0001445866-13-000969.txt : 20130816 0001445866-13-000969.hdr.sgml : 20130816 20130816141317 ACCESSION NUMBER: 0001445866-13-000969 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20130630 FILED AS OF DATE: 20130816 DATE AS OF CHANGE: 20130816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Carbon Sciences, Inc. CENTRAL INDEX KEY: 0001407878 STANDARD INDUSTRIAL CLASSIFICATION: REFUSE SYSTEMS [4953] IRS NUMBER: 205451302 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-54817 FILM NUMBER: 131044819 BUSINESS ADDRESS: STREET 1: 5511C EKWILL STREET CITY: SANTA BARBARA STATE: CA ZIP: 93111 BUSINESS PHONE: (805) 456 7000 MAIL ADDRESS: STREET 1: 5511C EKWILL STREET CITY: SANTA BARBARA STATE: CA ZIP: 93111 10-Q 1 carbon10q06302013.htm 10-Q carbon10q06302013.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2013
 
¨ TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 000-54817

CARBON SCIENCES, INC.
(Name of registrant in its charter)

Nevada
 
20-5451302
(State or other jurisdiction of incorporation or
organization)
 
(I.R.S. Employer Identification No.)
 
5511C Ekwill Street, Santa Barbara, California 93111
(Address of principal executive offices) (Zip Code)

Issuer’s telephone Number: (805) 456-7000


Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x   No  o

 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o   No  x
 
The number of shares of registrant’s common stock outstanding, as of August 14, 2013 was 29,332,423.
 
 
 

 

 
INDEX

 

 
 
 
ITEM 1. FINANCIAL STATEMENTS

CARBON SCIENCES, INC.
(A Development Stage Company)
 
Balance Sheets

   
June 30, 2013
   
December 31, 2012
 
   
(Unaudited)
       
ASSETS
           
             
CURRENT ASSETS
           
  Cash
  $ 7,579     $ 14,257  
  Prepaid expenses
    13,242       12,888  
                 
                        TOTAL CURRENT ASSETS
    20,821       27,145  
                 
PROPERTY & EQUIPMENT, at cost
               
   Computer equipment
    9,740       9,740  
   Furniture & fixtures
    1,459       1,459  
      11,199       11,199  
   Less accumulated depreciation
    (9,391 )     (7,663 )
                 
                        NET PROPERTY AND EQUIPMENT
    1,808       3,536  
                 
OTHER ASSETS
               
   Patents
    1,784       1,584  
                 
                       TOTAL ASSETS
  $ 24,413     $ 32,265  
                 
                 
LIABILITIES AND SHAREHOLDERS' DEFICIT
               
                 
CURRENT LIABILITIES
               
    Accounts payable
  $ 218,626     $ 274,485  
    Accrued expenses
    3,407       16,244  
    Accrued interest, notes payable
    53,910       22,408  
    Rent deposit
    1,500       -  
    Unearned income
    2,250       -  
    Promissory notes payable, other
    5,000       5,000  
    Derivative liability
    935,936       753,971  
    Convertible promissory notes, net of beneficial conversion feature of $113,950 and $0, respectively
    92,550       -  
    Convertible promissory notes, net of discount of $367,352 and $644,521, respectively
    312,245       86,182  
                 
                       TOTAL CURRENT LIABILITIES
    1,624,778       1,158,290  
                 
SHAREHOLDERS' DEFICIT
               
   Preferred Stock, $0.001 par value,
               
    20,000,000 authorized common shares, no shares outstanding
    -       -  
   Common Stock, $0.001 par value;
               
    1,000,000,000 authorized common shares
               
    17,613,576 and 11,576,680 shares issued and outstanding, respectively
    17,615       11,578  
   Additional paid in capital
    10,198,199       9,814,227  
   Accumulated deficit during the development stage
    (11,816,825 )     (10,951,830 )
                 
                      TOTAL SHAREHOLDERS' DEFICIT
    (1,601,011 )     (1,126,025 )
                 
    TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT
  $ 24,413     $ 32,265  



(A Development Stage Company)
 
Statements of Operations
(Unaudited)
 
                           
From Inception on
 
                           
August 25,2006
 
   
Three Months Ended
   
Six Months Ended
   
through
 
   
June 30, 2013
   
June 30, 2012
   
June 30, 2013
   
June 30, 2012
   
June 30, 2013
 
                               
                               
REVENUE
  $ -     $ -     $ -     $ -     $ -  
                                         
OPERATING EXPENSES
                                       
  General and administrative expenses
    121,593       501,348       277,212       1,023,090       8,625,133  
  Research and development
    (2,000 )     27,798       439       126,544       1,245,808  
  Depreciation and amortization expense
    864       5,671       1,728       11,697       111,148  
                                         
TOTAL OPERATING EXPENSES
    120,457       534,817       279,379       1,161,331       9,982,089  
                                         
LOSS FROM OPERATIONS BEFORE  OTHER INCOME/(EXPENSES)
    (120,457 )     (534,817 )     (279,379 )     (1,161,331 )     (9,982,089 )
                                         
OTHER INCOME/(EXPENSE)
                                       
  Interest income
    -       -       -       -       39,521  
  Rental income
    4,500       -       6,750       -       6,750  
  Loss on sale of asset
    -       -       -       -       (69,033 )
  Loss on foreign exchange
    -       -       -       -       (2,327 )
  Impairment of intangible assets
    -       -       -       -       (88,147 )
  Loss on settlement of debt
    (27,536 )     (610 )     (27,536 )     (610 )     (28,241 )
  Gain on forgiveness of debt
    20,000       102,000       20,000       102,000       122,000  
  Common stock issued for incentive fees
    -       (521,400 )     -       (779,800 )     (1,079,800 )
  Loss on change in derivative liability
    (245,697 )     -       (237,146 )     -       (310,406 )
  Penalties
    -       -       -       -       (382 )
  Interest expense
    (182,907 )     (7,044 )     (347,684 )     (9,319 )     (424,671 )
                                         
TOTAL OTHER INCOME/(EXPENSES)
    (431,640 )     (427,054 )     (585,616 )     (687,729 )     (1,834,736 )
                                         
NET LOSS
  $ (552,097 )   $ (961,871 )   $ (864,995 )   $ (1,849,060 )   $ (11,816,825 )
                                         
BASIC AND DILUTED LOSS PER SHARE
  $ (0.04 )   $ (0.09 )   $ (0.07 )   $ (0.18 )        
                                         
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
                                 
      BASIC AND DILUTED
    13,269,334       10,653,172       12,427,683       10,148,995          
 


 
(A Development Stage Company)
 
Statement of Shareholders' Equity/(Deficit)
 
                                 
Deficit
       
                                 
Accumulated
       
                           
Additional
   
during the
       
   
Preferred stock
   
Common stock
   
Paid-in
   
Development
       
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Stage
   
Total
 
                                           
Balance at December 31, 2012 (audited)
    -     $ -       11,576,680     $ 11,578     $ 9,814,227     $ (10,951,830 )   $ (1,126,025 )
                                                         
Issuance of common stock for covnersion of promissory notes (prices ranging from $0.0066 - $0.0725 per share)
    -       -       6,036,896       6,037       165,797       -       171,834  
                                                         
