NOTE 10 - STOCKHOLDERS’ DEFICIENCY

Board of Directors fees

As compensation for serving as a member of the board of directors, the Company granted warrants to purchase 50,000 shares of common stock to Philip M. Rice (CFO and a Director) in January, 2013, at an exercise price of $.12 per share.  The warrants have a term of three years and vested or will vest as follows: 12,500 vested on the grant date and the remaining 37,500 shall vest quarterly (12,500 per quarter).  The warrants were valued at $10,381 using the Black Scholes pricing model relying on the following assumptions: volatility 131.97%; annual rate of dividends 0%; discount rate 0.27%.  In addition, Mr. Rice will receive $10,000 for each annual term served, paid quarterly.

As compensation for serving as a member of the board of directors, the Company granted warrants to purchase 50,000 shares of common stock to Thomas K. Cox in June, 2013, at an exercise price of $.40 per share.  The warrants have a term of three years and vested or will vest as follows: 12,500 vested on the grant date and the remaining 37,500 shall vest quarterly (12,500 per quarter).  The warrants were valued at $15,873 using the Black Scholes pricing model relying on the following assumptions: volatility 145.67%; annual rate of dividends 0%; discount rate 0.25%.  In addition, Mr. Cox will receive $10,000 for each annual term served, paid quarterly.

As compensation for serving as a member of the board of directors, the Company granted warrants to purchase 50,000 shares of common stock to John B. Payne in July, 2013, at an exercise price of $.38 per share.  The warrants have a term of three years and vested or will vest as follows: 12,500 vested on the grant date and the remaining 37,500 shall vest quarterly (12,500 per quarter).  The warrants were valued at $17,187 using the Black Scholes pricing model relying on the following assumptions: volatility 143.37%; annual rate of dividends 0%; discount rate 0.25%.  In addition, Mr. Payne will receive $10,000 for each annual term served, paid quarterly.

As compensation for serving as a member of the board of directors, the Company granted warrants to purchase 50,000 shares of common stock to John Gorman in November, 2013, at an exercise price of $.36 per share.  The warrants have a term of three years and vested or will vest as follows: 12,500 vested on the grant date and the remaining 37,500 shall vest quarterly (12,500 per quarter).  The warrants were valued at $14,053 using the Black Scholes pricing model relying on the following assumptions: volatility 141.53%; annual rate of dividends 0%; discount rate 0.33%.  In addition, Mr. Gorman will receive $10,000 for each annual term served, paid quarterly.  On August 19, 2014, Mr. Gorman resigned from the board of directors.

As compensation for serving as a member of the board of directors, the Company granted warrants to purchase 50,000 shares of common stock to Philip M. Rice (CFO and a Director) in January, 2014, at an exercise price of $.38 per share.  The warrants have a term of three years and vested or will vest as follows: 12,500 vested on the grant date and the remaining 37,500 shall vest quarterly (12,500 per quarter).  The warrants were valued at $13,460 using the Black Scholes pricing model relying on the following assumptions: volatility 121.33%; annual rate of dividends 0%; discount rate 0.44%.  In addition, Mr. Rice will receive $10,000 for each annual term served, paid quarterly.

As compensation for serving as a member of the board of directors, the Company granted warrants to purchase 50,000 shares of common stock to Thomas K. Cox in June, 2014, at an exercise price of $.19 per share.  The warrants have a term of three years and vested or will vest as follows: 12,500 vested on the grant date and the remaining 37,500 shall vest quarterly (12,500 per quarter).  The warrants were valued at $7,311 using the Black Scholes pricing model relying on the following assumptions: volatility 138.05%; annual rate of dividends 0%; discount rate 0.41%.  In addition, Mr. Cox will receive $10,000 for each annual term served, paid quarterly.

