Equity

9 Months Ended

Sep. 30, 2013

Equity [Abstract]

Equity

3. Equity

Series B Preferred Stock

On May 15, 2013, the Company filed an amended and restated Certificate of Designations of Preferences, Rights and Limitations of Series B Preferred Stock (the “Certificate of Designations B”) with the Secretary of State of the State of Illinois that designated 80,000 such shares as Series B Preferred Stock (the “Series B Stock”). A summary of the Certificate of Designations is set forth below:

Ranking The Series B Stock ranks, with respect to rights upon liquidation, winding-up or dissolution, (i) senior to the Common Stock, Series A and B Preferred Stock, and any other classes of stock or series of preferred stock of the Company whether authorized now, or at any time in the future, unless any such subordination to any other class or series of Preferred Stock, is expressly agreed to, pursuant to an affirmative vote or written consent of Holders of at least sixty-seven percent (67%) of the Series B Stock issued and outstanding at the time of any such vote or written consent. and (ii) junior to any and all existing and future indebtedness of the Company.

Right of Conversion Any Holder of Series B Stock shall have the right to convert any or all of the Holder’s Series B Stock into a number of fully paid and non-assessable shares of Common Stock for each share of Series B Stock so converted. The number of shares of Common Stock to be issued shall be the number that is equal to 0.001% of the number of shares of the Common Stock that would be issued and outstanding after the hypothetical conversion and issuance of all of the outstanding shares of any and all classes of convertible stock and/or any and all other convertible debt instruments, options and/or warrants outstanding at the time of conversion (the “Conversion Ratio”). In no event shall the Conversion Ratio be less than four thousand, three hundred (4,300) shares of Common Stock and in no event shall the Conversion Ratio be more than ten thousand (10,000) shares of Common Stock

Dividends Series B Stock shall not be entitled to dividends.

Liquidation In the event of any liquidation, dissolution or winding-up of the affairs of the Corporation (collectively, a “Liquidation”), the sole participation to which the Holders of shares of Series B Stock then issued and outstanding (the “Series B Stockholders”) shall be entitled, out of the assets of the Corporation legally available for distribution to its stockholders, whether from capital, surplus or earnings, to receive, before any payment shall be made to the holders of the Common Stock or any other class or series of preferred stock ranking on Liquidation junior to such Series B Stock, an amount per share equal to $30 (thirty dollars). If upon any such Liquidation, the remaining assets of the Corporation available for distribution to its shareholders shall be insufficient to pay the Holders of shares of Series B Stock the full amount to which they shall be entitled, the Holders of shares of Series B Stock, and of any class or series of stock ranking upon liquidation on a parity with the Series B Stock, shall share pari passu in any distribution of the remaining assets and funds of the Corporation in proportion to the respective liquidation amounts that would otherwise be payable to the Holders of preferred stock with respect to the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

As of September 30, 2013, 80,000 shares of Series B Stock were outstanding.

Series C Preferred Stock

On May 15, 2013, the Company filed a Certificate of Designations of Preferences, Rights and Limitations of Series C Preferred Stock (the “Certificate of Designations C”) with the Secretary of State of the State of Illinois that designated 50,000 such shares as Series C Preferred Stock (the “Series C Stock”). A summary of the Certificate of Designations is set forth below:

Ranking The Series C Stock ranks, with respect to rights upon liquidation, winding-up or dissolution, (i) senior to the Common Stock, Series A Preferred Stock, and any other classes of stock or series of preferred stock of the Company whether authorized now, or at any time in the future, unless any such subordination to any other class or series of Preferred Stock, is expressly agreed to, pursuant to an affirmative vote or written consent of Holders of at least sixty-seven percent (67%) of the Series C Stock issued and outstanding at the time of any such vote or written consent. and (ii) junior to Series C Preferred Stock, and any and all existing and future indebtedness of the Company.