Beneficial conversion feature
    -       -       -       -       137,000       -       137,000  
                                                         
Stock compensation cost
    -       -       -       -       81,175       -       81,175  
                                                         
Net Loss for the six months ended June 30, 2013
    -       -       -       -       -       (864,349 )     (864,349 )
                                                         
Balance at June 30, 2013
    -     $ -       17,613,576     $ 17,615     $ 10,198,199     $ (11,816,179 )   $ (1,600,365 )



 
(A Development Stage Company)
 
Statements of Cash Flows
(Unaudited)

                   
               
From Inception on
 
               
August 25, 2006
 
   
Six Months Ended
   
through
 
   
June 30, 2013
   
June 30, 2012
   
June 30, 2013
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                 
   Net loss
  $ (864,995 )   $ (1,849,060 )   $ (11,816,825 )
   Adjustment to reconcile net loss to net cash
                       
     used in operating activities
                       
   Depreciation expense
    1,728       11,697       111,148  
   Common stock issuance for services
    -       76,000       417,038  
   Common stock issuance for incentive fees
    -       779,800       1,079,800  
   Stock compensation cost
    81,175       379,748       2,220,750  
   Impairment of intangible assets
    -       -       88,147  
   Loss on sale of asset
    -       -       69,033  
   Payment of debt with promissory notes
    66,150       -       66,150  
   (Gain)/loss on settlement of debt
    27,536       610       28,241  
   Gain on forgiveness of debt
    (20,000 )     (102,000 )     (122,000 )
   Amortization of debt discount and beneficial conversion feature recorded as interest expense
    311,530       -       356,472  
   Loss on change in derivative liability
    237,146       -       310,405  
  Changes in Assets and Liabilities
                       
   (Increase) Decrease in:
                       
   Prepaid expenses
    (354 )     (15,371 )     (13,242 )
   Increase (Decrease) in:
                       
   Accounts payable
    34,111       263,243       425,596  
   Accrued expenses
    20,365       184,320       303,469  
   Rent deposit
    1,500       -       1,500  
   Unearned income
    2,250       -       2,250  
                      .  
NET CASH USED IN OPERATING ACTIVITIES
    (101,858 )     (271,013 )     (6,472,068 )
                         
CASH FLOWS USED IN INVESTING ACTIVITIES:
                       
   Proceeds from sale of vehicle
    -       -       24,500  
   Patent expenditures
    (200 )     (19,034 )     (89,931 )
   Purchase of equipment
    -       -       (206,489 )
                         
NET CASH USED IN INVESTING ACTIVITIES
    (200 )     (19,034 )     (271,920 )
                         
CASH FLOWS IN FINANCING ACTIVITIES:
                       
   Advances from officer
    -       -       113,000  
   Loans from investors
    -       171,000       625,000  
   Proceeds received for convertible promissory notes
    95,380       -       487,880  
   Repayment of advances and loans
    -       -       (383,000 )
   Proceeds from subscriptions payable
    -       -       362,775  
   Proceeds from issuance of common stock, net
    -       138,075       5,545,912  
                         
NET CASH PROVIDED BY FINANCING  ACTIVITIES
    95,380       309,075       6,751,567  
                         
NET INCREASE/(DECREASE) IN CASH
    (6,678 )     19,028       7,579  
                         
CASH, BEGINNING OF PERIOD
    14,257       7,265       -  
                         
CASH, END OF PERIOD
  $ 7,579     $ 26,293     $ 7,579  
                         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
                       
   Interest paid
  $ 1,535     $ 491     $ 11,065  
   Taxes paid
  $ -     $ -     $ -  
                      .  
SUPPLEMENTAL DISCLOSURES OF NON CASH ACTIVITIES
                       
During the six months ended June 30, 2013 the Company issued 6,036,896 shares of common stock for conversion of $79,023 in convertible promissory notes, plus $1,700 of accrued interest. The Company recognized a gain of $26,890 on the conversion of the notes. Also, during the same period, the Company exchanged demand notes for convertible promissory notes in the amount of $97,000.  During the six months ended June 30, 2012, the Company issued 69,737 shares of common stock for converted debt in the amount of $265,000, at fair value of $3.80 per share. Also, the shares Company issued 6,098 of common stock at a fair value of $8,110 for an accounts payable with a loss of $610.

 
6

(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS-UNAUDITED
JUNE 30, 2013



1.    Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included.  Operating results for the six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.  For further information refer to the financial statements and footnotes thereto included in the Company's Form 10-K for the year ended December 31, 2012.

Going Concern
The accompanying financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business.  The accompanying financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern.  The Company does not generate significant revenue, and has negative cash flows from operations, which raise substantial doubt about the Company’s ability to continue as a going concern.  The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusion.  The Company has obtained funds from its shareholders since its inception , and believes this funding will continue, and is also actively seeking new investors.  Management believes the existing shareholders and the prospective new investors will provide the additional cash needed to meet the Company’s obligations as they become due, and will allow the development of its core of business.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of Carbon Sciences, Inc. is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

Development Stage Activities and Operations
The Company is in its initial stages of formation and has insignificant revenues. A development stage activity is one in which all efforts are devoted substantially to establishing a new business and even if planned principal operations have commenced, revenues are insignificant.

Revenue Recognition
The Company will recognize revenue when services are performed, and at the time of shipment of products, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured. To date, the Company has had no revenues and is in the development stage.

Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
 
Loss per Share Calculations
The Company adopted the accounting pronouncement for loss per share, which dictates the calculation of basic earnings per share and diluted earnings per share. Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company’s diluted loss per share is the same as the basic loss per share for the six months ended June 30, 2013 as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.

Stock-Based Compensation
Share based payments applies to transactions in which an entity exchanges its equity instruments for goods or services, and also applies to liabilities an entity may incur for goods or services that are to follow a fair value of those equity instruments. We will be required to follow a fair value approach using an option-pricing model, such as the Black Scholes option valuation model, at the date of a stock option grant. The deferred compensation calculated under the fair value method would then be amortized over the respective vesting period of the stock option. The adoption of share based compensation has no material impact on our results of operations.

 
7

CARBON SCIENCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS-UNAUDITED
JUNE 30, 2013


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair Value of Financial Instruments
Disclosures about fair value of financial instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of December 31, 2012, the amounts reported for cash, accrued interest and other expenses, and notes payable approximate the fair value because of their short maturities.

We adopted ASC Topic 820 (originally issued as SFAS 157, “Fair Value Measurements”) as of January 1, 2008 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
 
·
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
 
·
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
 
·
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at June 30, 2013:
 
   
Total
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
                         
Assets
  $ -     $ -     $ -     $ -  
                                 
Total assets measured at fair value
  $ -     $ -     $ -     $ -  
                                 
Liabilities
                               
                                 
Derivative liability
  $ 935,936       -       -     $ 935,936  
Convertible promissory note
    404,795       -       -       404,795  
Total liabilities measured at fair value
  $ 1,340,731     $ -     $ -     $ 1,340,731  
 
Recently Issued Accounting Pronouncements
 
Management reviewed accounting pronouncements issued during the three months ended June 30, 2013, and no pronouncements were adopted during the period.

