EQUITY TRANSACTIONS

12 Months Ended

Dec. 31, 2013

Convertible Preferred Stock Series – A, B & C

The Company has authorized 5,000,000 shares of preferred stock, with 2,830 shares designated to Series A Preferred and 7,745 shares designated to Series B Preferred and 813 shares designated to Series C Preferred.

The Series A Preferred and Series C Preferred rank senior to the Series B Preferred which ranks senior to the Company’s common stock with respect to the payment of any dividends and amounts upon liquidation or dissolution. Except as required by law, the shares of preferred stock shall be voted together with the shares of common stock and not as a separate class. In addition, so long as 35% of the aggregate amount of the shares of Series A Preferred and Series C Preferred are outstanding, the holders of the outstanding shares voting together as a separate class are entitled to elect up to four directors to the Board and separately vote on a number of defined material actions typically requiring Board approval. Respectively, holders of shares of Series A, B and C Preferred have anti-dilution protections for sale of stock below conversion rate and stock splits and other similar pro rata events.

Series A and Series B

In June 2009, in a private placement pursuant to the Purchase Agreement dated February 9, 2009, with Mosaic, a related party (see Note 9 for further details), the Company agreed to sell 1,330 shares of its Series A Preferred and common stock purchase warrants to purchase an aggregate of 1,083,334 shares of its common stock for an aggregate purchase price of $1.3 million, of which $750,000 was paid by the cancellation of secured indebtedness of the Company owed to MFS, with the remaining $580,000 to be paid in cash. As a condition of closing of this transaction, the outstanding principal balance related to Short Term Notes and Unsecured Debentures of $7.7 million was exchanged for 7,720 shares of Series B Preferred.

In February and March 2013, the Company issued a total of 60 shares of Series A Preferred at $1,000 per share for a total of $60,000 to Mosaic under the existing 2009 Securities Purchase agreement. The net proceeds of the sales were used for general working capital purposes.

As of December 31, 2013, the Company issued a total of 559 shares of Series A Preferred for $558,500 to Mosaic under this Purchase agreement. Each share of Series A Preferred is convertible into 695 shares of common stock. As of December 31, 2013, no shares of Series A Preferred issued to Mosaic have been converted into common stock.

During the year ended December 31, 2012, 150 Series A Preferred shares were converted into 104,250 shares of common stock. During the year ended December 31, 2013 and 2012, 260 and 25 Series B Preferred shares were converted into 288,890 and 13,889 shares of common stock.

Series C

In May 2010, we filed a Certificate of Designation to designate 813 shares of the Company’s preferred stock in Series C Preferred. The rights of the Series C Preferred are identical to Series A Preferred. A consent and waiver was obtained from the majority of the Series A Preferred holders and the majority of the Series B Preferred holders as required in the certificate of designation. Subsequently, the Company issued 813 shares of the Company’s Series C Preferred at a price of $1,000 per share to an existing vendor in exchange for extinguishment of $300,000 in vendor’s secured payable and additional consideration in the form of a modification in vendor terms that are favorable to the Company and additional debt financing at terms that are significantly below market for the Company.

In September 2012, the holders of the majority of Series A, B and C Preferred stock consented to a partial anti-dilution adjustment in conversion price per share to $0.90 per share in the event of the minimum offering being achieved in a private placement of common stock and warrants. In February 2013, the minimum offering was achieved resulting in an adjusted conversion price of $0.90 per share for the Series A, B and C Preferred holders.

In August 2013, the holders of the majority of Series A, B and C Preferred stock consented to the Certificate of Designation of Series D preferred stock, the Series D Preferred Stock agreement with Pinewood Trading Fund, LP, and the increase in authorized common shares from 35,000,000 to 100,000,000.

