10. EQUITY

3 Months Ended

Mar. 31, 2016

Equity [Abstract]

EQUITY

Authorized Capital Stock

The Company has voting common stock of 3,000,000,000 shares at $0.0001 par value and 10,000,000 shares of non-voting preferred stock with a par value of $0.0001 as authorized by the shareholders.  

In addition, on October 21, 2015 the Company issued 150,000 Series B Preferred Stock at a stated value equal to $10.00 per share and convertible into our common stock.  On October 21, 2015, the Company also issued 51 shares of Series C Preferred Stock at $0.0001 par value per share that have certain voting rights but are not convertible into our common stock

Non-Voting Preferred Stock

Under the terms of our articles of incorporation, the Company’s board of directors is authorized to issue shares of non-voting preferred stock in one or more series without stockholder approval. The Company’s board of directors has the discretion to determine the rights, preferences, privileges and restrictions, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of non-voting preferred stock.

The purpose of authorizing the Company’s board of directors to issue non-voting preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of non-voting preferred stock, while providing flexibility in connection with possible acquisitions, future financings and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could discourage a third party from seeking to acquire, a majority of our outstanding voting stock. Other than the Series B and C Preferred Stock discussed below, there are no shares of non-voting preferred stock presently outstanding and the Company no present plans to issue any shares of preferred stock.

Series B Preferred Stock Designation

In connection with the Amended and Restated Securities Purchase Agreement, the Board of Directors, on October 21, 2015, approved the authorization of a Series B Preferred Stock as provided in our Certificate of Incorporation, as amended.

The Series B Preferred Stock has authorized 150,000 shares with a stated value equal to $10.00 per share. Dividends payable to other classes of stock are restricted until repayment of the aggregate value of Series B Preferred Stock. Upon our liquidation or dissolution, Series B Preferred Stock has no priority or preference with respect to distributions of any assets by us.  The Series B Preferred Stock is convertible into common stock by dividing the stated value of the shares being converted by 100% of the average of the five lowest closing bid prices for the common stock during the ten consecutive trading days immediately preceding the conversion date as quoted by Bloomberg, LP.

TCA was issued 150,000 shares of Series B Preferred Stock.  However, in no event will Purchaser be entitled to hold in excess of 4.99% of the outstanding shares of common stock of the Company.

Effective as of May 4, 2016, the Company, its subsidiaries and TCA entered into a First Amendment to Amended and Restated Securities Purchase Agreement as discussed in Note 13, Subsequent Events, whereby the parties agreed to amend the terms of their existing purchase agreement in exchange for forbearance on existing defaults by the Company.

Due to the Company being in default on its repayment obligations under the Purchase Agreement and related documents, the parties agreed to restructure the Purchase Agreement whereby TCA agreed to forbear from enforcement of the Company defaults and to restructure a payment schedule for repayment of TCA under the Purchase Agreement. Also, TCA is also surrendering its Series B Preferred Stock in exchange for the $1,500,000 balance evidenced by said preferred stock being added to the Second Replacement Debenture.

Series C Preferred Stock Designation

In connection with the Amended and Restated Securities Purchase Agreement, the Board of Directors, on October 21, 2015, approved the authorization of a Series C Preferred Stock as provided in our Certificate of Incorporation, as amended, and the issuance of 51 shares of Series C Preferred Stock. These shares only have voting rights in the event of a default by us under the Amended and Restated Transaction Documents. The Series C Preferred Stock is cancelled with the repayment of the TCA debt.

The Series C Preferred Stock Designation authorizes 51 shares of Series C Preferred Stock. Series C Preferred Stock is not entitled to dividend or liquidation rights and is not convertible into our common stock.

In the event of a default under the Amended and Restated Transaction Documents, each share of Series C Preferred Stock shall have voting votes equal to 0.019607 multiplied by the total issued and outstanding common stock and preferred stock eligible to vote divided by .49 minus the numerator.  For example, if the total issued and outstanding common stock eligible to vote is 5,000,000, the voting rights of one share of Series C Preferred Stock shall be equal to 102,036 (e.g. ((0.019607 x 5,000,000/0.49) – (0.019607 x 5,000,000) = 102,036).

Common Stock

Unless otherwise indicated, all of the following sales or issuances of Company securities were conducted under the exemption from registration as provided under Section 4(2) of the Securities Act of 1933 (and also qualified for exemption under 4(5), formerly 4(6) of the Securities Act of 1933, except as noted below). All of the shares issued were issued in transactions not involving a public offering, are considered to be restricted stock as defined in Rule 144 promulgated under the Securities Act of 1933 and stock certificates issued with respect thereto bear legends to that effect. 

The Company has compensated consultants and service providers with restricted common stock during the development of our business and when our capital resources were not adequate to provide payment in cash.

During the three months ended March 31, 2016, the Company had had the following sales of unregistered of equity securities to accredited investors unless otherwise indicated:

On January 4, 2016, the Company issued 3,000,000 shares of its common stock to an entity affiliated with Mark E. Scott, our Chief Financial Officer, pursuant to a conversion of debt for $30,000. The shares were valued at the fair market price of $0.01 per share.

On January 16, 2016, the Company issued 1,400,000 shares of its common stock to an unaccredited former consultant pursuant a conversion of debt for $40,000. The shares were valued at the fair market price of $0.01 per share.

On January 27, 2016, the Company issued 1,500,000 shares of its common stock to Michael E. Fasci, a Board Director, pursuant to a service award for $15,000. The shares were valued at the fair market price of $0.01 per share.

During March 2016, Holders of the Company’s Convertible Notes Payables, converted principal and accrued interest of $608,905 into 86,986,437 shares of the Company’s common stock at a per share conversion price of $0.007.

In consideration for advisory services provided by TCA to the Company, the Company issued 15,000,000 shares of Common Stock during the year ending December 31, 2015. As the common stock was conditionally redeemable, the Company recorded the common stock as mezzanine equity in the accompanying consolidated balance sheet as of December 31, 2015. As of March 31, 2016, the shares are no longer conditionally redeemable and were recorded as issued and outstanding common stock.

Warrants

The Company did not issue any warrants during the three months ended March 31, 2016.

A summary of the warrants issued as of March 31, 2016 is as follows:

	March 31, 2016
			Weighted
			Average
			Exercise
	Shares		Price
Outstanding at beginning of period		565,000,000	$	0.032
Issued		-		-
Exercised		-		-
Forfeited		-		-
Expired		-		-
Outstanding at end of period		565,000,000	$	0.032
Exerciseable at end of period		565,000,000

A summary of the status of the warrants outstanding as of March 31, 2016 is presented below:

		March 31, 2016
		Weighted		Weighted				Weighted
		Average		Average				Average
Number of		Remaining		Exercise		Shares		Exercise
Warrants		Life		Price		Exerciseable		Price
	540,000,000		3.06	$	0.033		540,000,000	$	0.033
	25,000,000		2.94		0.010		25,000,000		0.010
	565,000,000		3.05	$	0.032		565,000,000	$	0.032

Warrants totaling 565,000,000 shares of common stock have an intrinsic value of $250,000 as of March 31, 2016.