3.    CAPITAL STOCK

At June 30, 2013, the Company’s authorized stock consisted of 100,000,000 shares of common stock, with $0.001 par value.  The Company is also authorized to issue 20,000,000 shares of preferred stock with a par value of $0.001 per share.  The rights, preferences and privileges of the holders of the preferred stock will be determined by the Board of Directors prior to issuance of such shares.

During the six months ended, the Company issued 6,036,896 shares of common stock at fair value in conversion of $79,023 convertible promissory notes, plus accrued interest payable of $1,700. The Company recognized a loss of $26,890 for conversion of the notes.

4.      STOCK OPTIONS

As of June 30, 2013, the Company had non-qualified stock options outstanding of 100,000 shares of common stock to its employees. Each Option shall be exercisable to the nearest whole share, in installments or otherwise, as the respective Option agreements may provide. Notwithstanding any other provisions of the Option agreement, each Option expires on the date specified in the Option agreement, which date shall not be later than the seventh (7th) anniversary from the grant date of the options. The stock options vested immediately, and are exercisable for a period of seven to ten years from the date of grant at exercise prices between $0.95 and $3.40 per share, the market value of the Company’s common stock on the date of grant.

 
8

CARBON SCIENCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS-UNAUDITED
JUNE 30, 2013


4.      STOCK OPTIONS AND WARRANTS (Continued)

A summary of the Company’s stock option activity and related information as follows:
 
   
6/30/2013
 
         
Weighted
 
   
Number
   
average
 
   
of
   
exercise
 
   
Options
   
price
 
Outstanding, beginning of period
    1,137,500     $ 2.39  
Granted
    -       -  
Exercised
    -       -  
Expired
    (1,037,500     2.44  
Outstanding, end of period
    100,000     $ 1.88  
Exercisable at the end of period
    87,000     $ 1.58  
Weighted average fair value of
               
  options granted during the period
          $ -  

Stock-based compensation expense recognized during the period is based on the value of the portion of stock-based payment awards that is ultimately expected to vest. Stock-based compensation expense recognized in the financial statements of operations during the six months ended June 30, 2013, included compensation expense for the stock-based payment awards granted prior to, but not yet vested, as of June 30, 2013 based on the grant date fair value estimated, and compensation expense for the stock-based payment awards granted subsequent to June 30, 2013, based on the grant date fair value estimated. We account for forfeitures as they occur. The stock-based compensation expense recognized in the statement of income during the six months ended June 30, 2013 and 2012 is $81,175 and $379,748, respectively.

Warrants
As of June 30, 2013, the Company had 460,000 common stock purchase warrants outstanding.

5.     PROMISSORY NOTES
 
During the six months ended June 30, 2013, the Company signed three (3) additional demand promissory notes for funds received during the month of May 2013 in the amount of $20,379 for operating expenses from an existing shareholder. The total aggregate balance due to the shareholder was $30,379, which included previous funds received in January. The notes bore interest at 5% per annum, and are due within one year from the effective date. As of May 29, 2013, the notes were exchanged for a convertible promissory note.   
 
During the month of May 2013, the Company signed two (2) demand promissory notes in exchange for accounts payable in the amount of $66,621. The notes bore interest at 10% per annum, and were due within one year from the effective date. As of May 23, 2013, the notes were purchased by a shareholder.
 
6.     CONVERTIBLE PROMISSORY NOTES

The Company received funds for two (2) securities purchase agreements entered into on September 19, 2012 and December 21, 2012, for the sale of two (2) 8% convertible promissory notes in the aggregate principal amount of $75,000. The notes are convertible into shares of common stock of the Company at a price equal to a variable conversion price of 58% multiplied by the market price representing a discount of 42%. The market price means the average of the lowest three (3) trading prices for the common stock during a ten (10) trading day period ending on the latest complete trading day prior to the conversion date. One note matured on June 21, 2013, and the other matures on September 14, 2013. During the period ended June 30, 2013, the principal of $46,250, plus accrued interest of $1,700 was converted into shares of common stock,   leaving a remaining principal balance of $28,750. Upon extinguishment of the debt, the Company recognized a loss of $7,697. The Company recorded a debt discount of $60,382 related to the conversion feature of the note, along with a derivative liability at inception.  As of June 30, 2013, total amortization was recorded in amount of $54,243 resulting in a remaining debt discount of $6,136 at June 30, 2013.


 
9

CARBON SCIENCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS-UNAUDITED
JUNE 30, 2013


6.     CONVERTIBLE PROMISSORY NOTES (Continued)

On December 12, 2012, the Company exchanged certain promissory notes in the aggregate amount of $327,500 to convertible promissory notes. The Company entered into securities purchase agreements for the sale of 10% convertible promissory notes in the aggregate principal amount of $327,500, which are convertible into shares of common stock of the Company at a conversion price equal to (a) the lesser of $0.54 per share or (b) 50% of the lowest trade price recorded on any trade date after the effective date, or (c) the lowest effective price per share granted to any person after the effective date. The notes mature one (1) year from the effective date of the note. During the period ended June 30, 2013, the principal sum of $62,000, plus accrued interest was transferred to another investor, and $8,728 of the note was converted into shares of common stock. The remaining principal balance as of June 30, 2013 was $318,772. The Company recorded a debt discount of $327,500 related to the conversion feature of the note, along with a derivative liability at inception.  As of June 30, 2013, total amortization was recorded in amount of $179,452 resulting in a debt discount of $148,048 at June 30, 2013.

On December 31, 2012, the Company entered into promissory notes in exchange for services rendered in the aggregate amount of $244,452 for   convertible promissory notes. The Company entered into securities purchase agreements for the sale of 5% convertible promissory notes in the principal amount of $244,452, which are convertible into shares of common stock of the Company at a conversion price equal to the lesser of $0.20 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The notes mature two (2) years from their effective dates. The Company recorded a debt discount of $237,742 related to the conversion feature of the note, along with a derivative liability at inception.  As of June 30, 2013, total amortization was recorded in amount of $59,008 resulting in a remaining debt discount of $178,982 at June 30, 2013.

On February 22, 2013, the Company received in consideration upon execution of a note in the sum of $10,000 on a securities purchase agreement for the sale of a 10% convertible promissory note in the aggregate principal amount of $100,000. The Company received an advance in the amount of $10,000 on February 25, 2013. During the period ended June 30, 2013, the Company received additional proceeds of $30,000 on this securities purchase agreement. The total principal owed as of June 30, 2013 was $40,000. The notes are convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.09 per share or fifty percent (50%) of the lowest trade price recorded after the effective date. The notes mature one (1) year from their effective date. The Company recorded a debt discount of $40,000 related to the beneficial conversion feature of the note.  As of June 30, 2013, total amortization was recorded in the amount of $5,805 resulting in a remaining discount of $34,195 at June 30, 2013.
 
