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STOCKHOLDERS' DEFICIT
12 Months Ended
Dec. 31, 2011
STOCKHOLDERS' DEFICIT  
STOCKHOLDERS' DEFICIT

Note 14 - Stockholders’ Deficit

 

Preferred Stock

 

On October 21, 2010, the Company amended its Articles of Incorporation in New Jersey to authorize 10,000,000 shares of preferred stock, par value $0.10. The designations, rights, and preferences of such preferred stock are to be determined by the Board of Directors. On November 15, 2010, the Company changed its domicile from the state of New Jersey to the state of Wyoming.

 

In addition to the 10,000,000 shares of preferred stock authorized, on January 10, 2011, 100 shares of preferred stock were designated as Series A Preferred Stock and 100,000,000 shares were designated as Series B Preferred Stock. The bylaws under the Wyoming Incorporation were amended to reflect the rights and preferences of each additional new designation.

 

The Series A Preferred Stock collectively has voting rights equal to eighty percent of the total current issued and outstanding shares of common stock. If at least one share of Series A Preferred Stock is outstanding, the aggregate shares of Series A Preferred Stock shall have voting rights equal to the number of shares of common stock equal to four times the sum of the total number of shares of common stock issued and outstanding, plus the number of shares of Series B Preferred Stock (or other designated preferred stock) which are issued and outstanding.

 

The Series B Preferred Stock shall have preferential liquidation rights in the event of any liquidation, dissolution or winding up of the Company, such liquidation rights to be paid from the assets of the Company not delegated to parties with greater priority at $1.00 per share or, in the event an aggregate subscription by a single subscriber of the Series B Preferred Stock is greater than $100,000,000, $0.997 per share. The Series B Preferred Stock shall be convertible to a number of shares of common stock equal to the price of the Series B Preferred Stock divided by the par value of the Series B Preferred Stock. The option to convert the shares of Series B Preferred Stock may not be exercised until three months following the issuance of the Series B Preferred Stock to the recipient shareholder. The Series B Preferred Stock shall have ten votes on matters presented to the shareholders of the Company for one share of Series B Preferred Stock held. The initial price of the Series B Preferred Stock shall be $2.50, (subject to adjustment by the Company’s Board of Directors) until such time, if ever, the Series B Preferred Stock are listed on a secondary and/or public exchange.  As of December 31, 2011, no shares of Series B Preferred Stock have been issued.

 

Issuance of Series A Preferred Stock

 

In February 2011, the Company issued three shares of non-convertible Series A preferred stock valued at $329,000 per share, or $987,000 in aggregate, for voting purposes only, to the three members of the management team at one share each. The issued and outstanding shares of the Series A preferred stock have voting rights equal to eighty percent of the total issued and outstanding shares of the Company's common stock (see Note 13). This effectively provided them, upon retention of their Series A Preferred Stock, voting control on matters presented to the shareholders of the Company. For the year ended December 31, 2011, the Company expensed $987,000 in stock based compensation expense related to the issuance of the shares.

 

Common Stock

 

In February 2011, an  increase of the authorized shares of the Company’s common stock from one hundred million (100,000,000) to five hundred million (500,000,000), $0.0001 par value, was ratified, effective upon the filing of an amendment to the Company’s Certificate of Incorporation with the Wyoming Secretary of State.

 

Issuance of Common Stock for Services

 

In November 2009, the Company executed a website development agreement with a consultant whereby the consultant provides website design and development services to the Company. As compensation for the services, the consultant received a deposit fee of $3,750 and is to receive additional milestone fees in the total amount of $3,750. As additional compensation, the consultant received 46,875 shares of the Company’s common stock, valued at $0.08 per share. Upon project completion, the consultant is to receive an additional 46,875 shares of the Company’s common stock. The Company has recorded $9,000 as prepaid expenses, recorded in 2009, relating to the deposit paid, the shares issued and the next milestone invoice, respectively (see Note 13).

 

In December 2009, the Company entered into a retainer agreement with an attorney, whereas the attorney acts as house counsel for the Company with respect to all general corporate matters.  The agreement is at will and required a payment of 100,000 shares of common stock, valued at $0.05 per share, due upon execution. Commencing on January 1, 2010, the fee structure also includes a monthly cash fee of $1,000 and the monthly issuance of 2,500 shares of common stock, valued at market.  In December 2009, the Company issued 100,000 shares of common stock, valued at $5,000, all of which has been expensed as legal fees, related to the agreement (Note 19). For the years ended December 31, 2011 and 2010, the Company issued 30,000 shares of common stock, valued at $835, and 30,000 shares of common stock, valued at $1,130, respectively, all of which have been expensed as legal fees, related to the agreement.

