EQUITY

12 Months Ended

Dec. 31, 2011

EQUITY [Abstract]

EQUITY

COMMON STOCK ISSUED FOR SERVICES IN 2010

In 2010, the Board of Directors approved a grant of 30,000 shares of common stock to each of the Company’s four external directors.  A tax gross up of up to 35% was included, not to exceed $10,000.  120,000 shares were granted on January 4, 2010, with a fair market value of $234,000, based on the closing price of stock on the grant date.

On January 7, 2010, the Company entered into an Investment Banking Agreement with Legend Securities, Inc. (“Legend”), pursuant to which Legend agreed to provide business advisory services for us for a period of up to twelve months.  In exchange for Legend's services, we agreed to pay Legend the sum of $6,250 per month, as well as a onetime fee of 250,000 shares of Common Stock for a total value of $350,000.  Under the Investment Banking Agreement, we also agreed to give Legend unlimited "piggy back" registration rights with respect to the shares of our common stock in any registration statement filed by us in connection with an underwritten offering of our common stock.

COMMON STOCK ISSUED FOR SERVICES IN 2011

In 2011, the Board of Directors approved a grant of 35,000 shares of common stock to each of the Company’s four external directors.  A tax gross up of up to 35% was included, not to exceed $10,000.  140,000 shares were granted on January 6, 2011, with a fair market value of $141,400, based on the closing price of stock on the grant date.

On August 22, 2011, the Company entered into an Agreement for Services with Alliance Advisors, LLC, pursuant to which Alliance agreed to provide investor relations services to us for a period of twelve months.  In exchange for Alliance’s services, we agreed to pay Alliance 84,000 restricted shares of common stock valued at $54,600 for purposes of the agreement, as well as $6,500 per month for the first six months, and $7,500 per month for the second six months of the agreement.  The agreement provides, that either party may terminate the agreement after 6 months, and in the event of such termination, a pro rata portion of the 84,000 shares of common stock would be returned to the Company.  The Company terminated the Agreement with Alliance Advisors, LLC on January 12, 2012.

On April 12, 2011, the Company entered into an Agreement for Services with AIM Capital Corporation, pursuant to which AIM agreed to provide public relations services to us for a period of twelve months. In exchange for AIM’s services, we agreed to pay Aim an annual fee of 125,000 shares of common stock which vest as follows: 50,000 upon execution of agreement, 25,000 on the 90th day following this agreement, 25,000 on the 180th day following this agreement, and 25,000 on the 270th day following this agreement. The agreement also provides that should either party terminate this agreement, AIM shall be entitled to keep all vested a shares as of the date of termination, plus any pro rata amount of shares based on the termination date.

As of December 31, 2011, 100,000 shares of common stock owed to AIM had vested.  These shares were valued on their respective vesting dates for a total of $138,750.   We also entered into registration rights agreements pursuant to which we have agreed to file with the Securities and Exchange Commission a registration statement covering the resale of the Common Stock underlying the issuance above. This registration statement was filed on June 2, 2011, and went effective on June 3, 2011.

On February 9, 2011, the Company entered into an Investment Banking Agreement with Legend Securities, Inc. ("Legend"), pursuant to which Legend agreed to provide business advisory services to us for a period of up to twelve months. In exchange for Legend's services, we agreed to pay Legend the sum of $10,000 per month and to issue Legend a onetime fee of 350,000 shares of Common Stock. Per the agreement, the shares would be issued as follows: 87,500 1 day after the effective date of the agreement, 87,500 90 days after the effective date, 87,500 180 days after the effective date and 87,500 270 days after the effective date.

Therefore, as of December 31, 2011, the Company issued 350,000 shares of common stock valued at $408,625 based on the closing prices on the measurement dates. We also entered into registration rights agreements pursuant to which we have agreed to file with the Securities and Exchange Commission a registration statement covering the resale of the Common Stock underlying the issuance above. This registration statement was filed on June 2, 2011, and went effective on June 3, 2011.