On October 8, 2012, the Company received in consideration upon execution of a note in the sum of $75,000 on a securities purchase agreement for the sale of 10% convertible promissory notes in aggregate principal amount of $335,000 with a 10% Original Issue Discount (OID) of $35,000.  The principal amount of $81,784 outstanding on the note as of December 31, 2012 included the payment of $75,000 plus the unamortized original issue discount of $6,784.  The Company recorded a debt discount of $54,843 related to the conversion feature of the note and $6,784 related to the original issue discount, along with a derivative liability at inception.  As of June 30, 2013, total amortization was recorded in the amount of $52,845 resulting in a remaining discount of $9,576 at June 30, 2013.  On February 27, 2013, the Company received additional proceeds of $25,000 on this securities purchase agreement, with an original issue discount of $2,917 for total principal owed of $27,917.  The Company recorded a debt discount of $22,487 related to the conversion feature of the note and $2,917 related to the original issue discount, along with a derivative liability at inception.  As of June 30, 2013, total amortization was recorded in the amount of $7,577 resulting in a remaining discount of $14,909 at June 30, 2013. If the notes are repaid before 90 days, the interest rate will be zero percent (0%), otherwise a one-time interest rate of five percent (5%) will be applied to the principal sums outstanding. As of June 30, 2013, all interest was owed. The note is convertible into shares of common stock of the Company at a price equal to the lesser of $0.72 or 70% of the lowest trade price in the 25 trading days previous to the conversion. The notes mature one (1) year from the effective date of each advance.
 
On March 14, 2013, the Company entered into a promissory note in exchange for accounts payable in the amount of $29,500 on a convertible promissory note. The Company entered into securities purchase agreements for the sale of 5% convertible promissory note in the principal amount of $29,500, which are convertible into shares of common stock of the Company at a conversion price equal to the lesser of $0.15 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The note matures two (2) years from its effective date.
 
On May 29, 2013, the Company exchanged $97,000 in demand promissory notes for convertible promissory notes on a securities purchase agreement for the sale of a 10% convertible promissory note in the aggregate principal amount of $97,000. The notes are convertible into shares of common stock of the Company at a price equal to a conversion price of the lesser of $0.028 per share or fifty percent (50%) of the lowest trade price recorded after the effective date. The note matures six (6) months from the effective date. The Company recorded a debt discount of $97,000 related to the beneficial conversion feature of the note.  As of June 30, 2013, total amortization was recorded in the amount of $17,244 resulting in a remaining discount of $79,756 at June 30, 2013.
 
On May 31, 2013, the Company entered into a promissory note in exchange for services rendered in the amount of $15,000 on a convertible promissory note. The Company entered into securities purchase agreements for the sale of 5% convertible promissory note in the principal amount of $25,000, which are convertible into shares of common stock of the Company at a conversion price equal to the lesser of $0.04 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The note matures two (2) years from its effective date.

 
10

CARBON SCIENCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS-UNAUDITED
JUNE 30, 2013


6.     CONVERTIBLE PROMISSORY NOTES (Continued)

On June 4, 2013, the Company entered into a promissory note in exchange for services rendered in the amount of $25,000 on a convertible promissory note. The Company entered into securities purchase agreements for the sale of 5% convertible promissory note in the principal amount of $25,000, which are convertible into shares of common stock of the Company at a conversion price equal to the lesser of $0.035 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The note matures three (3) years from its effective date.
 
For purpose of determining the fair market value of the derivative liability, the Company used Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative are as follows:
 
       
Stock price on the valuation dates
  $0.013 - $0.77  
Conversion price for the debt
  $0.005 - $0.50  
Dividend yield
  0.00 %
Years to Maturity
  1 - 2  
Risk free rate
  .05% - .25 %
Expected volatility
  90.93% - 369.31 %
 
The value of the derivative liability balance at June 30, 2013 was $935,936.
 
7.     SUBSEQUENT EVENTS

Management has evaluated subsequent events according to the requirements of ASC TOPIC 855, and has reported the following:

On July 8, 2013, the Company received in consideration upon execution of a note for funds received in the amount of $42,500 on a securities purchase agreement entered into for the sale of a 8% convertible promissory note in the aggregate principal amount of $42,500. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of 58% multiplied by the market price representing a discount of 42%. The market price means the average of the lowest three (3) trading prices for the common stock during a ten (10) trading day period ending on the latest complete trading day prior to the conversion date. The note matures on April 10, 2014.

During the month of July, the Company issued 7,476,276 shares of common stock in conversion of various promissory notes consisting of principal of $33,841, plus accrued interest of $354.

During the month of August, the Company issued 4,242,571 shares of common stock in conversion of various promissory notes consisting of principal of $13,309, plus accrued interest of $151.

 
 
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis should be read together with our financial statements and the related notes appearing elsewhere in this filing. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. See “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under “Risk Factors” in our annual report on Form 10-K filed with the SEC on April 2, 2013 and other filings made with the SEC.
 
OVERVIEW
 
Carbon Sciences is in the early stages of developing a complete small-scale natural gas-to-liquids (“GTL”) fuel production plant (the “miniGTL plant” or the “Plant”). The miniGTL plant will be based on integrating and optimizing existing GTL technology components and processes into a modular diesel or gasoline production facility. Developing the Plant will require bringing together natural gas resource holders, engineering firms, and technology firms. Based on our internal economic analysis and conversations with prospective partners, we believe that the miniGTL A modular Plant producing approximately 1,000 barrels per day of diesel or gasoline may be economically viable in the United States, given the low price and abundance of natural gas. A modular Plant would be mobile and could be moved from one gas field to another, amortizing the capital cost of the plant over several small gas fields, which are more plentiful than large gas fields.

With respect to catalyst development activities, Carbon Sciences is developing a proprietary catalyst technology to facilitate the production of cleaner and greener transportation fuels, hydrogen and other valuable, large volume products from natural gas. We believe our clean-tech process will enable the world to reduce its dependence on petroleum by transforming abundant and affordable natural gas into gasoline, diesel and jet fuel, and other products, such as hydrogen, methanol, ammonia, solvents, plastics and detergent alcohols. The key to our process is a chemical catalyst that can reduce the cost of reforming natural gas into synthetic gas (syngas), the most costly step in making liquid fuel and other products from natural gas.

Our patented catalyst has been proven in laboratory conditions to be very robust with over 2,000 hours of uninterrupted run time with high efficiency in converting natural gas to syngas.  Initial testing of the catalyst under industrial conditions, such as high temperature and high pressure, confirmed our belief that some variation of our base catalyst may be developed to outperform existing natural gas reforming catalysts by (a) lowering the amount of steam required in the reaction chamber, which decreases the energy required and increases the natural gas throughput rate, and (b) consuming carbon dioxide, which reduces the carbon footprint of the process.  Our research and development efforts are based on developing a commercial form of this catalyst for use in existing natural gas reforming processes. Our development activities are primarily performed by outside catalyst development firms and we are also seeking a strategic partner to help accelerate the commercial development of our catalyst.
 
We have not yet generated revenues. We currently have negative working capital and, in connection with our December 31, 2012 financial statements, we received an opinion from our auditors that expressed substantial doubt about our ability to continue as a going concern without additional financing. Subsequent to December 31, 2012, we obtained $95,380 in funding through debt financing. We believe that the financings received by us after December 31, 2012 will fully address such concern and enable us to implement our business plan through such time as revenues support our operations. If additional funds are required because our plans, expectations or assumptions change, we may also seek funding through additional equity or debt financing. There can be no assurance that such financing will be available or upon such terms that are acceptable to us, if at all.
 
Corporate Overview
 
We were incorporated in the State of Nevada on August 25, 2006, as Zingerang, Inc. Our name was changed to Carbon Sciences, Inc. on April 9, 2007. Our principal executive offices are located at 5511-C Ekwill


Street, Santa Barbara, California 93111, and our telephone number is (805) 456-7000. Our fiscal year end is December 31.
 