The table below summarizes the Company’s outstanding convertible preferred stock as of December 31, 2013 and 2012:

	December 31, 2013							December 31, 2012

Convertible Preferred Stock		Number of Preferred Shares		Number of Common Shares if Converted		Weighted Average Conversion Price		Number of Preferred Shares		Number of Common Shares if Converted		Weighted Average Conversion Price

Series A Preferred			1,466		1,629,006	$	0.90		1,406		1,292,492	$	1.09
Series B Preferred			5,124		5,693,344	$	0.90		5,384		2,993,504	$	1.80
Series C Preferred			813		902,778	$	0.90		813		451,750	$	1.80
Total			7,403		8,225,128	$	0.90		7,603		4,737,746	$	1.60

Common Stock

In January 2010, the Company increased the number of authorized shares of its common stock to 16,666,667 in order to meet the reserve requirements of the convertible and other dilutive securities issued, as well as additional capacity for future equity transactions.

In March 2011, the Company’s Board approved an amended and restated certificate of incorporation affecting a 1 for 180 reverse stock split of the Company’s issued and outstanding shares of common stock, effective as of April 15, 2011, (see Note 1 – Reverse Stock Split for further details).

In May 2012, the Company’s Board and a majority of the Company’s shareholders approved an amended and restated articles of incorporation effectuating an increase in the number of authorized common shares of the Company from 16,666,667 to 35,000,000. As required, a consent and waiver was obtained from the majority of the Series A and Series C Preferred holders in accordance with the certificate of designation.

In January 2013, we initiated a securities offering through a private placement for a minimum of 10 units of securities for a minimum of $250,000 and a maximum of 80 units for a maximum of $2,000,000 (subject to increase as much as 100 units for $2,500,000 to cover over-allotments, if any). Each unit consists of (a) 38,462 shares of common stock, valued at $0.65 for $25,000 and (b) 38,462 warrants with an initial exercise price of $0.90 per share. If the maximum offering of 80 units is sold, Assured would have issued an aggregate of 3,076,960 shares of common stock and 3,076,960 warrants in such units. The Company shall have paid the placement agent cash commissions equal to 10% of the gross proceeds received by the Company in this offering and three year warrants to purchase that number of shares of common stock equal to 10% of the aggregate number of shares of common stock and warrant shares included in the units sold in the offering (615,392 shares if all 80 units are sold and 769,240 shares if the over-allotment is exercised in full). The outstanding common stock related to the private placement is subject to certain anti-dilution protection clauses which provide exercise price adjustments in the event that any common stock or common stock equivalents are issued at an effective price per share that is less than the exercise price per share. The Company also agreed that the 38,462 shares of common stock and the 38,462 warrants included in the units are subject to increase, and the $0.65 per share value and the $0.90 warrant exercise prices are subject to decrease, in each case based on the level of the Company’s consolidated net revenues that are derived during our 2013 fiscal year (the “Make-Whole Adjustments”). Such Make-Whole Adjustments are as follows:

Share Price	Warrant Exercise Price	Adjusted Shares per Unit	Adjusted Warrants per Unit	Consolidated 2013 Revenues
$0.65	$0.90	None	None	$21,850,000 or above
$0.60	$0.85	41,667	41,667	From $20,700,000 to $21,849,999
$0.55	$0.80	45,455	45,455	From $19,550,000 to $20,699,999
$0.50	$0.75	50,000	50,000	From $18,400,000 to $19,549,999
$0.45	$0.70	55,556	55,556	From $17,250,000 to $18,399,999
$0.40	$0.65	62,500	62,500	Less than $17,250,000

Each warrant has a term of three years and may be exercised at an initial exercise price of $0.90 per warrant share; which exercise price is, in addition to the potential Make-Whole Adjustment, subject to certain weighted average and other anti-dilution adjustments as provided in the form of warrant. Accordingly, the stock warrants are classified as a warrant liability on the accompanying consolidated balance sheet as of December 31, 2013.

The warrants may only be exercised for cash. However, as provided in the Registration Rights Agreement, after a date which shall be 180 days following the Final Closing Date, there will be a cashless exercise option available to the warrant holders at any time during which a registration statement providing for the resale of the warrant shares is not effective, unless the warrant shares may then be freely tradable without limitation pursuant to an exemption from the registration requirements under the Securities Act.