As compensation for serving as a member of the board of directors, the Company granted warrants to purchase 50,000 shares of common stock to John B. Payne in July, 2014, at an exercise price of $.14 per share.  The warrants have a term of three years and vested or will vest as follows: 12,500 vested on the grant date and the remaining 37,500 shall vest quarterly (12,500 per quarter).  The warrants were valued at $4,876 using the Black Scholes pricing model relying on the following assumptions: volatility 118.27%; annual rate of dividends 0%; discount rate 0. 51%.  In addition, Mr. Payne will receive $10,000 for each annual term served, paid quarterly.

As compensation for serving as a member of the board of directors, the Company granted warrants to purchase 50,000 shares of common stock to Nola E. Masterson in September, 2014, at an exercise price of $.12 per share.  The warrants have a term of three years and vested or will vest as follows: 12,500 vested on the grant date and the remaining 37,500 shall vest quarterly (12,500 per quarter).  The warrants were valued at $4,074 using the Black Scholes pricing model relying on the following assumptions: volatility 113.93%; annual rate of dividends 0%; discount rate 0.59%.  In addition, Ms. Masterson will receive $10,000 for each annual term served, paid quarterly.

The company recorded directors fees of $86,180 during the twelve months ended December 31, 2014, representing the fees expensed and the value of the vested warrants described above.

Stock Issuances

During the three months ended March 31, 2013, an investor received 21,111 shares as part of a cashless exercise of 35,000 common stock warrants that had an exercise price of $.10.

During the three months ended June 30, 2013, investors received 1,191,181 shares as part of cashless exercises of 1,900,000 common stock warrants that had exercise prices at $.15. In addition the Company received proceeds of $85,000 from the exercise of 682,000 common stock warrants.

On April 15, 2013, upon completion of funding on a $2,000,000, 11% convertible debenture, the Company issued 600,000 shares of its common stock valued at $192,000 and 1,666,667 common stock warrants valued at $481,110 using the Black Scholes method of valuation (see Note 8 – Convertible Debt).

On April 30, 2013, the Company Board of Directors awarded its Chief Financial Officer 557,000, 5 year common stock warrants, exercisable at $.25 per share. These warrants were valued at $250,640 using the Black Scholes valuation method of valuation using the following assumptions:  closing stock price of $.46 an expected volatility of 194.14% a five year term, an annual rate of dividends of 0%, and a risk free rate of .25%.  The Board of Directors resolution included quarterly 50,000, 5 year common stock warrants, exercisable at $.25 per share.  The Company issued 150,000 warrants for the 2nd, 3rd and 4th quarters of 2013.  These warrants were valued at $46,115 using the Black Scholes valuation method of valuation using the following assumptions:  closing stock price of $.25 to .46 an expected volatility of 138.68 to 194.11% a five year term, an annual rate of dividends of 0%, and a risk free rate of .23% to .31%.

On July 1, 2013, the Company Board of Directors granted a consultant to the Company 250,000, 5 year common stock warrants, exercisable at $.33 per share. These warrants were valued at $87,510 using the Black Scholes valuation method of valuation using the following assumptions:  closing stock price of $.36 an expected volatility of 190.15% a five year term, an annual rate of dividends of 0%, and a risk free rate of .25%.

On July 22, 2013, the company issued 280,000, 3 year common stock warrants, exercisable at $.12 per share. These warrants were valued at $108,390 using the Black Scholes valuation method of valuation using the following assumptions:  closing stock price of $.43 an expected volatility of 146.36% a three year term, an annual rate of dividends of 0%, and a risk free rate of .32%.

During the three months ended September 30, 2013, the Company received proceeds of $548,000 from the issuance of 2,077,273 shares of common stock and the exercise of 50,000 common stock warrants.

During the three months ended September 30, 2013, the Company issued 1,000,000 shares of its common stock upon conversion of $50,000 of 1% convertible debentures at $.05 per share.

During the three months ended September 30, 2013, the Company issued 99,217 shares of its common stock valued at $40,802 and 858,936 common stock warrants valued at $356,304 using the Black Scholes method of valuation (see Note 7 – Convertible Debt). We valued this stock utilizing the Black-Scholes method of valuation using the following assumptions: expected volatilities of 139.26%-147.03%, annual rate of dividends 0% and a risk free interest rates of 0.33-0.34%.