 

In February 2011, the Company entered into a consultant agreement with an investor services firm whereby the consultant served as an investment consultant to the Company. The term of the agreement was three months. For acting in this role, the consultant received 334,000 shares of the Company’s common stock, valued at $20,040, in February 2011, 333,000 shares of the Company’s common stock, valued at $8,325, in March 2011 and 333,000 shares of the Company’s common stock, valued at $8,991, in April 2011, all of which has been expensed as consulting fees. The Company terminated the agreement in May 2011 (see Note 13).

 

In April 2011, the Company entered into a marketing advisory and financial agreement with a marketing firm whereby the consultant serves as a marketing and financial advisor to the Company. The agreement terminated on April 1, 2012. For acting in this role, the consultant received 5,000,000 shares of the Company’s common stock, valued at $130,000, in April 2011, which has been expensed as consulting fees. The consultant also received warrants to purchase 6,500,000 shares of the Company’s common stock in April 2011. The warrants are exercisable at $0.06 per share for 2,000,000 shares, $0.11 per share for 2,000,000 shares, $0.16 per share for 1,500,000 shares and $0.26 per share for 1,000,000 shares. The warrants are only exercisable if certain contractual thresholds are met as of June 1, 2012 (see Note 13).

 

In July 2011, the Company entered into a consulting agreement with an investor services firm whereby the consultant serves as an investment consultant to the Company. The term of the agreement is one year. For acting in this role, the consultant received 1,250,000 shares of the Company’s common stock, valued at $35,000 which has been expensed as consulting fees (see Note 13).

 

In November 2011, the Company entered into a consulting agreement with a firm whereby the consultant will receive a success fee, in the form of restricted shares of the Company’s common stock, of 6% of all monies invested in the Company as a result of a term sheet the Company executed with an investor firm in November 2011 (see Note 19). In December 2011, the consultant received 343,511 shares of the Company’s common stock, valued at $4,500 and all of which has been expensed as consulting fees, as a result of the first investor tranche of $75,000 (see Note 13).

 

In December 2011, the Company issued 2,000,000 restricted shares of its common stock to a consultant in consideration of the consultant’s continual support of the Company through several areas of assistance. The shares were valued at $37,200, all of which has been expensed as consulting fees. 

 

Issuance of Common Stock for Financing

 

In January 2009, the Company executed a promissory note for $225,000, bearing interest at 10% per annum, maturing on January 23, 2012. Per the terms of the promissory note, the note holder of a $100,000 convertible note, executed in July 2008, rolled the convertible note balance and accrued interest owed into a purchase of nine units with each unit consisting of a 10% promissory note of $25,000 for a total of $225,000 and 82,000 shares of the Company’s common stock, valued at $0.06, for a total of 738,000 shares of common stock. An additional loan to the Company, in January 2009, of $100,000 by the note holder was included as part of the purchase of the nine units (see Note 8). The shares were issued in February 2009. For the years ended December 31, 2011 and 2010, the Company expensed $22,140 and $22,140, respectively, of financing expenses related to the shares.

 

In March 2009, the Company executed a promissory note for $50,000, bearing interest at 10% per annum, maturing on March 20, 2012. Per the terms of the promissory note, the note holder purchased two units with each unit consisting of a 10% promissory note of $25,000 and 50,000 restricted shares of the Company’s common stock, at market price, for a total of 100,000 shares of common stock. The shares were issued in April 2009. For the years ended December 31, 2011 and 2010, the Company expensed $1,667 and $1,667, respectively, of financing expenses related to the shares (see Notes 8 and 13).

 

In April 2009, the Company executed a promissory note for $50,000, bearing interest at 10% per annum, maturing on April 10, 2012. Per the terms of the promissory note, the note holder purchased two units with each unit consisting of a 10% promissory note of $25,000 and 50,000 restricted shares of the Company’s common stock, at market price, for a total of 100,000 shares of common stock. For the years ended December 31, 2011 and 2010, the Company expensed $1,667 and $1,667, respectively, of financing expenses related to the shares (see Notes 8 and 13).

