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<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>Note 1 - Organization and Operations</b></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Organization and Operations</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Rackwise, Inc. and Subsidiary (collectively “Rackwise” or the “Company”) is headquartered in Folsom, California with a software development and data center in Research Triangle, North Carolina. The Company creates Microsoft applications for network infrastructure administrators that provide for the modeling, planning, and documentation of data centers. The Company sells its applications in four primary products: Rackwise Standard Edition, Rackwise Enterprise Edition, Rackwise Datacenter Manager and Rackwise Web Edition.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On August 24, 2010, MIB Digital, Inc., a Florida public corporation formed on September 23, 2009, merged with Cahaba Pharmaceuticals, Inc., a Nevada corporation formed on August 20, 2010 (“Cahaba”), for the sole purpose of effecting the merger. Cahaba was the survivor in the merger and the principal purposes of the merger were to change the domicile of the company from Florida to Nevada and to effect a recapitalization. On July 8, 2011, Cahaba merged with its newly formed, wholly owned subsidiary, Visual Network Design, Inc., a Nevada corporation. Cahaba was the survivor in the merger, but changed its name in the merger to Visual Network Design, Inc. (“Visual”). On September 21, 2011, Visual effected a merger with Visual Network Design, Inc., a Delaware corporation d/b/a Rackwise (“VNDI”) (the “Reverse Merger”). As a result of the Reverse Merger, Visual acquired the business of VNDI and continued the existing business operations of VNDI, as its wholly owned subsidiary. On September 29, 2011, Visual merged with its newly formed, wholly owned subsidiary, Rackwise, Inc., a Nevada corporation formed on September 28, 2011. Visual was the survivor in the merger, but changed its name in the merger to Rackwise, Inc.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Reverse Merger</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On September 21, 2011, the predecessor to Rackwise, Inc. and its wholly-owned subsidiary executed a reverse merger agreement (the “Merger Agreement”) with an operating company (Visual Network Design, Inc. d/b/a Rackwise was incorporated in Delaware on January 8, 2003). Pursuant to the Merger Agreement and following the first closing of the First Private Offering (see Note 9 - Equity - Private Offerings - First Private Offering), the stockholders of the operating company received an aggregate of 72.7% of the common stock of the Company as a result of converting each share of common stock of the operating company for (1) approximately 1.27 shares of common stock in the Company (the “Merger Shares”); and (2) approximately 1.27 warrants, each to purchase one-half share of common stock in the Company (the “Merger Warrants”). At the time of the exchange, the operating company had 10,000,018 shares of common stock outstanding.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">An indemnification representative for the operating company’s stockholders executed an Escrow Agreement, whereby it was agreed that 5% of the Merger Shares (3,000,000 shares) due to the operating company’s stockholders would be held in escrow for a two year period. In addition, a Lock-Up Agreement requires that officers, directors, key employees and holders of 10% or more of the Company’s common stock (1) not sell or otherwise transfer their shares for a period of eighteen months; and (2) not register their shares for a period of two years.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Merger Warrants are exercisable for a period of five years at an exercise price of $0.625 per full share of common stock and are identical to the Investor Warrants (see Note 9 - Equity - Private Offerings - First Private Offering) in all material respects except that (i) the resale of the common stock underlying them is not covered by a registration statement; (ii) the Company may redeem the Merger Warrants only if they are eligible to be exercised on a cashless basis; and (iii) they are only exercisable on a cashless basis in connection with a redemption of the Merger Warrants and only commencing one year after the September 27, 2011 filing of the Current Report on Form 8-K with the SEC regarding the reverse merger.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">For financial reporting purposes, the reverse merger represented a capital transaction of the operating company rather than a business combination, because the sellers of the operating company controlled the combined company immediately following the completion of the transaction. The operating company was deemed to be the accounting acquirer in the transaction and, consequently, the transaction was treated as a recapitalization of the operating company.  Accordingly, the assets and liabilities and the historical operations that are reflected in the financial statements are those of the operating company and were recorded at the historical cost basis of the operating company. The public holding company had no assets, liabilities or results of operations as of the date of the acquisition.  The number of shares issued and outstanding, additional paid-in capital and all references to share quantities of the Company in these notes have
been retroactively adjusted to reflect the equivalent number of shares issued by the Company in the reverse merger, while the operating company’s historical equity is being carried forward. All costs attributable to the reverse merger were expensed as transaction costs.</p>
<p style="text-align: left; margin-top: 0pt; font: 10pt times new roman, times, serif; margin-bottom: 0pt;"><b>Note 2 – Significant Accounting Policies</b></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Liquidity, Going Concern and Management’s Plans</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company has incurred substantial recurring losses since its inception. The Company’s current strategy is to raise capital and invest that capital in such a way that the Company rapidly grows its market share and revenues, eventually resulting in profits and cash from operations. However, this strategy requires a rapid build-up of infrastructure that will initially exacerbate the Company’s operating deficit and use of cash in operations, because the expected revenue expansion will lag the investment in infrastructure. The capital that the Company has raised, and likely will continue to raise, will be used to invest in an expanded salesforce, to fund development of the software product, to fund incremental legal and accounting costs associated with being a public company and to fund the Company’s operating deficit and general working capital requirements.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">During the years ended December 31, 2012 and 2011, the Company raised net proceeds of approximately $3,955,000 (gross proceeds of approximately $4,305,000 less approximately $349,000 of issuance costs) and $6,088,000 (gross proceeds of approximately $6,544,000 less issuance costs of approximately $455,000), respectively, in private offerings of common stock, warrants and debt funding. This capital has permitted the Company to proceed with its infrastructure investments.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font style="color: black;">As expected, the Company’s net losses and usage of cash have increased, while it awaits the expected benefits of its investment. During the years ended December 31, 2012 and 2011, the Company recorded net losses of approximately $9,594,000 and $8,881,000, respectively, while revenues increased to approximately $3,253,000 from approximately $2,020,000. During the years ended December 31, 2012 and 2011, the Company used cash in operating activities of approximately $4,779,000 and $4,201,000, respectively. As of December 31, 2012, the Company has limited cash of approximately $17,000, a working capital deficiency of approximately $7,224,000, an accumulated deficit of approximately $43,480,000 and owes approximately $1,100,000 for payroll tax liabilities, penalties and interest which has yet to be remitted to the taxing authorities. The Company also continues to incur unpaid payroll tax liabilities for the first quarter of 2013 of approximately $231,000. </font>The IRS has placed federal tax liens that aggregate to approximately $771,000 against the Company in connection with the unpaid payroll taxes through the third quarter of 2012.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"></p>
<p style="margin: 0pt 0px; font: 10pt times new roman, times, serif; color: #1f497d;"><font style="color: black;">Subsequent to December 31, 2012, the Company (a) sold additional common stock and warrants for $150,000 of aggregate gross proceeds in the continuation of the Third Private Offering; (b) certain note holders elected to convert five 8% Notes with an aggregate principal amount of $800,000, plus $33,282 of aggregate accrued and unpaid interest, into equity; and (c) borrowed $112,500 via a short-term interest free loan from an affiliate (the loan is intended to convert into the securities to be sold by us in a subsequent offering; see Note 13 - Subsequent Events). The capital raised in the private placement offerings will be utilized to fund existing operating deficits while the Company continues to develop product line(s) and enhance marketing efforts to increase revenues and eventually generate operating surpluses. The Company believes it will be successful in these efforts; however, there can be no assurance the Company will meet its revenues forecasts or, if necessary, be successful in raising additional debt or equity financing to fund its operations on terms agreeable to the Company. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company were unable to continue as a going concern. The Company expects that the cash it has available will fund its operations only until May 2013. If the Company is unable to obtain additional financing on a timely basis and, notwithstanding any request the Company may make, the Company’s debt holders do not agree to convert their notes into equity or extend the maturity dates of their notes, the Company may have to delay note and vendor payments and/or initiate cost reductions, which would have a material adverse effect on the Company’s business, financial condition and results of operations, and ultimately the Company could be forced to discontinue its operations, liquidate and/or seek reorganization under the U.S. bankruptcy code.</font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Principles of Consolidation</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The balance sheets, results of operations and cash flows of the Company and its wholly-owned subsidiary have been included in its consolidated financial statements. All intercompany accounts and transactions have been eliminated.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Use of Estimates</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and reported amounts of revenues and expenses in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates. The significant estimates and assumptions of the Company are stock-based compensation, the useful lives of fixed assets and intangibles, depreciation and amortization, the allowances for factoring fees and income taxes, and the fair value of derivative liabilities and warrants.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b></b></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Cash and Cash Equivalents</u></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company considers all highly liquid investments with a maturity of 90 days or less at the of acquisition to be cash equivalent. There are no cash equivalent as of December 31, 2012 and 2011.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Accounts Receivable and Allowance for Doubtful Accounts</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company recognizes an allowance for doubtful accounts to ensure that accounts receivable are not overstated due to uncollectibility. At the time accounts receivable are originated, the Company considers a reserve for doubtful accounts based on the creditworthiness of customers.  The provision for uncollectible amounts is continually reviewed and adjusted to maintain the allowance at a level considered adequate to cover future losses.   The allowance is management’s best estimate of uncollectible amounts and is determined based on historical performance that is tracked by the Company on an ongoing basis.  During the years ended December 31, 2012 and 2011, the Company’s losses from bad debts were not material. The losses ultimately incurred could differ materially in the near term from the amounts estimated in determining the allowance.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In addition, the Company factors its receivables with full recourse and, as a result, accounts for the factoring akin to a secured borrowing, maintaining the gross receivable asset and due to factor liability on its books and records. In connection with the factoring of its receivables, the Company estimates an allowance for factoring fees associated with the collections. These fees range from 2% to 30% depending on the actual timing of the collection. The actual recognition of such fees may differ from the estimates depending upon the timing of collections. Due to the current tax liens, the Company is currently in default of this factoring arrangement. As such, the factor could demand full repayment of the outstanding balance.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Fair Value of Financial Instruments</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The carrying amounts of financial instruments, including cash, accounts receivables, accounts payable, accrued expenses and deferred revenue, approximated fair value as of the balance sheet date presented, because of the relatively short maturity dates on these instruments. The carrying amounts of the financing arrangements issued approximate fair value as of the balance sheet date presented, because interest rates on these instruments approximate market interest rates after consideration of stated interest rates, anti-dilution protection and associated warrants.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Property and Equipment</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the applicable assets. Computer, computer software and office equipment are depreciated over estimated useful lives of 3 years and furniture and fixtures are depreciated over estimated useful lives of 5 years. Expenditures for maintenance and repairs that do not improve or extend the expected lives of the assets are expensed to operations, while expenditures for major upgrades to existing items are capitalized. Upon retirement or other disposition of these assets, the costs and related accumulated depreciation and amortization of these assets are removed from the accounts and the resulting gains or losses are reflected in the consolidated statements of operations.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Accounting for Impairment of Long-Lived Assets</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company evaluates the recoverability of its long-lived assets in accordance with Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) Topic 360, which requires recognition of impairment of long-lived assets in the event an indication of impairment exists and the net book value of such assets exceeds the expected future undiscounted net cash flows attributable to such assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of their carrying amount or fair value less the cost to sell. As of December 31, 2012, management does not believe there has been any impairment of long-lived assets.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b></b></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Derivative Financial Instruments</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses the binomial lattice options pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the instrument could be required within 12 months of the balance sheet date.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Concentration of Credit Risk and Customers</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash and accounts receivable. The Company's cash is deposited with major financial institutions. At times, such deposits may be in excess of the Federal Deposit Insurance Corporation insurable amount. The Company generally does not require collateral from its customers and generally requires payment in 30 days. The Company evaluates the collectability of its accounts receivable and provides an allowance for potential credit losses as necessary. Historically, such losses have been within management’s expectations.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Revenues derived from customers in the United Kingdom denominated in U.S. dollars were approximately $68,000 and $68,000 during the years ended December 31, 2012 and 2011, respectively. Revenues derived from customers in Austria denominated in U.S. dollars were approximately $0 and $27,000 during the years ended December 31, 2012 and 2011, respectively. Revenues derived from customers in Australia denominated in U.S. dollars were approximately $53,000 and $39,000 during the years ended December 31, 2012 and 2011, respectively. Revenues derived from customers in Canada denominated in U.S. dollars were approximately $67,000 and $10,000 during the years ended December 31, 2012 and 2011, respectively. Revenues derived from customers in Germany denominated in U.S. dollars were approximately $90,000 and $0 during the years ended December 31, 2012 and 2011 respectively.  </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">All remaining revenues were derived from customers in the United States of America. All of the Company’s long-lived assets are located in the United States of America. One customer represented 21% of revenue during the year ended December 31, 2012 and no customers exceeded 10% of revenues during the year ended December 31, 2011.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Deferred Financing Costs</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company has recorded deferred financing costs as a result of fees incurred by the Company in conjunction with its debt financing activities. These costs are amortized using the straight-line method over the shorter of (a) the term of the related debt or (b) the expected conversion date of the debt into equity instruments, which approximates the effective interest method. At December 31, 2012, accumulated amortization was approximately $50,000. The Company expects to record amortization of deferred financing costs of approximately $68,000 in 2013.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Capitalized Software Development Costs</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company capitalizes software development costs in accordance with FASB issued ASC Topic 985 “Software”. Capitalization of software development costs begins upon the determination of technological feasibility. The determination of technological feasibility and the ongoing assessment of the recoverability of these costs requires considerable judgment by management with respect to certain external factors, including anticipated future gross product revenues, estimated economic life and changes in hardware and software technology. Historically, software development costs incurred subsequent to the establishment of technological feasibility have not been material.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Revenue Recognition</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In accordance with ASC topic 985-605, “Software Revenue Recognition,” perpetual license revenue is recognized when (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured. Delivery is considered to have occurred when title and risk of loss have been transferred to the customer, which generally occurs after a license key has been delivered electronically to the customer. The Company’s perpetual license agreements do not (a) provide for a right of return, (b) contain acceptance clauses, (c) contain refund provisions, or (d) contain cancellation provisions.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In the case of the Company’s (a) subscription-based licenses, and (b) maintenance arrangements, when sold separately, revenues are recognized ratably over the service period. The Company defers revenue for software license and maintenance agreements when cash has been received from the customer and the agreement does not qualify for recognition under ASC Topic 985-605.  Such amounts are reflected as deferred revenues in the accompanying financial statements.  The Company’s subscription license agreements do not (a) provide for a right of return, (b) contain acceptance clauses, (c) contain refund provisions, or (d) contain cancellation provisions.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company provides professional services to its customers. Such services, which include training, installation, and implementation, are recognized when the services are performed. The Company also provides volume discounts to various customers. In accordance with ASC Topic 985-605, the discount is allocated proportionally to the delivered elements of the multiple-element arrangement and recognized accordingly.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">For software arrangements with multiple elements, which in its case are comprised of (1) licensing fees, (2) professional services, and (3) maintenance/support, revenue is recognized dependent upon whether vendor specific objective evidence (“VSOE”) of fair value exists for separating each of the elements. Licensing rights are generally delivered at time of invoice, professional services are delivered within one to six months and maintenance is for a twelve month contract.  Accordingly, licensing revenues are recognized upon invoice, professional services are recognized when all services have been delivered and maintenance revenue is amortized over a twelve month period. The Company determined that VSOE exists for both the delivered and undelivered elements of its multiple-element arrangements.  The Company limits its assessment of fair value to either (a) the price charged when the same element is sold separately or (b) the price established by management having the relevant authority. There may be cases, however, in which there is objective and reliable evidence of fair value of the undelivered item(s) but no such evidence for the delivered item(s). In those cases, the selling price method is used to allocate the arrangement consideration, if all other revenue recognition criteria are met. Under the selling price method, the amount of consideration allocated to the delivered item(s) is calculated based on estimated selling prices.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company manages the business as a single segment, but it has revenues from multiple sources.  Management does not segregate the direct cost of revenue by the revenue source. <b></b></p>
<table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="6">For The Years Ended</td>
<td style="color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="6">December 31,</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2012</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2011</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; width: 72%; color: black; font-size: 10pt;">Licensing</td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 11%; color: black; font-size: 10pt;">1,709,868</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 11%; color: black; font-size: 10pt;">587,059</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; color: black; font-size: 10pt;">Subscription</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">250,062</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">339,690</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; color: black; font-size: 10pt;">Maintenance</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">1,112,136</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">1,037,859</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; padding-bottom: 1pt; color: black; font-size: 10pt;">Professional services</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">181,370</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">55,440</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; padding-bottom: 2.5pt; color: black; font-size: 10pt;">Total revenues</td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">3,253,436</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">2,020,048</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
</tr>
</table>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Intangible Assets</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">All of the Company’s intangible assets consist of shapes acquired from a graphics designer for the Company’s database library that are schematics of specific computer equipment. These shapes, having a finite life are valued at cost and are utilized in the Company’s software with multiple customers in order to enable them to visualize and differentiate the specific computer equipment in their overall network. For example, the Company’s software’s graphical user interface displays a unique shape for each make and model of computer server. Intangible assets are recorded at cost less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of 2.5 years.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Research and Development Costs</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Research and development costs are charged to operations as incurred and consist primarily of salaries, consulting services and other direct expenses.</p>
<p style="text-align: justify; margin-top: 0px; text-indent: 0in; font: 10pt times new roman, times, serif; margin-bottom: 0px; margin-left: 0in;"><b></b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Advertising Costs</u></p>
<p style="text-align: justify; text-indent: 27.5pt; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company expenses advertising costs to operations as incurred. For the years ended December 31, 2012 and 2011, such costs were not material.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Debt Discount and Amortization of Debt Discount</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Debt discount represents the fair value of embedded conversion options of various convertible debt instruments and attached convertible equity instruments issued in connection with debt instruments. The debt discount is amortized over the earlier of (i) the term of the debt or (ii) conversion of the debt, using the straight-line method which approximates the interest method. The amortization of debt discount is included as a component of other expenses in the accompanying statements of operations.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Income Taxes</u></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period enacted. A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font style="color: black;">The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present and disclose uncertain tax positions that the Company has taken or expects to take in its tax return. The benefit of tax positions taken or expected to be taken in the Company’s income tax returns are recognized in the financial statements if such positions are more likely than not of being sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits”. A liability is recognized (or amount of net operating loss carryover or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740. Interest costs and related penalties related to unrecognized tax benefits are required to be calculated, if applicable. The Company’s policy is to classify assessment, if any, for tax related interest as interest expense and penalties as general and administrative expenses. No interest and penalties were recorded during the years ended December 31, 2012 and 2011, respectively. As of December 31, 2012 and December 31, 2011, no liability for unrecognized tax benefits was required to be reported.</font> The Company files tax returns in U.S. federal, state and local jurisdictions, including California, and has tax returns subject to examination by tax authorities beginning in the year ended December 31, 2009. The Company does not expect any significant changes in its unrecognized tax benefits in the next year.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Stock-Based Compensation</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;">  </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company has an equity plan which allows for the granting of stock options to its employees, directors and consultants for a fixed number of shares with an exercise price equal to the fair value of the shares at date of grant. The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on interim financial reporting dates and vesting dates until the service period is complete. The fair value amount is then recognized over the period services are required to be provided in exchange for the award, usually the vesting period. Since the shares underlying the Company’s equity are not currently registered, the fair value of the Company’s restricted equity instruments was estimated based on historical observations of cash prices paid for the Company's restricted common stock.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Stock-based compensation for directors is reflected in general and administrative expenses in the consolidated statements of operations. Stock-based compensation for employees and consultants could be reflected in (a) sales and marketing expenses; (b) research and development expenses; or (c) general and administrative expenses in the consolidated statements of operations.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Reclassifications</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Certain prior period amounts have been reclassified for comparative purposes to conform to the fiscal 2012 presentation. These reclassifications have no impact on previously reported net loss.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b></b></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Net Loss Per Common Share</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Basic net loss per share is computed by dividing the net loss applicable to common shares by the weighted average number of common shares outstanding during the period. Weighted average shares outstanding for the year ended December 31, 2012 (1) includes the weighted average impact of 951,905 shares of common stock issuable as of December 31, 2012 and (2) excludes the weighted average impact of the 3,000,000 shares of common stock being held in escrow (the “Escrowed Shares”). Weighted average shares outstanding for the year ended December 31, 2011 (1) includes the weighted average underlying shares exercisable with respect to the 1,609,747 warrants exercisable at prices of $0.01 per share or less prior to the reverse merger; and (2) excludes the weighted average impact of the 3,000,000 escrowed shares. In accordance with the accounting literature, (1) the Company has given effect to the issuance of the issuable stock and the warrants in computing basic net loss per share because the underlying shares are issuable for little or no cash consideration; and (2) the Company has excluded the impact of the Escrowed Shares because they are contingently returnable.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Diluted net loss per common share adjusts basic net loss per common share for the effects of potentially dilutive financial instruments, only in the periods in which such effects exist and are dilutive. At December 31, 2012, outstanding stock options and warrants to purchase 24,675,001 and 60,541,103 shares of common stock, respectively, were excluded from the calculation of diluted net loss per common share because their impact would have been anti-dilutive. At December 31, 2011, outstanding stock warrants to purchase 48,362,014 shares of common stock were excluded from the calculation of diluted net loss per common share because their impact would have been anti-dilutive.</p>
