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CAPITAL TRANSACTIONS

9 Months Ended

Sep. 30, 2015

Capital transactions during the nine months ended September 30, 2015:

	·	In January 2015, the Company issued 1,000,000 shares of common stock to a party for services with a total value $90,000.

	·	In March 2015, the Company issued 1,000,000 shares of common stock and warrant for 2,500,000 shares of common stock one of the Company's directors for legal services rendered with a total value of $160,000.

	·	In May 2015, the Company awarded 250,000 shares of common stock to a consultant for services rendered with a total value of $18,000 which such shares were issued in July 2015.

	·	In May 2015, the Company issued 625,000 shares of common stock for satisfaction of an accrued liability for legal services previously rendered in 2014 with a total value of $69,000.

	·	In June 2015, the Company awarded 3,000,000 shares of common stock to a consultant for services rendered with a total value of $180,000 which such shares were issued in July 2015.

	·	In June 2015, the Company awarded all members of the Company's board of directors stock options for 500,000 shares each for a total of 3,000,000 shares, with an exercise price of $0.05 per share with a 10 year life. The stock options awarded totaled $137,000 which the Company used the Black-Scholes option pricing model to calculate the compensation expense for the option grants using the following inputs: exercise price of $0.05 per share, risk free rate of 2.0%, volatility of 149% and zero dividends.

	·	On August 7, 2015, holders of convertible notes payable in the aggregate of $896,000 elected to convert the entire balance of the convertible notes. As a result, the Company recorded a stock payable of $896,000 for the 10,285,714 shares of common stock owed to the convertible note holders and extinguish both the $600,000 face value of the convertible notes and $296,000 of original debt discount. In October 2015, the Company had issued 15,045,513 shares of common stock related to the stock payable.

	·	On or about August 26, 2015, the Board of Directors of the Company approved a stock repurchase program, whereby the Company is authorized to purchase shares of its common stock with a value of up to $500,000 in open market transactions at the discretion of management. During the quarter ended September 30, 2015, the Company repurchased 1,567,688 shares, for a total cost of $138,000. As of September 30, 2015, $362,000 was available to be repurchased under the authorized program. Treasury shares totaling 1,567,688 are being held in treasury until such time as they are reissued or retired, at the discretion of the Board of Directors.

Capital transactions during the nine months ended September 30, 2014:

	·	In January 2014, the Company entered into a securities purchase agreement with an accredited investor (the "January 2014 Accredited Investor") pursuant to which the January 2014 Accredited Investor purchased 1,818,182 shares of the Company's common stock and a warrant to acquire 909,091 shares of common stock for a purchase price of $100,000. The warrant is exercisable for five (5) years at an exercise price of $0.085 per share.

	·	In February 2014, the Company entered into securities purchase agreements with two accredited investors (the "February 2014 Accredited Investors") pursuant to which the February 2014 Accredited Investors purchased 18,250,000 shares of the Company's common stock and warrants to acquire 4,562,500 shares of common stock for an aggregate purchase price of $1,368,750. The warrants are exercisable for five (5) years at an exercise price of $0.075 per share.

	·	In February 2014, the Company paid $82,125 and granted a warrant for 4,562,500 shares of common stock to a consulting group as a finder's fee related to the February 2014 Accredited Investors securities purchase agreement. The cash payment and warrant grant has been accounted for as an offering cost related to the February 2014 Accredited Investors securities purchase agreement and has been netted with the February 2014 Accredited Investors securities offering. The Warrants are exercisable for five (5) years at an exercise price of $0.075 per share.

	·	In March 2014, the Company issued 2,533,334 shares of common stock to two consultants for services with a total value $177,000. The stock issuance is for services performed during the period January 2014 through June 2014.

	·	In March 2014, the Company issued 1,818,182 shares of common stock in a private offering to two parties for cash totaling $100,000.

	·	In March 2013, the board of directors of the Company approved that all members of the Company's board of directors that have been serving in that capacity for at least one year as of September 30, 2013, will be issued 500,000 stock options on September 30, 2014 with a 10 year life. The Company used the Black-Scholes option pricing model to calculate the compensation expense for the option grants using the following inputs: exercise price of $0.09 per share, risk free rate of 2.0%, volatility of 125% and zero dividends. The aforementioned options were granted as of September 30, 2014 which the Company recorded compensation expense totaling $258,000 as of September 30, 2014.

	·	In May 2014, the Company issued 1,000,000 shares of common stock and 2,000,000 common stock options to Larry Schatz, a member of the Company's board of directors for past services performed during the three months ended March 31, 2014. The common stock options expire in 10 years and have an exercise price of $0.055 per share. The Company recorded $90,000 of general and administrative expense for the common stock issued, based on the $0.09 per share stock price on the date of grant and $174,000 of general and administrative expense for the common stock options issued during the three months ending March 31, 2014. The Company used the Black-Scholes option pricing model to calculate the expense for the option grants using the following inputs: exercise price of $0.055 per share, risk free rate of 2.0%, volatility of 125% and zero dividends.

	·	In May 2014, the Company granted the issuance of 70,000 shares of common stock to seven employees (10,000 shares each) with a total fair value of $7,000 or $0.10 per share. As of September 30, 2014, these shares had not been issued and have been recorded as a stock payable at the fair value totaling $7,000.

	·	In June 2014, the Company issued 116,666 shares of common stock to a consultant for services with a total value $7,000.

	·	In July 2014, the Company issued 70,000 shares of common stock to seven employees as a bonus compensation previously accrued and recorded as a stock payable at June 30, 2014, at a fair value of $0.10 per share or a total of $7,000.

	·	In July 2014 and August 2014, the Company issued 3,658,913 shares of common stock to five of its board of directors related to the exercise of options for 4,000,000 shares with an exercise price of $0.013 previously granted in 2007 on a cashless basis based on a fair market value of $0.15 per share.

	·	In August 2014, the Company issued 800,000 shares of common stock related to a previously granted stock option to a consultant with an exercise price of $0.07 for a total cash value of $56,000.

	·	In September 2014, the Company issued 380,660 shares of common stock to a consultant for services rendered with a fair value of $14,000.