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8. SHAREHOLDERS' EQUITY (DEFICIENCY) | 12 Months Ended
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Dec. 31, 2013
Notes to Financial Statements |
NOTE 8. SHAREHOLDERS' EQUITY (DEFICIENCY) | The Company’s Board of Directors may, without further action by the Company’s stockholders, from time to time, direct the issuance of any authorized but unissued or unreserved shares of preferred stock in series and at the time of issuance, determine the rights, preferences and limitations of each series. The holders of such preferred stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of the Company before any payment is made to the holders of our common stock. Furthermore, the Board of Directors could issue preferred stock with voting and other rights that could adversely affect the voting power of the holders of our common stock. Convertible Series A Preferred Stock The Company has authorized 1,000,000 shares of Convertible Series A Preferred Stock, $0.01 par value. At December 31, 2013 and 2012, there were 510,000 shares issued and outstanding, respectively. The Convertible Series A Preferred Stock is convertible at the rate of one share of common stock for one share of Convertible Series A Preferred Stock. Convertible Series B Preferred Stock The Company has authorized 4,000 shares of Convertible Series B Preferred Stock, $1,000 stated value, 7.5% Cumulative dividend. At December 31, 2013 and 2012, there were no shares issued and outstanding, respectively. Common Stock During the years ended December 31, 2013, the Company issued 977,028 shares of common stock valued at $480,754 for services rendered and issued an aggregate of 3,414,604 shares of common stock for gross proceeds of $1,011,100. During the year ended December 31, 2012, the Company issued an aggregate of 6,043,269 shares of common stock for gross proceeds of $445,000. During the year ended December 31, 2012, the Company issued 374,750 shares of common stock valued at $17,438 to Harold Paul as payment for legal services rendered and 500,000 shares of common stock valued at $15,000 to another attorney as payment for legal services rendered. During the year ended December 31, 2012, the Company issued 432,586 shares of common stock valued at $25,015 to outside consultants and vendors as payment for professional and other services rendered. During the year ended December 31, 2012, the Company issued 100,000 shares of common stock valued at $30,000 to a former director in connection with payment of accrued liabilities. In October 2012, the Company issued 1,440,000 shares of common stock valued at $216,000 to the Company's CEO as consideration for payment of loans payable to the CEO in the amount of $144,000. In connection with this transaction, the Company recognized finance charges of $72,000. At December 31, 2012 the balance owed was $3,988. In October 2012, the Company issued 350,000 shares of common stock valued at $52,500 to the Company's CEO as consideration for payment of accrued compensation in the amount of $35,000. In connection with this transaction, the Company recognized compensation expense of $17,500. During the year ended December 31, 2012 the Company issued 1,500,000 shares of common stock upon conversion of $75,000 principal convertible debentures (see Note 5). The Company also issued 65,947 shares of common stock as payment of interest. Stock Options The Company issued 20,000 options valued at $3,000 to a director in January 2013. The options have an exercise price of $0.15 per share. The options expire in January 2023. The options were valued using the Black-Scholes model using the following assumptions: volatility: 343%; dividend yield: 0%; zero coupon rate: 0.25%; and a life of 10 years. The following table summarizes stock options outstanding as of December 31, 2013:
|  | December 31, 2013 |
|  | Number of Options |  |  | Weighted Average Exercise Price |
Outstanding, January 1, 2013 |  |  | 60,000 |  |  | $ | 1.42 |
Granted |  |  | 20,000 |  |  |  | .15 |
Exercised |  |  | (20,000 | ) |  |  | .15 |
Outstanding, December 31, 2013 |  |  | 60,000 |  |  | $ | 1.42 |
Options outstanding and exercisable by price range as of December 31, 2013 were as follows:
|  |  | Average |  |  |  |
|  |  |  |  |  | Weighted |  |  | Exercisable Options |
|  |  |  |  |  | Remaining |  |  |  |  |  | Weighted |
Outstanding Options |  |  | Contractual |  |  |  |  |  | Average |
Range |  |  | Number |  |  | Life in Years |  |  | Number |  |  | Exercise Price |
$ | 0.05 |  |  |  | 20,000 |  |  |  | 7.02 |  |  |  | 20,000 |  |  | $ | 0.05 |
$ | 2.10 |  |  |  | 40,000 |  |  |  | 6.01 |  |  |  | 40,000 |  |  | $ | 2.10 |
Stock Warrants On October 15, 2012 the Company issued 3,500,000 common stock purchase warrants to the Company's CEO for services. The warrants have an exercise price of $.15 per share and have a 5 year term. They were valued at $524,957 using the Black Scholes model using the following assumptions: volatility - 352%; divided yield - 0%; discount rate - .26% and a life of 5 years. In connection with the issuance of these warrants, the Company recorded compensation expense of $524,957 in the year ended December 31, 2012. On October 15, 2012 the Company issued 4,000,000 common stock purchase warrants to two consultants for services. The warrants have an exercise price of $.15 per share and have a 5 year term. They were valued at $599,952 using the Black Scholes model using the following assumptions: volatility - 352%; divided yield - 0%; discount rate - .26% and a life of 5 years. In connection