<p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Recent Accounting Pronouncements</u></p>
<p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">There are no recent accounting pronouncements that would be expected to have a material impact on the Company’s financial position or results of operations.</p>
<p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"><i> </i></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Subsequent Events</u></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Subsequent events have been evaluated through the date of this filing.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>Note 3 - Property and Equipment</b></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Property and equipment consists of the following at December 31, 2012 and 2011:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="6">December 31,</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2012</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2011</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; width: 72%; color: black; font-size: 10pt;">Computer and office equipment</td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 11%; color: black; font-size: 10pt;">490,103</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 11%; color: black; font-size: 10pt;">314,483</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; color: black; font-size: 10pt;">Furniture and fixtures</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">114,871</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">12,835</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; padding-bottom: 1pt; color: black; font-size: 10pt;">Computer software</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">60,439</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">60,439</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">665,413</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">387,757</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; padding-bottom: 1pt; color: black; font-size: 10pt;">Less: Accumulated depreciation</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">361,588</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">257,685</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="font-size: 12pt;"> </td>
<td style="text-align: left; font-size: 12pt;"> </td>
<td style="text-align: right; font-size: 12pt;"> </td>
<td style="text-align: left; font-size: 12pt;"> </td>
<td style="font-size: 12pt;"> </td>
<td style="text-align: left; font-size: 12pt;"> </td>
<td style="text-align: right; font-size: 12pt;"> </td>
<td style="text-align: left; font-size: 12pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; padding-bottom: 2.5pt; color: black; font-size: 10pt;">Property and equipment, net</td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size:
10pt;">303,825</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">130,072</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The depreciation expense recorded was $111,758 and $53,348 for the years ended December 31, 2012 and 2011, respectively. During the year ended December 31, 2012, the Company sold property and equipment with $13,692 of original cost and $7,855 accumulated depreciation for cash proceeds of $8,901 and recognized a gain of $3,064.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>Note 4- Intangible Assets</b></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Intangible assets consisted of the following at December 31, 2012 and 2011:</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="6">December 31,</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2012</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2011</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; width: 72%; color: black; font-size: 10pt;">Computer equipment schematics</td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 11%; color: black; font-size: 10pt;">1,838,095</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 11%; color: black; font-size: 10pt;">1,741,754</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; padding-bottom: 1pt; color: black; font-size: 10pt;">Less: Accumulated amortization</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">1,711,032</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">1,579,302</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; padding-bottom: 2.5pt; color: black; font-size: 10pt;">Intangible assets, net</td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">127,063</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">162,452</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
</tr>
</table>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">All of the Company’s intangible assets consist of shapes acquired from a graphics designer for the Company’s database library that are schematics of specific computer equipment. These shapes, having a finite life are valued at cost and are utilized in the Company’s software with multiple customers in order to enable them to visualize and differentiate the specific computer equipment in their overall network. For example, the Company’s software’s graphical user interface displays a unique shape for each make and model of computer server.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The amortization expense for the years ended December 31, 2012 and 2011 was $131,730 and $138,201, respectively. As of December 31, 2012, the average remaining amortization period was 15 months. Future amortization expense of intangible assets is expected to be approximately $82,000 for 2013, $42,000 for 2014 and $3,000 for 2015. No amortization expense is expected to be recognized after 2015 related to intangible assets existing as of December 31, 2012.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>Note 5 - Accrued Expenses</b></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Accrued expenses consist of the following:</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="6">December 31,</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2012</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2011</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; width: 72%; color: black; font-size: 10pt;">Accrued commissions</td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 11%; color: black; font-size: 10pt;">508,654</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 11%; color: black; font-size: 10pt;">164,123</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; color: black; font-size: 10pt;">Accrued payroll</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">270,551</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">328,942</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; color: black; font-size: 10pt;">Accrued payroll taxes (1)</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">1,099,887</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">537,289</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; color: black; font-size: 10pt;">Accrued vacation</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">219,206</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">150,207</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; padding-bottom: 1pt; color: black; font-size: 10pt;">Accrued professional fees and other</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">73,607</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">263,548</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="font-size: 12pt;"> </td>
<td style="text-align: left; font-size: 12pt;"> </td>
<td style="text-align: right; font-size: 12pt;"> </td>
<td style="text-align: left; font-size: 12pt;"> </td>
<td style="font-size: 12pt;"> </td>
<td style="text-align: left; font-size: 12pt;"> </td>
<td style="text-align: right; font-size: 12pt;"> </td>
<td style="text-align: left; font-size: 12pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; padding-bottom: 2.5pt; color: black; font-size: 10pt;">Total accrued expenses</td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">2,171,905</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align:
left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">1,444,109</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
</tr>
</table>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; text-indent: -13.2pt; margin: 0pt 0px 0pt 40.7pt; font: 10pt times new roman, times, serif;">(1)   Includes accrual for interest and penalties.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Accrued expenses include liabilities for unpaid payroll taxes along with an estimate of related interest and penalties. Through December 31, 2012, the Internal Revenue Service (“IRS”) has placed Federal tax liens aggregating approximately $771,000 against the Company in connection with these unpaid payroll taxes.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>Note 6 - Notes Payable</b></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Notes Converted Prior to Reverse Merger</u></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">During the year 2011, in conjunction with the reverse merger, an aggregate of $6,439,090 of notes and related accrued interest were converted into an aggregate 28,901,267 shares of common stock and five year warrants to purchase 14,450,633 shares of common stock at an exercise price of $0.625 per share. The converted notes included (a) $3,375,753 of face value of related party notes that bore interest at 12% (plus $623,899 of associated accrued interest), including $63,000 of face value that was issued during 2011 (see Note 9 - Equity - Conversion of Non-Bridge Notes for additional details); (b) $100,000 of face value of a note that bore interest at 10%; and (c) $2,275,000 of face value of Convertible Bridge Notes that bore interest at 10% (plus $64,438 of associated accrued interest), all of which was issued to third parties during 2011 (see Note 9- Equity – Private Offerings – First Private Offering for additional details).</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> <b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>5% Note</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In December 2008, the Company issued a $50,000 5% note payable (the “5% Note”) to a related party that is a greater than 10% beneficial owner. The 5% Note was due in June 2009 and was in default at December 31, 2012 and 2011. Accrued interest related to the note was $10,151 and $7,648 at December 31, 2012 and 2011, respectively, which is included in Accrued Interest –Related Parties in the accompanying consolidated balance sheets.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>12% Notes – Original Issuance</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><i> </i></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In April and May 2012, the Company completed and closed an offering of ninety day 12% convertible promissory notes (the “12% Notes”) in which it sold an aggregate principal amount of $580,000 in notes to five investors. Each of the 12% Notes was scheduled to mature ninety days after issuance and was convertible, at the option of the holder, into Company units, at a price of $0.40 to $.0.45 per unit, each unit consisting of one share of the Company’s common stock and one warrant representing the right to purchase one share of the Company’s common stock for a period of five years from issuance at an exercise price of $0.80 to $1.00 per share. The warrants were exercisable on a cashless basis and contain weighted average anti-dilution price protection.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company determined that the warrants issuable in conjunction with the conversion of the notes were equity instruments and calculated the aggregate value of the warrants to be $638,013, by utilizing the Black-Scholes option pricing model (inputs were stock price of $0.68 to $0.94; exercise prices of $0.80 to $1.00; expected term of 5.3 years; volatility of 75%; dividend rate of 0% and discount rate of 0.75%-0.88%). The Company then compared the value of the warrants to the face value of the 12% Notes and determined that the aggregate relative fair values of the 12% Notes and the issuable warrant were $281,799 and $298,201, respectively.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company determined that the embedded conversion options were equity instruments and should not be bifurcated and accounted for as a derivative. The Company then determined that the aggregate beneficial conversion features’ value exceeded the relative fair value attributed to the 12% Notes and therefore the value attributed to the beneficial conversion was limited to $281,799 and the aggregate debt discount (attributable to both the beneficial conversion feature and the warrants) was equal to the $580,000 total proceeds of the 12% Notes. The individual debt discounts were amortized over the ninety-day life of the 12% Notes, such that the Company recorded debt discount amortization of $580,000 related to the 12% Notes for the year ended December 31, 2012.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>12% Notes – Amended Terms</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">During July and August 2012, the Company and the investors agreed to extend the maturity of the 12% Notes an additional ninety days, while amending the terms of the 12% Notes (the “Amended 12% Notes”) and the warrants that are issuable upon conversion. In addition, two of the existing investors each purchased half of a 12% Note (the “Purchased 12% Note”) for the original face value plus $3,945 of accrued interest, such that the original $100,000 12% Note was canceled and each of the investors received a new $51,973 Amended 12% Note. The embedded conversion option was re-priced at the lesser of $0.20 per unit or the Subsequent Offering (a subsequent offering of $4,000,000 or greater of equity or convertible securities) price and became subject to weighted average anti-dilution protection. The warrants issuable upon conversion of the Amended 12% Notes into units were re-priced at the lesser of $0.30 per share of common stock or the exercise price of the warrants offered in the Subsequent Offering. In addition, if the Subsequent Offering has warrant coverage that exceeds 100%, the Amended 12% Note holders will be entitled to the same warrant coverage.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company determined that the amendments to the terms of the 12% Notes and the warrants that are issuable upon conversion constituted an extinguishment for accounting purposes on account of the fact that the Purchased 12% Note was now held by new creditors and because the change in the fair value of the issuable warrants associated with the rest of the Amended 12% Notes exceeded 10% of the face value of the original 12% Notes. The Company determined that the warrants issuable in conjunction with the conversion of the Amended 12% Notes were equity instruments and the Company valued the modified and original issuable warrants on the modification date by utilizing the Black-Scholes option pricing model (inputs for the modified issuable warrants were restricted stock price of $0.14; exercise prices of $0.30; expected term of 4.9-5.0 years; volatility of 75%; dividend rate of 0% and discount rate of 0.60%-0.80%).</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">There was no extinguishment gain or loss associated with the Purchased 12% Notes because the original investor did not receive any additional consideration other than the face value plus accrued interest. Therefore, the $24,605 relative fair value of the modified issuable warrants associated with the Purchased 12% Notes was recorded as a new debt discount. The $113,925 change in the fair value of the issuable warrants associated with the rest of the Amended 12% Notes was recognized as a loss on extinguishment of the original 12% Notes. The Company then determined that the embedded conversion options associated with the Amended 12% Notes were equity instruments and should not be bifurcated and accounted for as a derivative. In addition, the Company determined that there was no beneficial conversion feature associated with the Amended 12% Notes because the embedded conversion option was out-of-the money. The individual debt discounts were amortized over the new ninety day life of the Amended 12% Notes, such that the Company recorded debt discount amortization of $24,605 related to the Amended 12% Notes for the year ended December 31, 2012.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On October 4, 2012, a note holder elected to convert a $75,000 Amended 12% Note plus $4,192 of accrued and unpaid interest into 527,945 shares of common stock and a five-year warrant to purchase 527,945 shares of common stock at an exercise price of $0.30 per share, pursuant to an inducement offer from the Company. The Company recorded $19,798 of induced note conversion expense which represents the incremental value of the securities received pursuant to the inducement offer. The carrying value of the notes and accrued interest were credited to equity at conversion. As of December 31, 2012, 152,945 shares of common stock were unissued. Subsequent to December 31, 2012 and prior to filing, the Company issued 152,945 shares of common stock.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Accrued interest was $12,837 and $24,688 related to the $176,973 of Amended 12% Notes held by a related party (a director) and the $331,973 of other Amended 12% Notes outstanding at December 31, 2012, respectively.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">As of December 31, 2012, $508,946 face value of 12% Notes remained outstanding and were in default. Pursuant to the terms of the 12% Notes, noteholders are entitled to all legal remedies in order to pursue collection and the Company is obligated to bear all reasonable costs of collection. To date, no 12% Note holders have pursued collection.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>8% Notes</u></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In June, July and August 2012, the Company completed and closed on the issuance of $1,050,000 of Bridge Units (as hereafter defined) which consists of a twelve month 8% convertible note (the “8% Notes”) and a warrant (the “Bridge Warrant”). Bridge Units are being offered in anticipation of the Subsequent Offering.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The 8% Notes are convertible into shares of common stock, at the option of the holder, at a price equal to 65% of the conversion date twenty-day volume weighted average price of the common stock, if the Company does not complete a Subsequent Offering by maturity. The 8% Notes are contingently and automatically convertible upon completion of the Subsequent Offering, into the Subsequent Offering securities at a price equal to 65% of the Subsequent Offering price. Conversion of the 8% Notes is subject to a conversion blocker such that conversion is limited to the issuance of common stock that would give the holder beneficial ownership of 4.99% of the common stock outstanding. The note holder is permitted to demand immediate repayment of principal and interest for any portion of the 8% Notes that is unable to be converted due to the conversion blocker.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Bridge Warrants to purchase an aggregate of 1,050,000 shares of common stock are exercisable for three years after issuance at the exercise date twenty-day volume weighted average price of the common stock. Upon completion of the Subsequent Offering, the exercise price is contingently adjustable to 150% of the Subsequent Offering price to purchase the Subsequent Offering securities and the term is extended to three years from the completion of the Subsequent Offering. The Bridge Warrants are (a) exercisable on a cashless basis after the first anniversary of warrant issuance; (b) subject to weighted average anti-dilution protection; and are (c) contingently redeemable by the Company at $0.00001 per share. The contingent redemption feature is permitted if (1) there is an effective registration statement covering resale of the shares issuable pursuant to the warrant; (2) the twenty day average closing bid price of the common stock is at least 200% of the current exercise price; (3) the twenty day average trading volume is at least 100,000 shares per day; and (4) there is not more than one trading day where there is no trading volume.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Conversion of the 8% Note and the Bridge Warrant are limited to the number of shares of common stock issuable without exceeding the Company’s authorized maximum number of shares outstanding. The Company has agreed to use its commercially reasonable best</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">efforts to obtain shareholder approval to increase the authorized maximum number of shares outstanding, if necessary.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">It was determined that contingent conversion options, triggered by future events not controlled by the issuer (such as the Subsequent Offering which requires the participation of investors willing to invest an aggregate of $4,000,000), are not recognized unless the triggering event occurs.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company determined that the freestanding Bridge Warrants were equity instruments, but also separately determined that the aggregate value of the Bridge Warrants, pursuant to the operative exercise price, was immaterial, because the Bridge Warrant currently may only be exercised into restricted or illiquid, thinly traded stock at the exercise date twenty-day volume weighted average price. Accordingly, the Company believes that the accounting impact of this warrant is immaterial, particularly considering that any immaterial value attributable to the Bridge Warrant would be subject to further discount, pursuant to the relative fair value method of determining the amount of the debt discount.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company determined that the embedded conversion option was an equity instrument and should not be bifurcated and accounted for as a derivative for the reasons discussed above. The Company then determined that there were no beneficial conversion features attributable to the 8% Notes because the embedded conversion option was out-of-the-money. Accordingly, no debt discount was recorded in conjunction with the 8% Notes.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On October 4, 2012, a note holder elected to convert a $100,000 8% Note plus $1,711 of accrued and unpaid interest into 1,043,191 shares of common stock and a five-year warrant to purchase 1,043,191 shares of common stock at an exercise price of $0.30 per share, pursuant to an inducement offer from the Company. The Company recorded $56,938 of induced note conversion expense which represents the incremental value of the securities received pursuant to the inducement offer. The carrying value of the notes and accrued interest, plus $4,225 of unamortized debt offering costs were credited to equity at conversion. As a result of the note conversion, a Bridge Warrant to purchase 100,000 shares of common stock had its exercise price adjusted to $0.225 and its term was extended to January 14, 2016. As of December 31, 2012, 273,960 shares of common stock were unissued. Subsequent to December 31, 2012 and prior to filing, the Company issued 273,960 shares of common stock.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Accrued interest related to the 8% Notes was $33,832 at December 31, 2012.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Three-year placement agent warrants to purchase 45,000 shares of common stock at the exercise date twenty-day volume weighted average price of the common stock are issuable in conjunction with the offering of Bridge Units (subject to adjustment if the 8% Notes are converted) and were determined to currently have an immaterial value. There were $122,231 of offering costs. Since no value was allocated to the equity instruments, all of the offering costs were allocated to the debt and were capitalized as deferred financing costs and are being amortized over the twelve-month life of the 8% Notes. Deferred financing costs of $49,662 were amortized during the year ended December 31, 2012.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>Note 7 - Derivative Liabilities - Related Parties</b></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In accordance with ASC 815-40, “<i>Derivatives and Hedging - Contracts in Entity's Own Equity</i>”, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The Company has determined that embedded conversion options of various notes payable which do not have fixed settlement provisions and accordingly are not indexed to its own stock, are deemed to be derivative liabilities. The embedded conversion options of the various notes issued by the Company do not have fixed settlement provisions as the conversion and exercise prices are not fixed and determinable on the date of issuance. In accordance with ASC Topic 718, “Stock Compensation” (“ASC 718”), the conversion options of the notes were bifurcated from their respective host contracts and recognized as derivative liabilities. The warrants issued in connection with the notes payable were not deemed to be derivative liabilities because they have a fixed settlement provision. The fair values of these derivative liabilities are re-measured at the end of every reporting period with the change in value reported in the statement of operations.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The fair values of the embedded conversion options, which are associated with notes payable issued to related parties, were deemed to be derivative liabilities and measured using the binomial lattice options pricing model with the following assumptions:</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr>
<td style="text-align: justify; vertical-align: bottom;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; padding-left: 2.8pt; vertical-align: bottom;" colspan="2"><font style="color: black;"><b>For The Year Ended December 31, 2011</b></font></td>
<td style="text-align: justify; padding-bottom: 1.1pt; vertical-align: bottom;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; width: 75%;"></td>
<td style="text-align: justify; width: 2%;"> </td>
<td style="text-align: justify; width: 17%;"> </td>
<td style="text-align: justify; width: 1%;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify;"><font style="color: black;">Risk free rate</font></td>
<td style="text-align: justify;"> </td>
<td style="text-align: right;"><font style="color: black;">0.10% - 0.17%</font></td>
<td style="text-align: justify;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify;"><font style="color: black;">Expected volatility</font></td>
<td style="text-align: justify;"> </td>
<td style="text-align: right;"><font style="color: black;">65% - 70%</font></td>
<td style="text-align: justify;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify;"><font style="color: black;">Expected life (in years)</font></td>
<td style="text-align: justify;"> </td>
<td style="text-align: right;"><font style="color: black;"> 0.13 - 0.38 </font></td>
<td style="text-align: justify;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify;"><font style="color: black;">Expected dividend yield</font></td>
<td style="text-align: justify;"> </td>
<td style="text-align: right;"><font style="color: black;">0%</font></td>
<td style="text-align: justify;"> </td>
</tr>
</table>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The risk-free interest rate was based on the rates of treasury securities with the same terms as the terms of the instruments. The Company based expected volatility on the historical volatility for ten comparable publicly traded company’s common stock. The expected life of the notes was based on the maturity of the notes. The expected dividend yield of zero was based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the future.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On September 21, 2011, immediately prior to, and conditioned upon the effectiveness of the reverse merger, an aggregate of $6,439,090 of notes and related accrued interest were converted into an aggregate 28,901,267 shares of common stock and five year warrants to purchase 14,450,633 shares of common stock at an exercise price of $0.625 per share. The converted notes included (a) $3,375,753 of face value of related party notes that bore interest at 12% (plus $623,899 of associated accrued interest), including $63,000 of face value that was issued during 2011; (b) $100,000 of face value of a note that bore interest at 10%; and (c) $2,275,000 of face value of Convertible Bridge Notes that bore interest at 10% (plus $64,438 of associated accrued interest), all of which was issued to third parties during 2011. At September 21, 2011, the derivative liability associated with the embedded conversion options of notes issued to related parties was revalued at $1,133,186. On September 21, 2011, the derivative liability balance of $1,133,186 was reclassified to equity. The gain on change in fair value of derivative liabilities, included in other income in the accompanying statements of operations was approximately $542,000 for the year ended December 31, 2011. See Note 8 – Fair Value Measures for additional details related to the derivative liabilities.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>Note 9 – Equity</b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Authorized Capital</u></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Effective with the Reverse Merger on September 21, 2011 (see Note 1 – Organization and Operations), the Company’s authorized capital became as follows:</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company is authorized to issue up to 300,000,000 shares of common stock, which has a par value of $0.0001 per share. The holders of the Company’s common stock are entitled to one vote per share. The holders of common stock are entitled to one vote per share on all matters submitted to a vote of the stockholders, including the election of directors. Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all shares of common stock that are present in person or represented by proxy. Except as otherwise provided by law, amendments to the articles of incorporation generally must be approved by a majority of the votes entitled to be cast by the holders of all outstanding shares of common stock. The amended and restated articles of incorporation do not provide for cumulative voting in the election of directors. The common stock holders will be entitled to such cash dividends as may be declared from time to time by the Board from funds available. Upon liquidation, dissolution or winding up of the Company, the common stock holders will be entitled to receive pro rata all assets available for distribution to such holders, subject to the rights of holders of preferred stock, if any. The Company is authorized to issue 10,000,000 shares of blank check preferred stock, which has a par value of $0.0001 per share.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Consulting Agreements</u></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On August 21, 2011, the Company entered into a three-month agreement for public relations and financial communications services. In consideration of services to be rendered, the Company agreed to pay $15,000 in cash per month in advance, for an aggregate of $45,000, and, subject to the consummation of the Reverse Merger, to issue 70,000 shares of vested Company common stock per month, for an aggregate of 210,000 shares, of which, 70,000 shares remained unissued as of December 31, 2011. Accordingly, the Company accrued the equity issuance liability of $15,960 as of December 31, 2011. During the year ended December 31, 2012, the remaining 70,000 shares were issued and the fair value of the shares of $15,960 was credited to equity.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On October 1, 2011, the Company entered into a six-month consulting agreement for general business consulting services and advice including, but not limited to, services and advice related to (i) corporate planning and strategies; and (ii) general financial matters. The Company paid $110,000 and issued immediately-vested, five-year warrants to purchase 400,000 shares of common stock at an exercise price of $0.25 per share under the consulting agreement. The exercise price and number of shares of common stock issuable on exercise of these warrants may be adjusted in certain circumstances including stock splits, stock dividends, and future issuances of the Company’s equity securities without consideration or for consideration per share less than $0.25 (as specified in the warrant agreement). For the year ended December 31, 2011, the Company recorded the full grant date value of the warrants of $38,640 as stock-based compensation, included in general and administrative expenses in the accompanying statements of operations. The assumptions used in the Black-Scholes option pricing model were as follows: risk-free rate of 0.34%; expected volatility of 75.0%; expected term of 2.5 years; expected dividend yield of 0%.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On November 16, 2011, the Company entered into a twelve-month agreement for investor relations services with a consultant. In consideration of services to be rendered, the Company agreed to pay $6,000 in cash per month in advance, for an aggregate of $72,000, and to immediately issue 500,000 shares of vested Company common stock, plus an additional 500,000 shares of common stock at the six month anniversary of the agreement. The Company valued the shares and recorded the full value of issued shares and cash payments as consulting expense at the issuance date. For the year ended December 31, 2011, the Company recorded stock-based compensation expense of $114,000 (value of the first 500,000 shares), included in general and administrative expenses in the accompanying statements of operations. On January 11, 2012, the Company terminated this agreement and on January 16, 2012, the Company entered into a settlement agreement whereby the consultant agreed to accept the initial $12,000 of 2011 cash payments and 250,000 shares of common stock (by returning 250,000 shares of common stock to the Company for cancellation) in full satisfaction of the terminated agreement. During the year ended December 31, 2012, the Company reversed $57,000 of stock-based compensation expense upon cancellation of the returned shares.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On November 25, 2011, the Company entered into two two-year consulting agreements for business development and corporate finance services and advice. Upon execution of the consulting agreements, the Company paid an aggregate of $250,000 and issued immediately-vested, five-year warrants to purchase an aggregate of 6,000,000 shares of common stock at an exercise price of $0.66 per share, which are fully earned upon payment and issuance. The exercise price and number of shares of common stock issuable on exercise of these warrants may be adjusted in certain circumstances including stock splits, stock dividends, and future issuances of the Company’s equity securities without consideration or for consideration per share less than $0.375 (as specified in the warrant agreement). During the year ended December 31, 2011, the Company recorded the full grant date value of the warrants of $372,600 as stock-based compensation, included in general and administrative expenses in the accompanying statements of operations. The assumptions used in the Black-Scholes option pricing model were as follows: risk-free rate of 0.54%; expected volatility of 75.0%; expected term of 3.5 years; expected dividend yield of 0%.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On November 30, 2011, the Company entered into a six-month agreement for investor relations services. In consideration of services to be rendered, the Company agreed to pay a minimum of $7,000 in cash per month in advance (subject to supplemental performance-based bonuses), for an aggregate of $42,000, and to immediately issue 75,000 shares of vested Company common stock, of which, 75,000 shares remained unissued as of December 31, 2011. Accordingly, the Company accrued the equity issuance liability of $17,100 as of December 31, 2011. During the year ended December 31, 2012, the remaining 75,000 shares were issued and the fair value of the shares of $17,100 was credited to equity.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On December 19, 2011, the Company renewed an agreement for public relations and financial communications services for a three -month term. In consideration of services to be rendered, the Company agreed to pay $7,500 in cash per month in advance, for an aggregate of $22,500, and to issue 25,000 shares of vested Company common stock per month, for an aggregate of 75,000 shares. On February 3, 2012, after the Company had made an initial cash payment of $7,500 in December 2011, the Company terminated this agreement for non-performance. No shares were issued and no stock-based compensation expense was recorded related to this renewal agreement.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On January 15, 2012, the Company entered into a six-month agreement for investor relations services. In consideration of services to be rendered, the Company agreed to pay a minimum of $10,000 in cash per month for an aggregate of $60,000, and to issue 300,000 shares of vested Company common stock, of which, 300,000 shares remained unissued as of December 31, 2012. See Note 12 – Commitments and Contingencies, for additional details associated with a dispute with this vendor. In connection with the unissued shares, the Company accrued the equity issuance liability at the fair market value of $33,000 at December 31, 2012 with a corresponding charge to stock-based compensation expense. At December 31, 2012, $60,000 of unpaid fees were included in accounts payable.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On April 18, 2012, the Company amended a consulting services agreement pursuant to which, among other things, the Company agreed to issue an immediately vested, seven-year warrant to purchase an additional 500,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The grant date value of $198,500 was recognized immediately. In addition, the Company agreed to pay a one-time cash fee of $100,000, which was paid on April 20, 2012.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On August 30, 2012, as amended on November 5, 2012, the Company entered into a five-month agreement for public relations and financial communication services. In consideration of services to be rendered, the Company agreed to pay a minimum of $10,000 in cash per month in advance, for an aggregate of $50,000, and to issue 75,000 shares of vested Company common stock per month, for an aggregate of 375,000 shares. As of December 31, 2012, 225,000 earned shares were unissued. In connection with the unissued shares, the Company accrued the equity issuance liability of $24,750 at December 31, 2012 with a corresponding charge to stock-based compensation expense. Subsequent to December 31, 2012 and prior to filing, the Company issued 425,000 shares of common stock in connection with the consultant agreement, which included 50,000 shares pursuant to the original agreement and 375,000 shares pursuant to the amended agreement.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Conversion of Non-Bridge Notes</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On September 21, 2011, immediately prior to, and conditioned upon the effectiveness of the reverse merger, $3,475,753 face value of the outstanding non-bridge convertible notes, plus aggregate accrued interest of $623,899, converted into shares of the operating company’s common stock, which were ultimately exchanged for an aggregate of 19,543,515 shares of the Company’s common stock, plus immediately-vested, five-year Merger Warrants to purchase 9,771,757 shares of common stock at an exercise price of $0.625 per share, pursuant to the terms of the Merger Agreement. The note holders waived their rights to two-year warrants in the operating company in favor of the Merger Warrants. See Note 1 - Organization and Operations – Reverse Merger.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Private Offerings</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><i>First Private Offering</i></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><i> </i></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In July 2011, the public company commenced a private offering (the “First Private Offering”) pursuant to which, on September 21, 2011, the Company had an initial closing on the sale of investor units (“Units”), at a price of $0.25 per Unit. The initial closing on the sale of Units included the conversion of $2,275,000 of principal, plus $64,438 of accrued interest, from the Convertible Bridge Notes previously received by the Company between April 2011 and August 2011. Inclusive of the conversion of the Convertible Bridge Notes, between September 2011 and November 2011, the First Private Offering raised an aggregate of $4,739,300 net proceeds ($5,077,812 gross proceeds reduced by $338,512 of offering costs). Each Unit consisted of one share of common stock (deemed to represent $0.022 of the per Unit cost) and a warrant to purchase one-half share of the Company’s common stock (deemed to represent $0.228 of the per Unit cost) (the “Investor Warrants”), such that 20,311,252 shares of common stock and Investor Warrants to purchase 10,155,627 shares of the Company’s common stock were issued.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Investor Warrants are exercisable for a period of five years at an exercise price of $0.625 per full share of common stock. The Investor Warrants may be called for redemption by the Company at any time upon not less than 30 or more than 60 days prior written notice, provided that, at the time of delivery of such notice, (i) there is a registration statement covering the resale of the shares underlying the warrants; (ii) the average closing bid price for the Company’s common stock for each of the 20 consecutive trading days prior to the date of the notice of redemption is at least $1.25, as proportionally adjusted to reflect any stock splits, stock dividends, combinations of shares or like events; and (iii) the average trading volume for the Company’s common stock is at least 50,000 shares per day during the 20 consecutive trading days prior to the date of the notice of redemption and that during such 20-day period there is no more than one trading day in which there is no trading in the Company’s common stock.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Investor Warrants, at the option of the holder, may be exercised by cash payment of the exercise price to the Company. Alternatively, the Investor Warrants may be exercised on a cashless basis commencing one year after the September 27, 2011 filing of the Current Report on Form 8-K with the SEC regarding the reverse merger if no registration statement registering the shares underlying the investor warrants is then in effect. The exercise price and number of shares of common stock issuable on exercise of the investor warrants may be adjusted in certain circumstances including stock splits, stock dividends, and future issuances of the Company’s equity securities without consideration or for consideration per share less than $0.25 (as specified in the warrant agreement).</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The placement agent for the First Private Offering received a cash commission of 10% of the funds raised from investors in the offering that were directly attributable to the placement agent. In addition, the placement agent received five-year warrants to purchase shares of the Company’s common stock equal to 10% of the Units sold to investors in the First Private Offering (the “Broker Warrants”). As a result of the foregoing arrangement, the placement agent (1) was paid cash commissions of $150,500; (2) was reimbursed for certain out-of-pocket expenses; and (3) was issued five-year Broker Warrants to purchase 602,000 shares of the Company’s common stock. In addition, the placement agent acted as a finder in connection with the Convertible Bridge Note financing. In such capacity, it earned a fee of $2,500 related to the issuance of a $25,000 Convertible Bridge Note, plus a warrant, which was converted upon the initial closing of the First Private Offering into a warrant to purchase up to 10,000 shares of the public company common stock.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Broker Warrants are identical to the Investor Warrants in all material respects except that (i) the resale of the common stock underlying them is not covered by a registration statement; and (ii) they have an exercise price of $0.25 per share of common stock.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On September 21, 2011, the Company executed a registration rights agreement, whereby the Company committed to file a registration statement covering the resale of the common stock underlying the Units sold or to be sold in the First Private Offering and the common stock that is issuable upon exercise of the Investor Warrants (but not the common stock that is issuable upon exercise of the Broker Warrants or Merger Warrants) within 75 days of the final closing of the First Private Offering, and to use commercially reasonable efforts to cause the registration statement to become effective no later than 150 days after it is filed. The Company will be liable for monetary penalties at the monthly rate of 1% (to a maximum of 10%) of each holder’s investment in the First Private Offering until the failure to meet the above deadlines are cured. Notwithstanding the foregoing, no payments shall be owed with respect to that portion of a holder’s registrable securities (1) which may be sold by such holder under Rule 144 or pursuant to another exemption from registration; or (2) which the Company is unable to register due to limits imposed by Rule 415 under the Securities Act (which shares would then be eligible for “piggyback” registration rights with respect to any registration statement filed by the Company within two years following the effectiveness of the original registration statement). On January 17, 2012, the Company filed a registration statement on Form S-1 which was declared effective on June 11, 2012 and included the First Private Offering registrable securities.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><i>Second Private Offering</i></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In December 2011, the public company commenced a second private offering (the “Second Private Offering”) pursuant to which, during December 2011, the Company had one closing on the sale of 3,912,534 investor units (“Second Units”), at a price of $0.375 per Second Unit. The Company raised $1,350,453 net proceeds as part of the first closing ($1,467,200 gross proceeds reduced by $116,747 of offering costs). Each Second Unit consists of one share of common stock (deemed to represent $0.345 of the per Second Unit cost) and a warrant to purchase one-quarter share of common stock (deemed to represent $0.030 of the per Second Unit cost) (the “Second Investor Warrants”), such that an aggregate of 3,912,534 shares of common stock and Second Investor Warrants to purchase 978,134 shares of common stock were issued.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">During the year ended December 31, 2012, the Company had three additional closings of the Second Private Offering pursuant to which an aggregate of 4,356,668 Second Units were sold, resulting in $1,447,113 of aggregate net proceeds ($1,633,750 of gross proceeds less $186,637 of issuance costs). In connection with the closings, an aggregate of 4,356,668 shares of common stock and Second Investor Warrants to purchase 1,089,169 shares of common stock were issued. The Second Investor Warrants are redeemable in certain circumstances, are exercisable for a period of five years at an exercise price of $1.00 per full share of common stock and are subjected to weighted average anti-dilution protection.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Second Investor Warrants are exercisable for a period of five years at an exercise price of $1.00 per full share of common stock.  The Second Investor Warrants may be called for redemption by the Company at any time upon not less than 30 or more than 60 days prior written notice, provided that, at the time of delivery of such notice, (i) there is a registration statement covering the resale of the shares underlying the warrants; (ii) the average closing bid price for the Company’s common stock for each of the 20 consecutive trading days prior to the date of the notice of redemption is at least $2.00, as proportionally adjusted to reflect any stock splits, stock dividends, combinations of shares or like events; and (iii) the average trading volume for the Company’s common stock is at least 100,000 shares per day during the 20 consecutive trading days prior to the date of the notice of redemption and that during such 20-day period there is no more than one trading day in which there is no trading in the Company’s common stock.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Second Investor Warrants, at the option of the holder, may be exercised by cash payment of the exercise price to the Company. Alternatively, the Second Investor Warrants may be exercised on a cashless basis commencing one year after the date of the final closing of the Second Private Offering if no registration statement registering the shares underlying the investor warrants is then in effect. The exercise price and number of shares of common stock issuable on exercise of the investor warrants may be adjusted in certain circumstances including stock splits, stock dividends, and future issuances of the Company’s equity securities without consideration or for consideration per share less than $0.375 (as specified in the warrant agreement).</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font style="color: black;">The placement agent for the Second Private Offering receives a cash commission of 10% or 5% of the funds raised from investors in the Second Private Offering that were directly attributable or referred to the placement agent, respectively. In addition, the placement agent receives five-year warrants to purchase shares of common stock (the “Second Broker Warrants”) equal to 10% or 5% of the Second Units sold to investors in the Second Private Offering that were directly attributable or referred to the placement agent, respectively. </font>The Second Broker Warrants are identical to the Second Investor Warrants in all material respects except that (i) the resale of the common stock underlying them is not covered by a registration statement; and (ii) they have an exercise price of $0.375 per share of common stock. <font style="color: black;">As a result of the foregoing arrangement, in connection with the first closing in 2011, the placement agent (1) was paid aggregate cash commissions of $15,470; and (2) was issued Second Broker Warrants to purchase 216,253 shares of common stock. </font>In connection with the three 2012 closings, the placement agent (1) was paid aggregate cash commissions of $136,500; and (2) was issued Second Broker Warrants to purchase 364,000 shares of common stock.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In connection with the Second Private Offering, the Company executed a registration rights agreement, whereby the Company committed to file a registration statement covering the resale of the common stock underlying the Second Units sold or to be sold in the Second Private Offering and the common stock that is issuable upon exercise of the Second Investor Warrants (but not the common stock that is issuable upon exercise of the Second Broker Warrants) within 75 days of the final closing of the Second Private Offering, and to use commercially reasonable efforts to cause the registration statement to become effective no later than 150 days after it is filed. The Company will be liable for monetary penalties at the monthly rate of 1% (to a maximum of 10%) of each holder’s investment in the Second Private Offering until the failure to meet the above deadlines are cured or upon the occurrence of certain other specified events. Notwithstanding the foregoing, no payments shall be owed with respect to that portion of a holder’s registrable securities (1) which may be sold by such holder under Rule 144 or pursuant to another exemption from registration; or (2) which the Company is unable to register due to limits imposed by Rule 415 under the Securities Act (which shares would then be eligible for “piggyback” registration rights with respect to any registration statement filed by the Company following the effectiveness of the original registration statement). On January 17, 2012, the Company filed a registration statement on Form S-1 which was declared effective on June 11, 2012 and included the Second Private Offering registrable securities.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><i>Third Private Offering </i></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">During the year ended December 31, 2012, the Company had seven closings of a private offering that commenced on September 1, 2012 (the “Third Private Offering”), pursuant to which an aggregate of 6,942,332 investor units (“Third Units”) were sold at a price of $0.15 per Third Unit, resulting in $878,051 of aggregate net proceeds ($1,041,350 of gross proceeds less $163,299 of issuance costs). Each Third Unit consists of one share of common stock and a redeemable warrant to purchase one share of common stock (the “Third Investor Warrants”), such that an investors were entitled to an aggregate of 6,942,332 shares of common stock and Third Investor Warrants to purchase 6,942,332 shares of common stock (see Note 13 – Subsequent Events for details of closings subsequent to December 31, 2012).</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Pursuant to the Third Private Offering, Third Units were originally offered at a purchase price equal to the lesser of (a) $0.20 per Third Unit or the five day volume weighted average price (“VWAP”). On December 12, 2012, the Company agreed to retroactively reduce the offering price to $0.15 per unit. If an investor elects to participate in the Third Private Offering for at least 50% of the funds that such investor has invested in the Company since September 21, 2011, the Company will reduce the exercise price of such investor’s warrants previously issued by the Company to $0.30 per share.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The amended placement agency agreement extended the offering until February 1, 2013.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The 2012 closings of the Third Private Offering resulted in warrants to purchase 2,518,760 shares of common stock having their exercise price reduced to $0.30 per share, including warrants to purchase 1,493,959, 774,801 and 250,000 shares whose original exercise price was $0.625 per share, $1.00 per share and the twenty day VWAP, respectively. Because the warrants were deemed to be equity instruments, the associated value was credited to equity.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Third Investor Warrants are exercisable for a period of five years at an exercise price of $0.30 per share of common stock, are subject to weighted average anti-dilution protection and possess piggy-back registration rights. The Third Investor Warrants are redeemable at a price of $0.0001 per share upon the provision of adequate notice, if and only if (a) the common stock’s average closing bid price exceeds $1.00 for five of any ten consecutive days; and (b) the twenty-day average daily volume exceeds 20,000 shares and there is no more than one single day of no volume.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The placement agent for the Third Private Offering is entitled to a cash commission of up to 10% of the funds raised from investors in the Third Private Offering that were directly attributable to or referred by the placement agent. In addition, the placement agent is entitled to five-year redeemable warrants to purchase shares of common stock (the “Third Broker Warrants”) equal to 10% of the Third Units purchased by investors in the Third Private Offering that were directly attributable to or referred by the placement agent. As a result of the foregoing arrangement, in connection with the closings during the year ended December 31, 2012, the placement agent (1) was paid aggregate cash commissions of $104,135; and (2) was issued Third Broker Warrants to purchase 694,233 shares of common stock. The Third Broker Warrants are identical to the Third Investor Warrants in all material respects except that (i) the resale of the common stock underlying them is not covered by a registration statement; and (ii) they have an exercise price of $0.15 per share of common stock.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font style="color: black;">In addition to the above closings, on October 4, 2012, a noteholder elected to convert a $75,000 Amended 12% Note, a $100,000 8% Note and accrued and unpaid interest into an aggregate of 1,571,136 shares of common stock and five-year warrants to purchase an aggregate of 1,571,136 shares of common stock at an exercise price of $0.30 per share, in connection with the Third Private Offering. As a result of the note conversion, a Bridge Warrant to purchase 100,000 shares of common stock had its exercise price adjusted to $0.225 and its term was extended to January 14, 2016. See Note 6 </font>– <font style="color: black;">Notes Payable for additional details. As of December 31, 2012, 426,905 shares of common stock were unissued.</font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Stock Warrants</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><i>Note Holder Warrants</i></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On June 15, 2011, 6,997,205 warrants that were scheduled to expire were extended for two years. The value of the modified warrants was deemed to be immaterial after applying the binomial lattice options pricing model using the following assumptions: risk-free rate of 0.81% to 1.40%; expected volatility of 75%; expected term of 0.21 years; dividend yield of 0%.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">During the year ended December 31, 2011, the Company issued warrants to purchase 50,654 shares of the Company’s common stock at an exercise price of $0.252 per share for a term of five years to two note holders in connection with the issuance of convertible notes payable aggregating $63,000 in principal amount. Using the binomial lattice options pricing model, the Company determined that the relative fair value of the warrants was $4,750. The fair value was recorded as a debt discount and amortized over the term of the notes. The assumptions used in the binomial lattice options pricing model were as follows: risk-free rate of 1.77%; expected volatility of 70.0%; expected term of 4.2 years; expected dividend yield of 0%.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On September 21, 2011, immediately prior to, and conditioned upon the effectiveness of the reverse merger, warrants to purchase 1,609,747 shares of the Company’s common stock were exercised for total proceeds of $3,045 and all of the remaining warrants to purchase 11,889,751 shares of the Company’s common stock were cancelled.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><br />On October 4, 2012, a note holder converted a $100,000 8% Note in connection with the Third Private Offering. Pursuant to the terms of the warrant to purchase 100,000 shares of common stock that were issued in conjunction with the Note, the warrant was re-priced to $0.225 per share and the term was reset to three years from the date of conversion. The Company recorded induced note conversion expense of approximately $77,000, representing the incremental value of the modified warrant, which was included in other income (expense) in the consolidated statements of operations.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><i> </i></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><i>Merger Warrants</i></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On September 21, 2011, in connection with the reverse merger, Merger Warrants to purchase an aggregate of 30,000,000 shares of the Company’s common stock were issued to the operating company’s existing investors. See Note 1 – Organization and Operations - Reverse Merger for additional details.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><i>Investor and Broker Warrants</i></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><i> </i></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font style="color: black;">In 2011, in connection with the First Private Offering and Second Private Offering, Investor Warrants, Second Investor Warrants, Broker Warrants and Second Broker Warrants to purchase an aggregate of 10,155,627, 978,134, 612,000 and 216,253 shares of the Company’s common stock, respectively, were issued. In 2012, in connection with the Second Private Offering and the Third Private Offering, Second Investor Warrants, Third Investor Warrants, Second Broker Warrants and Third Broker Warrants to purchase an aggregate of 1,089,169, </font>6,942,332<font style="color: black;">, 364,000 and </font>694,233 <font style="color: black;">shares of the Company’s common stock, respectively, were issued. See Note 9 – Equity – Private Offerings for additional details.</font></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><i>Consultant Warrants</i></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">During the years ended December 31, 2012 and 2011, the Company issued warrants to purchase an aggregate of 500,000 and 6,400,000 shares of common stock to consultants, respectfully. See Note 9 – Equity – Consulting Agreements for additional details.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><i>Warrant Summary</i></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">A summary of the stock warrant activity during the years ended December 31, 2012 and 2011 is presented below:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 90%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Weighted</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Weighted</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Average</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Average</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Remaining</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Number of</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Exercise</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Life</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Intrinsic</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Warrants</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Price</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">In Years</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Value</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; width: 34%; font: 10pt times new roman, times, serif;">Balance, December 31, 2010</td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 13%; font: 10pt times new roman, times, serif;">13,448,844</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;">$</td>
<td style="text-align: right; width: 13%; font: 10pt times new roman, times, serif;">0.273</td>
<td style="text-align: center; width: 3%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="text-align: right; width: 13%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="width: 1%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="text-align: right; width: 13%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Issued</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">48,412,668</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.628</td>
<td style="text-align: center; font: 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Exercised</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">(1,609,747</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">)</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.002</td>
<td style="text-align: center; font: 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">Cancelled</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">(11,889,751</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">)</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">0.310</td>
<td style="text-align: center; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: right; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: right; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Balance, December 31, 2011</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">48,362,014</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.628</td>
<td style="text-align: center; font: 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Issued</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">12,210,871</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;"><font style="font: 10pt times new roman, times, serif;">0.393</font></td>
<td style="text-align: center; font: 10pt times new roman, times, serif;">[1]</td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Exercised</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">(31,782</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">)</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.625</td>
<td style="text-align: center; font: 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">Cancelled</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: center; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">Balance, December 31, 2012</td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">60,541,103</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;"><font style="font: 10pt times new roman, times, serif;">0.566</font></td>
<td style="text-align: center; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">[2]</td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">4.13</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">Exercisable, December 31, 2012</td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">60,541,103</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;"><font style="font: 10pt times new roman, times, serif;">0.566</font></td>
<td style="text-align: center; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">[2]</td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">4.13</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; text-indent: -0.25in; margin: 0pt 0px 0pt 0.25in; font: 10pt times new roman, times, serif;">[1] - Investor warrants to purchase 1,050,000 shares of common stock had a variable exercise price at issuance equal to the exercise date twenty day VWAP. These warrants are excluded from the weighted average exercise price.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; text-indent: -0.25in; margin: 0pt 0px 0pt 0.25in; font: 10pt times new roman, times, serif;">[2] - Investor warrants to purchase 950,000 shares of common stock had a variable exercise price as of December 31, 2012. These warrants are excluded from the weighted average exercise price.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The following table presents information related to stock warrants at December 31, 2012:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">  </p>
<table style="width: 60%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="6">Warrants Outstanding</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="6">Warrants Exercisable</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="font-size: 10pt;" colspan="6"> </td>
<td style="font-size: 10pt;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Weighted</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="font-size: 10pt;" colspan="2"> </td>
<td style="font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="font-size: 10pt;" colspan="2"> </td>
<td style="font-size: 10pt;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Outstanding</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Average</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Exercisable</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Exercise</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Number of</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Remaining Life</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Number of</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Price</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Warrants</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">In Years</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Warrants</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;">$</td>
<td style="text-align: right; width: 23%; font: 10pt times new roman, times, serif;">0.150</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 22%; font: 10pt times new roman, times, serif;">694,234</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 22%; font: 10pt times new roman, times, serif;">4.82</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 22%; font: 10pt times new roman, times, serif;">694,234</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.225</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">100,000</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">3.04</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">100,000</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.250</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">1,012,000</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">3.79</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">1,012,000</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.300</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">10,782,228</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">4.60</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">10,782,228</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.375</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">580,253</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">4.00</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">580,253</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.625</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">38,629,887</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">3.74</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">38,629,887</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.660</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">6,000,000</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">5.90</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">6,000,000</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">1.000</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">1,792,501</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">4.64</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">1,792,501</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"><font style="font: 10pt times new roman, times, serif;">Variable</font></td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">950,000</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">2.55</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">950,000</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 2.5pt; font-size: 10pt;"> </td>
<td style="text-align: right; padding-bottom: 2.5pt; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 2.5pt; font-size: 10pt;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">60,541,103</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">4.13</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">60,541,103</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The warrants outstanding in the tables above do not include (1) warrants issuable to investors upon future conversion of their convertible notes; and (2) warrants issuable to the 8% bridge unit placement agent upon the investors’ future conversion of their convertible notes. See Note 6 – Notes Payable for additional details.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">As of December 31, 2012, the warrants to purchase an aggregate of 950,000 shares of common stock with a variable exercise price were exercisable at approximately $0.16 per share.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In addition, all of the warrants are subject to weighted average anti-dilution protection upon the issuance of common stock, or securities convertible into common stock, at prices below specified trigger prices. The Third Private Offering results in dilutive issuances pursuant to the terms of the warrants. The closings of the Third Private Offering did not have a material effect on the exercise prices or quantities of the outstanding warrants as of December 31, 2012.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Stock Options</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company’s board of directors adopted a Stock Incentive Plan (the “Original Plan”) under which the Company may issue options to purchase the Company’s common stock to employees, directors and consultants. The Company had reserved 7,973,884 shares of common stock for issuance under the Original Plan. Prior to the reverse merger, options to purchase 824,406 shares of the Company’s common stock were forfeited. All of the remaining outstanding options to purchase 13,575,986 shares of the Company’s common stock were cancelled immediately prior to, and conditioned upon the effectiveness of the reverse merger (see Note 1 - Organization and Operations - Reverse Merger).</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The board of directors and stockholders owning a majority of the Company’s outstanding shares adopted the 2011 Equity Incentive Plan (the “2011 Plan”) on September 20, 2011. A total of 13,500,000 shares of the Company’s common stock are reserved for issuance under the 2011 Plan. The 2011 Plan authorizes grants to eligible recipients of nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units, performance grants intended to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended, and stock appreciation rights. Under the 2011 Plan, (1) awards may be granted to employees, consultants, officers and directors; (2) the maximum term of any award shall be ten years from the date of grant; (3) the exercise price of any award shall not be less than the fair value on the date of grant; and (4) awards will typically result in the issuance of new common shares.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">During the first quarter of 2012, the Company granted to its directors, officers, employees and consultants ten-year options to purchase an aggregate of 23,275,000 shares of common stock at an exercise price of $0.345 per share, of which options to purchase an aggregate of 12,475,000 shares of common stock were granted under the 2011 Plan and the remaining options to purchase an aggregate of 10,800,000 shares of common stock (of which 6,900,000 were granted to the Company’s new Chief Executive Officer (“New CEO”)) were not granted pursuant to an established plan. The options vest as follows: (i) an option to purchase 6,900,000 shares of common stock granted to the New CEO vested on an accelerated basis in November 2011 based on the New CEO meeting specified performance criteria (see below); (ii) an option to purchase 2,500,000 shares of common stock vests one-third immediately, one-third on September 21, 2012 and one-third on September 21, 2013; (iii) options to purchase an aggregate of 13,325,000 shares of common stock vest one-third 0.7-1.0 years from the date of grant, one-third 1.7-2.0 years from the date of grant and one-third 2.7-3.0 years from the date of grant; and (iv) options to purchase an aggregate of 550,000 shares of common stock vest ratably on a quarterly basis over a three-year term. The aggregate grant date value of approximately $5,090,000 will be recognized proportionate to the vesting terms. </p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In March 2012, the Compensation Committee of the Company’s Board of Directors determined that the New CEO’s options became fully vested effective November 2011 as a result of the execution of a strategic alliance with a major customer. Although the option was not formally granted prior to December 31, 2011, the New CEO had a contractual right to the vested options pursuant to his employment agreement, and, accordingly, the Company accrued the equity issuance liability of $1,526,970 at December 31, 2011 based on the full value of the option as of December 31, 2011, when the restricted stock was valued at $0.345 per share. On January 9, 2012, the New CEO’s options were issued and the $1,444,170 issuance date value of the options was credited to equity. <font style="color: black;">See Note 12 – Commitments and Contingencies – Employment Agreements – New CEO for additional details.</font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">During the third quarter of 2012, the Company granted to its directors, employees and consultants options ranging from one to ten years to purchase an aggregate of 3,983,334 shares of common stock at exercise prices ranging from $0.345 to $0.348 per share, of which options to purchase an aggregate of 1,370,000 shares of common stock were granted under the Company’s 2011 Plan and the remaining options to purchase an aggregate of 2,613,334 shares of common stock were not granted pursuant to an established plan. The options vest as follows: (i) an option to purchase 333,334 shares of common stock granted pursuant to an employee’s severance agreement vested immediately; (ii) options to purchase an aggregate of 500,000 shares of common stock granted to directors vested immediately; (iii) options to purchase an aggregate of 1,250,000 shares of common stock granted to directors vest on their respective one-year anniversary dates of service; (iv) options to purchase an aggregate of 950,000 shares of common stock granted to employees and a consultant vest ratably over three years on the grant date anniversaries; (v) an employee option to purchase 350,000 shares of common stock vests one-third on April 2, 2013, one-third on April 2, 2014 and one-third on April 2, 2015; (vi) an employee option to purchase 100,000 shares of common stock vests one-third on September 21, 2012, one-third on September 21, 2013 and one-third on September 21, 2014; and (vii) options to purchase an aggregate of 500,000 shares of common stock granted to members of the Company’s advisory board vest ratably on an quarterly basis over a term beginning on August 1, 2012 and ending on May 1, 2015. The aggregate grant date value of approximately $230,000 will be recognized proportionate to the vesting terms. </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On July 18, 2012, the Company modified options to purchase an aggregate of 1,250,000 shares of common stock previously granted to the Company’s Board of Directors, such that the options became vested immediately. As a result of the modification, the Company immediately recorded an incremental stock compensation expense of $172,666.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Between August 13, 2012 and October 1, 2012, the Company granted to its employees ten-year options to purchase an aggregate of 175,000 shares of common stock at exercise prices ranging from $0.18 to $0.22 per share which were granted under the Company’s 2011 Plan. The options vest ratably over three years on the grant date anniversaries. The aggregate grant date value of approximately $13,000 will be recognized proportionate to the vesting terms. </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In applying the Black-Scholes option pricing model to options granted, the Company used the following assumptions:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 60%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="5">For The Years Ended</td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="5">December 31,</td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;">2012</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;">2011</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; width: 64%; font: 10pt times new roman, times, serif;">Risk free interest rate</td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 17%; font: 10pt times new roman, times, serif;">0.14 - 1.11%</td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 17%; font: 10pt times new roman, times, serif;">1.02%</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Expected term (years)</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.5 - 6.0</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">5.73</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Expected volatility</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">75 - 79%</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">75%</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Expected dividends</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0%</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0%</td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The risk-free interest rate was based on rates of treasury securities with the same expected term as the options. Since the Company’s stock has not been publicly traded for a long period of time, the Company is utilizing an expected volatility figure based on a review of the historical volatilities, over a period of time, equivalent to the expected life of the instrument being valued, of similarly positioned public companies within its industry. The Company utilizes the “simplified” method to develop an estimate of the expected term of “plain vanilla” employee option grants. The expected dividend yield was based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the future.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The weighted average estimated fair value of the stock options granted during the year ended December 31, 2012 was $0.19 per share. No stock options were granted during the year ended December 31, 2011. <font style="color: black;">The Company used forfeiture assumptions of 10% to 20% per annum..</font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company recorded stock-based compensation expense associated with options of approximately $1,372,000 and $1,753,000 during the years ended December 31, 2012 and 2011, respectively. These amounts have been included in operating expenses in the accompanying consolidated statements of operations. As of December 31, 2012, there was approximately $1,335,000 of unrecognized stock-based compensation expense that will be amortized over a weighted average period of 1.8 years.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">A summary of the option activity during the years ended December 31, 2012 and 2011 is presented below:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Weighted</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Weighted</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Average</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Average</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Remaining</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Number of</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Exercise</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Life</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Intrinsic</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Options</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Price</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">In Years</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Value</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="width: 36%; font: 10pt times new roman, times, serif;">Outstanding, December 31, 2010</td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 13%; font: 10pt times new roman, times, serif;">14,400,392</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;">$</td>
<td style="text-align: right; width: 13%; font: 10pt times new roman, times, serif;">0.220</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="text-align: right; width: 13%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="width: 1%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="text-align: right; width: 13%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="font: 10pt times new roman, times, serif;">Granted</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="font: 10pt times new roman, times, serif;">Exercised</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="font: 10pt times new roman, times, serif;">Forfeited</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">(824,406</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">)</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.390</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;">Cancelled</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">(13,575,986</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">)</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">0.210</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: right; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: right; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="font: 10pt times new roman, times, serif;">Outstanding, December 31, 2011</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="font: 10pt times new roman, times, serif;">Granted</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">27,433,334</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.345</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="font: 10pt times new roman, times, serif;">Exercised</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;">Forfeited</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">(2,758,333</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">)</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">0.345</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">Outstanding, December 31, 2012</td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">24,675,001</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">0.344</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">9.0</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">Exercisable, December 31, 2012</td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">13,770,845</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">0.345</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">8.9</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The following table presents information related to stock options at December 31, 2012:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 60%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="6">Options Outstanding</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="6">Options Exercisable</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="font-size: 10pt;" colspan="2"> </td>
<td style="font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="font-size: 10pt;" colspan="2"> </td>
<td style="font-size: 10pt;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Weighted</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="font-size: 10pt;" colspan="2"> </td>
<td style="font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="font-size: 10pt;" colspan="2"> </td>
<td style="font-size: 10pt;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Outstanding</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Average</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Exercisable</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: right; font: bold 10pt times new roman, times, serif;" colspan="2">Exercise</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Number of</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Remaining Life</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Number of</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="border-bottom: black 1pt solid; text-align: right; font: bold 10pt times new roman, times, serif;" colspan="2">Price</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Options</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">In Years</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Options</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;">$</td>
<td style="text-align: right; width: 23%; font: 10pt times new roman, times, serif;">0.180</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 22%; font: 10pt times new roman, times, serif;">50,000</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 22%; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 22%; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.200</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">50,000</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.220</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">75,000</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.345</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">20,616,667</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">9.0</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">12,354,175</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">0.348</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">3,883,334</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">7.4</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">1,416,670</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 2.5pt; font-size: 10pt;"> </td>
<td style="text-align: right; padding-bottom: 2.5pt; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 2.5pt; font-size: 10pt;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">24,675,001</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">8.9</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">13,770,845</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>Note 8 - Fair Value Measures</b></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><i> </i></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The FASB’s accounting standard for fair value measurements establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2012 and December 31, 2011, respectively:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="14">Fair Value Measurements</td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">Level 1</td>
<td style="text-align: center; padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="text-align: center; padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">Level 2</td>
<td style="text-align: center; padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="text-align: center; padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">Level 3</td>
<td style="text-align: center; padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="text-align: center; padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">Total</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; width: 48%; font-size: 10pt;"> </td>
<td style="width: 1%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="text-align: right; width: 10%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="width: 1%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="text-align: right; width: 10%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="width: 1%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="text-align: right; width: 10%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="width: 1%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="text-align: right; width: 10%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; color: black; font-size: 10pt;">Derivative liabilities:</td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; color: black; font-size: 10pt;">December 31, 2012</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; color:
black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; color: black; font-size: 10pt;">December 31, 2011</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
</table>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The derivative liabilities are measured at fair value using the binomial lattice options pricing model and are classified within Level 3 of the valuation hierarchy. There were no changes in the valuation techniques during the years ended December 31, 2012 and 2011 (see Note 7, Derivative Liabilities - Related Parties).</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: right; text-indent: 0px; font-size: 10pt; padding: 0px;"> </td>
<td style="color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="6">For The Years Ended</td>
<td style="color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-indent: 0px; font-size: 10pt; padding: 0px;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="6">December 31,</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-indent: 0px; font-size: 10pt; padding: 0px;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2012</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2011</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-indent: 0px; font-size: 10pt; padding: 0px;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;" colspan="2"> </td>
<td style="font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;" colspan="2"> </td>
<td style="font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-indent: 0px; width: 68%; color: black; font-size: 10pt; padding: 0px;">Fair value, beginning of period</td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 13%; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 13%; color: black; font-size: 10pt;">1,645,852</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; text-indent: 0px; color: black; font-size: 10pt; padding: 0px;">Derivative liabilities recorded during the period</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">29,617</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; text-indent: 0px; color: black; font-size: 10pt; padding: 0px;">Reclassification of derivative liability to equity</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size:
10pt;">(1,133,186</td>
<td style="text-align: left; color: black; font-size: 10pt;">)</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; text-indent: 0px; color: black; font-size: 10pt; padding: 0px;">Net unrealized (gain) loss on derivative financial instruments</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">(542,283</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;">)</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-indent: 0px; color: black; font-size: 10pt; padding: 0px;">Fair value, end of period</td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>Note 10 - Income Taxes</b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The income tax provision (benefit) consists of the following:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="font-size: 10pt;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="6">For The Years Ended</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="6">December 31,</td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">2012</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">2011</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="font: 10pt times new roman, times, serif;">Federal</td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="padding-left: 8pt; font: 10pt times new roman, times, serif;">Current</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="padding-left: 8pt; width: 68%; font: 10pt times new roman, times, serif;">Deferred</td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 13%; font: 10pt times new roman, times, serif;">(400,730</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;">)</td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 13%; font: 10pt times new roman, times, serif;">(1,655,911</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;">)</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">State and local</td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="padding-left: 8pt; font: 10pt times new roman, times, serif;">Current</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="padding-bottom: 1pt; padding-left: 8pt; font: 10pt times new roman, times, serif;">Deferred</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">(70,717</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">)</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">(292,220</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">)</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="font-size: 10pt;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">(471,447</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">)</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">(1,948,131</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">)</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">Change in valuation allowance</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">471,447</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">1,948,131</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">Income tax provision (benefit)</td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">For the periods ended December 31, 2012 and December 31, 2011, the expected tax expense (benefit) based on the statutory rate is reconciled with the actual tax expense (benefit) as follows:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="6">For The Years Ended</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="6">December 31,</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">2012</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">2011</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; width: 68%; font: 10pt times new roman, times, serif;">US federal statutory rate</td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 13%; font: 10pt times new roman, times, serif;">(34.0</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;">%)</td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 13%; font: 10pt times new roman, times, serif;">(34.0</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;">%)</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">State tax rate, net of federal benefit</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">(6.0</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%)</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">(6.0</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%)</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Permanent differences</td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-left: 6pt; font: 10pt times new roman, times, serif;">- Fines and penalties</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.2</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.4</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; padding-left: 6pt; font: 10pt times new roman, times, serif;">- Stock based compensation</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">2.9</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">3.4</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-left: 6pt; font: 10pt times new roman, times, serif;">- Merger expenses</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.0</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">5.7</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; padding-left: 6pt; font: 10pt times new roman, times, serif;">- Reclassification of derivative liability to equity</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.0</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">5.1</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="padding-left: 6pt; font: 10pt times new roman, times, serif;">- Other</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">2.7</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">3.5</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Impact of annual NOL limitation</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">29.3</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.0</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">Change in valuation allowance</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">4.9</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">%</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">21.9</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">%</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">Income tax provision (benefit)</td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">0.0</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">%</td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">0.0</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">%</td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">As of December 31, 2012 and December 31, 2011, the Company’s deferred tax assets consisted of the effects of temporary differences attributable to the following:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="6">December 31,</td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">2012</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">2011</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; width: 68%; font: 10pt times new roman, times, serif;">Net operating loss</td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;">$</td>
<td style="text-align: right; width: 13%; font: 10pt times new roman, times, serif;">6,644,224</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;">$</td>
<td style="text-align: right; width: 13%; font: 10pt times new roman, times, serif;">6,828,982</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Stock based compensation</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">1,151,317</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">788,508</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Fixed assets</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">7,943</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">5,482</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Intangible assets</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">72,478</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">82,830</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Deferred rent</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">73,166</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">Accrued compensation</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">288,204</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">60,083</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Total deferred tax assets</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">8,237,332</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">7,765,885</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">Valuation allowance</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">(8,237,332</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">)</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">(7,765,885</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">)</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 2.5pt; padding-left: 3pt; font: 10pt times new roman, times, serif;">Net deferred tax assets (liabilities)</td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">For the years ended December 31, 2012 and December 31, 2011, the Company had approximately $31,285,000 and $24,064,000 of gross federal and state net operating loss carryovers (“NOLs”) which begin to expire in 2023. These net operating loss carryovers are subject to annual limitations under Section 382 of the Internal Revenue Code when there is a greater than 50% ownership change, as determined under the regulations. Based on our analysis, there was a change of control on or about December 2012 and June 2009, and we have determined that due to the annual limitations under Section 382, approximately $14,675,000 of net operating losses will expire unused. Therefore, we have reduced the related deferred tax asset for net operating loss carryovers by approximately $5,870,000 as of December 31, 2012. The Company’s NOLs incurred from the first ownership change in June 2009 through the date of ownership change in December 2012 are subject to an annual limitation of approximately $456,000 and the Company’s NOLs through the date of ownership change in June 2009 are subject to an annual limitation of approximately $441,000.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the future generation of taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and taxing strategies in making this assessment. Based on this assessment, management has established a full valuation allowance against all of the net deferred tax assets for each period, since it is more likely than not that all of the deferred tax assets will not be realized. The increase in the valuation allowance for the years ended December 31, 2012 and 2011 was $471,447 and $1,948,131, respectively.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>Note 11 - Related Party Transactions</b></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On July 29, 2011, the Company forgave a note receivable of $187,717 from a stockholder of the Company.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Effective September 30, 2011, the Company’s Board of Directors appointed a new President and Chief Executive Officer (the “New CEO”). Prior to his appointment, the Company paid the New CEO $192,500 during the nine months ended September 30, 2011, pursuant to an April 1, 2011 Management Consulting Agreement between the New CEO and the Company. Under the Management Consulting Agreement, the New CEO provided general management and business consulting services and advice to the Company, including but not limited to, services and advice related to (i) general business development; (ii) the reverse merger; (iii) due diligence processes and capital structuring; and (iv) corporate planning and strategies. The Management Consulting Agreement was terminated upon the September 30, 2011 appointment of the New CEO.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">During the year ended December 31, 2011, the Company entered into a $60,000 note with a Company stockholder. The Company is obligated to pay financing fees to an affiliated stockholder equal to 10% of the proceeds from note issuances to this Company stockholder. During the year ended December 31, 2011, the Company issued $3,000 of notes to the affiliated stockholder and accrued another $3,000 fee to satisfy the financing fee obligation. On September 21, 2011, all outstanding balances of the debt and the related accrued interest were converted into units at the time of the reverse merger, with each unit consisting of one share of common stock, plus a warrant to purchase half a share of common stock.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company was obligated to pay management fees to a stockholder of $10,000 per month for general business consulting, which represented $90,000 for the year ended December 31, 2011. This agreement was terminated in September 2011. There was no balance due as of December 31, 2011.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company held a note receivable from a stockholder for $187,717 that earned interest at 3.25% per annum. On July 29, 2011, the Company’s board of directors approved that, immediately prior to, and conditioned upon the effectiveness of the reverse merger, the note receivable of $187,717 from a stockholder of the Company was written-off after being forgiven by the Company and charged to general and administrative expenses in the consolidated statements of operations along with a special bonus of approximately $143,000 to cover taxes associated with income to the stockholder from the forgiveness of the note.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On January 1, 2012, the Company entered into a new agreement with a stockholder to provide financial advisory services to the Company. The Company agreed to pay fees of $10,000 per month for twelve months, as well as a one-time fee of $40,000, which represented $160,000 for the year ended December 31, 2012.</p>
<p style="text-align: justify; margin: 0pt 27.5pt 0pt 0px; font: 10pt times new roman, times, serif;"><b>Note 12 - Commitments and Contingencies</b></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><i> </i></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b><u>Litigation</u></b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On October 9, 2012, the Company has received a letter for settlement purposes only regarding enforcement of United States Patent Number 7765286. The letter claims that the Company’s software product DCIM v3.5 infringes on the claims of the aforementioned patent held by Nlyte Software Limited and Nlyte Software Americas Limited (collectively “Nlyte”), a company that sells data center infrastructure management products. The letter references a standard license agreement that is “being offered at a substantial discount relative to the value of the patent. The payment terms include an upfront payment to cover past product sales and an ongoing royalty for future product sales.” The Company has conducted an internal technical review of the patent claims by its EVP of Development.  Based on those findings, the Company has elected not to sign the license agreement pending full legal review by patent counsel.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On October 26, 2012, the Company was named as defendant in a complaint filed in the County of Westchester, Supreme Court of the State of New York by Porter, Levay & Rose, Inc., index number 68540/2012. The complaint alleges the Plaintiff rendered work, labor and services to the Company on, about, or between October 18, 2012, and is seeking $103,198, together with interest running from October 18, 2012. The Company disputes the amount owed based on the services rendered and has retained a New York based counsel to represent it in the matter.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On January 22, 2013, the Company was named as defendant in a complaint filed in the Superior Court of California, County of Sacramento, case number 34-2013-00138819 by Babich & Associates, Inc., a Texas Corporation. The complaint alleges that the Company was invoiced for services relating to professional staffing services for 2 potential employees that the Company subsequently hired, and is seeking $48,000 plus earned interest at the rate of 10% per annum from May 3, 2012. The Company has retained counsel in the matter to investigate the claims and recommend a course of action.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On January 25, 2013, the Company and its CEO were named defendants in a complaint filed in the Superior Court of California, County of Sacramento, case number 34-2013-00138978 by Daniel Lucas, a former employee. The complaint alleges that the Company entered into an employment agreement with Mr. Lucas for the purposes of providing services as the Company’s Regional Sales Manager, that the Company and its CEO breached the agreement by refusing to compensate Mr. Lucas for his services, and as a result, Mr. Lucas is seeking lost compensation and benefits in the amount of $77,429, compensatory damages, attorneys’ fees, interest, and any other relief as the court deems just and proper. The Company disputes these claims and has hired counsel to represent it in the matter.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On January 25, 2013, the Company and its CEO were named defendants in a complaint filed in the Superior Court of California, County of Sacramento case number 34-2013-00138979 by Timothy Barone, a former employee who was terminated for cause. The complaint alleges that the Company entered into an employment agreement with the Plaintiff for the purposes of providing services as the Company’s Senior Vice President, Global Accounts and Partners, that the Company and its CEO breached the agreement by refusing to compensate Mr. Barone for his services, and as a result, Mr. Barone is seeking lost compensation and benefits in the amount of $194,596, additional tax liability of $150,000, compensatory damages, exemplary and/or punitive damages in an amount to be determined, attorneys’ fees, interest, and any other relief as the court deems just and proper. The Company disputes these claims and has hired counsel to represent it in the matter.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On February 20, 2013, the Company was named as a defendant in a complaint filed in the Superior Court, Wake County, State of North Carolina, case number I3CV002442 by Accentuate Staffing Inc. The complaint alleges that the Company was invoiced for services relating to professional staffing services as defined in a certain contract executed on December 20, 2011, and is seeking $59,824 plus interest and costs as allowed by law. The Company has retained counsel in the matter to investigate the claims and recommend a course of action.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On February 25, 2013, the Company, its CEO and its CFO were named defendants in a complaint filed in the Superior Court, Commonwealth of Massachusetts, civil case number 13-0641 by David E. Fahey, a former employee of the company. The complaint alleges that Mr. Fahey was not paid commissions that were due and owing and the Company failed to reimburse the Plaintiff for his business expenses, resulting in a breach of contract, and is seeking $33,695 in commissions, $4,300 in out of pocket expenses, and treble damages, attorney’s fees, costs, and interest.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On March 7, 2013, the Company was named as a defendant in a complaint yet to be filed in District Court, First Judicial District, Carver County, State of Minnesota. The complaint alleges that the Company has not paid commissions totaling $11,900 to Dan Skrove, a former employee who resigned in 2012. The Company is currently working with counsel in Minnesota to resolve the matter.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On March 11, 2013, the Company was named as a defendant in a complaint filed in the Superior Court, Wake County, State of North Carolina, case number 13CV003506 by TSG and Associates, LLC d/b/a The Select Group Raleigh, LLC. The complaint alleges that the Company was invoiced for services relating to professional staffing services as described by a Direct Hire Agreement dated June 13, 2011, and is seeking $41,000, plus attorney’s fees of $6,150. The Company has retained counsel in the matter to investigate the claims and recommend a course of action.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company records legal costs associated with loss contingencies as incurred.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Employment Agreements</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><i>New CEO</i></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Effective on his hire date of September 30, 2011, as executed on January 9, 2012, the Company entered into a three-year employment agreement with its New CEO. The agreement provides for (a) a salary of $250,000 annually; (b) a bonus opportunity for meeting specified performance standards, to be set within 90 days of the execution of the agreement; and (c) ten-year, non-statutory stock options, not issued pursuant to the 2011 Plan, to purchase 6,900,000 shares of common stock at an exercise price of $0.345 per share, the fair value of the restricted stock on the January 6, 2012 grant date. Vesting is 10% upon issuance, with the other 90% vesting ratably on a quarterly basis over the three-year term of the employment agreement, plus vested options survive termination of the employment relationship. Any unvested options are subject to accelerated vesting as follow (i) 75% of the granted options not fully vested shall fully vest upon two consecutive quarters of EBITDA profitability; and (ii) up to 100% of the granted stock options may be vested upon the execution of a strategic alliance with a major customer or entity, to be determined solely at the discretion of the Company’s board of directors. In March 2012, the Compensation Committee of the Company’s Board of Directors determined that the New CEO’s options became fully vested effective November 2011 as a result of the execution of a strategic alliance with a major customer. Although the option was not formally granted prior to December 31, 2011, the New CEO had a contractual right to the vested options pursuant to his employment agreement, and, accordingly, the Company accrued the equity issuance liability of $1,526,970 based on the full value of the option as of December 31, 2011, when the restricted stock was valued at $0.345 per share. On January 9, 2012, the New CEO’s options were issued and the $1,444,170 issuance date value of the options was credited to equity.