 

In May 2009, the Company executed a promissory note for $50,000, bearing interest at 10% per annum, maturing on May 27, 2012. Per the terms of the promissory note, the note holder purchased two units with each unit consisting of a 10% promissory note of $25,000 and 50,000 restricted shares of the Company’s common stock, at market price, for a total of 100,000 shares of common stock. The shares were issued in June 2009. For years ended December 31, 2011 and 2010, the Company expensed $1,000 and $1,000, respectively, of financing expenses related to the shares (see Note 8).

 

In June 2009, the Company executed a promissory note for $25,000, bearing interest at 10% per annum, maturing on June 8, 2012. Per the terms of the promissory note, the note holder purchased one unit consisting of a 10% promissory note of $25,000 and 50,000 restricted shares of the Company’s common stock, at market price. The shares were issued in June 2009. For the years ended December 31, 2011 and 2010, the Company expensed $500 and $500, respectively, of financing expenses related to the shares (see Note 8).

 

In June 2009, the Company executed a promissory note for $75,000, bearing interest at 10% per annum, maturing on June 12, 2012. Per the terms of the promissory note, the note holder purchased three units with each unit consisting of a 10% promissory note of $25,000 and 50,000 restricted shares of the Company’s common stock, at market price, for a total of 150,000 shares of common stock. The shares were issued in August 2009. For the years ended December 31, 2011 and 2010, the Company expensed $2,000 and $2,000, respectively, of financing expenses related to the shares (see Note 8).

 

In July 2009, the Company executed a promissory note for $35,000, bearing interest at 10% per annum, maturing on July 14, 2012. Per the terms of the promissory note, the note holder purchased 1.4 units with each unit consisting of a 10% promissory note of $25,000 and 50,000 restricted shares of the Company’s common stock, at market price, for a total of 70,000 shares of common stock. The shares were issued in August 2009. For the years ended December 31, 2011 and 2010, the Company expensed $933 and $933, respectively, of financing expenses related to the shares (see Note 8).

 

In August 2009, the Company executed a promissory note for $25,000, bearing interest at 10% per annum, maturing on August 18, 2012. Per the terms of the promissory note, the note holder purchased one unit consisting of a 10% promissory note of $25,000 and 75,000 restricted shares of the Company’s common stock, at market price. The shares were issued in August 2009. For the years ended December 31, 2011 and 2010, the Company expensed $1,000 and $1,000, respectively, of financing expenses related to the shares (see Note 8).

 

In September 2009, the Company executed a promissory note for $50,000, bearing interest at 10% per annum, maturing on September 2, 2012. Per the terms of the promissory note, the note holder purchased two units with each unit consisting of a 10% promissory note of $25,000 and 50,000 restricted shares of the Company’s common stock, at market price, for a total of 100,000 shares of common stock. For the years ended December 31, 2011 and 2010, the Company expensed $1,833 and $1,833, respectively, of financing expenses related to the shares (see Notes 8 and 13).

 

In October 2009, the Company executed a promissory note for $50,000, bearing interest at 10% per annum, maturing on October 20, 2012. Per the terms of the promissory note, the note holder purchased two units with each unit consisting of a 10% promissory note of $25,000 and 82,000 restricted shares of the Company’s common stock, valued at $0.10 per share, for a total of 164,000 shares of common stock. The shares were issued in November 2009. For the years ended December 31, 2011 and 2010, the Company expensed $5,467 and $5,467, respectively, of financing expenses related to the shares (see Note 8).

 

In October 2009, the Company executed a promissory note for $18,750, bearing interest at 10% per annum, maturing on October 27, 2012. Per the terms of the promissory note, the note holder purchased three/fourths of one unit with each unit consisting of a 10% promissory note of $25,000 and 133,333 restricted shares of the Company’s common stock, valued at $0.10 per share, for a total of 100,000 shares of common stock. For the years ended December 31, 2011 and 2010, the Company expensed $3,333 and $3,333, respectively, of financing expenses related to the shares (see Note 8).

 

In December 2009, the Company executed a promissory note for $7,500, bearing interest at 10% per annum, maturing on December 4, 2012. As consideration for executing the note, the Company issued 150,000 shares of restricted common stock, valued at $0.10 per share, to the note holder. For the years ended December 31, 2011 and 2010, the Company expensed $5,000 and $5,000, respectively, of financing expenses related to the shares (see Note 8).

