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8. SHAREHOLDERS' EQUITY (DEFICIENCY) | 6 Months Ended
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Jun. 30, 2014
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 June 30, 2014 and December 31, 2013, 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 June 30, 2014 and December 31, 2013, there were no shares issued and outstanding, respectively. Common Stock During the six months ended June 30, 2014, the Company issued 35,949 shares of common stock valued at approximately $15,428 for professional services rendered. In addition, the Company issued 14,599 shares of common stock valued at $6,000 to Harold Paul, Director, as payment for legal services rendered. The Company also issued 230,000 shares to the Rolyn Companies, Inc. (“Rolyn”) for labor and services support (See Note 9). During the six months ended June 30, 2014, the Company issued 78,125 shares as consideration for payment of accrued compensation to the CEO amounting to $25,000. 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 Company issued 20,000 options valued at $8,723 to a director in January 2014. The options have an exercise price of $0.44 per share. The options expire in January 2024. The options were valued using the Black-Scholes model using the following assumptions: volatility: 233%; dividend yield: 0%; zero coupon rate: 1.72%; and a life of 10 years. The following table summarizes stock options outstanding as of June 30, 2014:
|  | June 30, 2014 |
|  | Number of Options |  |  | Weighted Average Exercise Price |
Outstanding, January 1, 2014 |  |  | 60,000 |  |  | $ | 1.42 |
Granted |  |  | 20,000 |  |  |  | .44 |
Exercised |  |  | - |  |  |  | - |
Outstanding, June 30, 2014 |  |  | 80,000 |  |  | $ | 1.17 |
Options outstanding and exercisable by price range as of June 30, 2014 were as follows:
Outstanding Options |  |  | Average Weighted |  |  | Exercisable Options
Range |  |  | Number |  |  | Remaining Contractual Life in Years |  |  | Number |  |  | Weighted Average Exercise Price
$ | 0.05 |  |  |  | 20,000 |  |  |  | 6.52 |  |  |  | 20,000 |  |  | $ | 0.05
$ | 2.10 |  |  |  | 40,000 |  |  |  | 5.52 |  |  |  | 40,000 |  |  | $ | 2.10
$ | 0.44 |  |  |  | 20,000 |  |  |  | 9.52 |  |  |  | 20,000 |  |  | $ | 0.44
Stock Warrants 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 $208,022 with the following assumptions: volatility, 179%; expected dividend yield, 0%; risk free interest rate, 1.43%; and a life of 5 years. For the six months ended June 30, 2014, the Company recorded approximately $39,000 in stock based compensation expense on the vested portion of these warrants. The grant date fair value of each warrant was $0.67. On February 11, 2014, as part of the employment agreements entered into with its three executive officers, the Board of Directors approved the grant of 3,000,000 stock warrants to each of them as executive compensation. The warrants have a term of five years and vest as follows: 1,000,000 warrants will vest upon issuance; 1,000,000 warrants will vest as of February 11, 2015, and 1,000,000 warrants will vest as of February 11, 2016. The exercise price of the warrants is $0.30 per share based on the closing price of the Company’s common stock on the grant date of $0.32. 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 immediately vest on termination. The Company utilized the Black-Scholes method to fair value the 3,000,000 warrants received by these individuals totaling approximately $952,000 for each executive with the following assumptions: volatility, 233%; expected dividend yield, 0%; risk free interest rate, 1.54%; and a life of 5 years. The grant date fair value of each warrant was $0.32. On February 11, 2014, the Company’s Board of Directors approved the granting of 300,000 stock warrants to its CFO as incentive compensation. The warrants have a term of five years and vest as follows: 100,000 warrants will vest upon issuance; 100,000 warrants will vest as of February 11, 2015, and 100,000 warrants will vest as of February 11, 2016. The exercise price of the warrants is $0.30 per share based on the closing price of the Company’s common stock on the grant date of $0.32. 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 immediately vest on termination. The Company utilized the Black-Scholes method to fair value the 300,000 warrants received by the Company’s executive totaling approximately $95,000 with the following assumptions: volatility, 233%; expected dividend yield, 0%; risk free interest rate, 1.54%; and a life of 5 years. The grant date fair value of each warrant was $0.32. For the six months ended June 30, 2014, the Company recorded approximately $1,406,000 in stock based compensation expense on the vested portion of the warrants issued to executives. The following table summarizes the outstanding common stock warrants as of June 30, 2014:
|  | June 30, 2014 |
|  |  |  |  | Weighted Average |
|  | Number of Warrants |  |  | Exercise Price |
Outstanding, January 1, 2014 |  |  | 19,325,800 |  |  | $ | 0.21 |
Granted |  |  | 9,300,000 |  |  |  | 0.30 |
Exercised |  |  | - |  |  |  | - |
Outstanding, June 30, 2014 |  |  | 28,625,800 |  |  | $ | 0.24 |
Warrants outstanding and exercisable by price range as of June 30, 2014 were as follows:
Outstanding Warrants |  |  | Average Weighted |  |  | Exercisable Warrants
Range |  |  | Number |  |  | Remaining Contractual Life in Years |  |  | Number |  |  | Weighted Average Exercise Price
$ | 0.01 |  |  |  | 1,575,000 |  |  |  | 3.04 |  |  |  | 1,575,000 |  |  | $ | 0.01
$ | 0.05 |  |  |  | 975,000 |  |  |  | 3.12 |  |  |  | 975,000 |  |  | $ | 0.05
$ | 0.15 |  |  |  | 7,750,000 |  |  |  | 3.30 |  |  |  | 7,750,000 |  |  | $ | 0.15
$ | 0.261 |  |  |  | 100,000 |  |  |  | 3.99 |  |  |  | 100,000 |  |  | $ | 0.261
$ | 0.30 |  |  |  | 17,925,800 |  |  |  | 4.36 |  |  |  | 11,725,800 |  |  | $ | 0.30
$ | 0.77 |  |  |  | 300,000 |  |  |  | 4.24 |  |  |  | 100,000 |  |  | $ | 0.77
Unvested warrants outstanding as of June 30, 2014 were as follows:
Unvested Warrants |  |  | Average Weighted
Weighted Average Exercise Price |  |  | Number |  |  | Remaining Contractual Life in Years
$ | 0.77 |  |  |  | 200,000 |  |  |  | 4.24
$ | 0.30 |  |  |  | 6,200,000 |  |  |  | 4.62

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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 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 2: 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 3: 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 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 SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 4 -Section C Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 4 -Section E Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Article 4 Reference 8: 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 9: 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 10: 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 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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