Critical Accounting Policies
 
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to impairment of property, plant and equipment, intangible assets, deferred tax assets and fair value computation using the Black Scholes option pricing model. We base our estimates on historical experience and on various other assumptions, such as the trading value of our common stock and estimated future undiscounted cash flows, that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions; however, we believe that our estimates, including those for the above-described items, are reasonable. 
  
Use of Estimates

In accordance with GAAP, management utilizes estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates and assumptions relate to recording net revenue, collectability of accounts receivable, useful lives and impairment of tangible and intangible assets, accruals, income taxes, inventory realization, stock-based compensation expense and other factors. Management believes it has exercised reasonable judgment in deriving these estimates. Consequently, a change in conditions could affect these estimates.

Fair Value of Financial Instruments

The Company's cash, cash equivalents, investments, accounts receivable and accounts payable are stated at cost which approximates fair value due to the short-term nature of these instruments.
 
Recently Issued Accounting Pronouncements

Management reviewed accounting pronouncements issued during the three months ended June 30, 2013 and no pronouncements were adopted during the period.
 
RESULTS OF OPERATIONS – THREE MONTHS ENDED JUNE 30, 2013 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2012
 
General and Administrative Expenses

G&A expenses decreased by $378,099 to $123,249 for the three months ended June 30, 2013, compared to $501,348 for the three months ended June 30, 2012. This decrease in G&A expenses was primarily due to the decrease in non-cash stock compensation of $213,544, a decrease in salaries of $109,833, investor relations of $13,872, professional fees of $31,639, this was partially offset by the decrease in other G&A expenses of $9,211 compared to the prior year. The reduction in G&A was primarily the result of fewer employees, and expenses associated with the employees.

Research and Development

R&D costs decreased by $29,798 to $(2,000) for the three months ended June 30, 2013, compared to $27,798 for the three months ended June 30, 2012. This decrease in R&D costs was the result of a decrease in outside consulting and lab fees, and supplies for testing and research of product development.


 
Other Income and Expenses

Other income and (expenses) decreased by $4,586 to $431,640 net expense for the three months ended June 30, 2013, compared to $427,054 for the three months ended June 30, 2012. The decrease in other income and (expenses) was the result of a decrease in incentive fees, forgiveness of debt, with an increase in interest expense, gain on settlement of debt, amortization of debt discount, rental income and the loss on change in derivative. The overall decrease was due to the Company changing the structure of its debt financing.
 
Net Loss
 
Net loss decreased by $409,774 to $552,097 for the three months ended June 30, 2013, compared to $961,871 for the three months ended June 30, 2012.  This decrease in net loss was the result of a net decrease in other income and (expenses) of $4,586, with an overall decrease in operating expenses of $414,360. Currently the Company is in its development stage and has no revenues.
 
RESULTS OF OPERATIONS – SIX MONTHS ENDED JUNE 30, 2013 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2012

General and Administrative Expenses

G&A, expenses increased by $745,878 to $277,212 for the six months ended June 30, 2013, compared to $1,023,090 for the six months ended June 30, 2012. The decrease in G&A for the six months ended June 30, 2013 was due primarily to due to the decrease in non-cash stock compensation of $298,573, a decrease in salaries of $219,913, investor relations of $102,786, professional fees of $81,718, this was partially offset by the decrease in other G&A expenses of $42,888 compared to the prior year. The reduction in G&A was primarily the result of fewer employees, and expenses associated with the employees.

Research and Development

R&D costs decreased by $126,105 to $439 for the six months ended June 30, 2013, compared to $126,544 for the six months ended June 30, 2012.  This decrease in R&D costs was the result of a decrease in outside consulting and lab fees, and supplies for testing and research of product development.

Other Income and Expenses

Other income and (expenses) decreased by $102,113 to $585,616 for the six months ended June 30, 2013, compared to $687,729 for the six months ended June 30, 2012. The decrease in other income and expenses was the result of a decrease in incentive fees, forgiveness of debt, with an increase in interest expense, gain on settlement of debt, amortization of debt discount, rental income and the loss on change in derivative. The overall decrease was due to the Company changing the structure of its debt financing.

Net Loss

Net Loss for the six months ended June 30, 2013 was $864,995 compared to $1,849,060 for the six months ended June 30, 2012. This decrease in net loss was the result of a net decrease in other income and (expenses) of $102,113, with an overall decrease in operating expenses of $881,952. Currently the Company is in its development stage and has no revenues.

Liquidity and Capital Resources
 
As of June 30, 2013, we had a working capital deficit of $1,604,603 compared to $1,131,145 for the year ended December 31, 2012. The increase of $473,458in working capital deficit was due primarily to accrued expenses, the non-cash derivative liability, plus an increase in convertible promissory notes as a result of debt financing.



During the six months ended June 30, 2013, we used $101,858 of cash for operating activities, as compared to $271,013 for the six months ended June 30, 2012. The decrease of $169,155 in the use of cash for operating activities was primarily due to an decrease in operating net loss associated with an increase in non-cash expenses, and a decrease in prepaid expenses, accounts payable, and accrued expenses.

Cash used by investing activities was $200 for the six months ended June 30, 2013, as compared to $19,034 in patent expenditures in the six months ended June 30, 2012.

Cash provided from financing activities during the six months ended June 30, 2013 was $95,380 as compared to $309,075 for the six months ended June 30, 2012. Our capital needs have primarily been met from the proceeds of equity financings, and investor loans, as we are currently in the development stage and had no revenues.

We do not have any material commitments for capital expenditures during the next twelve months.  Although proceeds received from the sale of our securities are currently sufficient to fund our current operating expenses, we will need to raise additional funds in the future to continue our operations. Therefore, our future operations are dependent on our ability to secure additional financing.  Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we may have to curtail our marketing and development plans and possibly cease our operations.
 
We believe that we have assets to ensure that we can continue to operate without liquidation over the next twelve months, due to our cash on hand, and our experience in the past in being able to raise money from our investor base.  Based on the aforesaid, we believe we have the ability to continue our operations for the foreseeable future and will be able to realize assets and discharge liabilities in the normal course of our operations.

Our financial statements as of June 30, 2013 have been prepared under the assumption that we would continue as a going concern. Our independent registered public accounting firm issued their report dated April 2, 2013 that included an explanatory paragraph expressing substantial doubt in our ability to continue as a going concern  as the Company does not generate significant revenue and has negative cash flows from operations. Our ability to continue as a going concern ultimately is dependent on our ability to generate a profit which is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to achieve profitable operations. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
n/a
 
ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules


and forms, and (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting
 
There was no change to our internal controls or in other factors that could affect these controls during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 
PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
 
ITEM 1A. RISK FACTORS
 
There are no material changes from the risk factors previously disclosed in the Registrant’s Form 10-K filed April 2, 2013.
 

During the three months ended June 30, 2013 the Company entered into securities purchase agreements and convertible promissory notes for funds received in the amount of $50,380. The funds were used for operating expenses.

Also, during the three months ended June 30, 2013, the Company issued 6,036,896 for conversion of various convertible promissory notes in the amount of $79,023 in principal, plus $1,700 accrued interest.

