NOTE 15 - STOCK PURCHASE WARRANTS AND OPTIONS

Warrants

Following is a summary of warrants outstanding:

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.

Options

Following is a summary of options outstanding:

On January 1, 2013 the Company granted options to purchase 650,000 shares of common stock to its independent directors. The options have an exercise price of $0.02 per share, a five-year term, vest on January 1, 2014¸ and are subject to continuing service as a director. The options were valued using the Black-Scholes model using a volatility of 508.21%, an expected term of 5 years and an interest rate of 0.76%. The options are valued at $14,500 and will be recognized as expense over the requisite service period.

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.