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><i>New CFO</i></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company hired a new Chief Financial Officer (the “New CFO”) on January 23, 2012. In connection with his appointment, the New CFO received (i) an annual base salary of $175,000; (ii) eligibility for bonus compensation; (iii) an option to purchase 1,000,000 shares of the Company’s common stock, vesting over a period of three years, under the 2011 Plan, exercisable at a price of $0.345 per share; and (iv) 100,000 shares of the Company’s restricted common stock with a grant date value on January 23, 2012 of $34,500, which was recognized immediately. In addition, in the event that the New CFO was terminated without reasonable cause, he would be entitled to a severance payment equal to six months of his base salary at the time of termination. On February 15, 2012, the New CFO was granted a ten-year option to purchase 500,000 shares of the Company’s common stock, vesting over a period of three years, under the 2011 Plan, exercisable at a price of $0.345 per share. Both of the New CFO’s options are included in the above “Option Grants” discussion.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Operating Leases</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company leases facilities in Folsom, California, Las Vegas, Nevada and Raleigh, North Carolina under non-cancelable operating leases. For the years ended December 31, 2012 and 2011, rent expense was $283,757 and $281,668, respectively, and was recorded on a straight line basis as part of general and administrative expenses within the statements of operations.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In January 2012, the Company executed a 63-month lease for 3,465 square feet of new headquarters office space in Folsom, California. The lease commenced on March 30, 2012. The base rent commences at $6,757 per month and escalates to $7,833 per month over the lease term. The Company is entitled to pay no base rent during each of the 13th, 26th, and 39th months of the lease.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In February 2012, the Company executed a 37-month sub-lease for the remaining term of its Las Vegas, Nevada office space. The sub-lease rent income commences at $8,983 per month and escalates to $9,818 per month over the lease term. During the three months ended March 31, 2012, the Company recognized a charge of $155,000, included in general and administrative expense in the accompanying statements of operations, which brought the deferred rent liability up to the aggregate differential between the lease expense and sublease income over the life of the leases.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font style="color: black;"></font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In February 2012, the Company executed a new five-year lease for 5,772 square feet of office space in Raleigh, North Carolina. The base rent commences at $7,922 per month and escalates to $11,073 per month over the lease term. The lease contains an option which permits the Company to terminate the lease on January 31, 2015, provided that the Company pay $102,795 and provide nine months written advance notice.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 27.5pt 0pt 0px; font: 10pt times new roman, times, serif;">Future minimum payments (exclusive of the benefit of the Las Vegas sublease income) at December 31, 2012 required under the operating leases are as follows:</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: left; color: black; font-size: 10pt; font-weight: bold;">Years Ending December 31:</td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;" colspan="2"> </td>
<td style="font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; width: 84%; color: black; font-size: 10pt;">2013</td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 13%; color: black; font-size: 10pt;">360,394</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; color: black; font-size: 10pt;">2014</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">379,695</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; color: black; font-size: 10pt;">2015</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">225,426</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; color: black; font-size: 10pt;">2016</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">90,593</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;">2017</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">46,313</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;">Total</td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">1,102,421</td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 27.5pt 0pt 0px; font: 10pt times new roman, times, serif;"><font size="2" style="font-family:times new roman,times"><b>Note 13 - Subsequent Events</b></font></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 27.5pt 0pt 0px; font: 10pt times new roman, times, serif;"><font size="2" style="font-family:times new roman,times"><b> </b></font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font size="2" style="font-family:times new roman,times">The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required further adjustment or disclosure in the consolidated financial statements.</font></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font size="2" style="font-family:times new roman,times"> </font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font size="2" style="font-family:times new roman,times"><u>Third Private Offering</u></font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font size="2" style="font-family:times new roman,times"> </font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font size="2" style="font-family:times new roman,times">Subsequent to December 31, 2012, the Company had two additional closings of the Third Private Offering (see Note 9 - Equity – Private Offerings – Third Private Offering), pursuant to which an aggregate of 1,000,000 Third Units were sold at a price of $0.15 per Third Unit, resulting in $150,000 of aggregate gross proceeds. Each Third Unit consists of one share of common stock and a redeemable warrant to purchase one share of common stock. In addition, the placement agent was paid cash commissions of $15,000 and was issued five-year Third Broker Warrants to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.15 per share. The closings resulted in warrants to purchase 201,167 shares of common stock having their exercise price reduced to $0.30 per share, including warrants to purchase 101,167 and 100,000 shares whose original exercise price was $0.625 per share and $1.00 per share, respectively.</font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font size="2" style="font-family:times new roman,times"> </font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font size="2" style="font-family:times new roman,times"><u>Consulting Agreements</u></font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font size="2" style="font-family:times new roman,times"> </font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font size="2" style="font-family:times new roman,times">On January 7, 2013, the Company entered into a twelve-month agreement for investor relations services. In consideration of the services to be rendered, the Company agreed to issue $75,000 of freely-tradable common stock for the initial 45-day test campaign. An investor contributed the freely tradable common stock that was issued to the consultant to satisfy the Company’s obligation related to the test campaign. Upon receiving the results of the test campaign, a 180-day budget and activity calendar will be approved by the Company to roll-out the campaign to larger audience, which will be paid by cash.</font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font size="2" style="font-family:times new roman,times"> </font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font size="2" style="font-family:times new roman,times"><u>Note Conversions</u></font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font size="2" style="font-family:times new roman,times"> </font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font size="2" style="font-family:times new roman,times">Subsequent to December 31, 2012, three note holders elected to convert five 8% Notes with an aggregate principal amount of $800,000, plus $33,282 of aggregate accrued and unpaid interest, into an aggregate of 8,546,480 shares of common stock and five-year warrants to purchase an aggregate of 8,546,480 shares of common stock at an exercise price of $0.30 per share. As a result of the note conversions, Bridge Warrants to purchase an aggregate of 800,000 shares of common stock had their exercise price adjusted to $0.225 and their term was extended to January 14, 2016. As a result of the note conversions, the Company issued three-year placement agent warrants to purchase an aggregate of 318,808 shares of common stock at an exercise price of $0.225 per share.</font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font size="2" style="font-family:times new roman,times"> </font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"></p>
<p style="margin: 0pt 0px; font: 10pt times new roman, times, serif; color: #1f497d;"><font style="color: black;; font-family:times new roman,times" size="2"><u>Short-Term Loan</u></font></p>
<p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font style="color: black;; font-family:times new roman,times" size="2"> </font></p>
<p style="margin: 0pt 0px; font: 10pt times new roman, times, serif; color: #1f497d;"><font style="color: black;; font-family:times new roman,times" size="2">On April 12, 2013, the Company borrowed $112,500 via a short-term interest free loan from an affiliate.  The loan is intended to convert into the securities to be sold by the Company in a subsequent offering.</font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Liquidity, Going Concern and Management’s Plans</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company has incurred substantial recurring losses since its inception. The Company’s current strategy is to raise capital and invest that capital in such a way that the Company rapidly grows its market share and revenues, eventually resulting in profits and cash from operations. However, this strategy requires a rapid build-up of infrastructure that will initially exacerbate the Company’s operating deficit and use of cash in operations, because the expected revenue expansion will lag the investment in infrastructure. The capital that the Company has raised, and likely will continue to raise, will be used to invest in an expanded salesforce, to fund development of the software product, to fund incremental legal and accounting costs associated with being a public company and to fund the Company’s operating deficit and general working capital requirements.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">During the years ended December 31, 2012 and 2011, the Company raised net proceeds of approximately $3,955,000 (gross proceeds of approximately $4,305,000 less approximately $349,000 of issuance costs) and $6,088,000 (gross proceeds of approximately $6,544,000 less issuance costs of approximately $455,000), respectively, in private offerings of common stock, warrants and debt funding. This capital has permitted the Company to proceed with its infrastructure investments.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font style="color: black;">As expected, the Company’s net losses and usage of cash have increased, while it awaits the expected benefits of its investment. During the years ended December 31, 2012 and 2011, the Company recorded net losses of approximately $9,594,000 and $8,881,000, respectively, while revenues increased to approximately $3,253,000 from approximately $2,020,000. During the years ended December 31, 2012 and 2011, the Company used cash in operating activities of approximately $4,779,000 and $4,201,000, respectively. As of December 31, 2012, the Company has limited cash of approximately $17,000, a working capital deficiency of approximately $7,224,000, an accumulated deficit of approximately $43,480,000 and owes approximately $1,100,000 for payroll tax liabilities, penalties and interest which has yet to be remitted to the taxing authorities. The Company also continues to incur unpaid payroll tax liabilities for the first quarter of 2013 of approximately $231,000. </font>The IRS has placed federal tax liens that aggregate to approximately $771,000 against the Company in connection with the unpaid payroll taxes through the third quarter of 2012.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"></p>
<p style="margin: 0pt 0px; font: 10pt times new roman, times, serif; color: #1f497d;"><font style="color: black;">Subsequent to December 31, 2012, the Company (a) sold additional common stock and warrants for $150,000 of aggregate gross proceeds in the continuation of the Third Private Offering; (b) certain note holders elected to convert five 8% Notes with an aggregate principal amount of $800,000, plus $33,282 of aggregate accrued and unpaid interest, into equity; and (c) borrowed $112,500 via a short-term interest free loan from an affiliate (the loan is intended to convert into the securities to be sold by us in a subsequent offering; see Note 13 - Subsequent Events). The capital raised in the private placement offerings will be utilized to fund existing operating deficits while the Company continues to develop product line(s) and enhance marketing efforts to increase revenues and eventually generate operating surpluses. The Company believes it will be successful in these efforts; however, there can be no assurance the Company will meet its revenues forecasts or, if necessary, be successful in raising additional debt or equity financing to fund its operations on terms agreeable to the Company. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company were unable to continue as a going concern. The Company expects that the cash it has available will fund its operations only until May 2013. If the Company is unable to obtain additional financing on a timely basis and, notwithstanding any request the Company may make, the Company’s debt holders do not agree to convert their notes into equity or extend the maturity dates of their notes, the Company may have to delay note and vendor payments and/or initiate cost reductions, which would have a material adverse effect on the Company’s business, financial condition and results of operations, and ultimately the Company could be forced to discontinue its operations, liquidate and/or seek reorganization under the U.S. bankruptcy code.</font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Principles of Consolidation</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The balance sheets, results of operations and cash flows of the Company and its wholly-owned subsidiary have been included in its consolidated financial statements. All intercompany accounts and transactions have been eliminated.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Use of Estimates</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and reported amounts of revenues and expenses in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates. The significant estimates and assumptions of the Company are stock-based compensation, the useful lives of fixed assets and intangibles, depreciation and amortization, the allowances for factoring fees and income taxes, and the fair value of derivative liabilities and warrants.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Accounts Receivable and Allowance for Doubtful Accounts</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company recognizes an allowance for doubtful accounts to ensure that accounts receivable are not overstated due to uncollectibility. At the time accounts receivable are originated, the Company considers a reserve for doubtful accounts based on the creditworthiness of customers.  The provision for uncollectible amounts is continually reviewed and adjusted to maintain the allowance at a level considered adequate to cover future losses.   The allowance is management’s best estimate of uncollectible amounts and is determined based on historical performance that is tracked by the Company on an ongoing basis.  During the years ended December 31, 2012 and 2011, the Company’s losses from bad debts were not material. The losses ultimately incurred could differ materially in the near term from the amounts estimated in determining the allowance.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In addition, the Company factors its receivables with full recourse and, as a result, accounts for the factoring akin to a secured borrowing, maintaining the gross receivable asset and due to factor liability on its books and records. In connection with the factoring of its receivables, the Company estimates an allowance for factoring fees associated with the collections. These fees range from 2% to 30% depending on the actual timing of the collection. The actual recognition of such fees may differ from the estimates depending upon the timing of collections. Due to the current tax liens, the Company is currently in default of this factoring arrangement. As such, the factor could demand full repayment of the outstanding balance.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Fair Value of Financial Instruments</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The carrying amounts of financial instruments, including cash, accounts receivables, accounts payable, accrued expenses and deferred revenue, approximated fair value as of the balance sheet date presented, because of the relatively short maturity dates on these instruments. The carrying amounts of the financing arrangements issued approximate fair value as of the balance sheet date presented, because interest rates on these instruments approximate market interest rates after consideration of stated interest rates, anti-dilution protection and associated warrants.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Property and Equipment</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the applicable assets. Computer, computer software and office equipment are depreciated over estimated useful lives of 3 years and furniture and fixtures are depreciated over estimated useful lives of 5 years. Expenditures for maintenance and repairs that do not improve or extend the expected lives of the assets are expensed to operations, while expenditures for major upgrades to existing items are capitalized. Upon retirement or other disposition of these assets, the costs and related accumulated depreciation and amortization of these assets are removed from the accounts and the resulting gains or losses are reflected in the consolidated statements of operations.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Accounting for Impairment of Long-Lived Assets</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company evaluates the recoverability of its long-lived assets in accordance with Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) Topic 360, which requires recognition of impairment of long-lived assets in the event an indication of impairment exists and the net book value of such assets exceeds the expected future undiscounted net cash flows attributable to such assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of their carrying amount or fair value less the cost to sell. As of December 31, 2012, management does not believe there has been any impairment of long-lived assets.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Derivative Financial Instruments</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses the binomial lattice options pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the instrument could be required within 12 months of the balance sheet date.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Concentration of Credit Risk and Customers</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash and accounts receivable. The Company's cash is deposited with major financial institutions. At times, such deposits may be in excess of the Federal Deposit Insurance Corporation insurable amount. The Company generally does not require collateral from its customers and generally requires payment in 30 days. The Company evaluates the collectability of its accounts receivable and provides an allowance for potential credit losses as necessary. Historically, such losses have been within management’s expectations.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Revenues derived from customers in the United Kingdom denominated in U.S. dollars were approximately $68,000 and $68,000 during the years ended December 31, 2012 and 2011, respectively. Revenues derived from customers in Austria denominated in U.S. dollars were approximately $0 and $27,000 during the years ended December 31, 2012 and 2011, respectively. Revenues derived from customers in Australia denominated in U.S. dollars were approximately $53,000 and $39,000 during the years ended December 31, 2012 and 2011, respectively. Revenues derived from customers in Canada denominated in U.S. dollars were approximately $67,000 and $10,000 during the years ended December 31, 2012 and 2011, respectively. Revenues derived from customers in Germany denominated in U.S. dollars were approximately $90,000 and $0 during the years ended December 31, 2012 and 2011 respectively.  </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">All remaining revenues were derived from customers in the United States of America. All of the Company’s long-lived assets are located in the United States of America. One customer represented 21% of revenue during the year ended December 31, 2012 and no customers exceeded 10% of revenues during the year ended December 31, 2011.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Deferred Financing Costs</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company has recorded deferred financing costs as a result of fees incurred by the Company in conjunction with its debt financing activities. These costs are amortized using the straight-line method over the shorter of (a) the term of the related debt or (b) the expected conversion date of the debt into equity instruments, which approximates the effective interest method. At December 31, 2012, accumulated amortization was approximately $50,000. The Company expects to record amortization of deferred financing costs of approximately $68,000 in 2013.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Capitalized Software Development Costs</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company capitalizes software development costs in accordance with FASB issued ASC Topic 985 “Software”. Capitalization of software development costs begins upon the determination of technological feasibility. The determination of technological feasibility and the ongoing assessment of the recoverability of these costs requires considerable judgment by management with respect to certain external factors, including anticipated future gross product revenues, estimated economic life and changes in hardware and software technology. Historically, software development costs incurred subsequent to the establishment of technological feasibility have not been material.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Revenue Recognition</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In accordance with ASC topic 985-605, “Software Revenue Recognition,” perpetual license revenue is recognized when (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured. Delivery is considered to have occurred when title and risk of loss have been transferred to the customer, which generally occurs after a license key has been delivered electronically to the customer. The Company’s perpetual license agreements do not (a) provide for a right of return, (b) contain acceptance clauses, (c) contain refund provisions, or (d) contain cancellation provisions.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">  </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In the case of the Company’s (a) subscription-based licenses, and (b) maintenance arrangements, when sold separately, revenues are recognized ratably over the service period. The Company defers revenue for software license and maintenance agreements when cash has been received from the customer and the agreement does not qualify for recognition under ASC Topic 985-605.  Such amounts are reflected as deferred revenues in the accompanying financial statements.  The Company’s subscription license agreements do not (a) provide for a right of return, (b) contain acceptance clauses, (c) contain refund provisions, or (d) contain cancellation provisions.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company provides professional services to its customers. Such services, which include training, installation, and implementation, are recognized when the services are performed. The Company also provides volume discounts to various customers. In accordance with ASC Topic 985-605, the discount is allocated proportionally to the delivered elements of the multiple-element arrangement and recognized accordingly.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">For software arrangements with multiple elements, which in its case are comprised of (1) licensing fees, (2) professional services, and (3) maintenance/support, revenue is recognized dependent upon whether vendor specific objective evidence (“VSOE”) of fair value exists for separating each of the elements. Licensing rights are generally delivered at time of invoice, professional services are delivered within one to six months and maintenance is for a twelve month contract.  Accordingly, licensing revenues are recognized upon invoice, professional services are recognized when all services have been delivered and maintenance revenue is amortized over a twelve month period. The Company determined that VSOE exists for both the delivered and undelivered elements of its multiple-element arrangements.  The Company limits its assessment of fair value to either (a) the price charged when the same element is sold separately or (b) the price established by management having the relevant authority. There may be cases, however, in which there is objective and reliable evidence of fair value of the undelivered item(s) but no such evidence for the delivered item(s). In those cases, the selling price method is used to allocate the arrangement consideration, if all other revenue recognition criteria are met. Under the selling price method, the amount of consideration allocated to the delivered item(s) is calculated based on estimated selling prices.</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company manages the business as a single segment, but it has revenues from multiple sources.  Management does not segregate the direct cost of revenue by the revenue source. <b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="6">For The Years Ended</td>
<td style="color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="6">December 31,</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2012</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2011</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; width: 72%; color: black; font-size: 10pt;">Licensing</td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 11%; color: black; font-size: 10pt;">1,709,868</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
<td
style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 11%; color: black; font-size: 10pt;">587,059</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; color: black; font-size: 10pt;">Subscription</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">250,062</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">339,690</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; color: black; font-size: 10pt;">Maintenance</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">1,112,136</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">1,037,859</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; padding-bottom: 1pt; color: black; font-size: 10pt;">Professional services</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">181,370</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">55,440</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; padding-bottom: 2.5pt; color: black; font-size: 10pt;">Total revenues</td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">3,253,436</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">2,020,048</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Intangible Assets</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">All of the Company’s intangible assets consist of shapes acquired from a graphics designer for the Company’s database library that are schematics of specific computer equipment. These shapes, having a finite life are valued at cost and are utilized in the Company’s software with multiple customers in order to enable them to visualize and differentiate the specific computer equipment in their overall network. For example, the Company’s software’s graphical user interface displays a unique shape for each make and model of computer server. Intangible assets are recorded at cost less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of 2.5 years.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Research and Development Costs</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Research and development costs are charged to operations as incurred and consist primarily of salaries, consulting services and other direct expenses.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Advertising Costs</u></p>
<p style="text-align: justify; text-indent: 27.5pt; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company expenses advertising costs to operations as incurred. For the years ended December 31, 2012 and 2011, such costs were not material.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Debt Discount and Amortization of Debt Discount</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Debt discount represents the fair value of embedded conversion options of various convertible debt instruments and attached convertible equity instruments issued in connection with debt instruments. The debt discount is amortized over the earlier of (i) the term of the debt or (ii) conversion of the debt, using the straight-line method which approximates the interest method. The amortization of debt discount is included as a component of other expenses in the accompanying statements of operations.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Income Taxes</u></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period enacted. A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font style="color: black;">The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present and disclose uncertain tax positions that the Company has taken or expects to take in its tax return. The benefit of tax positions taken or expected to be taken in the Company’s income tax returns are recognized in the financial statements if such positions are more likely than not of being sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits”. A liability is recognized (or amount of net operating loss carryover or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740. Interest costs and related penalties related to unrecognized tax benefits are required to be calculated, if applicable. The Company’s policy is to classify assessment, if any, for tax related interest as interest expense and penalties as general and administrative expenses. No interest and penalties were recorded during the years ended December 31, 2012 and 2011, respectively. As of December 31, 2012 and December 31, 2011, no liability for unrecognized tax benefits was required to be reported.</font> The Company files tax returns in U.S. federal, state and local jurisdictions, including California, and has tax returns subject to examination by tax authorities beginning in the year ended December 31, 2009. The Company does not expect any significant changes in its unrecognized tax benefits in the next year.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Stock-Based Compensation</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;">  </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company has an equity plan which allows for the granting of stock options to its employees, directors and consultants for a fixed number of shares with an exercise price equal to the fair value of the shares at date of grant. The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on interim financial reporting dates and vesting dates until the service period is complete. The fair value amount is then recognized over the period services are required to be provided in exchange for the award, usually the vesting period. Since the shares underlying the Company’s equity are not currently registered, the fair value of the Company’s restricted equity instruments was estimated based on historical observations of cash prices paid for the Company's restricted common stock.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Stock-based compensation for directors is reflected in general and administrative expenses in the consolidated statements of operations. Stock-based compensation for employees and consultants could be reflected in (a) sales and marketing expenses; (b) research and development expenses; or (c) general and administrative expenses in the consolidated statements of operations.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Reclassifications</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Certain prior period amounts have been reclassified for comparative purposes to conform to the fiscal 2012 presentation. These reclassifications have no impact on previously reported net loss.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Net Loss Per Common Share</u></p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Basic net loss per share is computed by dividing the net loss applicable to common shares by the weighted average number of common shares outstanding during the period. Weighted average shares outstanding for the year ended December 31, 2012 (1) includes the weighted average impact of 951,905 shares of common stock issuable as of December 31, 2012 and (2) excludes the weighted average impact of the 3,000,000 shares of common stock being held in escrow (the “Escrowed Shares”). Weighted average shares outstanding for the year ended December 31, 2011 (1) includes the weighted average underlying shares exercisable with respect to the 1,609,747 warrants exercisable at prices of $0.01 per share or less prior to the reverse merger; and (2) excludes the weighted average impact of the 3,000,000 escrowed shares. In accordance with the accounting literature, (1) the Company has given effect to the issuance of the issuable stock and the warrants in computing basic net loss per share because the underlying shares are issuable for little or no cash consideration; and (2) the Company has excluded the impact of the Escrowed Shares because they are contingently returnable.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Diluted net loss per common share adjusts basic net loss per common share for the effects of potentially dilutive financial instruments, only in the periods in which such effects exist and are dilutive. At December 31, 2012, outstanding stock options and warrants to purchase 24,675,001 and 60,541,103 shares of common stock, respectively, were excluded from the calculation of diluted net loss per common share because their impact would have been anti-dilutive. At December 31, 2011, outstanding stock warrants to purchase 48,362,014 shares of common stock were excluded from the calculation of diluted net loss per common share because their impact would have been anti-dilutive.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company manages the business as a single segment, but it has revenues from multiple sources.  Management does not segregate the direct cost of revenue by the revenue source. <b> </b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="6">For The Years Ended</td>
<td style="color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="6">December 31,</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2012</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2011</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; width: 72%; color: black; font-size: 10pt;">Licensing</td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 11%; color: black; font-size: 10pt;">1,709,868</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 11%; color: black; font-size: 10pt;">587,059</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; color: black; font-size: 10pt;">Subscription</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">250,062</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">339,690</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; color: black; font-size: 10pt;">Maintenance</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">1,112,136</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">1,037,859</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; padding-bottom: 1pt; color: black; font-size: 10pt;">Professional services</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">181,370</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">55,440</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; padding-bottom: 2.5pt; color: black; font-size: 10pt;">Total revenues</td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">3,253,436</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">2,020,048</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Property and equipment consists of the following at December 31, 2012 and 2011:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="6">December 31,</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2012</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2011</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; width: 72%; color: black; font-size: 10pt;">Computer and office equipment</td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 11%; color: black; font-size: 10pt;">490,103</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 11%; color: black; font-size: 10pt;">314,483</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; color: black; font-size: 10pt;">Furniture and fixtures</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">114,871</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">12,835</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; padding-bottom: 1pt; color: black; font-size: 10pt;">Computer software</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">60,439</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">60,439</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">665,413</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">387,757</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; padding-bottom: 1pt; color: black; font-size: 10pt;">Less: Accumulated depreciation</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">361,588</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">257,685</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="font-size: 12pt;"> </td>
<td style="text-align: left; font-size: 12pt;"> </td>
<td style="text-align: right; font-size: 12pt;"> </td>
<td style="text-align: left; font-size: 12pt;"> </td>
<td style="font-size: 12pt;"> </td>
<td style="text-align: left; font-size: 12pt;"> </td>
<td style="text-align: right; font-size: 12pt;"> </td>
<td style="text-align: left; font-size: 12pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; padding-bottom: 2.5pt; color: black; font-size: 10pt;">Property and equipment, net</td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">303,825</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black;
font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">130,072</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Intangible assets consisted of the following at December 31, 2012 and 2011:</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="6">December 31,</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2012</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2011</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; width: 72%; color: black; font-size: 10pt;">Computer equipment schematics</td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 11%; color: black; font-size: 10pt;">1,838,095</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 11%; color: black; font-size: 10pt;">1,741,754</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; padding-bottom: 1pt; color: black; font-size: 10pt;">Less: Accumulated amortization</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">1,711,032</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">1,579,302</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; padding-bottom: 2.5pt; color: black; font-size: 10pt;">Intangible assets, net</td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">127,063</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">162,452</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Accrued expenses consist of the following:</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="6">December 31,</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2012</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2011</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; width: 72%; color: black; font-size: 10pt;">Accrued commissions</td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 11%; color: black; font-size: 10pt;">508,654</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 11%; color: black; font-size: 10pt;">164,123</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; color: black; font-size: 10pt;">Accrued payroll</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">270,551</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">328,942</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; color: black; font-size: 10pt;">Accrued payroll taxes (1)</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">1,099,887</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">537,289</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; color: black; font-size: 10pt;">Accrued vacation</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">219,206</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">150,207</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; padding-bottom: 1pt; color: black; font-size: 10pt;">Accrued professional fees and other</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">73,607</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">263,548</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="font-size: 12pt;"> </td>
<td style="text-align: left; font-size: 12pt;"> </td>
<td style="text-align: right; font-size: 12pt;"> </td>
<td style="text-align: left; font-size: 12pt;"> </td>
<td style="font-size: 12pt;"> </td>
<td style="text-align: left; font-size: 12pt;"> </td>
<td style="text-align: right; font-size: 12pt;"> </td>
<td style="text-align: left; font-size: 12pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; padding-bottom: 2.5pt; color: black; font-size: 10pt;">Total accrued expenses</td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">2,171,905</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">1,444,109</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size:
10pt;"> </td>
</tr>
</table>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; text-indent: -13.2pt; margin: 0pt 0px 0pt 40.7pt; font: 10pt times new roman, times, serif;">(1)   Includes accrual for interest and penalties.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The fair values of the embedded conversion options, which are associated with notes payable issued to related parties, were deemed to be derivative liabilities and measured using the binomial lattice options pricing model with the following assumptions:</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr>
<td style="text-align: justify; vertical-align: bottom;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; padding-left: 2.8pt; vertical-align: bottom;" colspan="2"><font style="color: black;"><b>For The Year Ended December 31, 2011</b></font></td>
<td style="text-align: justify; padding-bottom: 1.1pt; vertical-align: bottom;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; width: 75%;"></td>
<td style="text-align: justify; width: 2%;"> </td>
<td style="text-align: justify; width: 17%;"> </td>
<td style="text-align: justify; width: 1%;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify;"><font style="color: black;">Risk free rate</font></td>
<td style="text-align: justify;"> </td>
<td style="text-align: right;"><font style="color: black;">0.10% - 0.17%</font></td>
<td style="text-align: justify;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify;"><font style="color: black;">Expected volatility</font></td>
<td style="text-align: justify;"> </td>
<td style="text-align: right;"><font style="color: black;">65% - 70%</font></td>
<td style="text-align: justify;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify;"><font style="color: black;">Expected life (in years)</font></td>
<td style="text-align: justify;"> </td>
<td style="text-align: right;"><font style="color: black;"> 0.13 - 0.38 </font></td>
<td style="text-align: justify;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify;"><font style="color: black;">Expected dividend yield</font></td>
<td style="text-align: justify;"> </td>
<td style="text-align: right;"><font style="color: black;">0%</font></td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">A summary of the stock warrant activity during the years ended December 31, 2012 and 2011 is presented below:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 90%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Weighted</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Weighted</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Average</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Average</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Remaining</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Number of</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Exercise</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Life</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Intrinsic</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Warrants</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Price</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">In Years</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Value</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; width: 34%; font: 10pt times new roman, times, serif;">Balance, December 31, 2010</td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 13%; font: 10pt times new roman, times, serif;">13,448,844</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;">$</td>
<td style="text-align: right; width: 13%; font: 10pt times new roman, times, serif;">0.273</td>
<td style="text-align: center; width: 3%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="text-align: right; width: 13%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="width: 1%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="text-align: right; width: 13%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Issued</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">48,412,668</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.628</td>
<td style="text-align: center; font: 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Exercised</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">(1,609,747</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">)</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.002</td>
<td style="text-align: center; font: 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">Cancelled</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">(11,889,751</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">)</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">0.310</td>
<td style="text-align: center; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: right; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: right; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Balance, December 31, 2011</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">48,362,014</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.628</td>
<td style="text-align: center; font: 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Issued</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">12,210,871</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;"><font style="font: 10pt times new roman, times, serif;">0.393</font></td>
<td style="text-align: center; font: 10pt times new roman, times, serif;">[1]</td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Exercised</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">(31,782</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">)</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.625</td>
<td style="text-align: center; font: 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">Cancelled</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: center; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">Balance, December 31, 2012</td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">60,541,103</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;"><font style="font: 10pt times new roman, times, serif;">0.566</font></td>
<td style="text-align: center; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">[2]</td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">4.13</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">Exercisable, December 31, 2012</td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">60,541,103</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;"><font style="font: 10pt times new roman, times, serif;">0.566</font></td>
<td style="text-align: center; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">[2]</td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">4.13</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; text-indent: -0.25in; margin: 0pt 0px 0pt 0.25in; font: 10pt times new roman, times, serif;">[1] - Investor warrants to purchase 1,050,000 shares of common stock had a variable exercise price at issuance equal to the exercise date twenty day VWAP. These warrants are excluded from the weighted average exercise price.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; text-indent: -0.25in; margin: 0pt 0px 0pt 0.25in; font: 10pt times new roman, times, serif;">[2] - Investor warrants to purchase 950,000 shares of common stock had a variable exercise price as of December 31, 2012. These warrants are excluded from the weighted average exercise price.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The following table presents information related to stock warrants at December 31, 2012:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">  </p>
<table style="width: 60%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="6">Warrants Outstanding</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="6">Warrants Exercisable</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="font-size: 10pt;" colspan="6"> </td>
<td style="font-size: 10pt;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Weighted</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="font-size: 10pt;" colspan="2"> </td>
<td style="font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="font-size: 10pt;" colspan="2"> </td>
<td style="font-size: 10pt;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Outstanding</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Average</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Exercisable</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Exercise</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Number of</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Remaining Life</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Number of</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Price</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Warrants</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">In Years</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Warrants</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;">$</td>
<td style="text-align: right; width: 23%; font: 10pt times new roman, times, serif;">0.150</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 22%; font: 10pt times new roman, times, serif;">694,234</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 22%; font: 10pt times new roman, times, serif;">4.82</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 22%; font: 10pt times new roman, times, serif;">694,234</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.225</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">100,000</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">3.04</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">100,000</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.250</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">1,012,000</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">3.79</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">1,012,000</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.300</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">10,782,228</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">4.60</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">10,782,228</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.375</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">580,253</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">4.00</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">580,253</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.625</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">38,629,887</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">3.74</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">38,629,887</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.660</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">6,000,000</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">5.90</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">6,000,000</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">1.000</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">1,792,501</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">4.64</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">1,792,501</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"><font style="font: 10pt times new roman, times, serif;">Variable</font></td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">950,000</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">2.55</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">950,000</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 2.5pt; font-size: 10pt;"> </td>
<td style="text-align: right; padding-bottom: 2.5pt; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 2.5pt; font-size: 10pt;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">60,541,103</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">4.13</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">60,541,103</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In applying the Black-Scholes option pricing model to options granted, the Company used the following assumptions:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"></p>
<table style="width: 60%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="5">For The Years Ended</td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="5">December 31,</td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;">2012</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;">2011</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; width: 64%; font: 10pt times new roman, times, serif;">Risk free interest rate</td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 17%; font: 10pt times new roman, times, serif;">0.14 - 1.11%</td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 17%; font: 10pt times new roman, times, serif;">1.02%</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Expected term (years)</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.5 - 6.0</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">5.73</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Expected volatility</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">75 - 79%</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">75%</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Expected dividends</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0%</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0%</td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">A summary of the option activity during the years ended December 31, 2012 and 2011 is presented below:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"></p>
<table style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Weighted</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Weighted</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Average</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Average</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Remaining</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font-size: 10pt;" colspan="2"> </td>
<td style="text-align: center; font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Number of</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Exercise</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Life</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Intrinsic</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Options</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Price</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">In Years</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Value</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="width: 36%; font: 10pt times new roman, times, serif;">Outstanding, December 31, 2010</td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 13%; font: 10pt times new roman, times, serif;">14,400,392</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font: 10pt times
new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;">$</td>
<td style="text-align: right; width: 13%; font: 10pt times new roman, times, serif;">0.220</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="text-align: right; width: 13%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="width: 1%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="text-align: right; width: 13%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="font: 10pt times new roman, times, serif;">Granted</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="font: 10pt times new roman, times, serif;">Exercised</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="font: 10pt times new roman, times, serif;">Forfeited</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">(824,406</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">)</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.390</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;">Cancelled</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">(13,575,986</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">)</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">0.210</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: right; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: right; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="font: 10pt times new roman, times, serif;">Outstanding, December 31, 2011</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size:
10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="font: 10pt times new roman, times, serif;">Granted</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">27,433,334</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.345</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="font: 10pt times new roman, times, serif;">Exercised</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;">Forfeited</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">(2,758,333</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">)</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">0.345</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">Outstanding, December 31, 2012</td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">24,675,001</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">0.344</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">9.0</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">Exercisable, December 31, 2012</td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">13,770,845</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td
style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">0.345</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">8.9</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The following table presents information related to stock options at December 31, 2012:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"></p>
<table style="width: 60%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="border-bottom: black 1pt solid; text-align: right; font: bold 10pt times new roman, times, serif;" colspan="6">Options Outstanding</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: bold 10pt times new roman, times, serif;" colspan="6">Options Exercisable</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="font-size: 10pt;" colspan="2"> </td>
<td style="font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="font-size: 10pt;" colspan="2"> </td>
<td style="font-size: 10pt;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Weighted</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="font-size: 10pt;" colspan="2"> </td>
<td style="font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="font-size: 10pt;" colspan="2"> </td>
<td style="font-size: 10pt;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Outstanding</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Average</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Exercisable</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: right; font: bold 10pt times new roman, times, serif;" colspan="2">Exercise</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Number of</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Remaining Life</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Number of</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="border-bottom: black 1pt solid; text-align: right; font: bold 10pt times new roman, times, serif;" colspan="2">Price</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Options</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">In Years</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">Options</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;">$</td>
<td style="text-align: right; width: 23%; font: 10pt times new roman, times, serif;">0.180</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 22%; font: 10pt times new roman, times, serif;">50,000</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 22%; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 22%; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.200</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font:
10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">50,000</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.220</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">75,000</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.345</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">20,616,667</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">9.0</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">12,354,175</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.348</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">3,883,334</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">7.4</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">1,416,670</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">24,675,001</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">8.9</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">13,770,845</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2012 and December 31, 2011, respectively:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="14">Fair Value Measurements</td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: justify; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">Level 1</td>
<td style="text-align: center; padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="text-align: center; padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">Level 2</td>
<td style="text-align: center; padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="text-align: center; padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">Level 3</td>
<td style="text-align: center; padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="text-align: center; padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">Total</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; width: 48%; font-size: 10pt;"> </td>
<td style="width: 1%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="text-align: right; width: 10%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="width: 1%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="text-align: right; width: 10%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="width: 1%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="text-align: right; width: 10%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="width: 1%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
<td style="text-align: right; width: 10%; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; color: black; font-size: 10pt;">Derivative liabilities:</td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: justify; color: black; font-size: 10pt;">December 31, 2012</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: justify; color: black; font-size: 10pt;">December 31, 2011</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;">$</td>
<td style="text-align:
right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: right; text-indent: 0px; font-size: 10pt; padding: 0px;"> </td>
<td style="color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="6">For The Years Ended</td>
<td style="color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-indent: 0px; font-size: 10pt; padding: 0px;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="6">December 31,</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-indent: 0px; font-size: 10pt; padding: 0px;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2012</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; color: black; font-size: 10pt; font-weight: bold;" colspan="2">2011</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt; font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-indent: 0px; font-size: 10pt; padding: 0px;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;" colspan="2"> </td>
<td style="font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;" colspan="2"> </td>
<td style="font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-indent: 0px; width: 68%; color: black; font-size: 10pt; padding: 0px;">Fair value, beginning of period</td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 13%; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 13%; color: black; font-size: 10pt;">1,645,852</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; text-indent: 0px; color: black; font-size: 10pt; padding: 0px;">Derivative liabilities recorded during the period</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">29,617</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; text-indent: 0px; color: black; font-size: 10pt; padding: 0px;">Reclassification of derivative liability to equity</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">(1,133,186</td>
<td style="text-align: left; color: black; font-size: 10pt;">)</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; text-indent: 0px; color: black; font-size: 10pt; padding: 0px;">Net unrealized (gain) loss on derivative financial instruments</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">(542,283</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;">)</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-indent: 0px; color: black; font-size: 10pt; padding: 0px;">Fair value, end of period</td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">-</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The income tax provision (benefit) consists of the following:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="font-size: 10pt;"> </td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="6">For The Years Ended</td>
<td style="font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="6">December 31,</td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">2012</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">2011</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="font: 10pt times new roman, times, serif;">Federal</td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="padding-left: 8pt; font: 10pt times new roman, times, serif;">Current</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="padding-left: 8pt; width: 68%; font: 10pt times new roman, times, serif;">Deferred</td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 13%; font: 10pt times new roman, times, serif;">(400,730</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;">)</td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 13%; font: 10pt times new roman, times, serif;">(1,655,911</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;">)</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">State and local</td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="padding-left: 8pt; font: 10pt times new roman, times, serif;">Current</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="padding-bottom: 1pt; padding-left: 8pt; font: 10pt times new roman, times, serif;">Deferred</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">(70,717</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">)</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">(292,220</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">)</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="font-size: 10pt;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">(471,447</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">)</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">(1,948,131</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">)</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">Change in valuation allowance</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">471,447</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">1,948,131</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">Income tax provision (benefit)</td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 27.5pt 0pt 0px; font: 10pt times new roman, times, serif;">Future minimum payments (exclusive of the benefit of the Las Vegas sublease income) at December 31, 2012 required under the operating leases are as follows:</p>
<p style="text-align: justify; text-indent: 0.5in; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: left; color: black; font-size: 10pt; font-weight: bold;">Years Ending December 31:</td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;" colspan="2"> </td>
<td style="font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; width: 84%; color: black; font-size: 10pt;">2013</td>
<td style="width: 1%; color: black; font-size: 10pt;"> </td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;">$</td>
<td style="text-align: right; width: 13%; color: black; font-size: 10pt;">360,394</td>
<td style="text-align: left; width: 1%; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; color: black; font-size: 10pt;">2014</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">379,695</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; color: black; font-size: 10pt;">2015</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">225,426</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; color: black; font-size: 10pt;">2016</td>
<td style="color: black; font-size: 10pt;"> </td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
<td style="text-align: right; color: black; font-size: 10pt;">90,593</td>
<td style="text-align: left; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;">2017</td>
<td style="padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; color: black; font-size: 10pt;">46,313</td>
<td style="text-align: left; padding-bottom: 1pt; color: black; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;">Total</td>
<td style="padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; color: black; font-size: 10pt;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right; color: black; font-size: 10pt;">1,102,421</td>
<td style="text-align: left; padding-bottom: 2.5pt; color: black; font-size: 10pt;"> </td>
</tr>
</table>
0.727
3000000
3000000
1.27
1.27
0.05
0.0499
0.08
0.625
1.00
0.628
1
0.80
0.30
0.225
0.20
0.150
0.225
0.250
0.300
0.375
0.660
1.000
0.625
1.00
587059
1709868
339690
250062
1037859
1112136
55440
181370
17000
7224000
150000
27000
39000
10000
68000
0
0
53000
67000
68000
90000
0.00
0.21
P15M
1609747
951905
13448844
48362014
60541103
3912534
694234
100000
1012000
10782228
580253
6000000
1792502
950000
38629887
0.30
0.02
14400392
2500000
13325000
0
10800000
6900000
23275000
175000
24675001
2500000
500000
500000
500000
20616667
3883334
50000
50000
75000
60541103
P2Y6M
387757
314483
12835
60439
665413
490103
114871
60439
257685
361588
53348
111758
1741754
1838095
1579302
1711032
162452
127063
82000
42000
3000
164123
508654
328942
270551
150207
219206
263548
73607
771000
2275000
3475753
6439090
100000
75000
800000
2500
10000
1711
2500
2275000
2275000
2275000
14450633
1250000
333334
527945
1043191
45000
800000
100000
1050000
20000
15000
101167
101167
3375753
60000
331973
176973
0.05
0.12
0.12
0.12
0.08
50000
63000
580000
623899
7648
64438
3945
64438
4192
10151
24688
33832
33282
12837
0.63
0.45
0.40
9771757
318808
638013
0.14
0.94
0.68
0.3450
51973
298201
281799
0.30
1.00
0.80
P4M17D
P1M17D
P4Y10M24D
P5Y
P5Y3M18D
0.70
0.65
0.75
0.00
0.0080
0.0060
0.0088
0.0075
100000
1.50
24605
0.65
0.0020
113925
1050000
273960
152945
4225
100
0.00001
100000
4000000
122231
0.0017
0.0010
1645852
1133186
0
0
0
0
0
0
0
0
1609747
30000000
48412668
12210871
-1609747
-31782
11889751
-11889751
0
60541103
694234
100000
1012000
10782228
580253
6000000
1792501
950000
38629887
0.16
P4Y1M17D
P4Y9M25D
P3Y14D
P3Y9M14D
P4Y7M6D
P4Y
P5Y10M24D
P4Y7M20D
P2Y6M18D
P3Y8M26D
P4Y1M17D
0
0
0.0102
0.0111
0.0014
P5Y8M23D
P6Y
P6M
0.75
0.79
0.75
0.00
0.00
0
550000
27433334
1000000
100000
100000
100000
2500000
0
2500000
0
824406
-824406
2758333
-13575986
13770845
12354175
1416670
0
0
0
0.37
0.220
0
0.344
0
0.345
0
0.390
0.345
0.210
0.345
P8M12D
P1Y
P1Y8M12D
P2Y
P9Y
P2Y8M12D
P3Y
P8Y10M24D
P1Y9M18D
P9Y
P7Y4M24D
0
350
0
70000
300000
225000
75000
426905
15000
72000
6000
7500
22500
45000
60000
10000
100000
50000
10000
42000
7000
104135
70000
602000
10000
500000
25000
75000
210000
6400000
364000
216253
950000
375000
75000
70000
500000
4356668
75000
1089169
6942332
2012-02-03
2012-01-11
500000
500000
6942332
57000
250000
64438
623899
19543515
P5Y
P5Y
1.25
0.25
1.00
0.345
0.15
4739300
1350453
1447113
878051
5077812
1467200
1633750
1041350
186637
163299
338512
116747
Each Unit consisted of one share of common stock (deemed to represent $0.022 of the per Unit cost) and a warrant to purchase one-half share of the Company''s common stock (deemed to represent $0.228 of the per Unit cost)
Each Second Unit consists of one share of common stock (deemed to represent $0.345 of the per Second Unit cost) and a warrant to purchase one-quarter share of common stock (deemed to represent $0.030 of the per Second Unit cost)
50000
20311252
3912534
10155627
978134
612000
216253
6942332
10155627000
978134
0.25
0.25
0.375
0.10
0.10
0.10
0.05
0.10
0.05
0.10
P5Y
P5Y
3045
25000
0.01
0.10
4356668
P2M16D
P5Y
P3Y8M19D
P4Y5M1D
P2Y6M
P3Y6M
P3Y6M
P5Y
P4Y2M12D
63000
33000
24750
100000
0.0081
0.014
0.0034
0.0054
0.0177
0.75
0.75
0.70
0.75
0.70
0.00
0.00
0.00
0.00
0.00
6997205
P2Y
P5Y
50654
230000
250000
P5Y
P5Y
400000
6000000
3983334
0.25
0.66
0.345
1.00
0.345
0.348
0.18
0.22
0.225
0.30
0.30
0.625
1
0.15
0.30
0.15
0.15
13500000
7973884
12475000
13575986
350000
350000
350000
1526970
216600
300000000
500000000
500000
1370000
100000
364000
2518760
6942332
1493959
774801
250000
694233
1571136
1571136
694233
1089169
0.0001
150500
15960
75000
29617
0
1133186
0
0
0
-1655911
-400730
0
0
-292220
-70717
-1948131
-471447
-1948131
-471447
0
0
10000
40000
160000
360394
379695
225426
90593
46313
1102421
225000
250000
6900000
0.345
0.10
0.90
P3Y
0.75
1526970
0.50
0.100
1.00
281668
283757
In January 2012, the Company executed a 63-month lease for 3,465 square feet of new headquarters office space in Folsom, California
7922
11073
6757
7833
In February 2012, the Company executed a 37-month sub-lease for the remaining terms of its Las Vegas, Nevada office space
8983
9818
155000
In February 2012, the Company executed a new five-year lease for 5,772 square feet of office space in Raleigh, North Carolin
102795
175000
500000
100000
201167
1000000
0.30
0.225
0.15
150000
8546480
0
8901
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Cash and Cash Equivalents</u></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company considers all highly liquid investments with a maturity of 90 days or less at the of acquisition to be cash equivalent. There are no cash equivalent as of December 31, 2012 and 2011.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Subsequent Events</u></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Subsequent events have been evaluated through the date of this filing.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">As of December 31, 2012 and December 31, 2011, the Company’s deferred tax assets consisted of the effects of temporary differences attributable to the following:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="6">December 31,</td>
<td style="padding-bottom: 1pt; font-size: 10pt;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="font-size: 10pt;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">2012</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">2011</td>
<td style="padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; width: 68%; font: 10pt times new roman, times, serif;">Net operating loss</td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;">$</td>
<td style="text-align: right; width: 13%; font: 10pt times new roman, times, serif;">6,644,224</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;">$</td>
<td style="text-align: right; width: 13%; font: 10pt times new roman, times, serif;">6,828,982</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Stock based compensation</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">1,151,317</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">788,508</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Fixed assets</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">7,943</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">5,482</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Intangible assets</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">72,478</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">82,830</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Deferred rent</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">73,166</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">Accrued compensation</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">288,204</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">60,083</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Total deferred tax assets</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">8,237,332</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">7,765,885</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">Valuation allowance</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">(8,237,332</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">)</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">(7,765,885</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">)</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 2.5pt; padding-left: 3pt; font: 10pt times new roman, times, serif;">Net deferred tax assets (liabilities)</td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">-</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">For the periods ended December 31, 2012 and December 31, 2011, the expected tax expense (benefit) based on the statutory rate is reconciled with the actual tax expense (benefit) as follows:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 80%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;" colspan="6">For The Years Ended</td>
<td style="text-align: center; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="6">December 31,</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-size: 10pt;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">2012</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font: bold 10pt times new roman, times, serif;" colspan="2">2011</td>
<td style="text-align: center; padding-bottom: 1pt; font: bold 10pt times new roman, times, serif;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; width: 68%; font: 10pt times new roman, times, serif;">US federal statutory rate</td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 13%; font: 10pt times new roman, times, serif;">(34.0</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;">%)</td>
<td style="width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; width: 13%; font: 10pt times new roman, times, serif;">(34.0</td>
<td style="text-align: left; width: 1%; font: 10pt times new roman, times, serif;">%)</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">State tax rate, net of federal benefit</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">(6.0</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%)</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">(6.0</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%)</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Permanent differences</td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
<td style="text-align: right; font-size: 10pt;"> </td>
<td style="text-align: left; font-size: 10pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-left: 6pt; font: 10pt times new roman, times, serif;">- Fines and penalties</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.2</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.4</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; padding-left: 6pt; font: 10pt times new roman, times, serif;">- Stock based compensation</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">2.9</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">3.4</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-left: 6pt; font: 10pt times new roman, times, serif;">- Merger expenses</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.0</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">5.7</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; padding-left: 6pt; font: 10pt times new roman, times, serif;">- Reclassification of derivative liability to equity</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.0</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">5.1</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="padding-left: 6pt; font: 10pt times new roman, times, serif;">- Other</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">2.7</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">3.5</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; font: 10pt times new roman, times, serif;">Impact of annual NOL limitation</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">29.3</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
<td style="font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="text-align: right; font: 10pt times new roman, times, serif;">0.0</td>
<td style="text-align: left; font: 10pt times new roman, times, serif;">%</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">Change in valuation allowance</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">4.9</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">%</td>
<td style="padding-bottom: 1pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font: 10pt times new roman, times, serif;">21.9</td>
<td style="text-align: left; padding-bottom: 1pt; font: 10pt times new roman, times, serif;">%</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">Income tax provision (benefit)</td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">0.0</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">%</td>
<td style="padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left; font: 10pt times new roman, times, serif;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right; font: 10pt times new roman, times, serif;">0.0</td>
<td style="text-align: left; padding-bottom: 2.5pt; font: 10pt times new roman, times, serif;">%</td>
</tr>
</table>
6544000
4305000
6088000
3955000
0
-57750
-0.340
-0.340
-0.060
-0.060
0.004
0.002
0.051
0.000
0.034
0.029
0.057
0.000
0.035
0.027
0.219
0.049
0.000
0.000
5482
7943
6828982
6644224
788508
1151317
82830
72478
0
73166
60083
288204
7765885
8237332
7765885
8237332
0
0
24064000
31285000
0.50
14675000
2023
October 26,2012
January 22, 2013
January 25,2013
January 25, 2013
February 20, 2013
February 25,2013
March 7,2013
March 11,2013
103198
48000
77429
194596
59824
33695
11900
41000
13692
7855
3064
455000
349000
6088000
3955000
800000
33282
68000
50000
0.10
508946
150000
Seeking $59,824 plus interest and costs as allowed by law
4300
6150
1753000
1372000
1335000
P1Y9M18D
187717
192500
0.10
3000
0.0325
3000
10000
90000
187717
143000
Includes accrued issuable equity of $57,750 and $1,560,030 for the years ended December 31, 2012 and 2011, respectively.
Gross proceeds of $2,675,100 and $4,205,574, less issuance costs of $349,936 and $455,259 for the years ended December 31, 2012 and 2011, respectively.
Includes accrual for interest and penalties.
Investor warrants to purchase 1,050,000 shares of common stock had a variable exercise price at issuance equal to the exercise date twenty day VWAP. These warrants are excluded from the weighted average exercise price.
Investor warrants to purchase 950,000 shares of common stock had a variable exercise price as of December 31, 2012. These warrants are excluded from the weighted average exercise price.
0.30
1100000
3000000
0001476638rack:LockUpAgreementThresholdMember2011-09-21
0.10
0001476638rack:ReverseMergerOperatingCompanyMember2011-09-21
10000018
131730
138201
28901267
0.625
0001476638rack:PreMergerConvertedNoteMember2011-12-31
0.10
0.180
0.200
0.220
0.345
0.348
110000
198500
4750
372600
38640
75000
136500
34500
0001476638rack:ThirdBrokerWarrantsMemberus-gaap:SubsequentEventMember2012-01-012012-12-31
15000
0.625
0
0.628
0.002
0.310
0.273
0001476638us-gaap:CashMemberrack:SecondIssuanceMemberus-gaap:PrivatePlacementMember2011-09-012011-09-30
150500
0001476638rack:ConvertibleBridgeNoteMemberus-gaap:PrivatePlacementMember2011-09-012011-09-30
2500
<p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"><u>Recent Accounting Pronouncements</u></p>
<p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;">There are no recent accounting pronouncements that would be expected to have a material impact on the Company’s financial position or results of operations.</p>
231000
152945
0001476638rack:EightPercentageNotesPayableTermsMember2012-01-012012-12-31
273960
0001476638us-gaap:SubsequentEventMemberrack:ConsultingAgreementsMember2012-01-012012-12-31
425000
0001476638us-gaap:SubsequentEventMemberrack:OriginalAgreementMemberrack:ConsultingAgreementsMember2012-01-012012-12-31
50000
0001476638us-gaap:SubsequentEventMemberrack:AmendedAgreementMemberrack:ConsultingAgreementsMember2012-01-012012-12-31
375000
0001476638rack:ChangesOneMember2012-01-012012-12-31
456000
0001476638rack:ChangesTwoMember2012-01-012012-12-31
441000
0.293
0.000
5870000
112500
112500