The Company relied on an exemption pursuant to Rule 506 of Regulation d and/or Section 4(2) of the Securities Act of 1933, as amended in connection with the sale of the shares.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None
 

Not Applicable.

 
None
 
 
ITEM 6. EXHIBITS
 
31.1
 
Certification of the Chief Executive Officer and Chief Financial Officer., pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1
 
Certification of the Chief Executive Officer and Chief Financial Officer., furnished pursuant to Section 1350 of Chapter 63 of 18 U.S.C. as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
EX-101.INS
 
XBRL INSTANCE DOCUMENT
     
EX-101.SCH
 
XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
     
EX-101.CAL
 
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
     
EX-101.DEF
 
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
     
EX-101.LAB
 
XBRL TAXONOMY EXTENSION LABELS LINKBASE
     
EX-101.PRE
 
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
 

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on August 16,  2013.

 
CARBON SCIENCES, INC.
     
 
By:
/s/ William Beifuss
 
   
Chief Executive Officer (Principal Executive
Officer ) and Acting Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
 


 
18

 

EX-31.1 2 ex311.htm EXHIBIT 31.1 ex311.htm
 
EXHIBIT 31.1
Certification Pursuant to pursuant to Rule 13a-14(a) or Rule 15d-14(a)
of the Securities Exchange Act of 1934, as amended

I, William Beifuss, certify that:

1.           I have reviewed this quarterly report on Form 10-Q of Carbon Sciences, Inc. for the quarter ended June 30, 2013;
 
2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.           The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a.           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b.           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c.           Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d.           Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
5.           The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
a.           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
b.           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

August 16, 2013

/s/ William Beifuss
William Beifuss
Chief Executive Officer and
Acting Chief Financial Officer (Principal Executive Officer and Principal Accounting and Financial Officer)
 
 

 
 

 

EX-32.1 3 ex321.htm EXHIBIT 32.1 ex321.htm
 

                                                                                                                                        EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of Carbon Sciences, Inc (the “Company”) on Form 10-Q for the quarter ended June 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William Beifuss, Chief Executive Officer and Acting Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
 
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.


August 16, 2013
/s/ William Beifuss
 
 
William Beifuss
 
Chief Executive Officer and
 
Acting Chief Financial Officer (Principal Executive Officer and Principal Accounting and Financial Officer)
 


 
 

 