During the three months ended September 30, 2013, the Company issued 2,577,565 shares of its common stock valued at $1,159,904 for the purchase of assets from Essex Angel Capital (see below).

On November 11, 2013, the Company granted a consultant to the Company 56,256, 5 year common stock warrants, exercisable at $.39 per share. These warrants were valued at $64,941 using the Black Scholes valuation method of valuation using the following assumptions:  closing stock price of $.28 an expected volatility of 166.98% a five year term, an annual rate of dividends of 0%, and a risk free rate of .34%.

During the three months ended December 31, 2013, the Company issued 229,597 shares of its common stock in return for cashless exercises of 450,000 common stock warrants that had exercise prices of $.15 and $.225.

During the three months ended December 31, 2013, the Company issued 800,000 shares of its common stock upon conversion of $55,000 of 1% convertible debentures at $.05 to $.125 per share.

During the three months ended December 31, 2013, the Company issued 1,250,000 shares of its common stock upon conversion of $150,000 of 11% convertible debentures at $.12 per share.

During the three months ended December 31, 2013, the Company issued 90,000 shares of its common stock valued at $32,310 and 250,000 common stock warrants valued at $75,507 using the Black Scholes method of valuation (see Note 7 – Convertible Debt). We valued this stock utilizing the Black-Scholes method of valuation using the following assumptions: expected volatilities of 142.88%-143.44%, annual rate of dividends 0% and a risk free interest rates of 0.32-0.39%.

During the three months ended December 31, 2013, the Company received proceeds of $256,500 from the issuance of 833,333 shares of common stock and the exercise of 33,000 common stock warrants.

During the three months ended March 31, 2014 Company issued 4,955,000 shares of common stock upon conversion of $490,600 of 1% and 11% convertible debentures. 

During the three months ended March 31, 2014, the Company received proceeds of $100,000 from the issuance of 500,000 shares of common stock and $255,000 from the exercise of 2,040,000 common stock warrants.

During the three months ended June 30, 2014 the Company issued 1,088,000 shares of common stock upon conversion of $70,600 of 1% convertible debentures. 

During the three months ended June 30, 2014, the Company received proceeds of $402,500 from the issuance of 2,516,667 shares of common stock and $48,750 from the exercise of 390,000 common stock warrants. The Company issued 416,667 shares of common stock to a non-related party shareholder relating to a stock purchase in December 2013.

During the three months ended September 30, 2014 the Company issued 500,000 shares of common stock valued at $64,500 to a non-related party for services rendered.

During the three months ended September 30, 2014 the Company issued 781,477 shares of its common stock valued at $113,760 and 856,667 common stock warrants valued at $108,212 using the Black Scholes method of valuation (see Note 7 – Convertible Debt). We valued this stock utilizing the Black-Scholes method of valuation using the following assumptions: expected volatilities of 127.64%-134.94%, annual rate of dividends 0% and a risk free interest rates of 0.48-0.49%.

During the three months ended December 31, 2014 the Company issued 116,667 shares of common stock valued at $17,500 and 500,000 common stock warrants valued at $34,302 using the Black Scholes method of valuation to a non-related party for services rendered. We valued the common stock warrants utilizing the Black-Scholes method of valuation using the following assumptions: expected volatilities of 117.65%, annual rate of dividends 0% and a risk free interest rates of 0.49%.

During the three months ended December 31, 2014 the Company issued 95,288 shares of its common stock valued at $7,623 and 84,700 common stock warrants valued at $5,879 using the Black Scholes method of valuation (see Note 7 – Convertible Debt). We valued this stock utilizing the Black-Scholes method of valuation using the following assumptions: expected volatilities of 138.88%, annual rate of dividends 0% and a risk free interest rates of 0.64%.