 

In March 2010, the Company executed a promissory note for $50,000 with its CEO, bearing interest at 10% per annum, maturing on April 30, 2010. Per the terms of the promissory note, the note holder purchased two units with each unit consisting of a 10% promissory note of $25,000 and 50,000 restricted shares of the Company’s common stock, valued at $0.025 per share, for a total of 100,000 shares of common stock. For the years ended December 31, 2011 and 2010, the Company expensed $0 and $2,500, respectively, of financing expenses related to the shares (see Note 9). In May 2010, the maturity date was extended to October 31, 2010.

 

In April 2010, the Company executed a promissory note for $80,000, bearing interest at 10% per annum, maturing on July 23, 2010. As consideration for executing the note, the Company issued 500,000 shares of restricted common stock, valued at $0.021 per share, to the note holder. For the years ended December 31, 2011 and 2010, the Company expensed $0 and $10,500, respectively, of financing expenses related to the shares (see Note 8).

 

In May 2010, the Company executed a promissory note for $50,000, bearing interest at 10% per annum, maturing on May 21, 2013. As consideration for executing the note, the Company issued 200,000 shares of restricted common stock, valued at $0.009 per share, to the note holder. For the years ended December 31, 2011 and 2010, the Company expensed $600 and $350, respectively, of financing expenses related to the shares (see Notes 8 and 13).

 

Issuance of Common Stock for Settlement of Trade Payables

 

In August 2011, the Company issued 900,000 shares of its common stock, valued at $0.03 per share, to a vendor for settlement of trade payables (see Note 13). In March 2012, the remaining payables balance was settled and the Company issued 1,800,000 shares of its common stock, valued at $0.015 per share, to the vendor (see Note 18).

 

Issuance of Common Stock for the Sale and Settlement of Aged Debt

 

Per the terms of a debt purchase agreement that the Company formalized with a consultant in September 2011, the Company issued 6,500,000 unrestricted shares of its common stock, valued at $0.005 per share, in July 2011, 4,112,500 unrestricted shares of its common stock, valued at $0.005 per share, in September 2011, and 3,133,746 unrestricted shares of its common stock, valued at $0.005 per share, in October 2011 to the consultant for the sale and retirement of certain promissory notes and convertible related party promissory notes (see Notes 7, 8 and 13).

 

Per the terms of a settlement agreement that the Company executed with the estate of a deceased note holder in November 2011, the Company issued 1,344,086 restricted shares of its common stock, valued at $0.0186 per share, in December 2011, to two beneficiaries of the estate for the settlement of a promissory note (see Notes 8 and 13).

 

Sale of Shares of Common Stock

 

In June 2011, the Company sold to two individuals certain units which contained common stock. The Company issued 3,000,000 shares of its common stock at $0.02 per share.

 

In August 2011, the Company sold to one individual certain units which contained common stock and warrants. The Company issued 1,000,000 shares of its common stock at $0.03 per share and warrants to purchase 500,000 shares of the Company’s common stock, exercisable at $0.04 per share that expire in August 2014 (see Note 8 above).

 

In September 2011, the Company sold to three individuals certain units which contained common stock. The Company issued 5,000,000 shares of its common stock at $0.02 per share for 4,000,000 shares and $0.025 per share for 1,000,000 shares.

 

In October 2011, the Company sold subscriptions to one individual for certain units containing common stock and warrants. The units were for 1,000,000 shares of its common stock at $0.025 per share and warrants to purchase 500,000 shares of the Company’s common stock, exercisable at $0.04 per share that expire three years from the date of issuance. The shares and warrants were formally issued in March 2012 (see Note 18). The Company recorded the value of the shares as common stock to be issued at December 31, 2011and includes them into for loss per share purpose for 2011.

 

In November 2011, the Company sold to two individual certain units which contained common stock and warrants. The Company issued 2,000,000 shares of its common stock at $0.025 per share, 1,000,000 shares to each individual, and warrants to purchase a total of 1,500,000 shares of the Company’s common stock, exercisable at $0.04 per share that expire in October 2014 (see Note 14 below).

 

Sale of Warrants for Cash and Exercise of Warrants

 

In January 2011, the Company sold warrants to purchase 5,333,333 shares of common stock to one unrelated individual for $14,000 in cash. The warrants are exercisable at $0.03 per share and expire in January 2016.