EX-101.INS 4 cabn-20130630.xml 13242 12888 20821 27145 9740 9740 1459 1459 11199 11199 9391 7663 1808 3536 1784 1584 24413 32265 218626 274485 3407 16244 53910 22408 1500 2250 5000 5000 753971 92550 312245 86182 1625424 1158290 17615 11578 10198199 9814227 11816825 10951830 -1601011 -1126025 24413 32265 0.001 20000000 0.001 100000000 17613576 11576680 17613576 11576680 367352 113950 121593 501348 277212 1023090 8625133 -2000 27798 439 126544 1245808 864 5671 120457 534817 279379 1161331 9982089 -120457 -534817 -279379 -1161331 -9982089 39521 4500 6750 6750 -2327 -27536 -610 20000 102000 -521400 -779800 -1079800 245697 382 -182907 -7044 -347684 -9319 -424671 -431640 -427054 -585616 -687729 -1834736 -552097 -961871 -0.04 -0.09 -0.07 -0.18 13269334 10653172 12427683 10148995 11578 9814227 -10951830 -1126025 11576680 6037 165797 171834 6036896 137000 137000 81175 -864995 17615 10198199 -11816179 -1600365 17613576 -864995 -1849060 -11816825 1728 11697 111148 76000 417038 779800 1079800 81175 379748 2220750 88147 -69033 66150 66150 -27536 -610 -28241 20000 102000 122000 311530 356472 237146 310405 -354 -15371 -13242 34111 263243 425596 20365 184320 303469 1500 1500 2250 2250 -101858 -271013 -6472068 24500 200 19034 89931 206489 -200 -19034 -271920 113000 171000 625000 95380 487880 -383000 362775 138075 5545912 95380 309075 6751567 -6678 19028 7579 14257 7265 26293 7579 1535 491 11065 <!--egx--><p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>1.&nbsp;&nbsp;&nbsp;&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'><u>Basis of Presentation</u></p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.&nbsp;&nbsp;Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included.&nbsp;&nbsp;Operating results for the six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.&nbsp;&nbsp;For further information refer to the financial statements and footnotes thereto included in the Company's Form 10-K for the year ended December 31, 2012.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'><u>Going Concern</u></p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>The accompanying financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business.&nbsp;&nbsp;The accompanying financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern.&nbsp;&nbsp;The Company does not generate significant revenue, and has negative cash flows from operations, which raise substantial doubt about the Company&#146;s ability to continue as a going concern.&nbsp;&nbsp;The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusion.&nbsp;&nbsp;The Company has obtained funds from its shareholders since its inception, and believes this funding will continue, and is also actively seeking new investors.&nbsp;&nbsp;Management believes the existing shareholders and the prospective new investors will provide the additional cash needed to meet the Company&#146;s obligations as they become due, and will allow the development of its core of business.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>2.&nbsp;&nbsp;&nbsp;SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>This summary of significant accounting policies of Carbon Sciences, Inc. is presented to assist in understanding the Company&#146;s financial statements. The financial statements and notes are representations of the Company&#146;s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'><u>Development Stage Activities and Operations</u></p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>The Company is in its initial stages of formation and has insignificant revenues. A development stage activity is one in which all efforts are devoted substantially to establishing a new business and even if planned principal operations have commenced, revenues are insignificant.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-indent:.25in;line-height:normal;text-autospace:none'><u>Revenue Recognition</u></p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>The Company will recognize revenue when services are performed, and at the time of shipment of products, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured. To date, the Company has had no revenues and is in the development stage.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'><u>Cash and Cash Equivalents</u></p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'><u>Loss per Share Calculations</u></p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>The Company adopted the accounting pronouncement for loss per share, which dictates the calculation of basic earnings per share and diluted earnings per share. Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company&#146;s diluted loss per share is the same as the basic loss per share for the six months ended June 30, 2013 as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'><u>Stock-Based Compensation</u></p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>Share based payments applies to transactions in which an entity exchanges its equity instruments for goods or services, and also applies to liabilities an entity may incur for goods or services that are to follow a fair value of those equity instruments. We will be required to follow a fair value approach using an option-pricing model, such as the Black Scholes option valuation model, at the date of a stock option grant. The deferred compensation calculated under the fair value method would then be amortized over the respective vesting period of the stock option. The adoption of share based compensation has no material impact on our results of operations.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'><u>Fair Value of Financial Instruments</u></p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>Disclosures about fair value of financial instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of December 31, 2012, the amounts reported for cash, accrued interest and other expenses, and notes payable approximate the fair value because of their short maturities.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>We adopted ASC Topic 820 (originally issued as SFAS 157, &#147;Fair Value Measurements&#148;) as of January 1, 2008 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:1.0in;text-indent:-.25in;line-height:normal;text-autospace:none'>&#183;&#160;&#160;&#160;&#160;&#160;&#160; Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:1.0in;text-indent:-.25in;line-height:normal;text-autospace:none'>&#183;&#160;&#160;&#160;&#160;&#160;&#160; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:1.0in;text-indent:-.25in;line-height:normal;text-autospace:none'>&#183;&#160;&#160;&#160;&#160;&#160;&#160; Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at June 30, 2013:</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <table border="0" cellspacing="0" cellpadding="0" style='line-height:115%;margin-left:26.2pt;border-collapse:collapse'> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;padding:0in 0in 3.0pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp; </p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>Total</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>(Level 1)</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>(Level 2)</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>(Level 3)</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp; </p> </td> <td width="90" valign="bottom" style='width:67.8pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:#CCEEFF;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Assets</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:white;padding:0in 0in 1.5pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>&nbsp; </p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:#CCEEFF;padding:0in 0in 1.5pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Total assets measured at fair value</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:white;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>&nbsp; </p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:#CCEEFF;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Liabilities</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>&nbsp;</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:white;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>&nbsp; </p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:#CCEEFF;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Derivative liability</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>$935,936</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>$935,936</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:white;padding:0in 0in 1.5pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>Convertible promissory note</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>404,795</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>404,795</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:#CCEEFF;padding:0in 0in 3.0pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Total liabilities measured at fair value</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>$1,340,731</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>$1,340,731</p> </td> </tr> </table> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'><u>Recently Issued Accounting Pronouncements</u></p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>Management reviewed accounting pronouncements issued during the three months ended June 30, 2013, and no pronouncements were adopted during the period.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>3.&nbsp;&nbsp;&nbsp; CAPITAL STOCK</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>At June 30, 2013, the Company&#146;s authorized stock consisted of 100,000,000 shares of common stock, with $0.001 par value.&nbsp;&nbsp;The Company is also authorized to issue 20,000,000 shares of preferred stock with a par value of $0.001 per share.&nbsp;&nbsp;The rights, preferences and privileges of the holders of the preferred stock will be determined by the Board of Directors prior to issuance of such shares.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>During the six months ended, the Company issued 6,036,896 shares of common stock at fair value in conversion of $79,023 convertible promissory notes, plus accrued interest payable of $1,700. The Company recognized a loss of $26,890 for conversion of the notes.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;STOCK OPTIONS</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>As of June 30, 2013, the Company had non-qualified stock options outstanding of 100,000 shares of common stock to its employees. Each Option shall be exercisable to the nearest whole share, in installments or otherwise, as the respective Option agreements may provide. Notwithstanding any other provisions of the Option agreement, each Option expires on the date specified in the Option agreement, which date shall not be later than the seventh (7th) anniversary from the grant date of the options. The stock options vested immediately, and are exercisable for a period of seven to ten years from the date of grant at exercise prices between $0.95 and $3.40 per share, the market value of the Company&#146;s common stock on the date of grant.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>A summary of the Company&#146;s stock option activity and related information as follows:</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>&nbsp;</p> <table border="0" cellspacing="0" cellpadding="0" style='line-height:115%;margin-left:26.2pt;border-collapse:collapse'> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;padding:0in 0in 1.5pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp; </p> </td> <td width="176" colspan="2" valign="bottom" style='width:131.8pt;border:none;border-bottom:solid black 1.0pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>6/30/2013</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp; </p> </td> <td width="88" valign="bottom" style='width:65.9pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> </td> <td width="88" valign="bottom" style='width:65.9pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>Weighted</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp; </p> </td> <td width="88" valign="bottom" style='width:65.9pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>Number</p> </td> <td width="88" valign="bottom" style='width:65.9pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>average</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp; </p> </td> <td width="88" valign="bottom" style='width:65.9pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>of</p> </td> <td width="88" valign="bottom" style='width:65.9pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>exercise</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;padding:0in 0in 1.5pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp; </p> </td> <td width="88" valign="bottom" style='width:65.9pt;border:none;border-bottom:solid black 1.0pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>Options</p> </td> <td width="88" valign="bottom" style='width:65.9pt;border:none;border-bottom:solid black 1.0pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>price</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;background:#CCEEFF;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Outstanding, beginning of period</p> </td> <td width="88" valign="bottom" style='width:65.9pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>1,137,500</p> </td> <td width="88" valign="bottom" style='width:65.9pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>$2.39</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;background:white;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>Granted</p> </td> <td width="88" valign="bottom" style='width:65.9pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>-</p> </td> <td width="88" valign="bottom" style='width:65.9pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>-</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;background:#CCEEFF;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Exercised</p> </td> <td