with the issuance of these warrants, the Company recorded compensation expense of $599,952 in the year ended December 31, 2012. The Company issued 250,000 warrants valued at $37,495 to a consultant in January 2013. The warrants have an exercise price of $0.15 and expire in January 2018. The warrants were valued using the Black-Scholes model with the following assumptions: volatility: 343%; dividend yield: 0%; zero coupon rate: 0.25%; and a life of 5 years. During the year ended December 31, 2013, the Company issued 7,611,000 warrants in connection with convertible debt units and 1,014,800 warrants to the placement agent (see Note 6). These warrants have an initial exercise price of $0.30 per share and expire July 31, 2018. In June 2013, the Company issued 100,000 warrants with an exercise price of $.261 per share to a consultant for services. The warrants were valued at $54,767 using the Black-Scholes model with the following assumptions: volatility, 245%; dividend yield, 0%; zero coupon rate, 0.25%; and a life of 5 years. On September 26, 2013, the Company’s Chief Financial Officer, Christopher Chipman, was granted 300,000 warrants. The warrants have a term of five years and vest 100,000 upon the grant date, 100,000 on September 26, 2014 and 100,000 on September 26, 2015. The exercise price of the warrant is $0.77 per share based on the volume weighted average price of the Company’s common stock for the five days prior to the grant date. If employment is terminated, the terms of any then outstanding warrant held by the holder shall extend for a period ending on the earlier of the date on which such warrant would otherwise expire or three months after such termination of employment and the warrant shall be exercisable to the extent it was exercisable as of the date of termination of employment. Any unvested warrants shall be deemed null and void. The Company utilized the Black-Scholes method to fair value the 300,000 warrants received by this individual totaling $200,476 with the following assumptions: volatility, 179%; expected dividend yield, 0%; risk free interest rate, 1.43%; and a life of 5 years.. For the year ended December 31, 2013, the Company recorded $83,531 in stock based compensation expense on the vested portion of these warrants. The grant date fair value of each warrant was $0.67. The following table summarizes the outstanding common stock warrants as of December 31, 2013:
|  | December 31, 2013 |
|  |  |  |  | Weighted Average |
|  | Number of Warrants |  |  | Exercise Price |
Outstanding, January 1, 2013 |  |  | 10,050,000 |  |  | $ | 0.12 |
Granted |  |  | 9,275,800 |  |  |  | 0.31 |
Exercised |  |  | - |  |  |  | - |
Outstanding, December 31, 2013 |  |  | 19,325,800 |  |  | $ | 0.21 |
Warrants outstanding and exercisable by price range as of December 31, 2013 were as follows:
|  |  | Average |  |  |  |
|  |  |  |  |  | Weighted |  |  | Exercisable Warrants |
|  |  |  |  |  | Remaining |  |  |  |  |  | Weighted |
Outstanding Warrants |  |  | Contractual |  |  |  |  |  | Average |
Range |  |  | Number |  |  | Life in Years |  |  | Number |  |  | Exercise Price |
$ | 0.01 |  |  |  | 1,575,000 |  |  |  | 3.53 |  |  |  | 1,575,000 |  |  | $ | 0.01 |
$ | 0.05 |  |  |  | 975,000 |  |  |  | 3.62 |  |  |  | 975,000 |  |  | $ | 0.05 |
$ | 0.15 |  |  |  | 7,750,000 |  |  |  | 3.80 |  |  |  | 7,750,000 |  |  | $ | 0.15 |
$ | 0.261 |  |  |  | 100,000 |  |  |  | 4.49 |  |  |  | 100,000 |  |  | $ | 0.261 |
$ | 0.30 |  |  |  | 8,625,800 |  |  |  | 4.58 |  |  |  | 8,625,800 |  |  | $ | 0.30 |
$ | 0.77 |  |  |  | 300,000 |  |  |  | 4.74 |  |  |  | 100,000 |  |  | $ | 0.77 |
Unvested warrants outstanding as of December 31, 2013 were as follows:
|  |  | Average |
Unvested Warrants |  |  | Weighted |
Weighted |  |  |  |  |  | Remaining |
Average Exercise Price |  |  | Number |  |  | Contractual Life in Years |
$ | 0.77 |  |  |  | 200,000 |  |  |  | 4.74 |

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- Definition The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.29-31) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21506-112644 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 29, 30, 31 -Article 5 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB TOPIC 4.E) -URI http://asc.fasb.org/extlink&oid=27010918&loc=d3e74512-122707 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section S99 -Paragraph 4 -Subparagraph (SAB TOPIC 4.C) -URI http://asc.fasb.org/extlink&oid=27012166&loc=d3e187143-122770 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Article 4 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 4 -Section C Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 4 -Section E Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(d),(e)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Glossary Preferred Stock -URI http://asc.fasb.org/extlink&oid=6521494 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 04 -Article 3 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21463-112644 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.3-04) -URI http://asc.fasb.org/extlink&oid=27012166&loc=d3e187085-122770 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 11 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21564-112644 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21488-112644 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21484-112644 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph d -Article 4 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6405834&loc=d3e23285-112656 + Details
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