Right of Conversion Any Holder of Series C Stock shall have the right to convert any or all of the Holder’s Series C Stock into a number of fully paid and non-assessable shares of Common Stock for each share of Series C Stock so converted. The number of shares of Common Stock shares that is equal to sixty-six percent (66%) of the lowest closing price of the Common Stock, as quoted on any exchange or market upon which the Common Stock is traded over the sixty (60) calendar days preceding the date the Corporation and the Holder enter into an agreement to issue for shares of Series C Stock, for each share of Class C Stock being converted, provided, however, such ratio shall not be less than $0.005 nor more than $.01.

Dividends Series C Stock shall not be entitled to dividends.

Liquidation In the event of any liquidation, dissolution or winding-up of the affairs of the Corporation (collectively, a “Liquidation”), the sole participation to which the Holders of shares of Series C Stock then issued and outstanding (the “Series C Stockholders”) shall be entitled, out of the assets of the Corporation legally available for distribution to its stockholders, whether from capital, surplus or earnings, to receive, before any payment shall be made to the holders of the Common Stock or any other class or series of preferred stock ranking on Liquidation junior to such Series C Stock, an amount per share equal to $100 (one hundred). If upon any such Liquidation, the remaining assets of the Corporation available for distribution to its shareholders shall be insufficient to pay the Holders of shares of Series C Stock the full amount to which they shall be entitled, the Holders of shares of Series C Stock, and of any class or series of stock ranking upon liquidation on a parity with the Series C Stock, shall share pari passu in any distribution of the remaining assets and funds of the Corporation in proportion to the respective liquidation amounts that would otherwise be payable to the Holders of preferred stock with respect to the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

As of September 30, 2013, 2,005 shares of Series C Stock were outstanding.

Series A Preferred Stock

On May 27, 2011, the Company filed an amended and restated Certificate of Designations of Preferences, Rights and Limitations of Series A Preferred Stock (the “Certificate of Designations”) with the Secretary of State of the State of Illinois that designated 500 such shares as Series A Preferred Stock (the “Series A Stock”). A summary of the Certificate of Designations is set forth below:

Ranking The Series A Stock ranks, with respect to rights upon liquidation, winding-up or dissolution, (i) senior to the Common Stock and (ii) junior to Series B and C Stock and any other series of preferred stock, and any and all existing and future indebtedness of the Company.

No right of Conversion Series A Stock is not convertible into Common Stock.

Dividends and Other Distributions Commencing on the date of issuance of any such shares of Series A Stock, holders of Series A Stock shall be entitled to receive dividends on each outstanding share of Series A Stock, which shall accrue at a rate equal to 10% per annum from the date of issuance. Accrued dividends shall be payable upon redemption of the Series A Stock. So long as any shares of Series A Stock are outstanding, no dividends or other distributions may be paid, declared or set apart with respect to any junior securities other than dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock. After payment of dividends at the annual rates set forth above, any additional dividends declared shall be distributed ratably among all holders of Series A Stock and Common Stock in proportion to the number of shares of Common Stock that would be held by each such holder of Series A Stock as if the Series A Stock were converted into Common Stock by taking the Series A Liquidation Value (as defined below) divided by the market price of one share of Common Stock on the date of distribution.

Liquidation Upon any liquidation, dissolution or winding up of the Company after payment or provision for payment of debts and other liabilities of the Company and any liquidation preferences to the senior securities. Series B Stock and Series C Stock has liquidation preference to the Series A Stock., before any distribution or payment is made to the holders of any junior securities, the holders of Series A Stock shall first be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount with respect to the Series A Liquidation Value, after which any remaining assets of the Company shall be distributed ratably among the holders of the Series A Stock and the holders of junior securities, as if the Series A Stock were converted into Common Stock by taking the Series A Liquidation Value divided by the market price of one share of Common Stock on the date of distribution.

Redemption The Company may redeem, for cash or by an offset against any outstanding note payable from Socius to the Company that was issued by Socius CG II, Ltd. (“Socius”), any or all of the Series A Stock at any time at a redemption price per share equal to $10,000 per share of Series A Stock, plus any accrued but unpaid dividends with respect to such share of Series A Stock (the “Series A Liquidation Value”).