 

In February 2011, the Company sold warrants to purchase 37,714,285 shares of common stock to two unrelated individuals for $99,000 in cash. The warrants are exercisable at $0.03 per share and expire in February 2016.

 

In March 2011, the Company sold warrants to purchase 12,250,000 shares of common stock to four unrelated individuals for $76,563 in cash. The warrants are exercisable at $0.03 per share and expire in March 2016.

 

In April 2011, the Company sold warrants to purchase 5,000,000 shares of common stock to an unrelated party for $31,250 in cash. The warrants are exercisable at $0.03 per share and expire in April 2016.

 

In April 2011, in accordance with a warrant purchase agreement executed with a consulting group, the Company issued warrants to purchase 50,000,000 shares of common stock to three unrelated parties for cash considerations in the amount of $445,000, of which the company received $131,000 in April 2011, $57,500 in May 2011, $74,000 in June 2011 and $14,000 in July 2011. Each party received warrants exercisable at $0.02 per share for 10,000,000 shares, $0.04 per share for 10,000,000 shares, $0.08 per share for 10,000,000 shares, $0.12 per share for 10,000,000 and $0.15 per share for 10,000,000 shares. All of the warrants expire in April 2014.

 

In April 2011, the Company issued 800,000 restricted shares of its common stock, valued at $0.025 per share, to an individual for the exercise of warrants for cash.

 

In September 2011, in accordance with a debt settlement agreement executed with a consulting firm, the Company issued warrants to purchase 35,000,000 shares of common stock to the consultant for cash considerations in the amount of $315,000, of which the company received $43,000 in September 2011 and $20,000 in October 2011. The warrants are exercisable at $0.02 per share for 15,000,000 shares, $0.03 per share for 10,000,000 shares and $0.04 per share for 10,000,000 shares. All of the warrants expire in September 2013 (see Note 13).

 

Issuance of Warrants for Financing and Acquiring Services

 

In connection with consulting agreements, the Company issued warrants for 12,750,000 shares to consultants, all of which were deemed earned upon issuance, for the year ended December 31, 2011. The fair value of these warrants granted, estimated on the date of grant using the Black-Scholes option-pricing model, was $507,538, which has been recorded as consulting expenses.

 

The table below summarizes the Company’s warrant activities through December 31, 2011:

 

 

Number of

Warrant Shares

 

Exercise Price Range

Per Share

 

Weighted Average Exercise Price

 

Fair Value

at Date of

Issuance

Contractual

Term

 

Intrinsic

Value

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2010

2,068,467

$

0.10

$

10.00

$

0.58

$

878,665

$

---

Granted

121,700,000

$

0.004

$

0.03

$

0.03

$

436,980

$

---

Exercised

800,000

 

 

 

0.004

$

0.004

$

3,000

$

---

Balance,

122,968,467

$

0.004

$

10.00

$

0.039

$

1,312,645

$

---

Granted

118,000,000

$

0.02

$

0.50

$

0.062

$

1,430,013

$

---

Exercised

-

 

 

 

-

$

-

$

-

$

---

Balance,

240,968,467

$

0.004

$

10.00

$

0.05

$

2,742,658

$

---

Earned and Exercisable,

240,968,467

$

0.004

$

10.00

$

0.05

$

2,742,658

$

---

 

 

 

 

The following table summarizes information concerning outstanding and exercisable warrants as of December 31, 2011:

 

 

 

 

 

 

Warrants Outstanding

 

Warrants Exercisable

 

Range of Exercise Prices

 

 

 

 

Number Outstanding

 

Average Remaining Contractual Life (in years)

 

Weighted-Average Exercise Price

 

Number Exercisable

 

Weighted-Average Exercise Price

 

$10.00

 

 

 

 

 

8,050

 

 

2.71

 

$

10.000

 

 

8,050

 

$

10.000

 

$1.00 - $5.50

 

 

 

 

 

281,417

 

 

  0.00

 

 

2.444

 

 

281,417

 

 

2.444

 

$0.004 - $0.80

 

 

 

 

 

240,679,000

 

 

3.21

 

 

0.047

 

 

240,679,000

 

 

0.062

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

240,968,467

 

 

3.20

 

$

0.050

 

 

240,968,467

 

$

0.050