A consent and waiver was obtained from the majority of the Series A and C preferred holders and a waiver was obtained from a majority of the Series B preferred holders as required in the certificate of designation and a waiver was obtained from all convertible debenture holders that were required. As part of the waiver, the Series A, B, and C preferred holders and 100 percent of the applicable convertible debenture holders agreed to waive anti-dilution adjustments which the consenting holder may be entitled under their respective agreements and accept a partial ratchet anti-dilution adjustment with a decrease in the conversion price of $0.90 per share of the Company securities for this private placement if the minimum unit threshold is met.

From February 2013 to the closing of the private placement in May 2013, the Company completed sales in a private placement to accredited investors for thirty-four and four tenths (34.4) common stock units for a total of 1,323,093 shares of common stock at an aggregate purchase price of $860,000 (before deducting expenses and fees related to the private placement). The Company paid cash fees of $32,800 to the placement agents and issued 50,462 warrants with an exercise price of $0.90 and 50,462 warrants with an exercise price of $0.65 to the placement agent per the agreement. In addition, the Company paid $13,010 in legal and the closing costs on this transaction. The net proceeds of the private placement were used to pay down our outstanding balance with our primary wholesaler and general working capital purposes. As part of the private placement, the investors also received warrants to purchase an aggregate of 1,323,093 shares of the Company’s common stock at an exercise price of $0.90 per share.

In November 2013, the issuance of Series D preferred stock with an effective conversion price of $0.50 per share qualified as a dilutive issuance per the terms of the warrant. No waivers were obtained from the investors regarding the dilutive issuance. The anti-dilution adjustment reduces the exercise price of the existing warrants from $0.90 to $0.50 and results in the issuance of an additional 1,058,475 warrants to the investors and the issuance of an additional 55,508 issued to the placement agents.

Our consolidated net revenues for the fiscal year ending December 31, 2013 were $7,463,113 which included $2,270,536 in revenues from discontinued operations. Since the net revenues are below the Make-Whole Adjustment minimum threshold of $17,250,000, the Company is required to issue an additional 826,907 shares of common stock to the eight investors that participated in the private placement by April 30, 2014. A Make-Whole adjustment for the related warrants is not required due to the anti-dilution adjustment in November 2013, noted above.

In November 2013, the Company’s Board and a majority of the Company’s shareholders approved an Amended and Restated Articles of Incorporation effectuating an increase in the number of authorized common shares of the Company from 35,000,000 to 100,000,000. As required, a consent and waiver was obtained from the majority of the Series A and Series C Preferred holders in accordance with the certificate of designation.

Stock Warrants

2009 Issuances

In connection with the issuance of shares of Series A Preferred to Mosaic in 2009, the Company also issued warrants to purchase shares of common stock. The holder has the right to purchase up to 1,083,334 shares of our common stock at an exercise price equal to $0.09 per share, subject to certain adjustments for stock splits and other similar pro rata events. The warrants may be exercised on a cashless basis at any time until June 30, 2019. As of December 31, 2013, no warrants have been exercised.

The gross value of the warrants was determined using the Black-Scholes option pricing model using the following assumptions on the issuance date: expected stock price volatility of 441.2%, risk free rate of return of 3.5%; dividend yield of 0%, and a ten (10) year term. The net value of the warrant was recorded based on its relative value of $420,487, net of related offering costs on a pro rata basis for all shares involved.

2011 Issuances

As part of the private placements of convertible debentures in 2011, the investors received warrants to purchase an aggregate total of 2,014,655 shares of the Company’s common stock (see Note 4 for further details). The warrants are initially exercisable for a period of three years from the date of issuance at an initial exercise price of $1.512, subject to adjustment. The estimated fair value of these warrants was determined to be $639,189 using the Lattice stock option pricing model on the issuance date, assuming that there will be no dividends, using the applicable exercisable periods, a risk-free interest rate range of (0.33% - 0.93%), and an expected stock volatility range of (65.3% - 82.1%). The investor may exercise the warrant on a cashless basis if the shares of common stock underlying the warrant are not then registered pursuant to an effective registration statement. On November 13, 2012, the Company’s registration on Form S-1 became effective for 2,014,655 shares of the Company’s common stock underlying warrants.

The outstanding warrants are subject certain anti-dilution protection clauses which provide exercise price adjustments in the event that any common stock or common stock equivalents are issued at an effective price per share that is less than the exercise price per share. Accordingly, the stock warrants are classified as a warrant liability on the accompanying consolidated balance sheets as of December 31, 2013 and 2012. From September 2012 to February 2013, all of the investors in 2011 private placements consented to a partial anti-dilution adjustment in exercise price per share to $0.90 per share in the event of the minimum offering being achieved in a private placement of common stock and warrants. In February 2013, the minimum offering was achieved resulting in an adjusted exercise price of $0.90 per share and an increase in the number of warrants per the warrant agreement for an aggregate total warrants to purchase 2,984,625 shares of the Company’s common stock, subject to adjustment for stock dividends, stock splits and related distributions.

As part of the modification and extensions to the 2011 convertible debentures in June, July and September 2012, the exercise period of warrants to purchase an aggregate total of 1,300,368 shares of the Company’s common stock (see Note 4 for further details) were extended from three to five years from the date of issuance at an initial exercise price of $1.512, subject to adjustment. The modifications also resulted in accounting extinguishment treatment resulting in the cancellation and reissuance of warrants to purchase an aggregate total of 1,205,129 shares of the Company’s common stock.

As part of the private placements of convertible debentures in November 2011, the placement agents received warrants to purchase an aggregate total of 129,412 shares of the Company’s common stock (see Note 4 for further details). The warrants are exercisable for a period of three years from the date of issuance at an initial exercise price of $1.26 and $1.52 for 58,824 and 70,588 shares, respectively, subject to adjustment. The estimated fair value of these warrants was determined to be $10,755 using the Lattice stock option pricing model on the issuance date, assuming that there will be no dividends, using the applicable exercisable periods, a risk-free interest rate of 0.41%, and an expected volatility of 65.3%. The placement agent may exercise the warrant on a cashless basis if the shares of common stock underlying the warrant are not then registered pursuant to an effective registration statement. On November 13, 2012, the Company’s registration on Form S-1 became effective for 129,412 shares of the Company’s common stock underlying warrants.

The outstanding warrants are subject certain anti-dilution protection clauses which provide exercise price adjustments in the event that any common stock or common stock equivalents are issued at an effective price per share that is less than the exercise price per share. Accordingly, the stock warrants are classified as a warrant liability on the accompanying consolidated balance sheets as of December 31, 2012. In September 2012 the placement agents consented to a partial anti-dilution adjustment in exercise price per share to $0.90 per share in the event of the minimum offering being achieved in a private placement of common stock and warrants. In February 2013, the minimum offering was achieved resulting in an adjusted exercise price of $0.90 per share and an increase in the number of warrants per the warrant agreement for an aggregate total warrants to purchase 201,571 shares of the Company’s common stock, subject to adjustment for stock dividends, stock splits and related distributions

In November 2013, the issuance of Series D preferred stock with an effective conversion price of $0.50 per share qualified as a dilutive issuance per the terms of the warrant. No waivers were obtained from the three debenture holders that were holding an aggregate total of 800,004 warrants regarding the dilutive issuance. The anti-dilution adjustment reduces the exercise price of the existing warrants from $0.90 to $0.50 and requires the issuance of an additional 640,000 warrants to the three investors.

On December 31, 2013, an aggregate total of 772,625 additional warrants were issued to seven warrant holders as part of the 2013 Tender Offer (See Note 4 2013 Debt Restructuring for further details). Subsequent to the reporting period, an additional 224,000 warrants were issued to a holder of 1,120,005 warrants as part of the modification and extension transaction (See Note 14 for further details).

2012 Issuances

As part of the private placement of convertible debentures in January 2012, the investor received warrants to purchase a total of 48,000 shares of the Company’s common stock (see Note 4 for further details). The warrants are exercisable for a period of three years from the date of issuance at an initial exercise price of $1.512, subject to adjustment. The estimated fair value of these warrants was determined to be $6,741 using the Lattice stock option pricing model on the issuance date, assuming that there will be no dividends, using the applicable exercisable periods, a risk-free rate of return of 0.62%, and an expected stock volatility of 84.7%. As part of the June 2012 amendment to the debenture agreement, the exercise period of the warrants were extended from three years to five years. The investor may exercise the warrant on a cashless basis if the shares of common stock underlying the warrant are not then registered pursuant to an effective registration statement.

The outstanding warrants are subject certain anti-dilution protection clauses which provide exercise price adjustments in the event that any common stock or common stock equivalents are issued at an effective price per share that is less than the exercise price per share. Accordingly, the stock warrants are classified as a warrant liability on the accompanying consolidated balance sheets as of December 31, 2012. In September 2012, the investor consented to a partial anti-dilution adjustment in exercise price per share to $0.90 per share in the event of the minimum offering being achieved in a private placement of common stock and warrants. In February 2013, the minimum offering was achieved resulting in an adjusted exercise price of $0.90 per share and an increase in the number of warrants per the warrant agreement for an aggregate total warrants to purchase 80.640 shares of the Company’s common stock, subject to adjustment for stock dividends, stock splits and related distributions.

As part of the private placement of convertible debentures in July 2012, the investor received warrants to purchase a total of 285,716 shares of the Company’s common stock (see Note 4 for further details). The warrants are exercisable for a period of five years from the date of issuance at an initial exercise price of $1.512, subject to adjustment. The estimated fair value of these warrants was determined to be $108,838 using the Lattice stock option pricing model on the issuance date, assuming that there will be no dividends, using the applicable exercisable periods, a risk-free rate of return of 0.62%, and an expected stock volatility of 94.9%. The investor may exercise the warrant on a cashless basis if the shares of common stock underlying the warrant are not then registered pursuant to an effective registration statement.

The outstanding warrants are subject certain anti-dilution protection clauses which provide exercise price adjustments in the event that any common stock or common stock equivalents are issued at an effective price per share that is less than the exercise price per share. Accordingly, the stock warrants are classified as a warrant liability on the accompanying consolidated balance sheets as of December 31, 2012. From September 2012 through February 2013, the investor consented to a partial anti-dilution adjustment in exercise price per share to $0.90 per share in the event of the minimum offering being achieved in a private placement of common stock and warrants. In February 2013, the minimum offering was achieved resulting in an adjusted exercise price of $0.90 per share and an increase in the number of warrants per the warrant agreement for an aggregate total warrants to purchase 480,002 shares of the Company’s common stock, subject to adjustment for stock dividends, stock splits and related distributions.

On December 31, 2013, 40,320 additional warrants were issued to a holder of 48,000 warrants as part of the 2013 Tender Offer (See Note 4 2013 Debt Restructuring Tender Offer for further details). Subsequent to the reporting period, an additional 96,000 warrants were issued to Hillair Capital Investments, LP a holder of 480,002 warrants as part of the modification and extension transaction (See Note 14 Hillair Debenture Extension for further details).

2013 Issuances

In conjunction with the 2013 private placement of common stock, all of the Company's convertible debenture holders consented to the acceptance of a partial ratchet anti-dilution adjustment of $0.90 per common share. In February 2013, the Company achieved the minimum offering required in the private placement resulting in an increase of an aggregate total of 1,669,056 warrants to our convertible debenture holders and placement agent.

As part of the 2013 private placement of common stock ending in May 2013, the investors also received warrants to purchase an aggregate of 1,323,093 shares of the Company’s common stock. Each warrant has a term of three years and may be exercised at an initial exercise price of $0.90 per warrant share; which exercise price is, in addition to the potential Make-Whole Adjustment, subject to certain weighted average and other anti-dilution adjustments as provided in the form of warrant. The warrants may only be exercised for cash. However, as provided in the Registration Rights Agreement, after a date which shall be 180 days following the Final Closing Date, there will be a cashless exercise option available to the warrant holders at any time during which a registration statement providing for the resale of the warrant shares is not effective, unless the warrant shares may then be freely tradable without limitation pursuant to an exemption from the registration requirements under the Securities Act. The estimated fair value of these warrants was determined to be $243,055 using the Lattice stock option pricing model on the issuance date, assuming that there will be no dividends, using the applicable exercisable periods, a risk-free rate of return range of 0.30% - 0.40% , and an expected stock volatility range of 56.05-60.10%. The investor may exercise the warrant on a cashless basis if the shares of common stock underlying the warrant are not then registered pursuant to an effective registration statement. The outstanding warrants are subject certain anti-dilution protection clauses which provide exercise price adjustments in the event that any common stock or common stock equivalents are issued at an effective price per share that is less than the exercise price per share. In November 2013, the issuance of Series D preferred stock with an effective conversion price of $0.50 per share qualified as a dilutive issuance per the terms of the warrant. No waivers were obtained from the investors regarding the dilutive issuance. The anti-dilution adjustment reduces the exercise price of the existing warrants from $0.90 to $0.50 and the issuance of an additional 1,058,475 warrants to the investors. Accordingly, the stock warrants are classified as a warrant liability on the accompanying consolidated balance sheets as of December 31, 2013.

As part of the 2013 private placement of common stock ending in May 2013, the placement agent received warrants to purchase an aggregate of 100,924 shares of the Company’s common stock. Each warrant has a term of five years and may be exercised at initial exercise prices of $0.65 and $0.90 per warrant share; which exercise price is, in addition to the potential Make-Whole Adjustment, subject to certain weighted average and other anti-dilution adjustments as provided in the form of warrant. The warrants may only be exercised for cash. However, as provided in the Registration Rights Agreement, after a date which shall be 180 days following the Final Closing Date, there will be a cashless exercise option available to the warrant holders at any time during which a registration statement providing for the resale of the warrant shares is not effective, unless the warrant shares may then be freely tradable without limitation pursuant to an exemption from the registration requirements under the Securities Act. The estimated fair value of these warrants was determined to be $32,845 using the Lattice stock option pricing model on the issuance date, assuming that there will be no dividends, using the applicable exercisable periods, a risk-free rate of return of 1.41%, and an expected stock volatility of 81.2%. The investors may exercise the warrant on a cashless basis if the shares of common stock underlying the warrant are not then registered pursuant to an effective registration statement. The outstanding warrants are subject certain anti-dilution protection clauses which provide exercise price adjustments in the event that any common stock or common stock equivalents are issued at an effective price per share that is less than the exercise price per share. In November 2013, the issuance of Series D preferred stock with an effective conversion price of $0.50 per share qualified as a dilutive issuance per the terms of the warrant. No waivers were obtained from the investors regarding the dilutive issuance. The anti-dilution adjustment reduces the exercise price of the existing warrants from $0.90 to $0.50 and the issuance of an additional 55,508 warrants to the placement agents. Accordingly, the stock warrants are classified as a warrant liability on the accompanying consolidated balance sheets as of December 31, 2013.

As part of the exchange of $500,000 in convertible debentures in and related accrued interest in November 2013, the investor received warrants to purchase a total of 833,334 shares of the Company’s common stock (see Note 4 for further details). The warrants are exercisable for a period of three years from the date of issuance at an initial exercise price of $0.60 per share for the first twelve months and $0.75 for the remaining twenty four months of the exercise period, subject to adjustment for stock splits, etc. The estimated fair value of these warrants was determined to be $14,416 using the Black Scholes stock option pricing model on the issuance date, assuming that there will be no dividends, using the applicable exercisable periods, a risk-free rate of return of 0.58%, and an expected stock volatility of 75.08%. The investor may exercise the warrant on a cashless basis if the shares of common stock underlying the warrant are not then registered pursuant to an effective registration statement.

