Note 5 – Stockholders’ Deficiency

Options

The Company recorded $-0-, $2,242 and $135,537 of stock based compensation expense for the three and nine months ended September 30, 2013 and for the period from August 4, 2011 (Inception) to September 30, 2013, respectively. As of September 30, 2013, there was no unrecognized compensation expense related to unvested employee stock options not subject to performance criteria.

During the nine months ended September 30, 2013, the Company granted 75,000 options to purchase common stock to certain directors. The options have a 5 year term, vest over one year and have an aggregate grant date fair value of $5,310.

As a result of certain resignations, a total of 1,287,500 options to purchase common stock, issued to employees, were forfeited during the nine months ending September 30, 2013.

COMMON STOCK

In July 2013, pursuant to the terms of the Company’s Series A Cumulative Convertible Preferred Stock, the Company issued 109,728 shares of common stock as the result of a conversion of 100,000 shares of Series A Cumulative Convertible Preferred Stock, and accumulated dividends of $9,728.

PREFERRED STOCK

During the nine months ended September 30, 2013, the Company issued Senior Secured Convertible Notes with an initial conversion price of $1.50 per share (see Note 4). Due to certain ratchet provisions relating to the Company’s Series B Convertible Preferred Stock, the Company reduced the per share conversion price of certain previously issued shares of Series B Convertible Preferred Stock from $1.75 to $1.50. As of September 30, 2013, the Company’s issued and outstanding shares of Series B Convertible Preferred Stock are convertible into an aggregate 361,550 shares of common stock. Since the host Series B Convertible Preferred instrument was deemed to be an equity instrument, the conversion option was considered to have economic characteristics and risks that are clearly and closely related to the host contract and the embedded conversion option was not bifurcated from the host instrument.