1,165,000. The fair market value of the common stock warrant was determined using the Black-Scholes valuation model and resulted in a valuation of $.035. As such, the $.20 unit price was allocated $.165 and $.035 to the common stock and warrant, respectively. In 2012 we also sold 200,000 shares of our common stock at $.50 per share to a private investor for cash proceeds of $100,000. In December 2012, we initiated a new private placement comprised of 200,000 shares and 100,000 warrants for $50,000. One unit was subscribed to in 2012.

During 2012, the Company received a subscription receivable of $100,000 for the purchase of two units consisting of 500,000 shares of common stock and 250,000 warrants. As of December 31, 2012 the subscription receivable was still outstanding and the receivable was reported in stockholders equity.

During 2012, the Company issued 3.1 million shares of common stock for services valued at $512,000.

2012 Common Stock Transactions, continued

During 2012, the Company issued 900,000 shares of common stock, valued at $148,500 or $.165 per share, upon the conversion of a delinquent note payable of $446,500 resulting in a gain on debt settlement of $305,800.

During 2012, the Company received $350,000 in return for issuing convertible debt. The convertible debt accrued interest at 8% per annum and was due the earlier of May 31, 2013 or the completion of an additional equity raise of at least $500,000. As an inducement to enter into the convertible debt, the convertible note holders received 350,000 shares of common stock and warrants to purchase 350,000 shares of common stock at $.50 per share exercisable for a period of five years. The convertible debt also contained a conversion feature whereby the payee has the option to convert the note and any accrued and unpaid interest to common stock at a rate of $.20 per share. The proceeds from the convertible debt was allocated to the common stock and warrants based on their relative fair values and the intrinsic value on the embedded conversion feature resulted in an increase in additional paid in capital and a debt discount of $93,900. The fair value of the warrants was approximately $23,000 using the Black-Scholes Option Pricing Model and the fair value of the common stock was approximately $55,000, based on the cash selling price. In 2012, the convertible debt and accrued interest totaling $358,000 was converted into 1,790,400 shares of common stock. The Company recorded a discount related to the common stock, warrants and beneficial conversion feature which was fully amortized upon conversion.

Warrants

In 2013, the Company issued 270,000 warrants for services, all of which vested in 2013. The warrants were valued at $46,200.

In 2013, the Company extended warrants that were due to expire in 2013 to April 30, 2014. The Company recorded an expense of $11,500 in connection with these extensions.

In September 2010 the Company issued warrants to purchase 250,000 shares of the Company’s common stock, of which 48,217 vested in 2012. The Company recorded consulting expense of $6,900 in 2012. In 2012 the Company issued 200,000 warrants, of which 150,000 vested in 2012 and the remaining 50,000 vested in 2013. The exercise price is $0.40. The Company recorded $14,300 of expense in 2012.

A summary of warrant activity for the years ended December 31, 2013 and December 31, 2012 is presented as follows: