NOTE 16 - STOCK PURCHASE WARRANTS AND OPTIONS

A summary of the Company's warrant activity December 31, 2012 and December 31, 2011 is presented below:

Warrants

Following is a summary of warrants outstanding:

		For the Year Ended
		December 31, 2012								December 31, 2011
		Shares				Weighted Avg Exercise Price				Shares				Weighted Avg Exercise Price
Outstanding at beginning of period			3,300,000			$	0.14				-				-
Granted			4,470,000			$	0.09				3,300,000			$	0.14
Exercised			-				-				-				-
Forfeited			2,750,000			$	0.10				-				-
Expired			-				-				-				-
Outstanding at end of period			5,020,000			$	0.09				3,300,000			$	0.14
Exercisable at end of period			5,020,000			$	0.09				3,300,000			$	0.14
Weighted average grant date fair value						$	0.06							$	0.10
Weighted average remaining contractual term							3.96								4.03

On August 15, 2012, warrants to purchase 1,320,000 shares of common stock at $0.10 per share were issued to a related party in conjunction with a convertible note. The warrants were valued using the Black-Scholes model with a dividend rate of 0%, volatility of 462.61%, risk free interest rate of .102% and a term of 5 years.

On May 11, 2012 warrants to purchase 275,000 shares of common stock at $0.10 per share were issued to an existing accredited investor in conjunction with a convertible note. As consideration for this further investment, the 250,000 existing warrants with a strike price $.10 were cancelled and reissued with a strike price of $0.075 per share. The new and existing warrants were both valued on the modification date using the Black-Scholes model with a dividend rate of 0%, volatility of 462.61%, a risk free interest rate of 0.89% and a term of 5 years and 3 years, respectively. There was no additional expense resulting from the modification.

On February 24, 2012 warrants to purchase 1,375,000 shares of common stock at $0.10 per share were issued to an existing accredited investor in conjunction with a convertible note. As consideration for this further investment, the 1,250,000 existing warrants with a strike price $.10 were cancelled and reissued with a strike price of $0.075 per share. The new and existing warrants were valued on the modification date using the Black-Scholes model with a dividend rate of 0%, volatility of 462.61%, a risk free interest rate of 0.89% and a term of 5 years. There was no additional expense resulting from the modification.

On July 18, 2011, warrants to purchase 1,250,000 shares of common stock at $0.10 per share were issued to an accredited investor in conjunction with a convertible note. The warrants were valued using the Black-Scholes model with a dividend rate of 0%, volatility of 347.62%, a risk free interest rate of 1.45% and a term of 5 years.

On July 15, 2011, warrants to purchase 1,250,000 shares of common stock at $0.10 per share were issued to an accredited investor in conjunction with a convertible note. The warrants were valued using the Black-Scholes model with a dividend rate of 0%, volatility of 347.62%, a risk free interest rate of 1.46% and a term of 5 years.

On July 14, 2011, warrants to purchase 250,000 shares of common stock at $0.10 per share were issued to an accredited investor in conjunction with a private offering. The warrants were valued using the Black-Scholes model with a dividend rate of 0%, volatility of 347.62%, a risk free interest rate of .66% and a term of 3 years.

On May 16, 2011, warrants to purchase a total of 500,000 shares of common stock at $0.10 per share were issued to three accredited investors in conjunction with a private offering. The warrants were valued using the Black-Scholes model with a dividend rate of 0%, volatility of 347.62%, a risk free interest rate of .93% and a term of 3 years.

On January 7, 2011, warrants to purchase 50,000 shares of common stock at $0.10 per share were issued to an accredited investor in conjunction with a private offering. The warrants were valued using the Black-Scholes model with a dividend rate of 0%, volatility of 347.62%, a risk free interest rate of 1.02% and a term of 3 years.

A summary of the Company's option activity December 31, 2012 and December 31, 2011 is presented below:

Options

Following is a summary of options outstanding:

 

		For the Year Ended
		December 31, 2012								December 31, 2011
		Shares				Weighted Avg Exercise Price				Shares				Weighted Avg Exercise Price
Outstanding at beginning of period			-				-				15,000,000			$	3.000
Granted			350,000			$	0.035				-				-
Exercised			-				-				-				-
Forfeited			-				-				-				-
Expired			-				-				15,000,000			$	3.000
Outstanding at end of period			350,000			$	0.035				-				-
Exercisable at end of period			100,000			$	0.035				-				-
Weighted average grant date fair value						$	0.04								-
Weighted average remaining contractual term							4.59								-

On August 2, 2012, the Company issued 250,000 options valued at $0.04 per options for a total of $10,000 to its President and CFO. The options vest equally every six months over a three year period. The options were valued using the Black-Scholes model with a dividend rate of 0%, volatility of 462.61%, risk free interest rate of 0.61% and a term of 5 years. The expense in 2012 was not material.

On August 2, 2012, the Company issued 100,000 options to its new Chief Operating Officer. The options vest equally every six months over a three year period. The options were valued at $0.04 per option using the Black-Scholes model with a dividend rate of 0%, volatility of 462.61%, risk free rate of 0.61% and a term of 5 years. On December 21, 2012, the COO was terminated. As part of the settlement agreement, all 100,000 options immediately vested and the Company recognized $4,000 total expense.

On July 7, 2009 three consultants were issued a series of options as follows:

1,000,000 share option to acquire shares at $1.00 per share

1,000,000 share option to acquire shares at $2.00 per share

1,000,000 share option to acquire shares at $3.00 per share

1,000,000 share option to acquire shares at $4.00 per share

1,000,000 share option to acquire shares at $5.00 per share

These options expired on August 1, 2011.