Equity Transactions

9 Months Ended

Sep. 30, 2013

Notes

Equity Transactions

EQUITY TRANSACTIONS

Common Stock:

2013

Payment of Interest

For the nine months ended September 30, 2013, the Company issued 10,891,731 shares (valued at $10,415) of the Company’s common stock as payment for interest due on the Company’s 10% convertible notes.

Services Rendered

The Company issued 21,950,000 shares (valued at $36,200) for the nine months ended September 30, 2013 of the Company’s restricted common stock as payment for compensation to consultants. The Company issued 113,831,051 shares (valued at $120,000) for the nine months ended September 30, 2013 of the Company’s restricted common stock as payment for services to the Board of Directors.

Debt Conversion of Interest

In the nine months ended September 30, 2013, the Company issued 8,040,587 shares of its common stock as a result of converting $3,900 of accrued interest on the bridge note holders.

Debt Conversion

In the nine months ended September 30, 2013, the Company issued 323,741,611 shares (313,849,209 for the conversion of convertible notes payable and 9,892,402 shares for the conversion of loans payable) of its common stock as a result of converting $166,110 of principal on the bridge note holders.

Common Stock Issued in Connection with Debt Issuance

In the nine months ended September 30, 2013, the Company issued 14,575,000 shares of its common stock valued at $3,965 in conjunction with the issuance of $75,500 of principal on the bridge notes.

Issuance of Common Stock as a Result of Sale of Securities

In the nine months ended September 30, 2013, the Company issued 18,748,000 shares of common stock for proceeds from the sale of the Company’s common stock of $20,848.

Common Stock

In May 2013, the Company increased its authorized share amount from 775,000,000 shares, of which 750,000,000 relate to common shares and 25,000,000 relate to preferred shares, to 975,000,000 shares of which 950,000,000 relate to common shares and 25,000,000 relate to preferred shares. On October 31, 2013, the Company filed an information statement on Form 14-C with the SEC in order to effect an increase in its authorized share amount from 950,000,000 to 10,000,000,000 common shares.

Under certain obligations for conversion of convertible notes, preferred shares, options and warrants issued by the Company to various lenders and investors, the Company has contractual commitments to issues a number of its common shares such that if all outstanding convertible instruments were converted, the Company would not have a sufficient number of authorized shares. Under generally accepted accounting principles, if the Company is unable to deliver the required shares, the holder would be entitled to other remedies, such as cash settlement, which would cause the instrument to be classified as a liability

As stated in footnote 9, the holders of Series Preferred B Convertible B Stock are entitled to such number of votes equal to 51% of the outstanding common stock on an-converted basis only with respect to a proposal to increase the authorized number of shares of capital stock. Accordingly, the Company has classified the instruments as a liability at September 30, 2013. As stated earlier on October 31, 2013 the Company filed an information statement on Form 14C with the SEC in order to effect an increase in its authorized share amount to 10,000,000,000 and therefore the Company has concluded it will have sufficient authorized and unissued shares to settle all contracts subject to ASC 815-40 (EITF Issue 00-19).

Warrants:

During the nine months ended September 30, 2013, the Company did not grant any warrants

			Weighted
			Average
	Common		Exercise
	Shares		Price
Outstanding at December 31, 2011		104,767,316	$	0.03
Issued		-		-
Exercised		-		-
Expired		(71,430,735)		(0.21)
Outstanding at December 31, 2012		33,336,581	$	0.026
Issued		-		-
Exercised		-		-
Expired		(407,400)		(0.247)
Outstanding at June 30, 2013		32,929,181	$	0.04

PREFERRED STOCK

Series A Convertible Preferred Stock

For the nine months ended September 30, 2013 and the year ended December 31, 2012, the Company had 28,968 shares of Series A Convertible Preferred Stock issued. The holders of outstanding shares of Series A Preferred Stock are entitled to receive, in any fiscal year, when, if and as declared by the Board of Directors, out of any assets at the time legally available, dividends on a pro rata basis in cash at the rate of 7% per annum on the stated value of $2.62 per share. Each holder of shares of Series A Preferred Stock shall have the right, at any time and from time to time, to convert some or all such shares into fully paid and non-assessable shares of common stock at the rate of 10 shares of common stock for every one share of Series A Preferred Stock.

Series B Convertible Preferred Stock

In addition, the Company agreed to issue to the Purchaser five-year warrants to purchase 50,000,000 shares at an exercise price of $0.03, exercisable on a cashless basis, and 50,000,000 shares at an exercise price of $0.06, not exercisable on a cashless basis, in tranches pro rata with the sale of the Series B Preferred Stock. The exercise price of the warrants not exercisable on a cashless basis shall be reduced to $0.03 if the closing price of the Company’s common stock has a volume weighted average price of less than $0.06 for a thirty day period during the term of such warrants. The Company also agreed to issue to the Purchaser 45,000,000 shares of common stock (the “Additional Shares”), in tranches pro rata with the sale of the Series B Preferred Stock. As amended by Amendment No. 3, the Purchaser may terminate the Purchase Agreement upon 10 days’ written notice, in which event the Purchaser shall not be obligated to make any additional purchases under the Purchase Agreement.