On June 2, 2011, the Company’s Board of Directors designated 1,200,000 shares as Series A Stock. As of September 30, 2013, no shares of Series A Stock were outstanding.

Socius CG II, Ltd. Financing

On June 3, 2011, the Company entered into a securities purchase agreement with Socius, pursuant to which it secured $500,000 of immediate funding through the issuance and sale of 2,253,470 shares of common stock and a warrant to purchase up to 20,476,707 shares of common stock at an initial exercise price of $1.02 (subject to anti-dilution adjustments). In addition, Socius agreed to purchase up to an additional $5 million in non-convertible shares of Preferred Stock from the Company over the next two years, subject to the Company meeting certain conditions.

Subject to the terms and conditions of the securities purchase agreement, beginning 75 days after the closing of the initial purchase, at the Company’s sole discretion, the Company may submit to Socius a tranche notice to purchase a certain dollar amount of the Company’s Preferred Stock at $10,000 per share. The maximum amount that may be funded under any tranche cannot exceed 20% of the cumulative trading volume of the common stock for the 10 trading day-period prior to the applicable tranche notice date.

In connection with the securities purchase agreement, the Company agreed to issue on the 75^thday anniversary of the initial purchase by Socius, 1,126,735 shares of common stock to Socius as consideration for executing the securities purchase agreement. The fair value of the consideration was $371,823 using the August 18, 2011 common stock closing price of $0.33 per share and was recorded as a deferred financing fee.

In addition, with the closing of the Socius financing, the Company approved the issuance of an aggregate of 1,800,000 shares of common stock as contingent consideration valued at $1,260,000 using the June 3, 2011 common stock closing price of $0.70 per share to two non-employee consultants. The share issuance was recorded as a financing cost charged against APIC.

In connection with the issuance of the warrant to purchase up to 20,476,707 shares of common stock at an initial exercise price of $1.02 (subject to full ratchet, anti-dilution adjustment), using the Black Scholes option pricing model that valued the warrants at $0.70 and $0.65 per share at June 3 and September 30, 2011 respectively, the Company recorded a charge to operations of $12,839,860 and a credit to additional paid in capital of $470,000. In connection with the Socius transaction we recorded total deferred financing fees of $427,073 during the year ended December 31, 2011. As of March 31, 2012, the deferred financing fee balance was $427,073, however, because access to the $5 million financing is based on a percentage formula of the dollar value of stock traded, the Company determined that it is unlikely that sufficient stock volume will be reached over the balance of the term of the financing and has expensed the deferred financing fees of $427,073 during the quarter ended September 30, 2012. The warrant agreement has an anti-dilution clause included and therefore the Company has had to issue additional warrants at the same time as new shares were sold to third parties. The following table shows all warrants outstanding with their issuance date and exercise price.

Date issued	Exercise price		Number of shares
June 3, 2011	$	1.02		20,476,707
December 29, 2011	$	0.20		458,678
February 3, 2012	$	0.14		4,336,503
March 2, 2012	$	0.14		252,449
April 2, 2012	$	0.05		53,811
April 10, 2012	$	0.12		3,995,247
April 20, 2012	$	0.12		405,839
April 20, 2012	$	0.12		828,089
April 25, 2012	$	0.12		184,335
April 27, 2012	$	0.12		302,046
June 7, 2012	$	0.01		109,489
June 15, 2012	$	0.01		733,848
June 30, 2012	$	0.01		761,126
July 24, 2012	$	0.01		217,390
September 1, 2012	$	0.01		219,723
Total				33,335,280

The value of the derivative warrant liability was $616,388 and $248,368 at September 30, 2013 and December 31, 2012, respectively.