We determined that all of the securities issued pursuant to the agreement were exempt from registration under the Securities Act of 1933, as amended (the "Act") pursuant to Section 4(2) of the Act and Rule 506 of Regulation D promulgated under the Act. We based this determination on the non-public manner in which we offered the securities and on the representations of the persons purchasing such securities, which included, in pertinent part, that such persons were "accredited investors" within the meaning of Rule 501 of Regulation D promulgated under the Act, and that such persons were acquiring such securities for investment purposes for their own respective accounts and not as nominees or agents, and not with a view to resale or distribution, and that each such person understood such securities may not be sold or otherwise disposed of without registration under the Act or an applicable exemption therefrom.

The description of the terms of sale of the securities described in this report is qualified in its entirety by reference to the full text of the underlying document which has been filed as exhibits to the Company’s Form 8-K filed with SEC on February 11, 2011.

COMMON STOCK ISSUED FOR DEBT CONVERSION

Between January 4 and June 30, 2010, the Company issued 1,700,603 shares of  its common stock, $.00005 par value per share, upon conversion to common stock of $1.45 million principal amount of its 8% Convertible Secured Notes Due in 2010, as well as interest of $229,841 on such notes. As a result of the conversion of the Notes into common stock, the Company has reduced its total outstanding convertible debt to $8,530,000 and increased its common stock and additional-paid-in capital by an aggregate of $1,700,603.

Between July 1 and September 30, 2010, the Company" issued 2,662,520 shares of  its common stock, $.00005 par value per share, upon conversion to common stock of $2.672 million principal amount of its 8% Convertible Secured Notes Due in 2010, as well as interest of $415,120 on such notes. As a result of the conversion of the Notes into common stock, the Company has reduced its total outstanding convertible debt to $6,283,000 and increased its common stock and additional-paid-in capital by an aggregate of $2,662,520.

Between October 1 and December 31, 2010, the Company issued 49,853 shares of  its common stock, $.00005 par value per share, upon conversion to common stock of $40,000 principal amount of its 8% Convertible Secured Notes Due in 2010 (the "Notes"), as well as interest of $9,853 on such notes. As a result of the conversion of the Notes into common stock, the Company has reduced its total outstanding convertible debt to $6,013,000 and increased its common stock and additional-paid-in capital by an aggregate of $49,853.

During the year ended 12/31/11 the Company converted a 2008 convertible note with principal and accrued interest values of $300,000 and $57,140 into 357,863 common shares. As an inducement to the lender to get them to convert, the Company issued the conversion shares based on the accrued interest value to be attained at the future maturity date rather than the conversion date. This resulted in the Company issuing 723 more shares than required by the agreement. Due to this conversion being outside the original terms of the agreement, a loss of $1,099 was recorded based on the fair value of the excess shares issued on the conversion date.

During the year ended 12/31/11 the Company converted  2009 convertible notes with an aggregate principal and accrued interest values of $3,637,000 and $449,677 into 4,215,764 common shares. As an inducement to the lenders to get them to convert, the Company issued the conversion shares based on the accrued interest value to be attained at the future maturity dates rather than the conversion dates. This resulted in the Company issuing 129,087 more shares than required by the agreement. Due to this conversion being outside the original terms of the agreement, a loss of $182,081 was recorded based on the fair value of the excess shares issued on the conversion dates.

During the year ended 12/31/11 the Company converted  2010 convertible notes with an aggregate principal and accrued interest values of $496,000 and $64,904 into 575,360 common shares. As an inducement to the lenders to get them to convert, the Company issued the conversion shares based on the accrued interest value to be attained at the future maturity dates rather than the conversion dates. This resulted in the Company issuing 14,456 more shares than required by the agreement. Due to this conversion being outside the original terms of the agreement, a loss of $10,591 was recorded based on the fair value of the excess shares issued on the conversion dates.

During the year ended 12/31/11 the Company issued shares to 2008 and 2009 convertible debt holders to convert their accrued interest. The accrued interest converted was $18,655 and the numbers of shares issued were 18,602. No material gain or loss was necessary based on the conversion being materially within the terms of the agreement.

COMMON STOCK ISSUED ON THE EXERCISE OF WARRANTS AND/OR OPTIONS

During 2011, 56,489 stock warrants were exercised for cash of $3,353, and no options were exercised.

During 2010, 108,172 stock warrants were exercised for cash of $17,505, and no options were exercised.

COMMON STOCK ISSUED ON THE CASHLESS EXERCISE OF WARRANTS

During 2011, the Company issued no shares of common stock on the cashless exercise of warrants.