In connection with the Purchase Agreement, the Company filed an Amended and Restated Certificate of Designation of Series B Preferred Stock (the “Certificate of Designation”) filed with the State of Delaware on September 5, 2010.

In accordance with the accounting guidance for modifications, for Amendment No. 2, the Company recorded approximately $2,783,000 as a deemed preferred dividend relating to warrant modification with a corresponding credit to additional paid in capital. The Company recorded $4,625,815 as a deemed preferred dividend relating to issuance of common stock and warrants with a corresponding credit to additional paid in capital.

In accordance with the agreement, dividends payable in common stock amounting to 2,708,000 shares were issued for the year ended December 31, 2010.

On July 29, 2010 the Company entered into Amendment No. 4 to the Stock Purchase Agreement of its Series B Convertible Preferred Stock with Rock Island Capital LLC whereby it amended the termination clause to remove the penalties and the termination payment fee.

On October 19, 2010 the Company entered into Amendment No. 5 to the Stock Purchase Agreement of its Series B Convertible Preferred Stock with Rock Island Capital LLC (“Purchaser”) whereby the Purchaser agreed to purchase from the Company, and the Company agreed to sell to the Purchaser, up to 192,500 units, with each unit consisting of (i) one share of Series B Preferred Stock, (ii) 81.818181 shares of the Company’s common stock and (iii) five-year warrants to purchase 181.818181 shares of the Company’s common stock at an exercise price of $0.01 (which may be exercised on a cashless basis), for a purchase price of $9.0909 per unit. The units will be sold in installments of at least $100,000 each on before the 30 th day following the prior payment, with the first installment due on or before the thirtieth day following the final payment of the aggregate purchase price under the Agreement. In the event that the Purchaser shall fail to timely pay any installment and does not notify the Company in writing at least five days prior to such installment due date (upon which notice the Purchaser shall be granted a 7-day extension), the Company may, from and after the expiration of any and all applicable cure periods, terminate the Agreement, and the Company shall have no right to pursue any other remedy against Purchaser.

The warrants issued or issuable under the Agreement shall be exercisable on a cashless basis.
On October 20, 2010, the Company filed an Amended and Restated Certificate of Designation of Series B Preferred Stock, pursuant to which:
	Pursuant to the commitment of the additional financing of $1,750,000, the number of shares of authorized Series B Preferred Stock was increased from 550,055 to 1,000,000;
	Pursuant to the commitment of the additional financing of $1,750,000, the “Special Dividend Amount” payable to the holders of Series B Preferred Stock was increased from $2,500,000 to $3,375,000;and
	The holders of Series B Preferred Stock shall be entitled to cumulative dividends at a rate of 10% per annum, compounded annually and payable in cash upon conversion of the Series B Preferred Stock into shares of common stock or upon such other date as determined by the Board of Directors of the Company.

In accordance with the accounting guidance for modifications, for Amendment No. 5, the Company recorded approximately $760,000 as a deemed preferred dividend relating to warrant modification with a corresponding credit to additional paid in capital.

For the year ended December 31, 2010, the Company received $2,650,000 from the sale of Series B Convertible Preferred Stock, and issued an additional 291,529 preferred B shares. The Company recorded the beneficial conversion feature and the warrant associated with such investment as a deemed preferred dividend of $2,650,000 with a corresponding credit to additional paid in capital.

On October 17, 2013 the Company entered into Amendment No. 6 to the Stock Purchase Agreement of its Series B Convertible Preferred Stock with Rock Island Capital LLC (“Purchaser”) whereby (i) the Purchase Price is reduced to $4,825,000, for which The Buyer will receive the 550,055 shares of Series B Preferred Stock.  The Company acknowledges that it has received payment $4,825,000 for the 550,055 Series B shares and that the Buyer has completed all of its obligations under the contract.  As consideration, Rock Island is giving up the protective provisions in Section 7 Protective Provisions of the Certificate of Designation,  The Buyer will have the following protective provision ; The Company shall allow the Buyer to designate for election to the Company’s Board of Directors such number of directors as will constitute a majority of the members of the Company’s Board of Directors, and   to increase or decrease the authorized size of the Board or any committee thereof or create any new committee of the Board. The Buyer shall also have the right to remove such designees and to fill any vacancy caused by the resignation, death or removal of such designees (ii) At any time following the date of this Amendment, if it is determined that the Company’s authorized capital stock is insufficient to satisfy the obligations under the Agreement (as amended), including the purchase of the Units, as soon as practicable following the date of such determination, the Company shall use its best efforts to file an amendment to its articles of incorporation to increase the total authorized shares of common stock of the Company such that the Company is able to satisfy all obligations under the Agreement (as amended) and (iii) .   As soon as practicable following the date of this Amendment, the Company will amend its Certificate of Designations of Series B Preferred Stock (the “Certificate”) and file such amendment with the Secretary of State of the State of Delaware, to conform the Certificate with the provisions of this Amendment in such form that is satisfactory to the Buyer.

 In accordance with the agreement as amended, the Company has accrued dividends payable amounting to approximately $1,266,257 and $1,033,757at June 30, 2013 and December 31, 2012, respectively which is included in the accompanying unaudited condensed consolidated balance sheet.