4. STOCKHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2014

Equity [Abstract]

STOCKHOLDERS' EQUITY

Preferred Stock

There are currently 5,000,000 shares of Series A Preferred Stock authorized, with no shares of Series A Preferred Stock currently issued or outstanding.

Effective June 24, 2010, the Company filed a Certificate of Designations, Number, Voting Power, Preferences and Rights of Series B Convertible Redeemable Preferred Stock (the “Certificate”) with the Texas Secretary of State, designating 7,500 shares of Series B Preferred Stock, par value $10.00 per share (the “Series B Shares”). The Series B Shares rank senior to shares of all other common and preferred stock with respect to dividends, distributions, and payments upon dissolution.  Each of the Series B Shares is convertible at the option of the holder into shares of common stock as provided in the Certificate.  There are currently no Series B Shares issued or outstanding.

On October 11, 2013, the Company filed a Certificate of Designations, Number, Voting Power, Preferences and Rights of Series C Convertible Preferred Stock (the “Certificate of Designations”), under which it designated 100,000 shares of Series C Preferred Stock, par value $10.00.  The Series C Preferred Stock is entitled to accruing dividends (payable, at the Company’s options, in either cash or stock) of 5% per annum until October 10, 2016, and 3% per annum until October 10, 2018. The Series C Preferred Stock is senior to the Company’s common stock and any other currently issued series of the Company’s preferred stock upon liquidation, and is entitled to a liquidation preference per share equal to the original issuance price of such shares of Series C Preferred Stock together with the amount of all accrued but unpaid dividends thereon.  Each of the Series C Shares is convertible at the option of the holder into 1,000 shares of common stock as provided in the Certificate.  Additionally, each holder of Series C Preferred Stock shall be entitled to vote on all matters submitted for a vote of the holders of Common Stock a number of votes equal to the number of full shares of Common Stock into which such holder’s Series C shares could then be converted. As of September 30, 2014 and December 31, 2013, there were 70,411 and 38,232 shares of Series C Preferred Stock issued and outstanding, respectively.

On November 13, 2013, the Company filed a Certificate of Designations, Number, Voting Power, Preferences and Rights of Series D Convertible Preferred Stock (the “Certificate of Designations”), under which it designated 25,000 shares of Series D Preferred Stock.  Shares of Series D Preferred Stock are not entitled to any preference with respect to dividend or upon liquidation, and will automatically convert (at a ratio of 1,000-to-1) into shares of the Company’s common stock, par value $0.001 upon approval of the Company’s stockholders (and filing of) and amendment to the Company’s Certificate of Incorporation increasing the number of authorized shares of Common Stock from 100,000,000 to 250,000,000. As of September 30, 2014 and December 31, 2013, there were 15,350 and 15,000 shares of Series D Preferred Stock issued and outstanding, respectively.

On May 30, 2014, the Company filed a Certificate of Designations, Number, Voting Power, Preferences and Rights of Series E Convertible Preferred Stock (The “Certificate of Designations”), under which it designated 5,000 shares of Series E Preferred Stock.  Shares of Series E Preferred Stock are not entitled to any preference with respect to dividends or upon liquidation, and will automatically convert (at a ratio of 1,000 shares of Common Stock for every one share of Series E Preferred Stock) into shares of the Company’s common stock, $0.001 par value upon approval of the Company’s stockholders (and filing of) and amendment to the Company’s Certificate of Incorporation increasing the number of authorized shares of Common Stock from 100,000,000 to 250,000,000. As of September 30, 2014 there are no shares of Series E Preferred Stock issued and outstanding.

In February of 2014, the Company issued 350 shares of Series D preferred stock to a nonemployee for services rendered.  The shares vest immediately and were recorded at their fair value of $42,000.

In July of 2014, the Company issued 750 shares of Series D preferred stock to a nonemployee for services rendered.  The shares vest immediately and were recorded at their fair value of $75,000.

In September, 2014, the Company issued 556 shares of Series D preferred stock valued at $50,040 to an employee according to the terms of an employment agreement.