Common Stock Issued

The Company has issued common stock various times during 2012 and 2013, the following table shows each date, reason for issuance, fair value of the transaction and number of shares issued:

Date issued	Reason for issuance	Fair value			Number of shares
January 26, 2012	Common Stock issued for license agreement	$	5,500			45,833
February 23, 2012	Common Stock issued in acquisition of subsidiary	$	1,035,168			7,394,056
February 26, 2012	Common Stock issued for license agreement	$	6,417			45,833
March 26, 2012	Common Stock issued for license agreement	$	4,583			45,833
March 31, 2012	Common Stock issued for debenture interest	$	4,442			49,354
April 2, 2012	Common Stock issued for cash	$	10,000			200,000
April 10, 2012	Common Stock issued for services	$	740,514			6,170,950
April 20, 2012	Common Stock issued for services	$	180,000			1,500,000
April 27, 2012	Common Stock issued for services	$	42,000			350,000
April 30, 2012	Common stock issued in conversion of debenture	$	100,000			250,000
May 1, 2012	Common Stock issued for license agreement	$	41,709			595,836
June 7, 2012	Common Stock issued for cash	$	15,000			1,500,000
June 15, 2012	Common Stock issued for cash	$	100,000			10,000,000
June 30, 2012	Common Stock issued for cash	$	100,000			10,000,000
June 30, 2012	Common Stock issued for debenture interest	$	1,763			44,063
September 4, 2012	Common stock issued as partial conversion of debenture	$	12,000			2,033,898
September 30, 2012	Common Stock issued for debenture interest	$	228			41,545
December 31, 2012	Common Stock issued for debenture interest	$	206			41,545
	Total 2012					40,308,746
March 14, 2013	Common Stock issued for services	$	7,200			1,000,000
March 31, 2013	Common Stock issued for debenture interest	$	1,145			40,875
May 10, 2013	Reverse issuance of common stock in lieu of debenture interest and issued Series C preferred stock instead	$	(234	)		(18,000	)
June 30, 2013	Common Stock issued for debenture interest	$	1,774			34,875
August 2, 2013	Common stock issued as partial conversion of debenture	$	15,000			815,217
August 6, 2013	Common Stock issued as conversion of Series C Stock	$	56,000			11,200,000
August 20, 2013	Common stock issued as partial conversion of debenture	$	15,000			574,713
August 20, 2013	Common Stock issued as conversion of Series C Stock	$	11,500			2,300,000
August 23, 2013	Common stock issued as partial conversion of debenture	$	8,250			316,092
August 26, 2013	Common Stock issued as conversion of Series C Stock	$	10,000			2,000,000
September 3, 2013	Common stock issued in conversion of debenture	$	16,900			744,493
September 16, 2013	Common stock issued as partial conversion of debenture	$	12,000			1,061,947
September 17, 2013	Common Stock issued as conversion of Series C Stock	$	16,000			3,200,000
September 23, 2013	Common stock issued as partial conversion of debenture	$	20,000			1,980,198
September 27, 2013	Common stock issued in conversion of debenture	$	10,350			1,162,921
September 30, 2013	Common Stock issued for debenture interest	$	645			34,875
	Total for 9 months ended Sept. 30, 2013					26,448,206

Preferred Stock Issued

On March 9, 2013 the Company issued 80,000 shares Series B Stock in exchange for all of the shares of AAPS.

On May 10, 2013 the Company issued 2,740 shares Series C Stock in exchange for multiple transactions involving cash purchases, conversions of debentures and related interest, and conversions of warrants issued.

On July 3, 2013 the Company issued 200 Series C Stock in exchange for services.

Stock Incentive Plan

In 2010, the Company adopted its Stock Incentive Plan (the “Plan”). Under the Plan, at September 30, 2013 the Company had 4,000,000 shares approved and reserved for the issuance of stock options to employees, officers, directors and outside advisors. Under the Plan, the options may be granted to purchase shares of common stock at fair market value at the date of grant.

At September 30, 2013 and December 31, 2012 the Company had 367,000 and 722,000 option shares outstanding, respectively, and 3,633,000 and 3,278,000 available for issuance at September 30, 2013 and December 31, 2012, respectively.

On February 9, 2012 the Company adopted the 2012 Stock Incentive Plan (the “2012 Plan”). Under the 2012 Plan the Company had 10,000,000 shares and shares underlying stock options approved and reserved for the issuance to employees, officers, directors and outside advisors. At September 30, 2013 the Company had 6,170,950 shares issued under the 2012 Plan and 3,829,050 available for issuance.