As part of the issuances of Series D Preferred stock in November and December 2013, the investors also received an aggregate of 1,070 Series A Warrants which are exercisable into 2,140,000 common shares and an aggregate of 1,070 Series B Warrants which are exercisable into 2,140,000 common shares. Each warrant has a term of five years and may be exercised at an initial exercise price of $0.50 per warrant share; which exercise price is, in addition to the potential Milestone Adjustment, subject to certain weighted average and other anti-dilution adjustments as provided in the form of warrant. The Series A Warrants may only be exercised for cash. The Series B Warrants may be exercised on a cashless basis at the investor’s election. The estimated fair value of these warrants was determined to be $476,343 using the Lattice stock option pricing model on the issuance date, assuming that there will be no dividends, using the applicable exercisable periods, a risk-free rate of return range of 1.76%, and an expected stock volatility of 94.5%. The outstanding warrants are subject certain anti-dilution protection clauses which provide exercise price adjustments in the event that any common stock or common stock equivalents are issued at an effective price per share that is less than the exercise price per share. Accordingly, the stock warrants are classified as a warrant liability on the accompanying consolidated balance sheets as of December 31, 2013.

Subsequent to the reporting period, an additional 1,712,000 Series A warrants and 1,712,000 Series B warrants were issued as part of the Milestone Provision Adjustment and the exercise price on the previously issued 4,280,000 warrants was adjusted from $0.50 to $0.40 (See Note 14 Milestone Provision Adjustment for further details).

Expected Stock Volatility

Volatility is a measure of the tendency of investment returns to vary around a long-term average rate. Historical volatility is an appropriate starting point for setting this assumption. Companies should also consider how future experience may differ from the past. This may require using other factors to adjust historical volatility, such as implied volatility, peer-group volatility and the range and mean-reversion of volatility estimates over various historical periods. The peer-group utilized consisted of six companies in 2013 and in 2012, in the same or similar industries as the Company. In addition, if a best estimate cannot be made, management should use the mid-point in the range of reasonable estimates for volatility. The Company estimates the volatility of its common stock in conjunction with the Company’s issuance of financing instruments and volatility is calculated utilizing the historical and estimated future volatility of the Company and its peer-group.

Risk-Free Rate of Return

The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option/warrant.

Expected Dividends

The Company has never paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future. Consequently, it uses an expected dividend yield of zero.

Expected Term

The Company uses the related exercise period of the warrant or option as the expected term.

A summary of the warrants issued in connection with financing transactions is presented in the table below:

	Number of Shares			Weighted Average Exercise Price

Outstanding and Exercisable at December 31, 2011		3,227,401		$	1.03

Granted		1,538,844		$	1.51
Exercised		-		$	-
Cancelled, forfeited or expired		(1,205,129	)	$	1.51

Outstanding and Exercisable at December 31, 2012		3,561,116		$	1.08

Granted		6,537,351		$	0.60
Exercised		-		$	-
Cancelled, forfeited or expired		-		$	-
Anti-dilution adjustments:
Initial grant		(3,901,799	)	$	1.28
Initial grant repricing		3,901,799		$	0.77
Additional warrants granted		4,296,447		$	0.60

Outstanding and Exercisable at December 31, 2013		14,394,914		$	0.58

The following table summarizes information about warrants outstanding and exercisable as of December 31, 2013:

		Outstanding						Exercisable
Exercise Price		Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Life (Years)		Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Life (Years)

$	0.09		1,083,334	$	0.09		5.49		1,083,334	$	0.09		5.49

$	0.50		8,963,337	$	0.50		3.68		8,963,337	$	0.50		3.68

$	0.60		2,620,235	$	0.60		5.67		2,620,235	$	0.60		5.67

$	0.90		1,728,008	$	0.90		2.79		1,728,008	$	0.90		2.79