Purchase of Assets

On April 15, 2013, the Company and Essex Angel Capital Inc. (“Essex”) entered into an Asset Purchase Agreement (previously disclosed in a Current Report on Form 8-K dated April 19, 2013).  Essex held $1,350,000 in senior secured convertible debentures and secured convertible debentures in Wellness Indicators, Inc. (“Wellness”), an Illinois based company.  Essex, along with other secured lenders held a total of $2,000,000 of secured debt.  Essex foreclosed on certain assets, consisting principally of intellectual property (the “Assets”), that secured Wellness’ obligation under the debentures.  Upon the foreclosure and acquisition of all right, title and interest in and to the Assets  pursuant to its 1st perfected security interest in the Assets, the Company purchased the Assets from Essex for $1,100,000, paid in the common stock of the Company with each such share being issued at the lesser of (i) $0.31 per share; or (ii) a price equal to the weighted average price of said shares on the OTCBB for 20 consecutive trading days ending on the date of Closing (date of such closing being the “Closing Date”) plus a 20% premium amount.

On August 19, 2013 (previously disclosed in a Current Report on Form 8-K dated August 20, 2013), the Company completed the acquisition from Essex of certain assets, consisting principally of pending patents (the “Assets”) of Wellness.  Essex held senior secured convertible debentures and secured convertible debentures in Wellness.  Essex foreclosed and acquired all rights, title and interest in and to the Assets pursuant to its 1st perfected security interest in the Assets.

The Company purchased the Assets from Essex for $1,100,000.  $801,507 was paid in common stock with the remainder of $298,493 paid in cash.  There were 2,577,565 shares of common stock issued, valued at $0.31 per share.  Based on the current market price of the stock at the time of issuance, the Company recorded the 2,577,565 shares of common stock issued at $1,159,904.  The Company also incurred an additional $32,884 in transaction costs, for a total transaction cost of $1,491,281.  The Company acquired both furniture and equipment, along with 4 pending patents.  The Company valued the furniture and equipment at $100,000 and the patent applications pending at $1,391,281. 

As of December 31, 2014, the Company evaluated the circumstances related to the four Patent Applications Pending relating to the acquisition of asset of Wellness Indicators in August 2013.  The Company has filed / drafted an additional eight patents applications around the intellectual property acquired.  The Company has determined that the new patents applications redefine and protect its intellectual property better than the original purchased patent applications.  As such, the Company has abandoned the patent applications purchased and recorded a loss on abandonment of $1,391,281 for the year ended December 31, 2014.

Executive Compensation

As compensation for serving as Chief Financial Officer, the Company, quarterly, will issue warrants to purchase 50,000 shares of common stock to Philip M. Rice at the prevailing market price with a term of 5 years, provided that the preceding quarterly and annual filings were submitted in a timely and compliant manner, at which time such warrants would vest.  On March 31, 2014 the Company issued warrants to purchase 50,000 shares of common stock at $.17.  The warrants were valued at $13,460 using the Black Scholes pricing model relying on the following assumptions: volatility 128.35%; annual rate of dividends 0%; discount rate 0.44%.  On May 14, 2014, the Company issued warrants to purchase 50,000 shares of common stock at $.19.  The warrants were valued at $6,756 using the Black Scholes pricing model relying on the following assumptions: volatility 121.96%; annual rate of dividends 0%; discount rate 0.47%.  On August 14, 2014, the Company issued warrants to purchase 50,000 shares of common stock at $.19.  The warrants were valued at $4,828 using the Black Scholes pricing model relying on the following assumptions: volatility 116.72%; annual rate of dividends 0%; discount rate 0.42%.  %.  On November 14, 2014, the Company issued warrants to purchase 50,000 shares of common stock at $.09.  The warrants were valued at $3,664 using the Black Scholes pricing model relying on the following assumptions: volatility 117.69%; annual rate of dividends discount rate 0.54%.

Common Stock Warrants

A summary of the status of the Company’s warrants is presented below.

Warrants outstanding and exercisable by price range as of December 31, 2014 were as follows: