0001144204-12-030702.txt : 20120518 0001144204-12-030702.hdr.sgml : 20120518 20120518172625 ACCESSION NUMBER: 0001144204-12-030702 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 20120331 FILED AS OF DATE: 20120518 DATE AS OF CHANGE: 20120518 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPLIANCE SYSTEMS CORP CENTRAL INDEX KEY: 0001206133 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATION SERVICES, NEC [4899] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-54007 FILM NUMBER: 12856623 BUSINESS ADDRESS: STREET 1: 90 PRATT OVAL CITY: GLEN COVE STATE: NY ZIP: 111542 BUSINESS PHONE: 888-674-6774 10-Q 1 v313040_10q.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-54007

Compliance Systems Corporation

(Exact name of registrant as specified in its charter)

Nevada		20-4292198
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

780 New York Avenue, Suite A, Huntington, New York		11743
(Address of principal executive offices)		(Zip Code)

(516) 656-4197

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer ¨	Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 15, 2012, 281,783,997 shares of common stock of the issuer were outstanding.

INDEX PAGE

		PAGE

PART I — FINANCIAL INFORMATION

Item 1	Financial Statements
	Condensed Consolidated Balance Sheets March 31, 2012 (Unaudited) and December 31, 2011 (Audited)	1
	Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011	2
	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011	3
	Notes to Unaudited Condensed Consolidated Financial Statements	4

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3	Quantitative and Qualitative Disclosures about Market Risk	15
Item 4	Controls and Procedures	15

PART II — OTHER INFORMATION

Item 1	Legal Proceedings	16
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3	Defaults upon Senior Securities	16
Item 4	Mine Safety Disclosures	16
Item 5	Other Information	16
Item 6	Exhibits	17

SIGNATURES		18

PART I

FINANCIAL INFORMATION

COMPLIANCE SYSTEMS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2012			December 31, 2011
ASSETS

Current Assets:
Cash	$	279		$	529

Total Current Assets		279			529


Total Assets	$	279		$	529

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current Liabilities:
Short-term and demand notes payable	$	485,000		$	474,500
Accounts payable and accrued expenses		1,341,653			1,287,054
Accrued officers' compensation		1,070,000			1,010,000
Notes and loans payable - related parties		86,522			82,958
Current maturities of long-term debt		267,500			210,750
Total Current Liabilities		3,250,675			3,065,262

Warrant liability		5,676			265

Total Liabilities		3,256,351			3,065,527

Commitments

Stockholders' Deficiency:
Convertible Preferred Stock, $0.001 par value:
Series A: 2,500,000 shares authorized, 2,293,750 shares issued and outstanding		2,294			2,294
Series B: 1,500,000 shares authorized, 1,250,000 shares issued and outstanding		1,250			1,250
Series C: 2,000,000 shares authorized, 1,828,569 shares issued and outstanding		1,829			1,829
Series D: 100,000 shares authorized, 50,000 shares issued and outstanding		50			50
Common stock, $0.001 par value; 2,000,000,000 shares authorized, 281,783,997 shares issued and outstanding		281,783			281,783
Additional paid-in capital		5,920,904			5,959,649
Accumulated deficit		(9,464,182	)		(9,311,853	)
Total Stockholders' Deficiency		(3,256,072	)		(3,064,998	)

Total Liabilities and Stockholders' Deficiency	$	279		$	529

See Notes to Condensed Consolidated Financial Statements

COMPLIANCE SYSTEMS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

	Three Months Ended March, 31
	2012			2011

Revenues	$	-		$	-

Cost of Revenues		-			-

Gross Margin		-			-

Operating Expenses:
Selling, general and administrative expenses		127,163			120,934

Operating Loss		(127,163	)		(120,934	)

Interest expense		(19,755	)		(21,884	)

Warrant fair value adjustment		(5,411	)		-

Net Loss		(152,329	)		(142,818	)

Preferred Dividends		39,000			37,500

Net Loss Attributable to Common Stockholders	$	(191,329	)	$	(180,318	)

Basic and Diluted Per Share Data:
Net loss	$	0.00		$	0.00

Weighted Average Shares Outstanding -
Basic and Diluted		281,783,997			281,778,997

See Notes to Condensed Consolidated Financial Statements

COMPLIANCE SYSTEMS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	Three Months Ended March 31,
	2012			2011

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(152,329	)	$	(142,818	)
Adjustments to reconcile net loss to net cash used in operating activities:
Interest/penalty accrued and not paid or imputed		19,500			21,601
Stock-based compensation		256			-
Warrant fair value adjustment		5,411			-
Changes in assets and liabilities:
Accounts receivable		-			27,826
Prepaid expenses and other current assets		-			17,375
Accounts payable and accrued expenses		15,598			(6,042	)
Accrued officers' compensation		60,000			60,000
Total adjustments		100,765			120,760
Net Cash Used in Operating Activities		(51,564	)		(22,058	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable		50,000			-
Proceeds from loans payable-related party		1,314			-
Net repayments of short-term and demand loans		-			(9,690	)
Proceeds from issuances of preferred stock		-			25,000
Net Cash Provided By Financing Activities		51,314			15,310

NET DECREASE IN CASH		(250	)		(6,748	)

CASH - Beginning of Period		529			19,014

CASH - End of Period	$	279		$	12,266

SUPPLEMENTAL INFORMATION:
Cash Paid During the Period for:
Interest	$	-		$	284

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Preferred dividends declared and accrued, but not paid	$	39,000		$	37,500

See Notes to Condensed Consolidated Financial Statements

COMPLIANCE SYSTEMS CORPORATION AND SUBSIDIARIES

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

1.	Basis of Presentation:

The accompanying unaudited interim condensed consolidated financial statements of Compliance Systems Corporation and Subsidiaries (the “Company”) have been prepared by management in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for the year ending December 31, 2012. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed with the SEC on April 16, 2012.

The Company’s current business plan is to attempt to identify and negotiate with business targets for mergers of those entities with and into the Company. No assurance can be given that the Company will be successful in identifying or negotiating with any target company.

2.	Liquidity and Going Concern:

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered continued losses from operations since its inception. At March 31, 2012, the Company had stockholders’ and working capital deficiencies of approximately $3.26 million and $3.25 million, respectively.

Management believes the Company will continue to incur losses and negative cash flows from operating activities for the foreseeable future and will need additional equity or debt financing to sustain its operations until it can achieve profitability and positive cash flows, if ever. Management plans to seek additional debt and/or equity financing for the Company, but cannot assure that such financing will be available on acceptable terms. The Company's continuation as a going concern is dependent upon its ability to ultimately attain profitable operations, generate sufficient cash flow to meet its obligations, and obtain additional financing as may be required. The outcome of this uncertainty cannot be assured.

The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

COMPLIANCE SYSTEMS CORPORATION AND SUBSIDIARIES

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

3.	Significant Accounting Policies Applicable to Interim Financial Statements:

A. Loss per Share

Basic loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted loss per share gives effect to dilutive convertible securities, options, warrants and other potential common stock outstanding during the period, only in periods in which such effect is dilutive. The following securities have been excluded from the calculation of net loss per share, as their effect would be anti-dilutive:

	March 31, 2012		March 31, 2011
Preferred stock		587,231,900		562,231,900
Warrants		230,986,100		134,307,500
Stock options		10,000,000		40,000,000

B. Fair Value of Financial Instruments

Substantially all of the Company’s financial instruments, consisting primarily of cash, accounts receivable, accounts payable and accrued expenses and all debt, are carried at, or approximate, fair value because of their short-term nature or because they carry market rates of interest. The warrant liability was valued using the Black-Scholes option pricing model. See Note 7F.

C. Stock Based Compensation Arrangements

The Company accounts for stock-based compensation arrangements in accordance with guidance provided by the Financial Accounting Standards Board Accounting Standards Codification (“ASC”). This guidance addresses all forms of share-based payment awards including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights, as well as share grants and other awards issued to employees and non-employees under free-standing arrangements. These awards are recorded at costs that are measured at fair value on the awards’ grant dates, based on the estimated number of awards that are expected to vest and will result in charges to operations.

The Company valued these issuances utilizing a Black-Scholes option pricing model using the following assumptions: share price, exercise price, expected volatility, risk-free rate and term.

The risk-free interest rate used in the Black-Scholes valuation method is based on the implied yield currently available in U.S. Treasury securities at maturity with an equivalent term. The Company has not declared or paid any dividends and does not currently expect to do so in the future. The expected term of options represents the period that its stock-based awards are expected to be outstanding and was determined based on projected holding periods for the remaining unexercised shares. Consideration was given to the contractual terms of its stock-based awards, vesting schedules and expectations of future employee behavior. The volatility rate used was based upon an average volatility rate for two entities providing telecommunications. The Company did not use the volatility rate for Company Common Stock as the Company Common Stock had not been trading for the sufficient length of time to accurately compute its volatility when these warrants were issued.

From time to time, the Company’s shares of common stock and warrants have been issued as payment to employees and non-employees for services. These are non-cash transactions that require management to make judgments related to the fair value of the shares issued, which affects the amounts reported in the Company’s consolidated financial statements for certain of its assets and expenses.

Share based compensation amounted to $256 and $0 for the three months ended March 31, 2012 and 2011, respectively.

D. Subsequent Events

Management has evaluated subsequent events through the date of this filing.

COMPLIANCE SYSTEMS CORPORATION AND SUBSIDIARIES

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

4.	Short-Term and Demand Notes Payable

Short-term and demand notes payable consist of the following:

	March 31,		December 31,
	2012		2011
	(Unaudited)


Nascap Corp. and accrued interest (A)	$	455,000	$	444,500
John Koehler (B)		30,000		30,000

Total	$	485,000	$	474,500

A.	Secured Demand Note – Nascap Corp. (“Nascap”)

In September 2006, CCI executed a secured $150,000 promissory note and related security agreement with Nascap. Interest at 12% per annum was payable monthly in arrears and the note principal was due on demand. The note was collateralized by the accounts receivable of the principal subsidiary and was unconditionally guaranteed by the Company.

As of March 31, 2009, the Company entered into a Loan Modification Agreement with Nascap. The original Nascap note was amended and restated as a revolving line of credit promissory note (“Nascap Restated Note”) in the principal amount not to exceed $750,000. The Nascap Restated Note contains the same terms and conditions as the original note, except for the revolving line of credit nature of the debt. Accrued and unpaid interest on the Nascap note totaled $105,000 and $94,500 at March 31, 2012 and December 31, 2011 respectively. At both March 31, 2012 and December 31, 2011, $350,000 was outstanding on this note.

B.	Promissory Note – John Koehler (“Koehler”)

On October 1, 2003, the predecessor to Execuserve issued a $150,000 non-interest bearing promissory note to Koehler, an investor in the predecessor. The note was amended on October 25, 2004. Upon the acquisition of Execuserve by the Company, Koehler was owed $37,000 and was to be repaid in monthly installments of $1,000. The Company is in default as it has not made a payment since September 2010. The balance due to Koehler at March 31, 2012 and December 31, 2011 totaled $30,000.

COMPLIANCE SYSTEMS CORPORATION AND SUBSIDIARIES

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

5.	Notes and Loans Payable

Long-term debt at March 31, 2012 and December 31, 2011 consists of the following:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Notes payable and accrued interest to officer/stockholder (A)	$	72,500	$	70,250
Loans payable to officer/stockholder (B)		14,022		12,708
Other secured debt and accrued interest (C)		217,500		210,750
Other loans payable (D)		50,000		—
Total long-term debt		354,022		293,708
Current maturities of long-term debt		354,022		293,708
Long-term debt less current maturities	$	—	$	—

A. Brookstein Promissory Note Exchange Agreement -

As of June 24, 2009, the Company entered in to a Promissory Note Exchange Agreement (the “Brookstein Exchange Agreement”) with Barry M. Brookstein (“Brookstein”) and simultaneously consummated the transactions contemplated by the Brookstein Exchange Agreement. Brookstein, a director and principal stockholder of the Company, is the Company’s chief executive officer and chief financial officer. Under the Brookstein Exchange Agreement, Brookstein delivered and assigned a promissory note of Call Compliance, Inc., one of the Company’s wholly-owned subsidiaries (“CCI”), dated March 3, 2009, in the principal amount of $50,000 and payable to Brookstein (the “Brookstein Original Note”) in exchange for the Company issuing and delivering to Brookstein the Company’s 18% Senior Subordinated Secured Promissory Note, dated June 24, 2009, in the principal amount of $50,000 payable to Brookstein (the “Brookstein New Note”). In connection with such exchange, the Company granted Brookstein a senior subordinated security interest (the “Brookstein Security Interest”) in all of the Company’s assets to secure the Company’s obligations under the Brookstein New Note, as evidenced and subject to the terms and conditions of a Security Agreement, dated June 24, 2009 (the “Brookstein Security Agreement”), between Brookstein and the Company. As further consideration for entering into the Brookstein Exchange Agreement, Brookstein was granted 1 million Class “A” common stock purchase warrants of the Company (each, a “Brookstein Class A Warrant”) and 1 million class “B” common stock purchase warrants of the Company (each, a “Brookstein Class B Warrant”). Each of these warrants entitles its holder to purchase one share of Company common stock at a purchase price of $0.05 per share. The Brookstein Class A Warrants and Brookstein Class B Warrants expire on June 23, 2014. If any amount (principal or interest) is outstanding under the Brookstein New Note, the purchase price upon exercise of any of the Brookstein Class B Warrants must be paid by the reduction of the amount outstanding under the Brookstein New Note.

The Brookstein Original Note was due on demand and bore interest at the rate of 18% per annum, payable monthly in arrears.

The Brookstein New Note had a maturity date of January 1, 2011 and bears interest at the rate of 18% per annum (20%, in the case of a default under the Brookstein New Note), with interest payable monthly in arrears. In March 2011, the maturity date of the Brookstein New Note was extended to July 1, 2011 and was further extended in August 2011 to January 1, 2012. The principal and accrued interest were not paid on January 1, 2012 and are now due on demand. Interest incurred on the note totaled $2,250 for each of the three months ended March 31, 2012 and 2011. Accrued and unpaid interest totaled $22,500 and $20,250 at March 31, 2012 and December 31, 2011, respectively. At both March 31, 2012 and December 31, 2011, $50,000 was outstanding on this note.

B. Loans Payable - Brookstein

At various times, Brookstein loaned the Company monies for working capital purposes. The loans do not bear interest and are due on demand. At March 31, 2012 and December 31, 2011, loans payable - Brookstein was $14,022 and $12,708, respectively.

COMPLIANCE SYSTEMS CORPORATION AND SUBSIDIARIES

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

5.	Long-Term Debt (Continued)

C. Ponzio Promissory Note Exchange Agreement –

The Company had outstanding unsecured demand loans due Henry A. Ponzio (“Ponzio”) in the aggregate principal amount of $150,000 at December 31, 2008. This demand loan bore interest at the rate of 18% per annum, payable monthly in arrears.

As of June 24, 2009, the Company entered into a Promissory Note Exchange Agreement (the “Ponzio Exchange Agreement”) with Ponzio and simultaneously consummated the transactions contemplated by the Ponzio Exchange Agreement. Under the Ponzio Exchange Agreement, Ponzio delivered and assigned to the Company a promissory note of CCI, dated April 27, 2006, in the principal amount of $150,000 and payable to Ponzio (the “Ponzio Original Note”) in exchange for the Company’s issuing and delivering to Ponzio the Company’s 18% Senior Subordinated Secured Promissory Note, dated June 24, 2009, in the principal amount of $150,000 and payable to Ponzio (the “Ponzio New Note”). In connection with such exchange, the Company granted Ponzio a senior subordinated security interest (the “Ponzio Security Interest”) in all of the Company’s assets to secure the Company’s obligations under the Ponzio New Note, as evidenced and subject to the terms and conditions of a Security Agreement, dated June 24, 2009 (the “Ponzio Security Agreement”), between Ponzio and the Company. As further consideration for entering into the Ponzio Exchange Agreement, Ponzio was granted 3 million Class A warrants (each, a “Ponzio Class A Warrant”) and 3 million Class B warrants (each, a “Ponzio Class B Warrant”). Each of these warrants entitles its holder to purchase one share of common stock (each, a “Warrant Share”) at a purchase price of $0.05 per Warrant Share. The Ponzio Class A Warrants and Ponzio Class B Warrants expire on June 23, 2014. If any amount (principal or interest) is outstanding under the Ponzio New Note, the purchase price upon exercise of any of the Ponzio Class B Warrants must be paid by the reduction of such amounts outstanding under the Ponzio New Note.

The Ponzio Original Note was due on demand and bore interest at the rate of 18% per annum, payable monthly in arrears.

The Ponzio New Note had a maturity date of January 1, 2011 and bears interest at the rate of 18% per annum (20%, in the case of a default under the Ponzio New Note), with interest payable monthly in arrears. In March 2011, the maturity date of the Ponzio New Note was extended to July 1, 2011 and was further extended in August 2011 to January 1, 2012. The principal and accrued interest were not paid on January 1, 2012 and are now due on demand. Accrued and unpaid interest as of March 31, 2012 and December 31, 2011 totaled $67,500 and $60,750, respectively. At both March 31, 2012 and December 31, 2011, $150,000 was outstanding on this note.

D. Loans Payable – RDRD Holdings LLC (“RDRD”)

During the three months ended March 31, 2012, RDRD loaned the Company monies for working capital purposes. The loans do not bear interest and are due on demand. At March 31, 2012, loans payable was $50,000. In April 2012, RDRD advanced the Company an additional $6,000 for a consulting agreement. See Note 9.

6.	Commitments:

A. Employment Agreements

The Company had employment agreements with Brookstein and Dean Garfinkel through November 30, 2011. Garfinkel resigned in November 2010. These officers deferred receiving the payments of their salaries in 2010 and Brookstein deferred receiving the payment of his salary in 2011. The payment of accrued salaries owing to Garfinkel in the amount of $380,000 is currently under negotiations.

The employment contract with Brookstein expired in November 2011 and the agreement is now on a month-to-month basis. See Note 7.

COMPLIANCE SYSTEMS CORPORATION AND SUBSIDIARIES

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

7.	Capital Transactions:

A. Issuance of Deferred Salary Warrants –

Brookstein has been deferring all or a portion of his salary since January 1, 2009.

Effective January 1, 2012, Brookstein agreed to continue deferring his full salary. The amount of such deferred salaries for the three months ended March 31, 2012 totaled $60,000. As compensation, the Company granted to Brookstein Deferred Salary Warrants to purchase 6 million shares (each a “2012 Deferred Salary Warrant Share”) of Company Common Stock at $0.001 per 2012 Deferred Salary Warrant Share at the rate of 100 Deferred Salary Warrants for each $1 of deferred salary for a term of five years. The Company valued these issuances utilizing a Black-Scholes option pricing model with the following assumptions: share price: $0.0003; exercise price: $0.001; expected volatility: 27%; risk-free rate: 2.01%; term: 5 years.

Effective April 1, 2012, Brookstein agreed to continue deferring his full salary. The amount of such deferred salaries for the three months ending June 30, 2012 will total $60,000. As compensation, the Company granted to Brookstein 2012 Deferred Salary Warrants to purchase 6 million shares of Company Common Stock at $0.001 per Deferred Salary Warrant Share at the rate of 100 Deferred Salary Warrants for each $1 of deferred salary for a term of five years.

B. Issuance of Dividend Accrual Warrants – Series B Senior Subordinated Convertible Voting Preferred Stock (the “Series B Preferred Stock”)

The Company has failed to pay dividends on the 1.25 million outstanding shares of its Series B Preferred Stock. Dividends on the Series B Preferred Stock may only be paid out of funds legally available for such purpose. Under Nevada law, generally, a corporation’s distribution to stockholders may only be made if, after giving effect to such distribution, (i) the corporation would be able to pay its debts as they become due in the usual course of action and (ii) the corporation’s total assets equal or exceed the sum of the corporation’s liabilities plus the amount that would be needed, if the corporation was to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of stockholders whose rights are superior to those receiving the distribution.

All of the outstanding shares of Series B Preferred Stock are held by Brookstein and Spirits Management, Inc. ("Spirits"), a company wholly-owned by Brookstein. Although the Company has been and currently is unable to pay the Series B Preferred Stock dividends when due, the dividends have been and are continuing to be accrued until such time as the monthly dividends can lawfully be paid under Nevada law.

The Company deferred dividends totaling $37,500 for the three months ended March 31, 2012, $15,000 due to Brookstein, and $22,500 due to Spirits. To compensate Brookstein and Spirits for the failure to pay dividends when due, the Company agreed to grant five-year warrants (each, a “Dividend Accrual Warrant”) to purchase shares (each, a “Dividend Accrual Warrant Share”) of Company Common Stock to such holders at $0.001 per Dividend Accrual Warrant Share at a rate of 100 Dividend Accrual Warrants for every $1 of dividend accrued during the prior three month period. The Company issued Dividend Accrual Warrants totaling 1.5 million to Brookstein and 2.25 million to Spirits for the three months ended March 31, 2012, respectively. The Company valued these issuances using the Black-Scholes option pricing model with the following assumptions: share price: $0.0006; strike price: $0.001; expected volatility: 27%; risk free interest rate: 1.04%; term: 5 years.

For each of the three months ended March 31, 2012 and 2011, dividends related to the Series B Preferred Stock totaled $37,500. Accrued dividends totaled $487,500 and $450,000 at March 31, 2012 and December 31, 2011, respectively, and are included in accounts payable and accrued expenses on the consolidated balance sheet.

COMPLIANCE SYSTEMS CORPORATION AND SUBSIDIARIES

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

7.	Capital Transactions (Continued)

C. Issuance of Dividend Accrual Warrants - Series D Senior Convertible Voting Redeemable Preferred Stock (“Series D Preferred Stock”) –

The Company has failed to pay dividends on the 50,000 outstanding shares of its Series D Preferred Stock. As with the Series B Preferred Stock Discussed above, dividends may only be paid out of funds legally available for such purpose.

The Company deferred dividends totaling $1,500 for the three months ended March 31, 2012. To compensate Brookstein for the failure to pay dividends when due, the Company agreed to grant five-year warrants (each, a “Dividend Accrual Warrant”) to purchase shares (each, a “Dividend Accrual Warrant Share”) of Company Common Stock to such holders at $0.001 per Dividend Accrual Warrant Share at a rate of 100 Dividend Accrual Warrants for every $1 of dividend accrued during the prior three month period. The Company issued Dividend Accrual Warrants totaling 150,000 for the three months ended March 31, 2012. The Company valued these issuances using the Black-Scholes option pricing model with the following assumptions: share price: $0.0006; strike price: $0.001; expected volatility: 27%; risk free interest rate: 1.04%; term: 5 years

For the three months ended March 31, 2012 and 2011, dividends related to the Series D Preferred Stock totaled $1,500 and $0, respectively. Accrued dividends totaled $5,786 and $4,286 at March 31, 2012 and December 31, 2011, respectively, and are included in accounts payable and accrued expenses on the consolidated balance sheet.

D. Issuance of Deferred Interest Payment Warrants –

The Company continued to fail to pay interest on the promissory notes that were previously issued to Brookstein, Ponzio and Nascap (the “Note Holders”). To compensate the Note Holders for the failure to pay interest on their promissory notes in the first quarter of 2012, the Company granted to such Note Holders warrants (each, a “Deferred Interest Payment Warrant”) to purchase shares of Common Stock at the rate of 100 Deferred Interest Payment Warrants for every $1 of interest not paid. For the three months ended March 31, 2012, 1,950,000 Deferred Interest Payment Warrants were issued and have terms substantially identical to the Deferred Salary Warrants and Dividend Accrual Warrants. The Company valued these issuances using the Black-Scholes option pricing model with the following assumptions: share price: $0.0003; strike price: $0.001; expected volatility: 27%; risk free interest rate: 2.01 %; term: 5 years

The Company will not pay interest to the Note Holders in the second quarter of 2012. To compensate them, the Company granted Deferred Interest Payment Warrants to purchase shares of Common Stock at the rate of 100 Deferred Interest Payment Warrants for every $1 of interest not paid. The Company issued a total of 1,950,000 Deferred Interest Payment Warrants on April 1, 2012.

COMPLIANCE SYSTEMS CORPORATION AND SUBSIDIARIES

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

7.	Capital Transactions (Continued)

E . Warrant Exchange Agreements –

The Company entered into separate warrant exchange agreements with Brookstein, Spirits, Garfinkel, Ponzio and Nascap to purchase an aggregate of 128.13 million shares of Company Common Stock. The warrant holders included the Company’s chairman of the board, chief executive officer and chief financial officer and a company in which such officer is the sole equity owner, as well as the Company’s former president and chief executive officer. Each of the warrant exchange agreements were dated as of May 12, 2011 and provided for the exchange of the warrants then held by such warrant holders (the “Old Warrants”) for new warrants (the “New Warrants”). The number of shares of Common Stock issuable upon exercise of the New Warrants is equal to the number of shares of Common Stock that were issuable upon exercise of the Old Warrants. The Old Warrants had exercise prices ranging from $0.05 to $0.001 per share (a weighted average exercise price of $0.022 per share) and had exercise periods expiring from June 23, 2014 through March 31, 2016 (typically, five years after the date of issuance of the subject warrants). However, the Old Warrants contained certain anti-dilution provisions which caused the effective exercise prices to be reduced to less than $0.001 per share. The New Warrants all have an exercise price of $0.001 per share and expire on May 11, 2016. The New Warrants contain cashless exercise provisions. The anti-dilution provisions of the New Warrants are primarily limited to stock splits and corporate transactions involving mergers and consolidations while the Old Warrants contained anti-dilution provisions that caused the reduction in the exercise prices of the Old Warrants whenever the Company issued stock or derivative securities with an effective purchase price less than the then exercise price of the subject Old Warrants. The Company had issued the Old Warrants in connection with the (x) accrual of dividends due on preferred stock of the Company owned by certain of the warrant holders, (y) deferral of the payment of interest due on promissory notes of the Company owned by certain of the warrant holders and (z) deferral of salary due certain of the warrant holders in their capacities as executive officers of the Company.

As the New Warrants contain “cashless exercise” provisions, the value of the New Warrants were recognized as liabilities and not as part of stockholders’ deficiency. In addition, the Company is required to revalue the New Warrants at the end of each reporting period with the change in value reported on the statement of operations. The Company valued these issuances using the Black-Scholes option pricing model with the following assumptions at March 31, 2012: share price: $0.0006; strike price: $0.001; expected volatility: 27%; risk free interest rate: 1.04%; term: 5 years. The Company recognized a loss on the value of the New Warrants of $5,411 and $0 for the three months ended March 31, 2012 and 2011, respectively.

8.	Recent Accounting Pronouncements:

Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying consolidated financial statements.

9.	Subsequent Event:

On April 6, 2012, the Company signed a one month financial marketing consulting agreement for investor relations services for total fees of $41,000. The Company remitted $6,000 towards amounts owed under the agreement.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements necessarily involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performances, or achievements expressed or implied by such forward-looking statements. Readers are cautioned to review carefully all discussions containing forward-looking statements due to the risks and uncertainties which can materially affect the Company's business, operations, financial condition and future prospects. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “could,” “seek,” “intend,” “expect,” “anticipate,” “assume,” "hope," “plan,” “believe,” “estimate,” “predict,” “approximate,” “potential,” “continue” or the negative of such terms. Statements including these words and variations of such words, and other similar expressions, are forward-looking statements. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable based upon its knowledge of its business and industry, the Company cannot predict or guarantee its future results, levels of activity, performances or achievements, or that such expectations will otherwise be realized. Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of such statements.

Forward-looking statements represent the Company's expectations and beliefs concerning future events, based on information available to the Company as of the date of this Form 10-Q, and are subject to various risks and uncertainties. Such risks and uncertainties include without limitation:

● the Company’s ability to raise capital to finance its operations and growth, when needed and terms advantageous to the Company;

● the Company’s ability to locate and acquire appropriate business enterprises to supplement and enhance our revenue and cash flow;

● the ability to manage growth, profitability and the marketability of our services;

● the effect on our business of recent credit-tightening throughout the United States, especially within the construction and real estate markets;

● the effect on our business of recently reported losses within the financial, banking and other industries and the effect of such losses on the income and financial condition of our potential clients;

● adverse results of any legal proceedings;

● the Company’s ability to enter into relationships with suppliers, vendors or contractors of acceptable quality of goods and services on terms advantageous to us;

● the volatility of our operating results and financial condition;

● the Company’s ability to attract and retain qualified senior management personnel; and

● other risks and uncertainties set forth in this Form 10-Q, the Company’s Form 10-K for the year ended December 31, 2011, and, from time to time, in the Company’s other filings with the Securities and Exchange Commission.

Readers of this Quarterly Report on Form 10-Q should carefully consider such risks, uncertainties and other information, disclosures and discussions which contain cautionary statements identifying important factors that could cause the Company’s actual results to differ materially from those provided in forward-looking statements. Readers should not place any undue reliance on forward-looking statements contained in this Form 10-Q. The Company disclaims any intent or obligation to update or revise any forward-looking statements, whether in response to new information, unforeseen events or changed circumstances, except as required to comply with the disclosure requirements of the federal securities laws.

Overview and Recent Developments

Critical Accounting Policies

The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) with certain amounts based on management’s best estimates and judgments. To determine appropriate carrying values of assets and liabilities that are not readily available from other sources, management uses assumptions based on historical results and other factors that they believe are reasonable. Actual results could differ from those estimates.

The Company’s critical accounting policies are described in Note 2 to the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. There have been no material changes to our critical accounting policies as of and for the three months ended March 31, 2012.

Going Concern

Our financial statements have been prepared assuming that we will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s continued losses and negative operating cash flows raise substantial doubt about its ability to continue as a going concern.

The Company’s primary need for cash during the next twelve months is to fund payments of operating costs. Historically, the Company has relied upon private debt and equity financing to fund its operations and expects to continue to do so. Our auditors included a “going concern” qualification in their auditors’ report for the year ended December 31, 2011. Such “going concern” qualification may make it more difficult for us to raise funds when needed. The current economic environment is impacting the Company’s ability to obtain any needed financing. No assurance can be given that financing will be available when needed or, if available, such financing will be on terms beneficial to the Company.

Results of Operations for the Three Months Ended March 31, 2012 (“2012”) Compared to the Three Months Ended March 31, 2011 (“2011”)

Selling and general and administrative expenses consist primarily of officer’s salary and professional fees for accounting and auditing services, legal fees and insurance costs. Selling and general and administrative expenses for the three months ended March 31, 2012 and 2011 amounted to $127,163 and $120,934, respectively. Operating expenses consist of the following for the three months ended March 31, 2012 and 2011.

	2012		2011
Officer’s salary	$	60,000	$	60,000
Payroll taxes and insurance		10,096		9,242
Professional fees		51,875		28,563
Other		5,192		23,129

Total	$	127,163	$	120,934

For the three months ended March 31, 2012 and 2011, interest expense amounted to $19,755 and $21,884, respectively. Interest expense relates primarily to amounts owed on our various debt arrangements.

For the reasons set forth above, the Company’s 2012 net loss for the three month period increased by $9,511 to $152,329 in 2012 from $142,818 in 2011.

Dividends of $39,000 were accrued on the Series B Preferred Stock and Series D Preferred Stock for the three months ended March 31, 2012. Dividends of $37,500 were accrued on the Series B Preferred Stock for the three months ended March 31, 2011. The dividends are taken into account when computing loss per common share. Accrued dividends total $487,500 at March 31, 2012.

The Company’s annual effective tax rate was estimated to be 0% for both 2012 and 2011. Accordingly, no tax benefit or cost was recognized in either of such periods. During the current and prior periods, the Company did not record an income tax benefit for net deferred tax assets generated due to the uncertainty of their realization.

Warrant Exchange

On May 12, 2011, the Company exchanged warrants (the “Old Warrants”) to purchase an aggregate of 128.13 million shares of our Common Stock, with exercise prices ranging between $0.05 and $0.001 per share and expiration dates between June 23, 2014 and March 31, 2016, for new warrants (the “New Warrants”) to purchase the same number of shares of our common stock at an exercise price of $0.001 per share and having an expiration date of May 11, 2016. The New Warrants, which all expire on May 11, 2016, permit “cashless exercise,” a right which was not provided for in the Old Warrants. The New Warrants also contain anti-dilution provisions that are not as advantageous to the warrant holders as the anti-dilution provisions applicable to the Old Warrants.

As the New Warrants contain “cashless exercise” provisions, the value of the New Warrants were recognized as liabilities and not as part of stockholders’ deficiency. In addition, the Company is required to revalue the New Warrants at the end of each reporting period with the change in value reported on the statement of operations. The Company valued these issuances using the Black-Scholes option pricing model. The Company recognized a loss on the value of the New Warrants of $5,411 and $0 for the three months ended March 31, 2012 and 2011, respectively.

Liquidity and Capital Resources

At March 31, 2012 we had a cash balance of $279 compared to $529 at December 31, 2011.

Cash used in operating activities of $51,564. The decrease in cash was primarily attributable to funding the loss for the period.

Net cash provided by financing activities was $51,314. The Company received working capital loans of $51,314 including loans from Brookstein of $1,314.

The Company’s primary need for cash during the next twelve months is to fund payments of operating costs. In addition, the Company is presently in negotiations to obtain additional financing to fund operations.

The Company’s current business plan is to attempt to identify and negotiate with business targets for mergers of those entities with and into the Company. The Company’s expected expenses are comprised of operating expenses related to the business plan as well as those that enable the Company to satisfy the requirements of a reporting company. No assurance can be given that financing will be available when needed or, if available, such financing will be on terms beneficial to the Company.

Off-Balance Sheet Arrangements

As of March 31, 2012, there were no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

This item is not applicable to smaller reporting companies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management conducted an evaluation, with the participation of its Chief Executive Officer (CEO)/Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the CEO/CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Management’s Quarterly Report on Internal Control over Financial Reporting

Management is responsible for the preparation of our financial statements and related information. Management uses its best judgment to ensure that the financial statements present fairly, in material respects, our financial position and results of operations in conformity with generally accepted accounting principles.

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision of management, including the CEO/CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission published in 1992 and subsequent guidance prepared by the Commission specifically for smaller public companies. Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of March 31, 2012.

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that accurately and fairly reflect, in reasonable detail, transactions and dispositions of assets; and provide reasonable assurances that: (1) transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States; (2) receipts and expenditures are being made only in accordance with authorizations of management and the directors of our Company; and (3) unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements are prevented or timely detected.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Controls Over Financial Reporting

There have been no changes in our internal controls over financial reporting that occurred during our last fiscal quarter to which this quarterly report on Form 10-Q relates that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. We are committed to improving our financial organization. As part of this commitment, we intend to continue to educate our management personnel to comply with U.S. GAAP and SEC disclosure requirements and to increase management oversight of accounting and reporting functions in the future.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

Not applicable.

Item 1A. Risk Factors.

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

The following exhibits are being filed as part of this Quarterly Report on Form 10-Q.

Exhibit Number		Description

10.1		Warrant Certificate of Compliance Systems Corp., dated January 1, 2012, evidencing 6,000,000 common stock purchase warrants registered in the name of Barry M. Brookstein. [Incorporated by reference to Exhibit 10.135 of the registrant’s Annual Report on Form 10-K (Date of Report: December 31, 2011), filed with the Securities and Exchange Commission on April 16, 2012].
10.2		Warrant Certificate of Compliance Systems Corp., dated January 1, 2012, evidencing 225,000 common stock purchase warrants registered in the name of Barry M. Brookstein. [Incorporated by reference to Exhibit 10.136 of the registrant’s Annual Report on Form 10-K (Date of Report: December 31, 2011), filed with the Securities and Exchange Commission on April 16, 2012].
10.3		Warrant Certificate of Compliance Systems Corp., dated January 1, 2012, evidencing 675,000 common stock purchase warrants registered in the name of Henry A. Ponzio. [Incorporated by reference to Exhibit 10.137 of the registrant’s Annual Report on Form 10-K (Date of Report: December 31, 2011), filed with the Securities and Exchange Commission on April 16, 2012].
10.4		Warrant Certificate of Compliance Systems Corp., dated January 1, 2012, evidencing 1,050,000 common stock purchase warrants registered in the name of Nascap Corp. [Incorporated by reference to Exhibit 10.138 of the registrant’s Annual Report on Form 10-K (Date of Report: December 31, 2011), filed with the Securities and Exchange Commission on April 16, 2012].
10.5		Warrant Certificate of Compliance Systems Corp., dated March 31, 2012 evidencing 1,500,000 common stock purchase warrants registered in the name of Barry M. Brookstein.

10.6		Warrant Certificate of Compliance Systems Corp., dated March 31, 2012, evidencing 150,000 common stock purchase warrants registered in the name of Barry M. Brookstein.
10.7		Warrant Certificate of Compliance Systems Corp., dated March 31, 2012, evidencing 2,250,000 common stock purchase warrants registered in the name of Spirits Management, Inc.
10.8		Warrant Certificate of Compliance Systems Corp., dated April 1, 2012, evidencing 6,000,000 common stock purchase warrants registered in the name of Barry M. Brookstein.
10.9		Warrant Certificate of Compliance Systems Corp., dated April 1, 2012, evidencing 225,000 common stock purchase warrants registered in the name of Barry M. Brookstein.
10.10		Warrant Certificate of Compliance Systems Corp., dated April 1, 2012, evidencing 675,000 common stock purchase warrants registered in the name of Henry A. Ponzio.
10.11		Warrant Certificate of Compliance Systems Corp., dated April 1, 2012, evidencing 1,050,000 common stock purchase warrants registered in the name of Nascap Corp.
10.12		Financial Marketing Consulting Services Agreement with Equities Awareness Group, dated April 4, 2012.
31.1		Rule 13a-14(a)/15d-14(a) Certification of Barry M. Brookstein.
32.1		Section 1350 Certification of Barry M. Brookstein.
101.INS**		XBRL Instance
101.SCH**		XBRL Taxonomy Extension Schema
101.CAL**		XBRL Taxonomy Extension Calculation
101.DEF**		XBRL Taxonomy Extension Definition
101.LAB**		XBRL Taxonomy Extension Labels

**XBRL		Information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: May 15, 2012	Compliance Systems Corporation.

	By:	/s/ Barry M. Brookstein
		Barry M. Brookstein, President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature and Name	Capacities	Date

/s/ Barry M. Brookstein	Chief Executive Officer, President, Chief Financial Officer	May 15, 2012
Barry M. Brookstein	and Director
	(Principal Executive Officer, Principal Financial Officer And Principal Accounting Officer)

EX-10.5 2 v313040_ex10-5.htm EXHIBIT 10.5

NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR THE SHARES OF COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH WARRANTS HAVE BEEN ACQUIRED, AND ANY SHARES OF COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS ARE REQUIRED TO BE ACQUIRED, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH WARRANTS AND/OR SUCH SHARES OR OTHER SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH WARRANTS AND SUCH SHARES OR OTHER SECURITIES TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT AND SUCH STATE SECURITIES LAWS.

VOID AFTER 5:00 P.M. ON MARCH 30, 2017

COMPLIANCE SYSTEMS CORPORATION

COMMON STOCK PURCHASE WARRANT CERTIFICATE

1,500,000 Common Stock Purchase Warrants

Huntington, New York

Warrant Certificate Number: 2011C-028

As of March 31, 2012

THIS IS TO CERTIFY THAT, for value received, Barry M. Brookstein (the “Warrantholder”), is the registered owner of the number of common stock purchase warrants (each, a “Warrant”) of Compliance Systems Corporation, a Nevada corporation (the “Company”), set forth above, each Warrant entitling the owner thereof to purchase from the Company, at a purchase price of $0.001 per Warrant (the “Purchase Price”), as adjusted from time to time in accordance with section 3 of this Warrant Certificate, at any time on or after the Commencement Date (as defined in paragraph 1(b) below) and terminating at 5:00 p.m., Huntington, New York time, on March 30, 2017 (the “Expiration Time”), one duly authorized, validly issued, fully paid and non-assessable share (each, a “Warrant Share”) of the common stock, par value $0.001 per share (the “Common Stock”), of the Company, subject to the terms and conditions contained herein. The number of Warrants evidenced by this Warrant Certificate (and the number and kind of securities which may be purchased upon exercise of the Warrants), and the Purchase Price per Warrant Share, each as set forth above, are as of the date hereof. As provided herein, the Purchase Price and the number of shares of Common Stock or other securities which may be purchased upon the exercise of the Warrants evidenced by this Warrant Certificate are, upon the happening of certain events, subject to modification and adjustment.

This Warrant Certificate, together with any warrant certificate(s) issued in replacement or substitution hereof (as provided for herein) evidencing all or part of the Warrants evidenced hereby, are sometimes collectively referred to herein as the “Warrant Certificates.”

The rights of the registered holder of this Warrant Certificate shall be subject to the following further terms and conditions:

1. Exercise of Warrants.

(a) The Warrants may be exercised, in whole or in part, at any time and from time to time, during the period commencing on the Commencement Date and terminating at the Expiration Time by surrendering this Warrant Certificate, with the Exercise Form provided for herein duly completed and executed by the Warrantholder or by the Warrantholder’s duly authorized attorney-in-fact, at the principal office of the Company, presently located at 780 New York Avenue - Suite A, Huntington, New York 11743, or at such other office or agency in the United States as the Company may designate by notice in writing to the Warrantholder (in either event, the “Company Offices”), accompanied by payment in full, either in the form of cash, bank cashier’s check or certified check payable to the order of the Company, of the Purchase Price payable in respect of the Warrants being exercised.

(b) For purposes of this Warrant Certificate, the term “Commencement Date” shall mean September 30, 2011.

(c) Notwithstanding anything to the contrary contained in paragraph 1(a), payment of the applicable Purchase Price may be made by means of a “cashless exercise” through the surrender of the number of Warrants and receipt of the number of shares of Common Stock (in each case, as adjusted to reflect the provisions of section 3), determined based upon the following formula:

X = Y(A-B)

where: X = the number of shares of Common Stock to be issued to Warrantholder upon exercise pursuant to this paragraph 1(c);

Y = the number of shares of Common Stock issuable upon exercise of the Warrants so surrender, without giving effect to this paragraph 1(c);

A = the per share Current Market Price (as such term is defined in paragraph 3(e)) on the date of delivery to the Company at the Company Offices of this Warrant Certificate and completed Exercise Form; and

B = the Purchase Price in effect on the date of delivery to the Company at the Company Offices of this Warrant Certificate and completed Exercise Form.

(d) On the day immediately following the date of a valid exercise of any Warrants, the Warrantholder exercising such Warrant(s) shall be deemed to have become the holder of record for all purposes of the Warrant Shares to which such valid exercise relates.

(e) As soon as practicable, but not in excess of five days, after the valid exercise of all or part of the Warrants evidenced by this Warrant Certificate, the Company, at the Company’s expense (including the payment by Company of any applicable issuance and similar taxes), will cause to be issued in the name of and delivered to the Warrantholder, or such other party identified in the purchase form, certificates evidencing the number of duly authorized, validly issued, fully paid and non-assessable Warrant Shares to which the Warrantholder, or such other party identified in the Exercise Form, shall be entitled upon such exercise, as adjusted to reflect the effects, if any, of the anti-dilution provisions of section 3 of this Warrant Certificate, such certificates to be in such reasonable denominations as Holder shall request when delivering the duly completed Exercise Form.

(f) No certificates for fractional Warrant Shares shall be issued upon the exercise of any of the Warrants but, in lieu thereof, the Company shall, upon exercise of all the Warrants, round up any fractional Warrant Shares to the nearest whole share of Common Stock.

(g) If fewer than all of the Warrants are exercised, the Company shall, upon each exercise prior to the Expiration Time, execute and deliver to the Warrantholder a new Warrant Certificate (dated as of the date hereof) evidencing the balance of the Warrants that remain exercisable.

2. Issuance of Common Stock; Reservation of Warrant Shares. The Company covenants and agrees that:

(a) All Warrant Shares which may be issued upon the exercise of all or part of the Warrants will, upon issuance in accordance with the terms hereof, be validly issued, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issue thereof;

(b) At all times prior to the Expiration Time, the Company shall keep reserved for issuance a sufficient number of authorized shares of Common Stock to permit the exercise in full of the Warrants evidenced by this Warrant Certificate; and

(c) If any shares of Common Stock to be reserved for the purpose of the issuance of Warrant Shares upon the exercise of Warrants require registration with, or approval of, any governmental authority under any federal or state law before such shares may be validly issued or delivered upon exercise, then the Company will promptly use its best efforts to effect such registration or obtain such approval, as the case may be.

3. Adjustments of Purchase Price, Number and Character of Warrant Shares, Number of Warrants. The Purchase Price and the number and kind of securities purchasable upon the exercise of each Warrant shall be subject to adjustment from time to time upon the happening of the events enumerated in this section 3.

(a) Stock Dividends, Subdivisions and Combinations. In case the Company shall at any time on or before the Expiration Time:

(i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock or such other stock to holders of all its outstanding shares of Common Stock;

(ii) subdivide, reclassify or recapitalize the outstanding shares of Common Stock into a greater number of shares;

(iii) combine, reclassify or recapitalize the outstanding shares of Common Stock into a smaller number of shares of Common Stock; or

(iv) issue by reclassification of shares of Common Stock into any other securities of the Company (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation);

then the number and kind of Warrant Shares purchasable upon exercise of each Warrant outstanding immediately prior thereto shall be adjusted so that the Warrantholder shall be entitled to receive the kind and number of shares of Common Stock or other securities of the Company which the Warrantholder would have owned or have been entitled to receive after the happening of any of the events described above had such Warrant been exercised in full immediately prior to the earlier of the happening of such event or any record date in respect thereto. In the event of any adjustment of the number of Warrant Shares purchasable upon the exercise of each then outstanding Warrant pursuant to this paragraph 3(a), the Purchase Price shall be adjusted to be the amount resulting from dividing the number of shares of Common Stock (including fractional shares of Common Stock) covered by such Warrant immediately after such adjustment into the total amount payable upon exercise of such Warrant in full immediately prior to such adjustment. An adjustment made pursuant to this paragraph 3(a) shall become effective immediately after the effective date of such event retroactive to the record date for any such event. Such adjustment shall be made successively whenever any event listed in clauses (i) through (iv) of this paragraph 3(a) shall occur.

(b) Extraordinary Dividends. In case the Company shall, at any time on or before the Expiration Time, fix a record date for the issuance of rights, options, or warrants to all holders of outstanding shares of Common Stock, entitling such holders (for a period expiring within 45 days after such record date) to subscribe for or purchase shares of Common Stock (or securities exchangeable for or convertible into shares of Common Stock) at a price per share of Common Stock (or having an exchange or conversion price per share of Common Stock, with respect to a security exchangeable for or convertible into shares of Common Stock) which is lower than the Purchase Price on such record date, then the Purchase Price shall be adjusted so that the Purchase Price, as so adjusted, shall equal the price determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, of which (i) the numerator shall be the number of shares of Common Stock outstanding on such record date plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so to be offered (or the aggregate initial exchange or conversion price of the exchangeable or convertible securities so to be offered) would purchase at the Purchase Price and (ii) the denominator shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock to be offered for subscription or purchase (or into which the exchangeable or convertible securities so to be offered are initially exchangeable or convertible). Such adjustment shall become effective at the close of business on such record date; provided, however, to the extent that shares of Common Stock (or securities exchangeable for or convertible into shares of Common Stock) are not delivered after the expiration of such rights, options, or warrants, the Purchase Price shall be readjusted (but only with respect to Warrants exercised after such expiration) to the Purchase Price which would then be in effect had the adjustments made upon the issuance of such rights, options, or warrants been made upon the basis of delivery of only the number of shares of Common Stock (or securities exchangeable for or convertible into shares of Common Stock) actually issued. In case any subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company and shall be described in a statement mailed to the Warrantholder. Shares of Common Stock owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation.

(c) Extraordinary Distributions. In case the Company shall, at any time on or before the Expiration Time, distribute to all holders of shares of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the surviving corporation) evidences of the Company’s indebtedness or assets (excluding cash dividends and distributions payable out of consolidated net income or earned surplus in accordance with Nevada law and dividends or distributions payable in shares of stock described in paragraph 3(a) of this Warrant Certificate) or rights, options, or warrants or exchangeable or convertible securities containing the right to subscribe for or purchase shares of Common Stock (or securities exchangeable for or convertible into shares of Common Stock), then the Purchase Price shall be adjusted by multiplying the Purchase Price in effect immediately prior to the record date for such distribution by a fraction, of which (i) the numerator shall be the Purchase Price as in effect on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company) of the portion of the evidences of indebtedness or assets so to be distributed or of such rights, options or warrants applicable to one share of Common Stock and (ii) the denominator shall be the Purchase Price as in effect on such record date. Such adjustment shall be made whenever any such distribution is made, and shall become effective on the date of distribution retroactive to the record date for such transaction.

(d) Capital Reorganizations and Other Reclassifications. In case of any capital reorganization of the Company, or of any reclassification of the shares of Common Stock (other than a reclassification, subdivision or combination of shares of Common Stock referred to in paragraph 3(a) of this Warrant Certificate), or in case of the consolidation of the Company with, or the merger of the Company with, or merger of the Company into, any other corporation (other than a reclassification of the shares of Common Stock referred to in paragraph 3(a) of this Warrant Certificate or a consolidation or merger which does not result in any reclassification or change of the outstanding shares of Common Stock) or of the sale of the properties and assets of the Company as, or substantially as, an entirety to any other corporation or entity occurring on or before the Expiration Time, each Warrant shall, after such capital reorganization, reclassification of shares of Common Stock, consolidation, merger, or sale, be exercisable, upon the terms and conditions specified in this Warrant Certificate, for the kind, amount and number of shares or other securities, assets, or cash to which a holder of the number of shares of Common Stock purchasable (at the time of such capital reorganization, reclassification of shares of Common Stock, consolidation, merger or sale) upon exercise of such Warrant would have been entitled to receive upon such capital reorganization, reclassification of shares of Common Stock, consolidation, merger, or sale; and in any such case, if necessary, the provisions set forth in this section 3 with respect to the rights and interests thereafter of the Warrantholder shall be appropriately adjusted so as to be applicable, as nearly equivalent as possible, to any shares or other securities, assets, or cash thereafter deliverable on the exercise of the Warrants. The Company shall not effect any such consolidation, merger, or sale, unless prior to or simultaneously with the consummation thereof the successor corporation or entity (if other than the Company) resulting from such consolidation or merger or the corporation or entity purchasing such assets or other appropriate corporation or entity shall assume, by written instrument, the obligation to deliver to the Warrantholder such shares, securities, assets, or cash as, in accordance with the foregoing provisions, such holders may be entitled to purchase and the other obligations hereunder. The subdivision or combination of shares of Common Stock at any time outstanding into a greater or lesser number of shares shall not be deemed to be a reclassification of the shares of Common Stock for purposes of this paragraph 3(d).

(e) Minimum Adjustment. Except as hereinafter provided, no adjustment of the Purchase Price hereunder shall be made if such adjustment results in a change of the Purchase Price then in effect of less than one cent ($.001) per share. Any adjustment of less than one-tenth of one cent ($.001) per share of any Purchase Price shall be carried forward and shall be made at the time of and together with any subsequent adjustment which, together with adjustment or adjustments so carried forward, amounts to one-tenth of one cent ($.001) per share or more. However, upon exercise of this Warrant Certificate, the Company shall make all necessary adjustments (to the nearest one-tenth of a cent) not theretofore made to the Purchase Price up to and including the effective date upon which this Warrant Certificate is exercised.

(f) Notice of Adjustments. Whenever the Purchase Price shall be adjusted pursuant to this section 3, the Company shall promptly deliver a certificate signed by the President or a Vice President and by the Chief Financial Officer, Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company, setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the Board of Directors of the Company made any determination hereunder), by first class mail postage prepaid to the Warrantholder.

(g) Adjustments to Other Securities. In the event that at any time, as a result of an adjustment made pursuant to this section 3, the Warrantholder shall become entitled to purchase any shares or securities of the Company other than the shares of Common Stock, thereafter the number of such other shares or securities so purchasable upon exercise of each Warrant and the purchase price for such shares or securities shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as possible to the provisions with respect to the shares of Common Stock contained in paragraphs 3(a), 3(b), 3(c) and 3(d) of this Warrant Certificate.

(h) Deferral of Issuance of Additional Shares in Certain Circumstances. In any case in which paragraph 3(b) of this Warrant Certificate shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event issuing to the holder of a Warrant exercised after such record date the shares of Common Stock, if any, issuable upon such exercise over and above the Warrant Shares, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver as soon as practicable to such holder a due bill or other appropriate instrument provided by the Company evidencing such holder’s right to receive such additional shares of Common Stock upon the occurrence of the event requiring such adjustment.

4. Definition of Common Stock. The Common Stock issuable upon exercise of the Warrants shall be the Common Stock as constituted on the Commencement Date, except as otherwise provided in section 3 of this Warrant Certificate.

5. Replacement of Warrant Certificates. If this Warrant Certificate shall be lost, stolen, mutilated or destroyed, the Company shall, on such terms as to indemnity or otherwise as the Company may in the Company’s discretion reasonably impose, issue a new certificate of like tenor or date representing in the aggregate the right to subscribe for and purchase the number of shares of Common Stock which may be subscribed for and purchased hereunder. Any such new certificate shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant Certificate shall be at any time enforceable by anyone.

6. Registration. This Warrant Certificate, as well as all other warrant certificates representing Warrants shall be numbered and shall be registered in a register (the “Warrant Register”) maintained at the Company Offices as they are issued. The Warrant Register shall list the name, address and Social Security or other federal taxpayer identifying number, if any, of all Warrantholders. The Company shall be entitled to treat the Warrantholder as set forth in the Warrant Register as the owner in fact of the Warrants as set forth therein for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrants on the part of any other person, and shall not be liable for any registration of transfer of Warrants that are registered or to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with the actual knowledge that a fiduciary or nominee is committing a breach of trust in requesting such registration of transfer, or with such knowledge of such facts that its participation therein amounts to bad faith.

7. Transfer.

(a) NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR THE SHARES OF COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH WARRANTS HAVE BEEN ACQUIRED, AND ANY SHARES OF COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS ARE REQUIRED TO BE ACQUIRED, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH WARRANTS AND/OR SUCH SHARES OR OTHER SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH WARRANTS AND SUCH SHARES OR OTHER SECURITIES TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT AND SUCH STATE SECURITIES LAWS.

(b) In the event of a transfer of any Warrants in accordance with this section 7, the Company shall, upon the surrender of this Warrant Certificate with the Assignment Form completed, dated and signed, execute and deliver to the transferee a new warrant certificate, substantially in form to this Warrant Certificate, evidencing the number of Warrants so transferred to such transferee and naming the transferee as the Warrantholder.

8. Exchange of Warrant Certificates. This Warrant Certificate may be exchanged for another certificate or certificates entitling the Warrantholder thereof to purchase a like aggregate number of Warrant Shares as this Warrant Certificate entitles such Warrantholder to purchase. A Warrantholder desiring to so exchange this Warrant Certificate shall make such request in writing delivered to the Company, and shall surrender this Warrant Certificate therewith. Thereupon, the Company shall execute and deliver to the person entitled thereto a new certificate or certificates, as the case may be, as so requested.

9. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given when delivered in person, against written receipt therefor, or two days after being sent, by registered or certified mail, postage prepaid, return receipt requested, and, if to the Warrantholder, at such address as is shown on the Warrant Register or as may otherwise may have been furnished to the Company in writing in accordance with this section 9 by the Warrantholder and, if to the Company, at the Company Offices or such other address as the Company shall give notice thereof to the Warrantholder in accordance with this section 9.

10. Registration Rights.

(a) Defined Terms. As used in this section 10, terms defined elsewhere herein shall have their assigned meanings and each of the following terms shall have the following meanings (such definitions to be applicable to both the plural and singular of the terms defined):

(i) Registerable Securities. The term “Registerable Securities” shall mean any of the Warrant Shares or other securities issuable upon exercise of any of the 1,500,000 Warrants originally issued to Barry M. Brookstein (the “Original Holder”) as of June 30, 2011 and represented, in whole or part, by this Warrant Certificate. For the purposes of this section 10, securities will cease to be Registerable Securities when:

(A) a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), covering such Registerable Securities has been declared effective and (1) such Registerable Securities have been disposed of pursuant to such effective registration statement or (2) such registration statement has remained effective for 270 consecutive days, or

(B) such Registerable Securities are distributed to the public pursuant to the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act, including, without limitation, Rules 144 and 144A promulgated under the Securities Act and the Company has delivered new certificates or other evidences of ownership for such securities which are not subject to any stop transfer order or other restriction on transfer;

(ii) Rightsholders. The term “Rightsholders” shall include the Warrantholder, all successors and assigns of the Warrantholders and all transferees of Registerable Securities (and/or Warrants exercisable for Warrant Shares) where such transfer affirmatively includes the transfer and assignment of the rights of the transferor-Warrantholder under this Warrant Certificate with respect to the transferred Registerable Securities and such transferee agrees in writing to assume all of the transferor-Warrantholder’s agreements, obligations and liabilities under this section 10 with respect to the transferred Registerable Securities; and

(iii) Interpretations of Terms. The words “hereof,” “herein” and “hereunder” and words of similar import when used in this section 10 shall refer to this section 10 as a whole and not to any particular provision of this section 10, and subsection, paragraph, clause, schedule and exhibit references are to this section 10 unless otherwise specified.

(b) Piggy-Back Registration.

(i) Piggy-Back Registration Rights. If, at any time on or prior to the first anniversary of the Expiration Time, the Company (or any successor of the Company, by merger or otherwise) proposes to file a registration statement under the Securities Act with respect to an offering by the Company or any other party of any class of equity security similar to any Registerable Securities (other than a registration statement on Form S-4 or S-8 or any successor form or a registration statement filed solely in connection with an exchange offer, a business combination transaction or an offering of securities solely to the existing shareholders or employees of the Company), then the Company, on each such occasion, shall give written notice (each, a “Company Piggy-Back Notice”) of such proposed filing to all of the Rightsholders owning Registerable Securities at least twenty days before the anticipated filing date of such registration statement, and such Company Piggy-Back Notice also shall be required to offer to such Rightsholders the opportunity to register such aggregate number of Registerable Securities as each such Rightsholder may request. Each such Rightsholder shall have the right, exercisable for the fifteen days immediately following the giving of a Company Piggy-Back Notice, to request, by written notice (each, a “Holder Notice”) to the Company, the inclusion of all or any portion of the Registerable Securities of such Rightsholders in such registration statement. The Company shall use commercially best efforts to cause the managing underwriter(s) of a proposed underwritten offering to permit the inclusion of the Registerable Securities which were the subject of all Holder Notices in such underwritten offering on the same terms and conditions as any similar securities of the Company included therein. Notwithstanding anything to the contrary contained in this subparagraph 10(b)(i), if the managing underwriter(s) of such underwritten offering or any proposed underwritten offering delivers a written opinion to the Rightsholders of Registerable Securities which were the subject of all Holder Notices that the total amount and kind of securities which they, the Company and any other person intend to include in such offering is such as to materially and adversely affect the success of such offering, then the amount of securities to be offered for the accounts of such Rightsholders and persons other than the Company shall be eliminated or reduced pro rata (based on the amount of securities owned by such Rightsholders and other persons which carry registration rights) to the extent necessary to reduce the total amount of securities to be included in such offering to the amount recommended by such managing underwriter(s) in the managing underwriter’s written opinion.

(ii) Number of Piggy-Back Registrations; Expenses. The Rightsholders shall be entitled, in the aggregate, to two Piggy-Back Registrations. Subject to the provisions of paragraph 10(d) of this Warrant Certificate, the Company will pay all Registration Expenses in connection with any registration of Registerable Securities effected pursuant to this paragraph 10(b), but the Company shall not be responsible for the payment of any underwriter’s discount, commission or selling concession in connection therewith.

(iii) Withdrawal or Suspension of Registration Statement. The Company shall have the absolute right, whether before or after the giving of a Company Piggy-Back Notice or Holder Notice, to determine not to file a registration statement to which the Rightsholders shall have the right to include their Registerable Securities therein pursuant to this paragraph 10(b), to withdraw such registration statement or to delay or suspend pursuing the effectiveness of such registration statement. In the event of such a determination after the giving of a Company Piggy-Back Notice, the Company shall give notice of such determination to all Rightsholders and, thereupon, (A) in the case of a determination not to register or to withdraw such registration statement, the Company shall be relieved of its obligation under this paragraph 10(b) to register any of the Registerable Securities in connection with such registration and (B) in the case of a determination to delay the registration, the Company shall be permitted to delay or suspend the registration of Registerable Securities pursuant to this paragraph 10(b) for the same period as the delay in the registration of such other securities. No registration effected under this paragraph 10(b) shall relieve the Company of its obligation to effect any registration upon demand otherwise granted to a Rightsholder under any other agreement with the Company.

(i) Obligations of the Company. The Company will, in connection with any registration pursuant to paragraph 10(b) of this Warrant Certificate, as expeditiously as possible:

(A) prepare and file with the Commission a registration statement under the Securities Act on any appropriate form chosen by the Company, in the Company’s sole discretion, which shall be available for the sale of all Registerable Securities in accordance with the intended method(s) of distribution thereof set forth in all applicable Holder Notices, and use the Company’s commercially best efforts to cause such registration statement to become effective as soon thereafter as reasonably practicable but in no event more than 100 days after receipt of such notices or requests; provided, that, at least five business days before filing with the Commission of such registration statement, the Company shall furnish to each Rightsholder whose Registerable Securities are included therein draft copies of such registration statement, including all exhibits thereto and documents incorporated by reference therein, and, upon the reasonable request of any such Rightsholder, shall continue to provide drafts of such registration statement until filed, and, after such filing, the Company shall, as diligently as practicable, provide to each such Rightsholders such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus), all exhibits thereto and documents incorporated by reference therein and such other documents as such Rightsholder may reasonably request in order to facilitate the disposition of the Registerable Securities owned by such Rightsholder and included in such registration statement; provided, further, the Company shall modify or amend the registration statement as it relates to such Rightsholder as reasonably requested by such Rightsholder on a timely basis, and shall reasonably consider other changes to the registration statement (but not including any exhibit or document incorporated therein by reference) reasonably requested by such Rightsholder on a timely basis, in light of the requirements of the Securities Act and any other applicable laws and regulations; and provided, further, that the obligation of the Company to effect such registration and/or cause such registration statement to become effective, may be postponed for (1) such period of time when the financial statements of the Company required to be included in such registration statement are not available (due solely to the fact that such financial statements have not been prepared in the regular course of business of the Company) or (2) any other bona fide corporate purpose, but then only for a period not to exceed 60 calendar days;

(B) prepare and file with the Commission such amendments and post-effective amendments to a registration statement as may be necessary to keep such registration statement effective for up to nine months; and cause the related prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed to the extent required pursuant to Rule 424 promulgated under the Securities Act, during such nine-month period; and otherwise comply with the provisions of the Securities Act with respect to the disposition of all Registerable Securities covered by such registration statement during the applicable period in accordance with the intended method(s) of disposition of such Registerable Securities set forth in such registration statement, prospectus or supplement to such prospectus;

(C) notify the Rightsholders whose Registerable Securities are included in such registration statement and the managing underwriter(s), if any, of an underwritten offering of any of the Registerable Securities included in such registration statement, and confirm such advice in writing, (1) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to a registration statement or any post-effective amendment, when the same has become effective, (2) of any request by the Commission for amendments or supplements to a registration statement or related prospectus or for additional information, (3) of the issuance by the Commission of any stop order suspending the effectiveness of a registration statement or the initiation of any proceedings for that purpose, (4) if at any time the representations and warranties of the Company contemplated by subclause (J)(1) of subparagraph 10(c)(i) of this Warrant Certificate cease to be true and correct, (5) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the Registerable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (6) of the happening of any event which makes any statement made in the registration statement, the prospectus or any document incorporated therein by reference untrue or which requires the making of any changes in the registration statement or prospectus so that such registration statement, prospectus or document incorporated by reference will not contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading;

(D) make commercially best efforts to obtain the withdrawal of any order suspending the effectiveness of such registration statement at the earliest possible moment and to prevent the entry of such an order;

(E) use commercially best efforts to register or qualify the Registerable Securities included in such registration statement under such other securities or blue sky laws of such jurisdictions as any Rightsholder whose Registerable Securities are included in such registration statement reasonably requests in writing and do any and all other acts and things which may be necessary or advisable to enable such Rightsholder to consummate the disposition in such jurisdictions of such Registerable Securities; provided, that the Company will not be required to (1) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this clause (E), (2) subject itself to taxation in any such jurisdiction or (3) take any action which would subject it to general service of process in any such jurisdiction;

(F) make available for inspection by each Rightsholder whose Registerable Securities are included in such registration, any underwriter(s) participating in any disposition pursuant to such registration statement, and any representative, agent or employee of or attorney or accountant retained by any such Rightsholder or underwriter(s) (collectively, the “Inspectors”), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the “Records”) as shall be reasonably necessary to enable them to exercise their due diligence responsibility (or establish a due diligence defense), and cause the officers, directors and employees of the Company to supply all information reasonably requested by any of the Inspectors in connection with such registration statement; provided, that records which the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors, unless (1) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or (2) the disclosure of such Records is required by any applicable law or regulation or any governmental regulatory body with jurisdiction over such Rightsholder or underwriter; provided, further, that such Rightsholder or underwriter(s) agree that such Rightsholder or underwriter(s) will, upon learning the disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at the Company’s expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential;

(G) cooperate with the Rightsholders whose Registerable Securities are included in such registration statement and the managing underwriter(s), if any, to facilitate the timely preparation and delivery of certificates representing Registerable Securities to be sold thereunder, not bearing any restrictive legends, and enable such Registerable Securities to be in such denominations and registered in such names as such Rightsholder or any managing underwriter(s) may reasonably request at least two business days prior to any sale of Registerable Securities;

(H) comply with all applicable rules and regulations of the Commission and promptly make generally available to its security holders an earnings statement covering a period of twelve months commencing, (1) in an underwritten offering, at the end of any fiscal quarter in which Registerable Securities are sold to underwriter(s), or (2) in a non-underwritten offering, with the first month of the Company’s first fiscal quarter beginning after the effective date of such registration statement, which earnings statement in each case shall satisfy the provisions of Section 10(a) of the Securities Act;

(I) provide a CUSIP number for all Registerable Securities not later than the effective date of the registration statement relating to the first public offering of Registerable Securities of the Company pursuant hereto;

(J) enter into such customary agreements (including an underwriting agreement in customary form) and take all such other actions reasonably requested by the Rightsholders holding a majority of the Registerable Securities included in such registration statement or the managing underwriter(s) in order to expedite and facilitate the disposition of such Registerable Securities and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration, (1) make such representations and warranties, if any, to the holders of such Registerable Securities and any underwriter(s) with respect to the registration statement, prospectus and documents incorporated by reference, if any, in form, substance and scope as are customarily made by issuers to underwriter(s) in underwritten offerings and confirm the same if and when requested, (2) obtain opinions of counsel to the Company and updates thereof addressed to each such Rightsholder and the underwriter(s), if any, with respect to the registration statement, prospectus and documents incorporated by reference, if any, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Rightsholders and underwriter(s), (3) obtain a “cold comfort” letter and updates thereof from the Company’s independent certified public accountants addressed to such Rightsholders and to the underwriter(s), if any, which letters shall be in customary form and cover matters of the type customarily covered in “cold comfort” letters by accountants in connection with underwritten offerings, and (4) deliver such documents and certificates as may be reasonably requested by the Rightsholders holding a majority of such Registerable Securities and managing underwriter(s), if any, to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company; each such action required by this clause (J) shall be done at each closing under such underwriting or similar agreement or as and to the extent required thereunder; and

(K) if requested by the holders of a majority of the Registerable Securities included in such registration statement, use its best efforts to cause all Registerable Securities which are included in such registration statement to be listed, subject to notice of issuance, by the date of the first sale of such Registerable Securities pursuant to such registration statement, on each securities exchange, if any, on which securities similar to the Registered Securities are listed.

(ii) Obligations of Rightsholders. In connection with any registration of Registerable Securities of a Rightsholder pursuant to paragraph 10(b) of this Warrant Certificate:

(A) The Company may require that each Rightsholder whose Registerable Securities are included in such registration statement furnish to the Company such information regarding the distribution of such Registerable Securities and such Rightsholder as the Company may from time to time reasonably request in writing;

(B) Each Rightsholder, upon receipt of any notice from the Company of the happening of any event of the kind described in subclauses (2), (3), (5) and (6) of clause 10(c)(i)(C) of this Warrant Certificate, shall forthwith discontinue disposition of Registerable Securities pursuant to the registration statement covering such Registerable Securities until such Rightsholder’s receipt of the copies of the supplemented or amended prospectus contemplated by subclause (1) of said clause 10(c)(i)(C), or until such Rightsholder is advised in writing (the “Advice”) by the Company that the use of the applicable prospectus may be resumed, and until such Rightsholder has received copies of any additional or supplemental filings which are incorporated by reference in or to be attached to or included with such prospectus, and, if so directed by the Company, such Rightsholder will deliver to the Company (at the expense of the Company) all copies, other than permanent file copies then in the possession of such Rightsholder, of the current prospectus covering such Registerable Securities at the time of receipt of such notice; the Company shall have the right to demand that such Rightsholder or other holder verify its agreement to the provisions of this clause (B) in any Holder Notice of the Rightsholder or in a separate document executed by the Rightsholder; and

(C) Each Rightsholder agrees that in an underwritten offering it will not, without the consent of the managing underwriter, dispose of or offer any securities of the Company for the period of restrictions on the sale or disposal of securities of the Company imposed, or consented to, by any principal shareholder of the Company.

(d) Registration Expenses. All expenses incident to the performance of or compliance with this Warrant Certificate by the Company, including, without imitation, all registration and filing fees of the Commission, Financial Industry Regulatory Authority and other appropriate agencies, whether public, quasi-public or private, fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Registerable Securities), rating agency fees, printing expenses, messenger and delivery expenses, internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the fees and expenses incurred in connection with the listing, if any, of the Registerable Securities on any securities exchange and fees and disbursements of counsel for the Company and the Company’s independent certified public accountants (including the expenses of any special audit or “cold comfort” letters required by or incidental to such performance), Securities Act or other liability insurance (if the Company elects to obtain such insurance), the fees and expenses of any special experts retained by the Company in connection with such registration and the fees and expenses of any other person retained by the Company (but not including any underwriting discounts or commissions attributable to the sale of Registerable Securities or other out-of-pocket expenses of the Rightsholders, or the agents who act on their behalf, unless reimbursement is specifically approved by the Company) will be borne by the Company. All such expenses are herein referred to as “Registration Expenses.”

(e) Indemnification: Contribution.

(i) Indemnification by the Company. The Company agrees to indemnify and hold harmless, to the full extent permitted by law, each Rightsholder, its officers and directors and each person who controls such Rightsholder (within the meaning of the Securities Act), if any, and any agent thereof against all losses, claims, damages, liabilities and expenses incurred by such party pursuant to any actual or threatened suit, action, proceeding or investigation (including reasonable attorney’s fees and expenses of investigation) arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus or preliminary prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading, except insofar as the same arise out of or are based upon, any such untrue statement or omission based upon information with respect to such Rightsholder furnished in writing to the Company by such Rightsholder expressly for use therein.

(ii) Indemnification by Rightsholder. In connection with any registration statement in which a Rightsholder is participating, each such Rightsholder will be required to furnish to the Company in writing such information with respect to such Rightsholder as the Company reasonably requests for use in connection with any such registration statement or prospectus, and each Rightsholder agrees to the extent it is such a holder of Registerable Securities included in such registration statement, and each other such holder of Registerable Securities included in such Registration Statement will be required to agree, to indemnify, to the full extent permitted by law, the Company, the directors and officers of the Company and each person who controls the Company (within the meaning of the Securities Act) and any agent thereof, against any losses, claims, damages, liabilities and expenses (including reasonable attorney’s fees and expenses of investigation incurred by such party pursuant to any actual or threatened suit, action, proceeding or investigation arising out of or based upon any untrue or alleged untrue statement of a material fact or any omission or alleged omission of a material fact necessary, to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they are made) not misleading, to the extent, but only to the extent, that such untrue statement or omission is based upon information relating to such Rightsholder or other holder furnished in writing to the Company expressly for use therein.

(iii) Conduct of Indemnification Proceedings. Promptly after receipt by an indemnified party under this paragraph 10(e) of written notice of the commencement of any action, proceeding, suit or investigation or threat thereof made in writing for which such indemnified party may claim indemnification or contribution pursuant to this Warrant Certificate, such indemnified party shall notify in writing the indemnifying party of such commencement or threat; but the omission so to notify the indemnifying party shall not relieve the indemnifying party from any liability which the indemnifying party may have to any indemnified party (A) hereunder, unless the indemnifying party is actually prejudiced thereby, or (B) otherwise than under this paragraph 10(e). In case any such action, suit or proceeding shall be brought against any indemnified party, and the indemnified party shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and the indemnifying party shall assume the defense thereof, with counsel reasonably satisfactory to the indemnified party, and the obligation to pay all expenses relating thereto. The indemnified party shall have the right to employ separate counsel in any such action, suit or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (A) the indemnifying party has agreed to pay such fees and expenses, (B) the indemnifying party shall have failed to assume the defense of such action, suit or proceeding or to employ counsel reasonably satisfactory to the indemnified party therein or to pay all expenses relating thereto or (C) the named parties to any such action or proceeding (including any impleaded parties) include both the indemnified party and the indemnifying party and the indemnified party shall have been advised by counsel that there may be one or more legal defenses available to the indemnified party which are different from or additional to those available to the indemnifying party and which may result in a conflict between the indemnifying party and such indemnified party (in which case, if the indemnified party notifies the indemnifying party in writing that the indemnified party elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action or proceeding on behalf of the indemnified party; it being understood, however, that the indemnifying party shall not, in connection with any one such action, suit or proceeding or separate but substantially similar or related actions, suits or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys at any time for the indemnified party, which firm shall be designated in writing by the indemnified party).

(iv) Contribution.

(A) If the indemnification provided for in this paragraph 10(e) from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (A) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other or (B) if the allocation provided by clause (A) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other but also the relative fault of the indemnifying party and indemnified party, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and the indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitation set forth in subparagraph 10(e)(v) of this Warrant Certificate, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding.

(B) The parties hereto agree that it would not be just and equitable if contribution pursuant to this subparagraph 10(e)(iv) were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in clauses (A) and (B) of the immediately preceding paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section 10(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

(v) Limitation. Anything to the contrary contained in this paragraph 10(e) or in paragraph 10(f) of this Warrant Certificate notwithstanding, no holder of Registerable Securities shall be liable for indemnification and contribution payments aggregating an amount in excess of the maximum dollar amount of the net proceeds received by such holder in connection with any sale of Registerable Securities as contemplated herein.

(f) Participation in Underwritten Registration. No Rightsholder may participate in any underwritten registration hereunder unless such Rightsholder (i) agrees to sell such holder’s securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and to comply with Regulation M under the Exchange Act and (ii) completes and executes all questionnaires, appropriate and limited powers of attorney, escrow agreements, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangement; provided, that all such documents shall be consistent with the provisions of paragraph 10(e) of this Warrant Certificate.

11. Miscellaneous. This Warrant Certificate and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant Certificate is deemed to have been delivered in the State of New York and shall be construed and enforced in accordance with and governed by the laws of such State. The headings in this Warrant Certificate are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof.

12. Expiration. Unless as hereinafter provided, the right to exercise the Warrants shall expire at the Expiration Time.

13. No Rights as Shareholder; Notice to Warrantholder.

(a) Nothing contained in this Warrant Certificate shall be constructed as conferring upon the Warrantholder the right to vote or to receive distributions or to consent to or receive notice as a shareholder in respect of any meeting of shareholders for the election of directors of the Company or any other matter, or any other rights whatsoever as shareholder of the Company.

(b) The Company shall give notice to the Warrantholder by postage-paid, certified mail, return receipt requested, if, at any time prior to the Expiration Time, any of the following events shall occur:

(i) the Company shall authorize the payment of any distributions upon Common Stock payable in any securities or authorize the making of any distribution (other than a cash distribution subject to the second parenthetical set forth in section 3(c) of this Warrant Certificate) to all holders of Common Stock;

(ii) the Company shall authorize the issuance to all holders of Common Stock of any additional shares of Common Stock or of rights, options or warrants to subscribe for or purchase Common Stock or of any other subscription rights, options or warrants;

(iii) a dissolution, liquidation or winding up of the Company (including, without limitation, a consolidation, merger, or sale or conveyance of the property of the Company as an entirety or substantially as an entirety); or

(iv) a capital reorganization or reclassification of the Common Stock (other than a subdivision or combination of the outstanding Common Stock) or any consolidation or merger of the Company with or into another corporation (excluding any consolidation or merger in which the Company is the continuing company and that does not result in any reclassification of, or change to, the Common Stock then outstanding) or in the case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety.

Such giving of notice shall be given (x) at least twenty business days (a day other than a Saturday, Sunday or other day on which banks in the State of New York are authorized by law to remain closed) prior to the date fixed as a record date or effective date or the date of closing of the Company’s transfer books for the determination of the holders entitled to such distribution or subscription rights, or for the determination of the holders entitled to vote on such proposed merger, consolidation, sale, conveyance, dissolution, liquidation, winding up or conversion to corporate or other form. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. In addition, the Company shall provide to Warrantholder, at the same time such notice is provided, such information relating to such distribution or subscriptions rights, or proposed merger, consolidation, sale, conveyance, dissolution, liquidation, winding up or conversion to corporate or other form as may be reasonably necessary for Warrantholder to make an informed decision whether to exercise Warrantholder’s rights as evidenced by this Warrant Certificate.

14. Severability. If any term or other provision of this Warrant Certificate is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Warrant Certificate shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either the Company or Warrantholder. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Company and Warrantholder shall negotiate in good faith to modify this Warrant Certificate so as to effect the original intent of the Company and the Original Holder in connection with the issuance of the Warrants, to the greatest extent possible. Any provision of this Warrant Certificate held invalid or unenforceable only in part, degree or in certain jurisdictions will remain in full force and effect to the extent not held invalid or unenforceable.

IN WITNESS WHEREOF, Compliance Systems Corporation has caused this Warrant Certificate to be executed by its officer thereunto duly authorized.

Dated: As of March 31, 2012	Compliance Systems Corporation

	By:
		Barry M. Brookstein
		Chief Financial Officer

EXERCISE FORM

TO: Compliance Systems Corporation

The undersigned hereby irrevocably elects to exercise its warrant exercise rights evidenced by this Warrant Certificate to the extent of purchasing _______________ shares of the common stock, par value $0.001 per share, of Compliance Systems Corporation and hereby makes payment of the aggregate Purchase Price therefor as follows:

CHOOSE AND COMPLETE ONE:

Tendering, contemporaneous with the delivery of this Warrant Certificate, the amount of $_____________ in the form of (a) cash or (b) bank cashier’s or certified check payable to the order of “Compliance Systems Corporation”

Surrendering _________ Warrants evidenced by this Warrant Certificate in accordance with paragraph 1(c) of this Warrant Certificate.

INSTRUCTIONS FOR REGISTRATION OF STOCK

(Please type or print in block letters)

Name:

Taxpayer Identification Number:

Address:





Signature:
	(Signature must conform in all respects to the name of the Warrantholder
	as set forth on the face of this Warrant Certificate.)

Date:

ASSIGNMENT FORM

(Please type or print in block letters)

FOR VALUE RECEIVED, ________________________________________________________

hereby sells, assigns and transfers unto:

Name:
Taxpayer
Identification
Number:

Address:

this Warrant Certificate and the Warrants represented by this Warrant Certificate to the extent of ________________ Warrants and does hereby irrevocably constitute and appoint ___________________________ Attorney-in-Fact, to transfer the same on the books of the Company with full power of substitution in the premises.

Dated:

Signature:
	(Signature must conform in all respects to the name of the
	Warrantholder as set forth on the face of this Warrant Certificate.)

EX-10.6 3 v313040_ex10-6.htm EXHIBIT 10.6

VOID AFTER 5:00 P.M. ON MARCH 30, 2017

COMPLIANCE SYSTEMS CORPORATION

COMMON STOCK PURCHASE WARRANT CERTIFICATE

150,000 Common Stock Purchase Warrants

	Huntington, New York
Warrant Certificate Number: 2011C-029	As of March 31, 2012

The rights of the registered holder of this Warrant Certificate shall be subject to the following further terms and conditions:

1. Exercise of Warrants.

(b) For purposes of this Warrant Certificate, the term “Commencement Date” shall mean September 30, 2011.

X =	Y(A-B)
	A
where:	X =	the number of shares of Common Stock to be issued to Warrantholder upon exercise pursuant to this paragraph 1(c);
	Y =	the number of shares of Common Stock issuable upon exercise of the Warrants so surrender, without giving effect to this paragraph 1(c);
	A =	the per share Current Market Price (as such term is defined in paragraph 3(e)) on the date of delivery to the Company at the Company Offices of this Warrant Certificate and completed Exercise Form; and
	B =	the Purchase Price in effect on the date of delivery to the Company at the Company Offices of this Warrant Certificate and completed Exercise Form.

2. Issuance of Common Stock; Reservation of Warrant Shares. The Company covenants and agrees that:

(a) Stock Dividends, Subdivisions and Combinations. In case the Company shall at any time on or before the Expiration Time:

(i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock or such other stock to holders of all its outstanding shares of Common Stock;

(ii) subdivide, reclassify or recapitalize the outstanding shares of Common Stock into a greater number of shares;

(iii) combine, reclassify or recapitalize the outstanding shares of Common Stock into a smaller number of shares of Common Stock; or

4. Definition of Common Stock. The Common Stock issuable upon exercise of the Warrants shall be the Common Stock as constituted on the Commencement Date, except as otherwise provided in section 3 of this Warrant Certificate.

5. Replacement of Warrant Certificates. If this Warrant Certificate shall be lost, stolen, mutilated or destroyed, the Company shall, on such terms as to indemnity or otherwise as the Company may in the Company’s discretion reasonably impose, issue a new certificate of like tenor or date representing in the aggregate the right to subscribe for and purchase the number of shares of Common Stock which may be subscribed for and purchased hereunder. Any such new certificate shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant Certificate shall be at any time enforceable by anyone.

6. Registration. This Warrant Certificate, as well as all other warrant certificates representing Warrants shall be numbered and shall be registered in a register (the “Warrant Register”) maintained at the Company Offices as they are issued. The Warrant Register shall list the name, address and Social Security or other federal taxpayer identifying number, if any, of all Warrantholders. The Company shall be entitled to treat the Warrantholder as set forth in the Warrant Register as the owner in fact of the Warrants as set forth therein for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrants on the part of any other person, and shall not be liable for any registration of transfer of Warrants that are registered or to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with the actual knowledge that a fiduciary or nominee is committing a breach of trust in requesting such registration of transfer, or with such knowledge of such facts that its participation therein amounts to bad faith.

7. Transfer.

8. Exchange of Warrant Certificates. This Warrant Certificate may be exchanged for another certificate or certificates entitling the Warrantholder thereof to purchase a like aggregate number of Warrant Shares as this Warrant Certificate entitles such Warrantholder to purchase. A Warrantholder desiring to so exchange this Warrant Certificate shall make such request in writing delivered to the Company, and shall surrender this Warrant Certificate therewith. Thereupon, the Company shall execute and deliver to the person entitled thereto a new certificate or certificates, as the case may be, as so requested.

10. Registration Rights.

(i) Registerable Securities. The term “Registerable Securities” shall mean any of the Warrant Shares or other securities issuable upon exercise of any of the 128,600 Warrants originally issued to Barry M. Brookstein (the “Original Holder”) as of June 30, 2011 and represented, in whole or part, by this Warrant Certificate. For the purposes of this section 10, securities will cease to be Registerable Securities when:

(b) Piggy-Back Registration.

(i) Obligations of the Company. The Company will, in connection with any registration pursuant to paragraph 10(b) of this Warrant Certificate, as expeditiously as possible:

(ii) Obligations of Rightsholders. In connection with any registration of Registerable Securities of a Rightsholder pursuant to paragraph 10(b) of this Warrant Certificate:

(e) Indemnification: Contribution.

(iv) Contribution.

12. Expiration. Unless as hereinafter provided, the right to exercise the Warrants shall expire at the Expiration Time.

13. No Rights as Shareholder; Notice to Warrantholder.

IN WITNESS WHEREOF, Compliance Systems Corporation has caused this Warrant Certificate to be executed by its officer thereunto duly authorized.

Dated: As of March 31, 2012	Compliance Systems Corporation

	By:
		Barry M. Brookstein
		Chief Financial Officer

EXERCISE FORM

TO: Compliance Systems Corporation

CHOOSE AND COMPLETE ONE:

Surrendering _________ Warrants evidenced by this Warrant Certificate in accordance with paragraph 1(c) of this Warrant Certificate.

INSTRUCTIONS FOR REGISTRATION OF STOCK

(Please type or print in block letters)

Name:

Taxpayer Identification Number:

Address:





Signature:
		(Signature must conform in all respects to the name of the Warrantholder as set forth on the face of this Warrant Certificate.)

Date:

ASSIGNMENT FORM

(Please type or print in block letters)

FOR VALUE RECEIVED, ___________________________________________________________

hereby sells, assigns and transfers unto:

Name:
Taxpayer
Identification
Number:

Address:

Dated:

Signature:
		(Signature must conform in all respects to the name of the Warrantholder as set forth on the face of this Warrant Certificate.)

EX-10.7 4 v313040_ex10-7.htm EXHIBIT 10.7

VOID AFTER 5:00 P.M. ON MARCH 30, 2017

COMPLIANCE SYSTEMS CORPORATION

COMMON STOCK PURCHASE WARRANT CERTIFICATE

2,250,000 Common Stock Purchase Warrants

	Huntington, New York
Warrant Certificate Number: 2011C-030	As of March 31, 2012

THIS IS TO CERTIFY THAT, for value received, Spirits Management, Inc. (the “Warrantholder”), is the registered owner of the number of common stock purchase warrants (each, a “Warrant”) of Compliance Systems Corporation, a Nevada corporation (the “Company”), set forth above, each Warrant entitling the owner thereof to purchase from the Company, at a purchase price of $0.001 per Warrant (the “Purchase Price”), as adjusted from time to time in accordance with section 3 of this Warrant Certificate, at any time on or after the Commencement Date (as defined in paragraph 1(b) below) and terminating at 5:00 p.m., Huntington, New York time, on March 30, 2017 (the “Expiration Time”), one duly authorized, validly issued, fully paid and non-assessable share (each, a “Warrant Share”) of the common stock, par value $0.001 per share (the “Common Stock”), of the Company, subject to the terms and conditions contained herein. The number of Warrants evidenced by this Warrant Certificate (and the number and kind of securities which may be purchased upon exercise of the Warrants), and the Purchase Price per Warrant Share, each as set forth above, are as of the date hereof. As provided herein, the Purchase Price and the number of shares of Common Stock or other securities which may be purchased upon the exercise of the Warrants evidenced by this Warrant Certificate are, upon the happening of certain events, subject to modification and adjustment.

The rights of the registered holder of this Warrant Certificate shall be subject to the following further terms and conditions:

1. Exercise of Warrants.

(b) For purposes of this Warrant Certificate, the term “Commencement Date” shall mean September 30, 2011.

X = Y(A-B)

where:	X =	the number of shares of Common Stock to be issued to Warrantholder upon exercise pursuant to this paragraph 1(c);
	Y =	the number of shares of Common Stock issuable upon exercise of the Warrants so surrender, without giving effect to this paragraph 1(c);
	A =	the per share Current Market Price (as such term is defined in paragraph 3(e)) on the date of delivery to the Company at the Company Offices of this Warrant Certificate and completed Exercise Form; and
	B =	the Purchase Price in effect on the date of delivery to the Company at the Company Offices of this Warrant Certificate and completed Exercise Form.

2. Issuance of Common Stock; Reservation of Warrant Shares. The Company covenants and agrees that:

(a) Stock Dividends, Subdivisions and Combinations. In case the Company shall at any time on or before the Expiration Time:

(i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock or such other stock to holders of all its outstanding shares of Common Stock;

(ii) subdivide, reclassify or recapitalize the outstanding shares of Common Stock into a greater number of shares;

(iii) combine, reclassify or recapitalize the outstanding shares of Common Stock into a smaller number of shares of Common Stock; or

7. Transfer.

10. Registration Rights.

(i) Registerable Securities. The term “Registerable Securities” shall mean any of the Warrant Shares or other securities issuable upon exercise of any of the 2,250,000 Warrants originally issued to Spirits Management, Inc. (the “Original Holder”) as of June 30, 2011 and represented, in whole or part, by this Warrant Certificate. For the purposes of this section 10, securities will cease to be Registerable Securities when:

(b) Piggy-Back Registration.

(i) Obligations of the Company. The Company will, in connection with any registration pursuant to paragraph 10(b) of this Warrant Certificate, as expeditiously as possible:

(ii) Obligations of Rightsholders. In connection with any registration of Registerable Securities of a Rightsholder pursuant to paragraph 10(b) of this Warrant Certificate:

(e) Indemnification: Contribution.

(iv) Contribution.

12. Expiration. Unless as hereinafter provided, the right to exercise the Warrants shall expire at the Expiration Time.

13. No Rights as Shareholder; Notice to Warrantholder.

IN WITNESS WHEREOF, Compliance Systems Corporation has caused this Warrant Certificate to be executed by its officer thereunto duly authorized.

Dated: As of March 31, 2012	Compliance Systems Corporation

	By:
		Barry M. Brookstein
		Chief Financial Officer

EXERCISE FORM

TO:

Compliance Systems Corporation

CHOOSE AND COMPLETE ONE:

⁭

Surrendering _________ Warrants evidenced by this Warrant Certificate in accordance with paragraph 1(c) of this Warrant Certificate.

INSTRUCTIONS FOR REGISTRATION OF STOCK

(Please type or print in block letters)

Name:

Taxpayer Identification Number:

Address:





Signature:
		(Signature must conform in all respects to the name of the Warrantholder
		as set forth on the face of this Warrant Certificate.)

Date:

ASSIGNMENT FORM

(Please type or print in block letters)

FOR VALUE RECEIVED, ________________________________________________________

hereby sells, assigns and transfers unto:

Name:
Taxpayer
Identification
Number:

Address:

Dated:

Signature:
		(Signature must conform in all respects to the name of the
		Warrantholder as set forth on the face of this Warrant Certificate.)

EX-10.8 5 v313040_ex10-8.htm EXHIBIT 10.8

VOID AFTER 5:00 P.M. ON MARCH 31, 2017

COMPLIANCE SYSTEMS CORPORATION

COMMON STOCK PURCHASE WARRANT CERTIFICATE

6,000,000 Common Stock Purchase Warrants

	Huntington, New York
Warrant Certificate Number: 2011C-031	As of April 1, 2012

THIS IS TO CERTIFY THAT, for value received, Barry M. Brookstein (the “Warrantholder”), is the registered owner of the number of common stock purchase warrants (each, a “Warrant”) of Compliance Systems Corporation, a Nevada corporation (the “Company”), set forth above, each Warrant entitling the owner thereof to purchase from the Company, at a purchase price of $0.001 per Warrant (the “Purchase Price”), as adjusted from time to time in accordance with section 3 of this Warrant Certificate, at any time on or after the Commencement Date (as defined in paragraph 1(b) below) and terminating at 5:00 p.m., Huntington, New York time, on March 31, 2017 (the “Expiration Time”), one duly authorized, validly issued, fully paid and non-assessable share (each, a “Warrant Share”) of the common stock, par value $0.001 per share (the “Common Stock”), of the Company, subject to the terms and conditions contained herein. The number of Warrants evidenced by this Warrant Certificate (and the number and kind of securities which may be purchased upon exercise of the Warrants), and the Purchase Price per Warrant Share, each as set forth above, are as of the date hereof. As provided herein, the Purchase Price and the number of shares of Common Stock or other securities which may be purchased upon the exercise of the Warrants evidenced by this Warrant Certificate are, upon the happening of certain events, subject to modification and adjustment.

The rights of the registered holder of this Warrant Certificate shall be subject to the following further terms and conditions:

1. Exercise of Warrants.

(b) For purposes of this Warrant Certificate, the term “Commencement Date” shall mean October 1, 2011.

X = Y(A-B)

where:

X =

the number of shares of Common Stock to be issued to Warrantholder upon exercise pursuant to this paragraph 1(c);

	Y =	the number of shares of Common Stock issuable upon exercise of the Warrants so surrender, without giving effect to this paragraph 1(c);
	A =	the per share Current Market Price (as such term is defined in paragraph 3(e)) on the date of delivery to the Company at the Company Offices of this Warrant Certificate and completed Exercise Form; and
	B =	the Purchase Price in effect on the date of delivery to the Company at the Company Offices of this Warrant Certificate and completed Exercise Form.

2. Issuance of Common Stock; Reservation of Warrant Shares. The Company covenants and agrees that:

(a) Stock Dividends, Subdivisions and Combinations. In case the Company shall at any time on or before the Expiration Time:

(i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock or such other stock to holders of all its outstanding shares of Common Stock;

(ii) subdivide, reclassify or recapitalize the outstanding shares of Common Stock into a greater number of shares;

(iii) combine, reclassify or recapitalize the outstanding shares of Common Stock into a smaller number of shares of Common Stock; or

7. Transfer.

10. Registration Rights.

(i) Registerable Securities. The term “Registerable Securities” shall mean any of the Warrant Shares or other securities issuable upon exercise of any of the 6,000,000 Warrants originally issued to Barry M. Brookstein (the “Original Holder”) as of July 1, 2011 and represented, in whole or part, by this Warrant Certificate. For the purposes of this section 10, securities will cease to be Registerable Securities when:

(b) Piggy-Back Registration.

(i) Obligations of the Company. The Company will, in connection with any registration pursuant to paragraph 10(b) of this Warrant Certificate, as expeditiously as possible:

(ii) Obligations of Rightsholders. In connection with any registration of Registerable Securities of a Rightsholder pursuant to paragraph 10(b) of this Warrant Certificate:

(e) Indemnification: Contribution.

(iv) Contribution.

12. Expiration. Unless as hereinafter provided, the right to exercise the Warrants shall expire at the Expiration Time.

13. No Rights as Shareholder; Notice to Warrantholder.

IN WITNESS WHEREOF, Compliance Systems Corporation has caused this Warrant Certificate to be executed by its officer thereunto duly authorized.

Dated: As of April 1, 2012	Compliance Systems Corporation

	By:
		Barry M. Brookstein
		Chief Financial Officer

EXERCISE FORM

TO: Compliance Systems Corporation

CHOOSE AND COMPLETE ONE:

Surrendering _________ Warrants evidenced by this Warrant Certificate in accordance with paragraph 1(c) of this Warrant Certificate.

INSTRUCTIONS FOR REGISTRATION OF STOCK

(Please type or print in block letters)

Name:

Taxpayer Identification Number:

Address:





Signature:
		(Signature must conform in all respects to the name of the Warrantholder
		as set forth on the face of this Warrant Certificate.)

Date:

ASSIGNMENT FORM

(Please type or print in block letters)

FOR VALUE RECEIVED, ________________________________________________________

hereby sells, assigns and transfers unto:

Name:
Taxpayer
Identification
Number:

Address:

Dated:

Signature:
		(Signature must conform in all respects to the name of the
		Warrantholder as set forth on the face of this Warrant Certificate.)

EX-10.9 6 v313040_ex10-9.htm EXHIBIT 10.9

VOID AFTER 5:00 P.M. ON MARCH 31, 2017

COMPLIANCE SYSTEMS CORPORATION

COMMON STOCK PURCHASE WARRANT CERTIFICATE

225,000 Common Stock Purchase Warrants

	Huntington, New York
Warrant Certificate Number: 2011C-032	As of April 1, 2012

THIS IS TO CERTIFY THAT, for value received, Barry M. Brookstein (the “Warrantholder”), is the registered owner of the number of common stock purchase warrants (each, a “Warrant”) of Compliance Systems Corporation, a Nevada corporation (the “Company”), set forth above, each Warrant entitling the owner thereof to purchase from the Company, at a purchase price of $0.001 per Warrant (the “Purchase Price”), as adjusted from time to time in accordance with section 3 of this Warrant Certificate, at any time on or after the Commencement Date (as defined in paragraph 1(b) below) and terminating at 5:00 p.m., Huntington, New York time, on March 31, 2017 (the “Expiration Time”), one duly authorized, validly issued, fully paid and non-assessable share (each, a “Warrant Share”) of the common stock, par value $0.001 per share (the “Common Stock”), of the Company, subject to the terms and conditions contained herein. The number of Warrants evidenced by this Warrant Certificate (and the number and kind of securities which may be purchased upon exercise of the Warrants), and the Purchase Price per Warrant Share, each as set forth above, are as of the date hereof. As provided herein, the Purchase Price and the number of shares of Common Stock or other securities which may be purchased upon the exercise of the Warrants evidenced by this Warrant Certificate are, upon the happening of certain events, subject to modification and adjustment.

The rights of the registered holder of this Warrant Certificate shall be subject to the following further terms and conditions:

1. Exercise of Warrants.

(b) For purposes of this Warrant Certificate, the term “Commencement Date” shall mean October 1, 2011.

X =	Y(A-B)
	A
where:	X =	the number of shares of Common Stock to be issued to Warrantholder upon exercise pursuant to this paragraph 1(c);
	Y =	the number of shares of Common Stock issuable upon exercise of the Warrants so surrender, without giving effect to this paragraph 1(c);
	A =	the per share Current Market Price (as such term is defined in paragraph 3(e)) on the date of delivery to the Company at the Company Offices of this Warrant Certificate and completed Exercise Form; and
	B =	the Purchase Price in effect on the date of delivery to the Company at the Company Offices of this Warrant Certificate and completed Exercise Form.

2. Issuance of Common Stock; Reservation of Warrant Shares. The Company covenants and agrees that:

(a) Stock Dividends, Subdivisions and Combinations. In case the Company shall at any time on or before the Expiration Time:

(i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock or such other stock to holders of all its outstanding shares of Common Stock;

(ii) subdivide, reclassify or recapitalize the outstanding shares of Common Stock into a greater number of shares;

(iii) combine, reclassify or recapitalize the outstanding shares of Common Stock into a smaller number of shares of Common Stock; or

7. Transfer.

10. Registration Rights.

(i) Registerable Securities. The term “Registerable Securities” shall mean any of the Warrant Shares or other securities issuable upon exercise of any of the 225,000 Warrants originally issued to Barry M. Brookstein (the “Original Holder”) as of July 1, 2011 and represented, in whole or part, by this Warrant Certificate. For the purposes of this section 10, securities will cease to be Registerable Securities when:

(b) Piggy-Back Registration.

(i) Obligations of the Company. The Company will, in connection with any registration pursuant to paragraph 10(b) of this Warrant Certificate, as expeditiously as possible:

(ii) Obligations of Rightsholders. In connection with any registration of Registerable Securities of a Rightsholder pursuant to paragraph 10(b) of this Warrant Certificate:

(e) Indemnification: Contribution.

(iv) Contribution.

12. Expiration. Unless as hereinafter provided, the right to exercise the Warrants shall expire at the Expiration Time.

13. No Rights as Shareholder; Notice to Warrantholder.

IN WITNESS WHEREOF, Compliance Systems Corporation has caused this Warrant Certificate to be executed by its officer thereunto duly authorized.

Dated: As of April 1, 2012	Compliance Systems Corporation

	By:
		Barry M. Brookstein
		Chief Financial Officer

EXERCISE FORM

TO: Compliance Systems Corporation

CHOOSE AND COMPLETE ONE:

Surrendering _________ Warrants evidenced by this Warrant Certificate in accordance with paragraph 1(c) of this Warrant Certificate.

INSTRUCTIONS FOR REGISTRATION OF STOCK

(Please type or print in block letters)

Name:

Taxpayer Identification Number:

Address:





Signature:
		(Signature must conform in all respects to the name of the Warrantholder as set forth on the face of this Warrant Certificate.)

Date:

ASSIGNMENT FORM

(Please type or print in block letters)

FOR VALUE RECEIVED, ____________________________________________________________

hereby sells, assigns and transfers unto:

Name:
Taxpayer
Identification
Number:

Address:

Dated:

Signature:
		(Signature must conform in all respects to the name of the Warrantholder as set forth on the face of this Warrant Certificate.)

EX-10.10 7 v313040_ex10-10.htm EXHIBIT 10.10

VOID AFTER 5:00 P.M. ON MARCH 31, 2017

COMPLIANCE SYSTEMS CORPORATION

COMMON STOCK PURCHASE WARRANT CERTIFICATE

675,000 Common Stock Purchase Warrants

	Huntington, New York
Warrant Certificate Number: 2011C-033	As of April 1, 2012

THIS IS TO CERTIFY THAT, for value received, Henry A. Ponzio (the “Warrantholder”), is the registered owner of the number of common stock purchase warrants (each, a “Warrant”) of Compliance Systems Corporation, a Nevada corporation (the “Company”), set forth above, each Warrant entitling the owner thereof to purchase from the Company, at a purchase price of $0.001 per Warrant (the “Purchase Price”), as adjusted from time to time in accordance with section 3 of this Warrant Certificate, at any time on or after the Commencement Date (as defined in paragraph 1(b) below) and terminating at 5:00 p.m., Huntington, New York time, on March 31, 2017 (the “Expiration Time”), one duly authorized, validly issued, fully paid and non-assessable share (each, a “Warrant Share”) of the common stock, par value $0.001 per share (the “Common Stock”), of the Company, subject to the terms and conditions contained herein. The number of Warrants evidenced by this Warrant Certificate (and the number and kind of securities which may be purchased upon exercise of the Warrants), and the Purchase Price per Warrant Share, each as set forth above, are as of the date hereof. As provided herein, the Purchase Price and the number of shares of Common Stock or other securities which may be purchased upon the exercise of the Warrants evidenced by this Warrant Certificate are, upon the happening of certain events, subject to modification and adjustment.

The rights of the registered holder of this Warrant Certificate shall be subject to the following further terms and conditions:

1. Exercise of Warrants.

(b) For purposes of this Warrant Certificate, the term “Commencement Date” shall mean October 1, 2011.

X =	Y(A-B)
	A
where:	X =	the number of shares of Common Stock to be issued to Warrantholder upon exercise pursuant to this paragraph 1(c);
	Y =	the number of shares of Common Stock issuable upon exercise of the Warrants so surrender, without giving effect to this paragraph 1(c);
	A =	the per share Current Market Price (as such term is defined in paragraph 3(e)) on the date of delivery to the Company at the Company Offices of this Warrant Certificate and completed Exercise Form; and
	B =	the Purchase Price in effect on the date of delivery to the Company at the Company Offices of this Warrant Certificate and completed Exercise Form.

2. Issuance of Common Stock; Reservation of Warrant Shares. The Company covenants and agrees that:

(a) Stock Dividends, Subdivisions and Combinations. In case the Company shall at any time on or before the Expiration Time:

(i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock or such other stock to holders of all its outstanding shares of Common Stock;

(ii) subdivide, reclassify or recapitalize the outstanding shares of Common Stock into a greater number of shares;

(iii) combine, reclassify or recapitalize the outstanding shares of Common Stock into a smaller number of shares of Common Stock; or

7. Transfer.

10. Registration Rights.

(i) Registerable Securities. The term “Registerable Securities” shall mean any of the Warrant Shares or other securities issuable upon exercise of any of the 675,000 Warrants originally issued to Henry A. Ponzio (the “Original Holder”) as of July 1, 2011 and represented, in whole or part, by this Warrant Certificate. For the purposes of this section 10, securities will cease to be Registerable Securities when:

(b) Piggy-Back Registration.

(i) Obligations of the Company. The Company will, in connection with any registration pursuant to paragraph 10(b) of this Warrant Certificate, as expeditiously as possible:

(ii) Obligations of Rightsholders. In connection with any registration of Registerable Securities of a Rightsholder pursuant to paragraph 10(b) of this Warrant Certificate:

(e) Indemnification: Contribution.

(iv) Contribution.

12. Expiration. Unless as hereinafter provided, the right to exercise the Warrants shall expire at the Expiration Time.

13. No Rights as Shareholder; Notice to Warrantholder.

IN WITNESS WHEREOF, Compliance Systems Corporation has caused this Warrant Certificate to be executed by its officer thereunto duly authorized.

Dated: As of April 1, 2012	Compliance Systems Corporation

	By:
		Barry M. Brookstein
		Chief Financial Officer

EXERCISE FORM

TO:

Compliance Systems Corporation

CHOOSE AND COMPLETE ONE:

Surrendering _________ Warrants evidenced by this Warrant Certificate in accordance with paragraph 1(c) of this Warrant Certificate.

INSTRUCTIONS FOR REGISTRATION OF STOCK

(Please type or print in block letters)

Name:

Taxpayer Identification Number:

Address:





Signature:
		(Signature must conform in all respects to the name of the Warrantholder
		as set forth on the face of this Warrant Certificate.)

Date:

ASSIGNMENT FORM

(Please type or print in block letters)

FOR VALUE RECEIVED, ____________________________________________________________

hereby sells, assigns and transfers unto:

Name:
Taxpayer
Identification
Number:

Address:

Dated:

Signature:
		(Signature must conform in all respects to the name of the
		Warrantholder as set forth on the face of this Warrant Certificate.)

EX-10.11 8 v313040_ex10-11.htm EXHIBIT 10.11

VOID AFTER 5:00 P.M. ON MARCH 31, 2017

COMPLIANCE SYSTEMS CORPORATION

COMMON STOCK PURCHASE WARRANT CERTIFICATE

1,050,000 Common Stock Purchase Warrants

	Huntington, New York
Warrant Certificate Number: 2011C-034	As of April 1, 2012

THIS IS TO CERTIFY THAT, for value received, Nascap Corp. (the “Warrantholder”), is the registered owner of the number of common stock purchase warrants (each, a “Warrant”) of Compliance Systems Corporation, a Nevada corporation (the “Company”), set forth above, each Warrant entitling the owner thereof to purchase from the Company, at a purchase price of $0.001 per Warrant (the “Purchase Price”), as adjusted from time to time in accordance with section 3 of this Warrant Certificate, at any time on or after the Commencement Date (as defined in paragraph 1(b) below) and terminating at 5:00 p.m., Huntington, New York time, on March 31, 2017 (the “Expiration Time”), one duly authorized, validly issued, fully paid and non-assessable share (each, a “Warrant Share”) of the common stock, par value $0.001 per share (the “Common Stock”), of the Company, subject to the terms and conditions contained herein. The number of Warrants evidenced by this Warrant Certificate (and the number and kind of securities which may be purchased upon exercise of the Warrants), and the Purchase Price per Warrant Share, each as set forth above, are as of the date hereof. As provided herein, the Purchase Price and the number of shares of Common Stock or other securities which may be purchased upon the exercise of the Warrants evidenced by this Warrant Certificate are, upon the happening of certain events, subject to modification and adjustment.

The rights of the registered holder of this Warrant Certificate shall be subject to the following further terms and conditions:

1. Exercise of Warrants.

(b) For purposes of this Warrant Certificate, the term “Commencement Date” shall mean October 1, 2011.

X =	Y(A-B)
	A
where:	X =	the number of shares of Common Stock to be issued to Warrantholder upon exercise pursuant to this paragraph 1(c);
	Y =	the number of shares of Common Stock issuable upon exercise of the Warrants so surrender, without giving effect to this paragraph 1(c);
	A =	the per share Current Market Price (as such term is defined in paragraph 3(e)) on the date of delivery to the Company at the Company Offices of this Warrant Certificate and completed Exercise Form; and
	B =	the Purchase Price in effect on the date of delivery to the Company at the Company Offices of this Warrant Certificate and completed Exercise Form.

2. Issuance of Common Stock; Reservation of Warrant Shares. The Company covenants and agrees that:

(a) Stock Dividends, Subdivisions and Combinations. In case the Company shall at any time on or before the Expiration Time:

(i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock or such other stock to holders of all its outstanding shares of Common Stock;

(ii) subdivide, reclassify or recapitalize the outstanding shares of Common Stock into a greater number of shares;

(iii) combine, reclassify or recapitalize the outstanding shares of Common Stock into a smaller number of shares of Common Stock; or

7. Transfer.

10. Registration Rights.

(i) Registerable Securities. The term “Registerable Securities” shall mean any of the Warrant Shares or other securities issuable upon exercise of any of the 1,050,000 Warrants originally issued to Nascap Corp. (the “Original Holder”) as of July 1, 2011 and represented, in whole or part, by this Warrant Certificate. For the purposes of this section 10, securities will cease to be Registerable Securities when:

(b) Piggy-Back Registration.

(i) Obligations of the Company. The Company will, in connection with any registration pursuant to paragraph 10(b) of this Warrant Certificate, as expeditiously as possible:

(ii) Obligations of Rightsholders. In connection with any registration of Registerable Securities of a Rightsholder pursuant to paragraph 10(b) of this Warrant Certificate:

(e) Indemnification: Contribution.

(iv) Contribution.

12. Expiration. Unless as hereinafter provided, the right to exercise the Warrants shall expire at the Expiration Time.

13. No Rights as Shareholder; Notice to Warrantholder.

IN WITNESS WHEREOF, Compliance Systems Corporation has caused this Warrant Certificate to be executed by its officer thereunto duly authorized.

Dated: As of April 1, 2012	Compliance Systems Corporation

	By:
		Barry M. Brookstein
		Chief Financial Officer

EXERCISE FORM

TO:

Compliance Systems Corporation

CHOOSE AND COMPLETE ONE:

Surrendering _________ Warrants evidenced by this Warrant Certificate in accordance with paragraph 1(c) of this Warrant Certificate.

INSTRUCTIONS FOR REGISTRATION OF STOCK

(Please type or print in block letters)

Name:

Taxpayer Identification Number:

Address:





Signature:
		(Signature must conform in all respects to the name of the Warrantholder
		as set forth on the face of this Warrant Certificate.)

Date:

ASSIGNMENT FORM

(Please type or print in block letters)

FOR VALUE RECEIVED, ____________________________________________________________

hereby sells, assigns and transfers unto:

Name:
Taxpayer
Identification
Number:

Address:

Dated:

Signature:
		(Signature must conform in all respects to the name of the
		Warrantholder as set forth on the face of this Warrant Certificate.)

EX-10.12 9 v313040_ex10-12.htm EXHIBIT 10.12

EQUITIES AWARENESS GROUP

Financial Marketing Consulting Services

April 4, 2012

This letter agreement (“the agreement”) will confirm our understanding whereby Compliance Systems Corp. herein referred to as (the “Compliance Systems Corp.” or “Client”) has engaged in a contract with Equities Awareness Group, herein referred to as (“EAG” or “Provider”).

1. Term

A.) The Client hereby retains EAG to provide services listed below for a period of 1 month(s) starting on April 11, 2012.

2. Services

A.) The Client is retaining the services of EAG in order to assist in its investor relations efforts for COMPLIANCE SYSTEMS CORP. (COPI) in order to increase the investment community’s awareness of COMPLIANCE SYSTEMS CORP. (COPI).

3. Fees and Expenses

A. The Client is to compensate EAG in the amount of $41,000 cash. The total amount of $6,000 will be due on or before April 6, 2012 for Digital Marketing. The remaining $35,000 will be due on or before April 11, 2012.

B. In addition to the fees payable by the client to EAG pursuant to the terms of this agreement, the client hereby agrees to pay to EAG all reasonable attorney’s fees and disbursements, incurred by EAG in collection of its fees payable pursuant to the terms of this agreement.

4. Indemnification

A. The client understands that EAG cannot undertake to verify the accuracy of

Information that the client (or someone on behalf of the client) provides to EAG, or information included in material that has been prepared by EAG and approved by the client or COMPLIANCE SYSTEMS CORP. (COPI).

B. The client shall protect, defend, indemnify and hold harmless EAG, and it’s officers, directors, employees, shareholders, representatives, attorneys, accountants and agents from and against any and all loses, liabilities, claims, counter claims, damages, deficiencies, judgments, demands, actions, proceedings, costs and expenses (including reasonable attorney’s fees, disbursements and other charges) of every kind and character based upon or arising out of (i) the breach by the client of any representation or covenant of the client contained herein, or (ii) the performance of any services provided under this agreement, or any materials, releases, reports or information that the client(or someone on the client’s behalf) supplies to EAG or prepared by EAG. The client’s agreement to indemnify will survive the expiration or termination of this agreement.

Client Initials: _________ Date: __________ Print Name: ______________________

C. The client hereby represents warrants and agrees that all information that it or

Its employees, officers, directors or affiliates (or any person on the client’s behalf) provides to EAG for dissemination will comply with any and all federal and state securities laws and the rules and regulations of any applicable self regulating securities association and securities exchange. All such information will be true and accurate, will fairly represent the COMPLIANCE SYSTEMS CORP. (COPI) situation and will not contain any misleading information or omit any information which would make the information that was provided materially misleading.

5. Independent Contractor. EAG and the client understand and agree that EAG is an independent contractor and is not authorized to obligate or commit the company in any manner.

6. Entire Agreement. This agreement constitutes the entire agreement between EAG and the client with respect to consulting services. This agreement supersedes all prior agreements or understandings between EAG and the client.

7. Amendments. EAG and the client may amend, supersede or modify this agreement only in writing signed by each of EAG and the client.

8. Governing Law. This agreement will be governed and construed in accordance with the laws of the state of Delaware without regard to any principles of conflicts of law.

9. Counterparts. EAG and the client may execute this agreement in two counterparts, each of which will be considered an original but all of which together will constitute one and the same instrument.

10. No Liability

Equities Awareness Group, LLC is not responsible or liable for any press releases, articles and stories that are published by third party media sources. Any actions done by third parties unattached to EAG are not in correlation with any warranty EAG presents. It is not upon EAG’s duty to be responsible for the actions of third party media sources.

If this agreement correctly describes our understanding, please sign this agreement. A facsimile transmission of this signed agreement shall be legal and binding on all parties hereto. This agreement shall go into affect upon first date written below:

Client Initials: _________ Date: __________ Print Name: ______________________

EQUITIES AWARENESS GROUP:

April 4, 2012

EQUITIES AWARENESS GROUP: (electronic Signature accepted for EAG)

Client Business Name: Compliance Systems Corp.:

Print Name: ____________________ Position: ________________________ Date: __________

Please answer the following questions;

1.	Are you (including you and/or anyone in your immediate household) currently, or have you been within the past 120 days, an Affiliate (officer, director or 10% or greater shareholder) or nominee of Compliance Systems Corp. (COPI)? If so, please provide details.



2.	What role, if any, have you played in capitalizing the Company? Explain:



3.	Do you (including you and/or anyone in your immediate household) currently, or have you within the past 120 days, owned any shares of Compliance Systems Corp. (COPI)? If so, please indicate the class of shares owned (i.e., common or preferred), the date(s) said shares were acquired, the amount paid for said shares, whether the shares are subject to any restrictions, including lock-up agreements and/or restrictive legends. If you sold any shares within the past 120 days, state the date and number of shares sold

Please Send Payment to:

Bank of America Bank Address: 481 River Rd Edgewater, NJ 07020

Account Beneficiary- EQUITIES AWARENESS GROUP

115 River Road, Suite 151 Edgewater, NJ 07020

EX-31.1 10 v313040_ex31-1.htm EXHIBIT 31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

I, Barry M. Brookstein, the principal executive officer and principal financial officer of Compliance Systems Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Compliance Systems Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2012

/s/ Barry M. Brookstein

Barry M. Brookstein
Chief Executive Officer and Chief Financial Officer

EX-32.1 11 v313040_ex32-1.htm EXHIBIT 32.1

Exhibit 32.1

Certification

In connection with the Quarterly Report on Form 10-Q of Compliance Systems Corporation (the “Company”) for the period ended March 31, 2012 (the “Form 10-Q”), I, Barry M. Brookstein, the principal executive officer and principal financial officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that:

(a) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 15, 2012

/s/ Barry M. Brookstein

Barry M. Brookstein
Chief Executive Officer and Chief Financial Officer

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37500 281778997 Q1 COPI COMPLIANCE SYSTEMS CORP false Smaller Reporting Company 2012 10-Q 2012-03-31 0001206133 --12-31

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<div style="font: 10pt Times New Roman, Times, Serif"> <table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse"> <tr style="vertical-align: top"> <td style="width: 7%; font-weight: bold">7.</td> <td style="width: 93%; font-weight: bold">Capital Transactions:</td> </tr> </table>   A.  Issuance of Deferred Salary Warrants –   Brookstein has been deferring all or a portion of his salary since January 1, 2009.   Effective January 1, 2012, Brookstein agreed to continue deferring his full salary.  The amount of such deferred salaries for the three months ended March 31, 2012 totaled $60,000.  As compensation, the Company granted to Brookstein Deferred Salary Warrants to purchase 6 million shares (each a “2012 Deferred Salary Warrant Share”) of Company Common Stock at $0.001 per 2012 Deferred Salary Warrant Share at the rate of 100 Deferred Salary Warrants for each $1 of deferred salary for a term of five years.  The Company valued these issuances utilizing a Black-Scholes option pricing model with the following assumptions:  share price: $0.0003; exercise price: $0.001; expected volatility: 27%; risk-free rate: 2.01%; term: 5 years.   Effective April 1, 2012, Brookstein agreed to continue deferring his full salary.  The amount of such deferred salaries for the three months ending June 30, 2012 will total $60,000.  As compensation, the Company granted to Brookstein 2012 Deferred Salary Warrants to purchase 6 million shares of Company Common Stock at $0.001 per Deferred Salary Warrant Share at the rate of 100 Deferred Salary Warrants for each $1 of deferred salary for a term of five years.   B.  Issuance of Dividend Accrual Warrants – Series B Senior Subordinated Convertible Voting Preferred Stock (the “Series B Preferred Stock”)   The Company has failed to pay dividends on the 1.25 million outstanding shares of its Series B Preferred Stock.  Dividends on the Series B Preferred Stock may only be paid out of funds legally available for such purpose.  Under Nevada law, generally, a corporation’s distribution to stockholders may only be made if, after giving effect to such distribution, (i) the corporation would be able to pay its debts as they become due in the usual course of action and (ii) the corporation’s total assets equal or exceed the sum of the corporation’s liabilities plus the amount that would be needed, if the corporation was to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of stockholders whose rights are superior to those receiving the distribution.   All of the outstanding shares of Series B Preferred Stock are held by Brookstein and Spirits Management, Inc. ("Spirits"), a company wholly-owned by Brookstein. Although the Company has been and currently is unable to pay the Series B Preferred Stock dividends when due, the dividends have been and are continuing to be accrued until such time as the monthly dividends can lawfully be paid under Nevada law.   The Company deferred dividends totaling $37,500 for the three months ended March 31, 2012, $15,000 due to Brookstein, and $22,500 due to Spirits.  To compensate Brookstein and Spirits for the failure to pay dividends when due, the Company agreed to grant five-year warrants (each, a “Dividend Accrual Warrant”) to purchase shares (each, a “Dividend Accrual Warrant Share”) of Company Common Stock to such holders at $0.001 per Dividend Accrual Warrant Share at a rate of 100 Dividend Accrual Warrants for every $1 of dividend accrued during the prior three month period.  The Company issued Dividend Accrual Warrants totaling 1.5 million to Brookstein and 2.25 million to Spirits for the three months ended March 31, 2012, respectively.  The Company valued these issuances using the Black-Scholes option pricing model with the following assumptions: share price:  $0.0006; strike price: $0.001; expected volatility: 27%; risk free interest rate: 1.04%; term: 5 years.   For each of the three months ended March 31, 2012 and 2011, dividends related to the Series B Preferred Stock totaled $37,500.  Accrued dividends totaled $487,500 and $450,000 at March 31, 2012 and December 31, 2011, respectively, and are included in accounts payable and accrued expenses on the consolidated balance sheet.   C.  Issuance of Dividend Accrual Warrants - Series D Senior Convertible Voting Redeemable Preferred Stock (“Series D Preferred Stock”) –   The Company has failed to pay dividends on the 50,000 outstanding shares of its Series D Preferred Stock.  As with the Series B Preferred Stock Discussed above, dividends may only be paid out of funds legally available for such purpose.   The Company deferred dividends totaling $1,500 for the three months ended March 31, 2012.   To compensate Brookstein for the failure to pay dividends when due, the Company agreed to grant five-year warrants (each, a “Dividend Accrual Warrant”) to purchase shares (each, a “Dividend Accrual Warrant Share”) of Company Common Stock to such holders at $0.001 per Dividend Accrual Warrant Share at a rate of 100 Dividend Accrual Warrants for every $1 of dividend accrued during the prior three month period.  The Company issued Dividend Accrual Warrants totaling 150,000 for the three months ended March 31, 2012.  The Company valued these issuances using the Black-Scholes option pricing model with the following assumptions: share price:  $0.0006; strike price: $0.001; expected volatility: 27%; risk free interest rate: 1.04%; term: 5 years   For the three months ended March 31, 2012 and 2011, dividends related to the Series D Preferred Stock totaled $1,500 and $0, respectively.  Accrued dividends totaled $5,786 and $4,286 at March 31, 2012 and December 31, 2011, respectively, and are included in accounts payable and accrued expenses on the consolidated balance sheet.   D.  Issuance of Deferred Interest Payment Warrants –   The Company continued to fail to pay interest on the promissory notes that were previously issued to Brookstein, Ponzio and Nascap (the “Note Holders”).  To compensate the Note Holders for the failure to pay interest on their promissory notes in the first quarter of 2012, the Company granted to such Note Holders warrants (each, a “Deferred Interest Payment Warrant”) to purchase shares of Common Stock at the rate of 100 Deferred Interest Payment Warrants for every $1 of interest not paid.  For the three months ended March 31, 2012, 1,950,000 Deferred Interest Payment Warrants were issued and have terms substantially identical to the Deferred Salary Warrants and Dividend Accrual Warrants. The Company valued these issuances using the Black-Scholes option pricing model with the following assumptions: share price:  $0.0003; strike price: $0.001; expected volatility: 27%; risk free interest rate: 2.01 %; term: 5 years   The Company will not pay interest to the Note Holders in the second quarter of 2012.  To compensate them, the Company granted Deferred Interest Payment Warrants to purchase shares of Common Stock at the rate of 100 Deferred Interest Payment Warrants for every $1 of interest not paid.  The Company issued a total of 1,950,000 Deferred Interest Payment Warrants on April 1, 2012.     E .  Warrant Exchange Agreements –   The Company entered into separate warrant exchange agreements with Brookstein, Spirits, Garfinkel, Ponzio and Nascap to purchase an aggregate of 128.13 million shares of Company Common Stock.  The warrant holders included the Company’s chairman of the board, chief executive officer and chief financial officer and a company in which such officer is the sole equity owner, as well as the Company’s former president and chief executive officer.  Each of the warrant exchange agreements were dated as of May 12, 2011 and provided for the exchange of the warrants then held by such warrant holders (the “Old Warrants”) for new warrants (the “New Warrants”).  The number of shares of Common Stock issuable upon exercise of the New Warrants is equal to the number of shares of Common Stock that were issuable upon exercise of the Old Warrants.  The Old Warrants had exercise prices ranging from $0.05 to $0.001 per share (a weighted average exercise price of $0.022 per share) and had exercise periods expiring from June 23, 2014 through March 31, 2016 (typically, five years after the date of issuance of the subject warrants).  However, the Old Warrants contained certain anti-dilution provisions which caused the effective exercise prices to be reduced to less than $0.001 per share.  The New Warrants all have an exercise price of $0.001 per share and expire on May 11, 2016.  The New Warrants contain cashless exercise provisions.  The anti-dilution provisions of the New Warrants are primarily limited to stock splits and corporate transactions involving mergers and consolidations while the Old Warrants contained anti-dilution provisions that caused the reduction in the exercise prices of the Old Warrants whenever the Company issued stock or derivative securities with an effective purchase price less than the then exercise price of the subject Old Warrants.  The Company had issued the Old Warrants in connection with the (x) accrual of dividends due on preferred stock of the Company owned by certain of the warrant holders, (y) deferral of the payment of interest due on promissory notes of the Company owned by certain of the warrant holders and (z) deferral of salary due certain of the warrant holders in their capacities as executive officers of the Company.   As the New Warrants contain “cashless exercise” provisions, the value of the New Warrants were recognized as liabilities and not as part of stockholders’ deficiency.  In addition, the Company is required to revalue the New Warrants at the end of each reporting period with the change in value reported on the statement of operations.  The Company valued these issuances using the Black-Scholes option pricing model with the following assumptions at March 31, 2012: share price:  $0.0006; strike price: $0.001; expected volatility: 27%; risk free interest rate: 1.04%; term: 5 years.  The Company recognized a loss on the value of the New Warrants of $5,411 and $0 for the three months ended March 31, 2012 and 2011, respectively. </div>

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<div style="FONT: 10pt Times New Roman, Times, Serif"> <table style="WIDTH: 100%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0"> <tr style="VERTICAL-ALIGN: top"> <td style="WIDTH: 7%; FONT-WEIGHT: bold">3.</td> <td style="WIDTH: 93%; FONT-WEIGHT: bold">Significant Accounting Policies Applicable to Interim Financial Statements:</td> </tr> </table>   A.   Loss per Share   Basic loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted loss per share gives effect to dilutive convertible securities, options, warrants and other potential common stock outstanding during the period, only in periods in which such effect is dilutive.   The following securities have been excluded from the calculation of net loss per share, as their effect would be anti-dilutive:   <table style="WIDTH: 100%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0"> <tr style="VERTICAL-ALIGN: bottom"> <td> </td> <td style="PADDING-BOTTOM: 1pt"> </td> <td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2">March 31, 2012</td> <td style="PADDING-BOTTOM: 1pt"> </td> <td style="PADDING-BOTTOM: 1pt"> </td> <td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2">March 31, 2011</td> <td style="PADDING-BOTTOM: 1pt"> </td> </tr> <tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom"> <td style="TEXT-ALIGN: justify; WIDTH: 66%">Preferred stock</td> <td style="WIDTH: 1%"> </td> <td style="TEXT-ALIGN: left; WIDTH: 1%"> </td> <td style="TEXT-ALIGN: right; WIDTH: 14%">587,231,900</td> <td style="TEXT-ALIGN: left; WIDTH: 1%"> </td> <td style="WIDTH: 1%"> </td> <td style="TEXT-ALIGN: left; WIDTH: 1%"> </td> <td style="TEXT-ALIGN: right; WIDTH: 14%">562,231,900</td> <td style="TEXT-ALIGN: left; WIDTH: 1%"> </td> </tr> <tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom"> <td style="TEXT-ALIGN: justify">Warrants</td> <td> </td> <td style="TEXT-ALIGN: left"> </td> <td style="TEXT-ALIGN: right">230,986,100</td> <td style="TEXT-ALIGN: left"> </td> <td> </td> <td style="TEXT-ALIGN: left"> </td> <td style="TEXT-ALIGN: right">134,307,500</td> <td style="TEXT-ALIGN: left"> </td> </tr> <tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom"> <td style="TEXT-ALIGN: justify">Stock options</td> <td> </td> <td style="TEXT-ALIGN: left"> </td> <td style="TEXT-ALIGN: right">10,000,000</td> <td style="TEXT-ALIGN: left"> </td> <td> </td> <td style="TEXT-ALIGN: left"> </td> <td style="TEXT-ALIGN: right">40,000,000</td> <td style="TEXT-ALIGN: left"> </td> </tr> </table>   B.   Fair Value of Financial Instruments   Substantially all of the Company’s financial instruments, consisting primarily of cash, accounts receivable, accounts payable and accrued expenses and all debt, are carried at, or approximate, fair value because of their short-term nature or because they carry market rates of interest.  The warrant liability was valued using the Black-Scholes option pricing model.  See Note 7F.   C.  Stock Based Compensation Arrangements   The Company accounts for stock-based compensation arrangements in accordance with guidance provided by the Financial Accounting Standards Board Accounting Standards Codification (“ASC”).  This guidance addresses all forms of share-based payment awards including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights, as well as share grants and other awards issued to employees and non-employees under free-standing arrangements.  These awards are recorded at costs that are measured at fair value on the awards’ grant dates, based on the estimated number of awards that are expected to vest and will result in charges to operations.   The Company valued these issuances utilizing a Black-Scholes option pricing model using the following assumptions:  share price, exercise price, expected volatility, risk-free rate and term.   The risk-free interest rate used in the Black-Scholes valuation method is based on the implied yield currently available in U.S. Treasury securities at maturity with an equivalent term.  The Company has not declared or paid any dividends and does not currently expect to do so in the future.  The expected term of options represents the period that its stock-based awards are expected to be outstanding and was determined based on projected holding periods for the remaining unexercised shares.  Consideration was given to the contractual terms of its stock-based awards, vesting schedules and expectations of future employee behavior.  The volatility rate used was based upon an average volatility rate for two entities providing telecommunications.  The Company did not use the volatility rate for Company Common Stock as the Company Common Stock had not been trading for the sufficient length of time to accurately compute its volatility when these warrants were issued.   From time to time, the Company’s shares of common stock and warrants have been issued as payment to employees and non-employees for services. These are non-cash transactions that require management to make judgments related to the fair value of the shares issued, which affects the amounts reported in the Company’s consolidated financial statements for certain of its assets and expenses.   Share based compensation amounted to $256 and $0 for the three months ended March 31, 2012 and 2011, respectively.   D.   Subsequent Events   Management has evaluated subsequent events through the date of this filing. </div>

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39000 281783997 <div style="FONT: 10pt Times New Roman, Times, Serif"> <table style="WIDTH: 100%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0"> <tr style="VERTICAL-ALIGN: top"> <td style="WIDTH: 7%; FONT-WEIGHT: bold">5.</td> <td style="WIDTH: 93%; FONT-WEIGHT: bold">Notes and Loans Payable</td> </tr> </table>   Long-term debt at March 31, 2012 and December 31, 2011 consists of the following: <table style="WIDTH: 100%; BORDER-COLLAPSE: collapse; FONT: 10pt Times New Roman, Times, Serif" cellspacing="0" cellpadding="0"> <tr style="VERTICAL-ALIGN: bottom"> <td> </td> <td> </td> <td style="TEXT-ALIGN: center" colspan="2">March 31,</td> <td> </td> <td> </td> <td style="TEXT-ALIGN: center" colspan="2">December 31,</td> <td> </td> </tr> <tr style="VERTICAL-ALIGN: bottom"> <td> </td> <td style="PADDING-BOTTOM: 1pt"> </td> <td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2">2012</td> <td style="PADDING-BOTTOM: 1pt"> </td> <td style="PADDING-BOTTOM: 1pt"> </td> <td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: center" colspan="2">2011</td> <td style="PADDING-BOTTOM: 1pt"> </td> </tr> <tr style="VERTICAL-ALIGN: bottom"> <td> </td> <td> </td> <td style="TEXT-ALIGN: center" colspan="2">(Unaudited)</td> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td> </tr> <tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom"> <td style="TEXT-ALIGN: left; WIDTH: 66%">Notes payable and accrued interest to officer/stockholder (A)</td> <td style="WIDTH: 1%"> </td> <td style="TEXT-ALIGN: left; WIDTH: 1%">$</td> <td style="TEXT-ALIGN: right; WIDTH: 14%">72,500</td> <td style="TEXT-ALIGN: left; WIDTH: 1%"> </td> <td style="WIDTH: 1%"> </td> <td style="TEXT-ALIGN: left; WIDTH: 1%">$</td> <td style="TEXT-ALIGN: right; WIDTH: 14%">70,250</td> <td style="TEXT-ALIGN: left; WIDTH: 1%"> </td> </tr> <tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom"> <td style="TEXT-ALIGN: left">Loans payable to officer/stockholder (B)</td> <td> </td> <td style="TEXT-ALIGN: left"> </td> <td style="TEXT-ALIGN: right">14,022</td> <td style="TEXT-ALIGN: left"> </td> <td> </td> <td style="TEXT-ALIGN: left"> </td> <td style="TEXT-ALIGN: right">12,708</td> <td style="TEXT-ALIGN: left"> </td> </tr> <tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom"> <td style="TEXT-ALIGN: left">Other secured debt and accrued interest (C)</td> <td> </td> <td style="TEXT-ALIGN: left"> </td> <td style="TEXT-ALIGN: right">217,500</td> <td style="TEXT-ALIGN: left"> </td> <td> </td> <td style="TEXT-ALIGN: left"> </td> <td style="TEXT-ALIGN: right">210,750</td> <td style="TEXT-ALIGN: left"> </td> </tr> <tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom"> <td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">Other loans payable (D)</td> <td style="PADDING-BOTTOM: 1pt"> </td> <td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">  </td> <td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right"> 50,000</td> <td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td> <td style="PADDING-BOTTOM: 1pt"> </td> <td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">  </td> <td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right"> —</td> <td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td> </tr> <tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom"> <td style="TEXT-ALIGN: left">Total long-term debt</td> <td> </td> <td style="TEXT-ALIGN: left"> </td> <td style="TEXT-ALIGN: right">354,022</td> <td style="TEXT-ALIGN: left"> </td> <td> </td> <td style="TEXT-ALIGN: left"> </td> <td style="TEXT-ALIGN: right">293,708</td> <td style="TEXT-ALIGN: left"> </td> </tr> <tr style="BACKGROUND-COLOR: white; VERTICAL-ALIGN: bottom"> <td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt">Current maturities of long-term debt</td> <td style="PADDING-BOTTOM: 1pt"> </td> <td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">  </td> <td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right"> 354,022</td> <td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td> <td style="PADDING-BOTTOM: 1pt"> </td> <td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: left">  </td> <td style="BORDER-BOTTOM: black 1pt solid; TEXT-ALIGN: right"> 293,708</td> <td style="TEXT-ALIGN: left; PADDING-BOTTOM: 1pt"> </td> </tr> <tr style="BACKGROUND-COLOR: rgb(204,255,204); VERTICAL-ALIGN: bottom"> <td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt">Long-term debt less current maturities</td> <td style="PADDING-BOTTOM: 2.5pt"> </td> <td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left"> $</td> <td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right"> —</td> <td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td> <td style="PADDING-BOTTOM: 2.5pt"> </td> <td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: left"> $</td> <td style="BORDER-BOTTOM: black 2.5pt double; TEXT-ALIGN: right"> —</td> <td style="TEXT-ALIGN: left; PADDING-BOTTOM: 2.5pt"> </td> </tr> </table>   A.  Brookstein Promissory Note Exchange Agreement -   As of June 24, 2009, the Company entered in to a Promissory Note Exchange Agreement (the “Brookstein Exchange Agreement”) with Barry M. Brookstein (“Brookstein”) and simultaneously consummated the transactions contemplated by the Brookstein Exchange Agreement. Brookstein, a director and principal stockholder of the Company, is the Company’s chief executive officer and chief financial officer.  Under the Brookstein Exchange Agreement, Brookstein delivered and assigned a promissory note of Call Compliance, Inc., one of the Company’s wholly-owned subsidiaries (“CCI”), dated March 3, 2009, in the principal amount of $50,000 and payable to Brookstein (the “Brookstein Original Note”) in exchange for the Company issuing and delivering to Brookstein the Company’s 18% Senior Subordinated Secured Promissory Note, dated June 24, 2009, in the principal amount of $50,000 payable to Brookstein (the “Brookstein New Note”).  In connection with such exchange, the Company granted Brookstein a senior subordinated security interest (the “Brookstein Security Interest”) in all of the Company’s assets to secure the Company’s obligations under the Brookstein New Note, as evidenced and subject to the terms and conditions of a Security Agreement, dated June 24, 2009 (the “Brookstein Security Agreement”), between Brookstein and the Company.  As further consideration for entering into the Brookstein Exchange Agreement, Brookstein was granted 1 million Class “A” common stock purchase warrants of the Company (each, a “Brookstein Class A Warrant”) and 1 million class “B” common stock purchase warrants of the Company (each, a “Brookstein Class B Warrant”).  Each of these warrants entitles its holder to purchase one share of Company common stock at a purchase price of $0.05 per share. The Brookstein Class A Warrants and Brookstein Class B Warrants expire on June 23, 2014.  If any amount (principal or interest) is outstanding under the Brookstein New Note, the purchase price upon exercise of any of the Brookstein Class B Warrants must be paid by the reduction of the amount outstanding under the Brookstein New Note.   The Brookstein Original Note was due on demand and bore interest at the rate of 18% per annum, payable monthly in arrears.   The Brookstein New Note had a maturity date of January 1, 2011 and bears interest at the rate of 18% per annum (20%, in the case of a default under the Brookstein New Note), with interest payable monthly in arrears.  In March 2011, the maturity date of the Brookstein New Note was extended to July 1, 2011 and was further extended in August 2011 to January 1, 2012.  The principal and accrued interest were not paid on January 1, 2012 and are now due on demand. Interest incurred on the note totaled $2,250 for each of the three months ended March 31, 2012 and 2011.  Accrued and unpaid interest totaled $22,500 and $20,250 at March 31, 2012 and December 31, 2011, respectively.   At both March 31, 2012 and December 31, 2011, $50,000 was outstanding on this note.   B.   Loans Payable - Brookstein   At various times, Brookstein loaned the Company monies for working capital purposes. The loans do not bear interest and are due on demand. At March 31, 2012 and December 31, 2011, loans payable - Brookstein was $14,022 and $12,708, respectively.   C.   Ponzio Promissory Note Exchange Agreement –   The Company had outstanding unsecured demand loans due Henry A. Ponzio (“Ponzio”) in the aggregate principal amount of $150,000 at December 31, 2008. This demand loan bore interest at the rate of 18% per annum, payable monthly in arrears.   As of June 24, 2009, the Company entered into a Promissory Note Exchange Agreement (the “Ponzio Exchange Agreement”) with Ponzio and simultaneously consummated the transactions contemplated by the Ponzio Exchange Agreement. Under the Ponzio Exchange Agreement, Ponzio delivered and assigned to the Company a promissory note of CCI, dated April 27, 2006, in the principal amount of $150,000 and payable to Ponzio (the “Ponzio Original Note”) in exchange for the Company’s issuing and delivering to Ponzio the Company’s 18% Senior Subordinated Secured Promissory Note, dated June 24, 2009, in the principal amount of $150,000 and payable to Ponzio (the “Ponzio New Note”). In connection with such exchange, the Company granted Ponzio a senior subordinated security interest (the “Ponzio Security Interest”) in all of the Company’s assets to secure the Company’s obligations under the Ponzio New Note, as evidenced and subject to the terms and conditions of a Security Agreement, dated June 24, 2009 (the “Ponzio Security Agreement”), between Ponzio and the Company. As further consideration for entering into the Ponzio Exchange Agreement, Ponzio was granted 3 million Class A warrants (each, a “Ponzio Class A Warrant”) and 3 million Class B warrants (each, a “Ponzio Class B Warrant”). Each of these warrants entitles its holder to purchase one share of common stock (each, a “Warrant Share”) at a purchase price of $0.05 per Warrant Share. The Ponzio Class A Warrants and Ponzio Class B Warrants expire on June 23, 2014. If any amount (principal or interest) is outstanding under the Ponzio New Note, the purchase price upon exercise of any of the Ponzio Class B Warrants must be paid by the reduction of such amounts outstanding under the Ponzio New Note.   The Ponzio Original Note was due on demand and bore interest at the rate of 18% per annum, payable monthly in arrears.   The Ponzio New Note had a maturity date of January 1, 2011 and bears interest at the rate of 18% per annum (20%, in the case of a default under the Ponzio New Note), with interest payable monthly in arrears.  In March 2011, the maturity date of the Ponzio New Note was extended to July 1, 2011 and was further extended in August 2011 to January 1, 2012.  The principal and accrued interest were not paid on January 1, 2012 and are now due on demand. Accrued and unpaid interest as of March 31, 2012 and December 31, 2011 totaled $67,500 and $60,750, respectively.  At both March 31, 2012 and December 31, 2011, $150,000 was outstanding on this note.   D.   Loans Payable – RDRD Holdings LLC (“RDRD”)   During the three months ended March 31, 2012, RDRD loaned the Company monies for working capital purposes. The loans do not bear interest and are due on demand. At March 31, 2012, loans payable was $50,000. In April 2012, RDRD advanced the Company an additional $6,000 for a consulting agreement. See Note 9. </div> <div style="font: 10pt Times New Roman, Times, Serif"> <table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse"> <tr style="vertical-align: top"> <td style="width: 7%; font-weight: bold">2.</td> <td style="width: 93%; font-weight: bold">Liquidity and Going Concern:</td> </tr> </table>   The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered continued losses from operations since its inception. At March 31, 2012, the Company had stockholders’ and working capital deficiencies of approximately $3.26 million and $3.25 million, respectively.   Management believes the Company will continue to incur losses and negative cash flows from operating activities for the foreseeable future and will need additional equity or debt financing to sustain its operations until it can achieve profitability and positive cash flows, if ever. Management plans to seek additional debt and/or equity financing for the Company, but cannot assure that such financing will be available on acceptable terms. The Company's continuation as a going concern is dependent upon its ability to ultimately attain profitable operations, generate sufficient cash flow to meet its obligations, and obtain additional financing as may be required. The outcome of this uncertainty cannot be assured.   The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. </div> 0001206133 2012-01-01 2012-03-31 0001206133 2011-01-01 2011-03-31 0001206133 us-gaap:SeriesDPreferredStockMember 2011-12-31 0001206133 us-gaap:SeriesCPreferredStockMember 2011-12-31 0001206133 us-gaap:SeriesAPreferredStockMember 2011-12-31 0001206133 us-gaap:SeriesBPreferredStockMember 2011-12-31 0001206133 2011-12-31 0001206133 2010-12-31 0001206133 us-gaap:SeriesDPreferredStockMember 2012-03-31 0001206133 us-gaap:SeriesCPreferredStockMember 2012-03-31 0001206133 us-gaap:SeriesAPreferredStockMember 2012-03-31 0001206133 us-gaap:SeriesBPreferredStockMember 2012-03-31 0001206133 2012-03-31 0001206133 2011-03-31 0001206133 2012-05-15 shares iso4217:USD iso4217:USD shares

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R9.htm IDEA: XBRL DOCUMENT

Short-Term and Demand Notes Payable

3 Months Ended

Mar. 31, 2012

Short-Term and Demand Notes Payable

4.	Short-Term and Demand Notes Payable

Short-term and demand notes payable consist of the following:

	March 31,		December 31,
	2012		2011
	(Unaudited)


Nascap Corp. and accrued interest (A)	$	455,000	$	444,500
John Koehler (B)		30,000		30,000

Total	$	485,000	$	474,500

A.	Secured Demand Note – Nascap Corp. (“Nascap”)

B.	Promissory Note – John Koehler (“Koehler”)

- Definition

The entire disclosure for short-term debt.

+ References+ Details

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Significant Accounting Policies Applicable to Interim Financial Statements

3 Months Ended

Mar. 31, 2012

Significant Accounting Policies Applicable to Interim Financial Statements

3.	Significant Accounting Policies Applicable to Interim Financial Statements:

A. Loss per Share

	March 31, 2012		March 31, 2011
Preferred stock		587,231,900		562,231,900
Warrants		230,986,100		134,307,500
Stock options		10,000,000		40,000,000

B. Fair Value of Financial Instruments

C. Stock Based Compensation Arrangements

The Company valued these issuances utilizing a Black-Scholes option pricing model using the following assumptions: share price, exercise price, expected volatility, risk-free rate and term.

Share based compensation amounted to $256 and $0 for the three months ended March 31, 2012 and 2011, respectively.

D. Subsequent Events

Management has evaluated subsequent events through the date of this filing.

- Definition

The entire disclosure for all significant accounting policies of the reporting entity.

+ References+ Details

XML 22 R2.htm IDEA: XBRL DOCUMENT

CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)	Mar. 31, 2012	Dec. 31, 2011
Current Assets:
Cash	$ 279	$ 529
Total Current Assets	279	529
Total Assets	279	529
Current Liabilities:
Short-term and demand notes payable	485,000	474,500
Accounts payable and accrued expenses	1,341,653	1,287,054
Accrued officers' compensation	1,070,000	1,010,000
Notes and loans payable - related parties	86,522	82,958
Current maturities of long-term debt	267,500	210,750
Total Current Liabilities	3,250,675	3,065,262
Warrant liability	5,676	265
Total Liabilities	3,256,351	3,065,527
Commitments
Convertible Preferred Stock, $0.001 par value:
Common stock, $0.001 par value; 2,000,000,000 shares authorized, 281,783,997 shares issued and outstanding	281,783	281,783
Additional paid-in capital	5,920,904	5,959,649
Accumulated deficit	(9,464,182)	(9,311,853)
Total Stockholders' Deficiency	(3,256,072)	(3,064,998)
Total Liabilities and Stockholders' Deficiency	279	529
Series A
Convertible Preferred Stock, $0.001 par value:
Convertible Preferred Stock	2,294	2,294
Series B
Convertible Preferred Stock, $0.001 par value:
Convertible Preferred Stock	1,250	1,250
Series C
Convertible Preferred Stock, $0.001 par value:
Convertible Preferred Stock	1,829	1,829
Series D
Convertible Preferred Stock, $0.001 par value:
Convertible Preferred Stock	$ 50	$ 50

XML 23 R6.htm IDEA: XBRL DOCUMENT

Basis of Presentation

3 Months Ended

Mar. 31, 2012

Basis of Presentation

1.	Basis of Presentation:

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Liquidity and Going Concern

3 Months Ended

Mar. 31, 2012

Liquidity and Going Concern

2.	Liquidity and Going Concern:

The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Mar. 31, 2012	Dec. 31, 2011
Convertible Preferred Stock, par value	$ 0.001	$ 0.001
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	2,000,000,000	2,000,000,000
Common stock, shares issued	281,783,997	281,783,997
Common stock, shares outstanding	281,783,997	281,783,997
Series A
Convertible Preferred Stock, shares authorized	2,500,000	2,500,000
Convertible Preferred Stock, shares issued	2,293,750	2,293,750
Convertible Preferred Stock, shares outstanding	2,293,750	2,293,750
Series B
Convertible Preferred Stock, shares authorized	1,500,000	1,500,000
Convertible Preferred Stock, shares issued	1,250,000	1,250,000
Convertible Preferred Stock, shares outstanding	1,250,000	1,250,000
Series C
Convertible Preferred Stock, shares authorized	2,000,000	2,000,000
Convertible Preferred Stock, shares issued	1,828,569	1,828,569
Convertible Preferred Stock, shares outstanding	1,828,569	1,828,569
Series D
Convertible Preferred Stock, shares authorized	100,000	100,000
Convertible Preferred Stock, shares issued	50,000	50,000
Convertible Preferred Stock, shares outstanding	50,000	50,000

- Definition

Total number of shares of common stock held by shareholders. May be all or portion of the number of common shares authorized. These shares represent the ownership interest of the common shareholders. Shares outstanding equals shares issued minus shares held in treasury and other adjustments, if any.

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- Definition

Face amount or stated value per share of nonredeemable preferred stock (or preferred stock redeemable solely at the option of the issuer); generally not indicative of the fair market value per share.

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Document and Entity Information	3 Months Ended
Document and Entity Information	Mar. 31, 2012	May 15, 2012
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Trading Symbol	COPI
Entity Registrant Name	COMPLIANCE SYSTEMS CORP
Entity Central Index Key	0001206133
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		281,783,997

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)	3 Months Ended
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)	Mar. 31, 2012	Mar. 31, 2011
Revenues
Cost of Revenues
Gross Margin
Operating Expenses:
Selling, general and administrative expenses	127,163	120,934
Operating Loss	(127,163)	(120,934)
Interest expense	(19,755)	(21,884)
Warrant fair value adjustment	(5,411)
Net Loss	(152,329)	(142,818)
Preferred Dividends	39,000	37,500
Net Loss Attributable to Common Stockholders	$ (191,329)	$ (180,318)
Basic and Diluted Per Share Data:
Net loss	$ 0.00	$ 0.00
Weighted Average Shares Outstanding -
Basic and Diluted	281,783,997	281,778,997

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Capital Transactions

3 Months Ended

Mar. 31, 2012

Capital Transactions

7.	Capital Transactions:

A. Issuance of Deferred Salary Warrants –

Brookstein has been deferring all or a portion of his salary since January 1, 2009.

B. Issuance of Dividend Accrual Warrants – Series B Senior Subordinated Convertible Voting Preferred Stock (the “Series B Preferred Stock”)

C. Issuance of Dividend Accrual Warrants - Series D Senior Convertible Voting Redeemable Preferred Stock (“Series D Preferred Stock”) –

D. Issuance of Deferred Interest Payment Warrants –

E . Warrant Exchange Agreements –

- Definition

The entire disclosure for shareholders' equity, comprised of portions attributable to the parent entity and noncontrolling interest, if any, including other comprehensive income (as applicable). Including, but not limited to: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in arrears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms, and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables, effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure.

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Commitments

3 Months Ended

Mar. 31, 2012

Commitments

6.	Commitments:

A. Employment Agreements

The employment contract with Brookstein expired in November 2011 and the agreement is now on a month-to-month basis. See Note 7.

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The entire disclosure for significant arrangements with third parties, which includes operating lease arrangements and arrangements in which the entity has agreed to expend funds to procure goods or services, or has agreed to commit resources to supply goods or services, and operating lease arrangements. Descriptions may include identification of the specific goods and services, period of time covered, minimum quantities and amounts, and cancellation rights.

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Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2012

Recent Accounting Pronouncements

8.	Recent Accounting Pronouncements:

- Definition

The entire disclosure for reporting accounting changes and error corrections. It includes the conveyance of information necessary for a user of the Company's financial information to understand all aspects and required disclosure information concerning all changes and error corrections reported in the Company's financial statements for the period.

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Subsequent Event

3 Months Ended

Mar. 31, 2012

Subsequent Event

9.	Subsequent Event:

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	3 Months Ended
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	Mar. 31, 2012	Mar. 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (152,329)	$ (142,818)
Adjustments to reconcile net loss to net cash used in operating activities:
Interest/penalty accrued and not paid or imputed	19,500	21,601
Stock-based compensation	256
Warrant fair value adjustment	5,411
Changes in assets and liabilities:
Accounts receivable		27,826
Prepaid expenses and other current assets		17,375
Accounts payable and accrued expenses	15,598	(6,042)
Accrued officers' compensation	60,000	60,000
Total adjustments	100,765	120,760
Net Cash Used in Operating Activities	(51,564)	(22,058)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable	50,000
Proceeds from loans payable-related party	1,314
Net repayments of short-term and demand loans		(9,690)
Proceeds from issuances of preferred stock		25,000
Net Cash Provided By Financing Activities	51,314	15,310
NET DECREASE IN CASH	(250)	(6,748)
CASH - Beginning of Period	529	19,014
CASH - End of Period	279	12,266
Cash Paid During the Period for:
Interest		284
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Preferred dividends declared and accrued, but not paid	$ 39,000	$ 37,500

XML 35 R10.htm IDEA: XBRL DOCUMENT

Notes and Loans Payable

3 Months Ended

Mar. 31, 2012

Notes and Loans Payable

5.	Notes and Loans Payable

Long-term debt at March 31, 2012 and December 31, 2011 consists of the following:

	March 31,		December 31,
	2012		2011
	(Unaudited)
Notes payable and accrued interest to officer/stockholder (A)	$	72,500	$	70,250
Loans payable to officer/stockholder (B)		14,022		12,708
Other secured debt and accrued interest (C)		217,500		210,750
Other loans payable (D)		50,000		—
Total long-term debt		354,022		293,708
Current maturities of long-term debt		354,022		293,708
Long-term debt less current maturities	$	—	$	—

A. Brookstein Promissory Note Exchange Agreement -

The Brookstein Original Note was due on demand and bore interest at the rate of 18% per annum, payable monthly in arrears.

B. Loans Payable - Brookstein

C. Ponzio Promissory Note Exchange Agreement –

The Ponzio Original Note was due on demand and bore interest at the rate of 18% per annum, payable monthly in arrears.

D. Loans Payable – RDRD Holdings LLC (“RDRD”)

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