During the nine months ended September 30, 2014, the Company recognized additional expense of $79,134 related to the amortization of Series D preferred stock awards to an employee and a nonemployee granted in 2013. This combined with the 2014 awards resulted in total expense related to Series D preferred stock issued for services of $246,174 for the nine months ended September 30, 2014.

During the nine months ended September 30, 2014, the company granted an aggregate of 1,000 shares of Series D preferred stock to two employees according to the terms of their employment agreements.  The shares vest in equal annual amounts over three years and the aggregate fair value of the awards was determined to be $120,000.  During the nine months ended September 30, 2014, $46,699 was expensed and $73,301 remains to be expensed over the remaining vesting period.  The Series D shares were not yet issued as of September 30, 2014

During the nine months ended September 30, 2014, the Company issued an aggregate of 32,179 shares of Series C preferred stock for cash proceeds of $2,252,510.

The Series C preferred stock earned dividends of $64,734 and $174,764 for the three and nine months ended September 30, 2014, respectively. As of September 30, 2014, no Series C preferred stock dividends have been declared or paid.

Common Stock

On September 3, 2014, the Company held its annual meeting of stockholders.  The stockholders approved an amendment to the Company’s Articles of Incorporation to increase the authorized shares of common stock of the Company from 100,000,000 to 250,000,000.

In January of 2014, the Company issued 1,087,762 common shares for the conversion of notes payable and accrued interest in the amounts of $90,000 and $3,729, respectively.

During the nine months ended September 30, 2014, the Company issued 500,000 shares of common stock valued at $60,000 to company directors and 1,650,000 shares of common stock for services valued at $162,550.

Warrants

A summary of the status of the warrants granted for the nine months ended September 30, 2014, and changes during the period then ended is presented below:

For the Nine Months Ended September 30, 2014
	Shares		Weighted Average Exercise Price
Outstanding at beginning of period		15,670,143	$	0.37
Granted		-		-
Exercised		-		-
Forfeited		-		-
Expired		4,733,299		0.68
Outstanding at end of period		10,936,844	$	0.23

		As of September 30, 2014						As of September 30, 2014
		Warrants Outstanding						Warrants Exercisable
Range of Exercise Prices		Number Outstanding		Weighted-Average Remaining Contract Life		Weighted- Average Exercise Price		Number Exercisable		Weighted-Average Exercise Price
$	0.06		4,500,000		4.0	$	0.06		4,500,000	$	0.06
	0.08		550,000		3.4		0.08		550,000		0.08
	0.09		625,000		3.5		0.09		625,000		0.09
	0.15		1,571,300		2.9		0.15		1,571,300		0.15
	0.25		120,000		1.1		0.25		120,000		0.25
	0.40		300,000		0.8		0.40		300,000		0.40
	0.44		1,515,544		1.9		0.44		1,515,544		0.44
	0.50		370,000		1.5		0.50		370,000		0.50
	0.60		975,000		2.0		0.60		975,000		0.60
	0.75		120,000		1.1		0.75		120,000		0.75
	1.00		290,000		1.6		1.00		290,000		1.00
$	0.06-1.00		10,936,844		3.0	$	0.23		10,936,844	$	0.23

The aggregate intrinsic value of the exercisable warrants as of September 30, 2014 was $143,250.

Stock Options

A summary of the status of the stock options granted for the nine month period ended September 30, 2014, and changes during the period then ended is presented below:

For the Nine Months Ended September 30, 2014
	Options		Weighted Average Exercise Price
Outstanding at beginning of period		3,943,500	$	0.15
Granted		-		-
Exercised		-		-
Forfeited		-		-
Expired		-		-
Outstanding at end of Period		3,943,500	$	0.15

		As of September 30, 2014						As of September 30, 2014
		Stock Options Outstanding						Stock Options Exercisable
Exercise Price		Number Outstanding		Weighted-Average Remaining Contract Life		Weighted- Average Exercise Price		Number Exercisable		Weighted-Average Exercise Price
$	0.15		3,943,500		2.89		0.15		3,826,833	$	0.15

The aggregate intrinsic value of the exercisable options as of September 30, 2014 was $0.