width="88" valign="bottom" style='width:65.9pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="88" valign="bottom" style='width:65.9pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;background:white;padding:0in 0in 1.5pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>Expired</p> </td> <td width="88" valign="bottom" style='width:65.9pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>(1,037,500)</p> </td> <td width="88" valign="bottom" style='width:65.9pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>2.44</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;background:#CCEEFF;padding:0in 0in 3.0pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Outstanding, end of period</p> </td> <td width="88" valign="bottom" style='width:65.9pt;border:none;border-bottom:double black 2.25pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>100,000</p> </td> <td width="88" valign="bottom" style='width:65.9pt;border:none;border-bottom:double black 2.25pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>$1.88</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;background:white;padding:0in 0in 3.0pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>Exercisable at the end of period</p> </td> <td width="88" valign="bottom" style='width:65.9pt;border:none;border-bottom:double black 2.25pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>87,000</p> </td> <td width="88" valign="bottom" style='width:65.9pt;border:none;border-bottom:double black 2.25pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>$1.58</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;background:#CCEEFF;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Weighted average fair value of</p> </td> <td width="88" valign="bottom" style='width:65.9pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>&nbsp;</p> </td> <td width="88" valign="bottom" style='width:65.9pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>&nbsp;</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;background:white;padding:0in 0in 3.0pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>&nbsp;&nbsp;options granted during the period</p> </td> <td width="88" valign="bottom" style='width:65.9pt;background:white;padding:0in 0in 3.0pt 0in'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="88" valign="bottom" style='width:65.9pt;border:none;border-bottom:double black 2.25pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>-</p> </td> </tr> </table> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>Stock-based compensation expense recognized during the period is based on the value of the portion of stock-based payment awards that is ultimately expected to vest. Stock-based compensation expense recognized in the financial statements of operations during the six months ended June 30, 2013, included compensation expense for the stock-based payment awards granted prior to, but not yet vested, as of June 30, 2013 based on the grant date fair value estimated, and compensation expense for the stock-based payment awards granted subsequent to June 30, 2013, based on the grant date fair value estimated. We account for forfeitures as they occur. The stock-based compensation expense recognized in the statement of income during the six months ended June 30, 2013 and 2012 is $81,175 and $379,748, respectively.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-indent:.25in;line-height:normal;text-autospace:none'><u>Warrants</u></p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>As of June 30, 2013, the Company had 460,000 common stock purchase warrants outstanding.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PROMISSORY NOTES</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>During the six months ended June 30, 2013, the Company signed three (3) additional demand promissory notes for funds received during the month of May 2013 in the amount of $20,379 for operating expenses from an existing shareholder. The total aggregate balance due to the shareholder was $30,379, which included previous funds received in January. The notes bore interest at 5% per annum, and are due within one year from the effective date. As of May 29, 2013, the notes were exchanged for a convertible promissory note.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>During the month of May 2013, the Company signed two (2) demand promissory notes in exchange for accounts payable in the amount of $66,621. The notes bore interest at 10% per annum, and are due within one year from the effective date. As of May 23, 2013, the notes were purchased by a shareholder.&#160; </p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CONVERTIBLE PROMISSORY NOTES</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>The Company received funds for two (2) securities purchase agreement entered into on September 19, 2012 and December 21, 2012, for the sale of two (2) 8% convertible promissory notes in the aggregate principal amount of $75,000. The notes are convertible into shares of common stock of the Company at a price equal to a variable conversion price of 58% multiplied by the market price representing a discount of 42%. The market price means the average of the lowest three (3) trading prices for the common stock during a ten (10) trading day period ending on the latest complete trading day prior to the conversion date. One note matured on June 21, 2013, and the other matures on September 14, 2013. During the period ended June 30, 2013, the principal of $46,250, plus accrued interest of $1,700 was converted into shares of common stock,&nbsp;&nbsp;leaving a remaining principal balance of $28,750. Upon extinguishment of the debt, the Company recognized a loss of $7,697. The Company recorded a debt discount of $60,382 related to the conversion feature of the note, along with a derivative liability at inception.&nbsp;&nbsp;As of June 30, 2013, total amortization was recorded in amount of $54,243 resulting in a remaining debt discount of $6,136 at June 30, 2013.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>On December 12, 2012, the Company exchanged certain promissory notes in the aggregate amount of $327,500 to convertible promissory notes. The Company entered into securities purchase agreements for the sale of 10% convertible promissory notes in the aggregate principal amount of $327,500, which are convertible into shares of common stock of the Company at a conversion price equal to (a) the lesser of $0.54 per share or (b) 50% of the lowest trade price recorded on any trade date after the effective date, or (c) the lowest effective price per share granted to any person after the effective date. The notes mature one (1) year from the effective date of the note. As of June 30, 2013, the principal sum of $62,000, plus accrued interest was transferred to another investor, and $8,728 of the note was converted into shares of common stock. The remaining principal balance as of June 30, 2013 was $318,772. The Company recorded a debt discount of $327,500 related to the conversion feature of the note, along with a derivative liability at inception.&nbsp;&nbsp;During the six months ended June 30, 2013, total amortization was recorded in amount of $179,452 resulting in a debt discount of $148,048 at June 30, 2013.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>On December 31, 2012, the Company entered into promissory notes in exchange for services rendered in the aggregate amount of $244,452 for&nbsp;&nbsp;&nbsp;convertible promissory notes. The Company entered into securities purchase agreements for the sale of 5% convertible promissory notes in the principal amount of $244,452, which are convertible into shares of common stock of the Company at a conversion price equal to the lesser of $0.20 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The notes mature two (2) years from their effective dates. The Company recorded a debt discount of $237,742 related to the conversion feature of the note, along with a derivative liability at inception.&nbsp;&nbsp;As of June 30, 2013, total amortization was recorded in amount of $59,008 resulting in a remaining debt discount of $178,982 at June 30, 2013.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>On February 22, 2013, the Company received in consideration upon execution of a note in the sum of $10,000 on a securities purchase agreement for the sale of a 10% convertible promissory note in the aggregate principal amount of $100,000. The Company received an advance in the amount of $10,000 on February 25, 2013. During the period ended June 30, 2013, the Company received additional proceeds of $30,000 on this securities purchase agreement. The total principal owed as of June 30, 2013 was $40,000. The notes are convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.09 per share or fifty percent (50%) of the lowest trade price recorded after the effective date. The notes mature one (1) year from their effective date. The Company recorded a debt discount of $40,000 related to the beneficial conversion feature of the note.&nbsp;&nbsp;As of June 30, 2013, total amortization was recorded in the amount of $5,805 resulting in a remaining discount of $34,195 at June 30, 2013.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp; </p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>On October 8, 2012, the Company received in consideration upon execution of a note in the sum of $75,000 on a securities purchase agreement for the sale of 10% convertible promissory notes in aggregate principal amount of $335,000 with a 10% Original Issue Discount (OID) of $35,000.&nbsp;&nbsp;The principal amount of $81,784 outstanding on the note as of December 31, 2012 included the payment of $75,000 plus the unamortized original issue discount of $6,784.&nbsp;&nbsp;The Company recorded a debt discount of $54,843 related to the conversion feature of the note and $6,784 related to the original issue discount, along with a derivative liability at inception.&nbsp;&nbsp;As of June 30, 2013, total amortization was recorded in the amount of $52,845 resulting in a remaining discount of $9,576 at June 30, 2013.&nbsp;&nbsp;On February 27, 2013, the Company received additional proceeds of $25,000 on this securities purchase agreement, with an original issue discount of $2,917 for total principal owed of $27,917.&nbsp;&nbsp;The Company recorded a debt discount of $22,487 related to the conversion feature of the note and $2,917 related to the original issue discount, along with a derivative liability at inception.&nbsp;&nbsp;As of June 30, 2013, total amortization was recorded in the amount of $7,577 resulting in a remaining discount of $14,909 at June 30, 2013.If the notes are repaid before 90 days, the interest rate will be zero percent (0%), otherwise a one-time interest rate of five percent (5%) will be applied to the principal sums outstanding. As of June 30, 2013, all interest was owed. The note is convertible into shares of common stock of the Company at a price equal to the lesser of $0.72 or 70% of the lowest trade price in the 25 trading days previous to the conversion. The notes mature one (1) year from the effective date of each advance.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>On March 14, 2013, the Company entered into a promissory note in exchange for accounts payable in the amount of $29,500 on a convertible promissory note. The Company entered into securities purchase agreements for the sale of 5% convertible promissory note in the principal amount of $29,500, which are convertible into shares of common stock of the Company at a conversion price equal to the lesser of $0.15 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The note matures two (2) years from its effective date.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>On May 29, 2013, the Company exchanged $97,000 in demand promissory notes for convertible promissory notes on a securities purchase agreement for the sale of a 10% convertible promissory note in the aggregate principal amount of $97,000. The notes are convertible into shares of common stock of the Company at a price equal to a conversion price of the lesser of $0.028 per share or fifty percent (50%) of the lowest trade price recorded after the effective date. The note matures six (6) months from the effective date. The Company recorded a debt discount of $97,000 related to the beneficial conversion feature of the note.&nbsp;&nbsp;As of June 30, 2013, total amortization was recorded in the amount of $17,244 resulting in a remaining discount of $79,756 at June 30, 2013.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>On May 31, 2013, the Company entered into a promissory note in exchange for services rendered in the amount of $15,000 on a convertible promissory note. The Company entered into securities purchase agreements for the sale of 5% convertible promissory note in the principal amount of $25,000, which are convertible into shares of common stock of the Company at a conversion price equal to the lesser of $0.035 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The note matures two (2) years from its effective date.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>On June 4, 2013, the Company entered into a promissory note in exchange for services rendered in the amount of $25,000 on a convertible promissory note. The Company entered into securities purchase agreements for the sale of 5% convertible promissory note in the principal amount of $215,000, which are convertible into shares of common stock of the Company at a conversion price equal to the lesser of $0.035 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The note matures three (3) years from its effective date.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>For purpose of determining the fair market value of the derivative liability, the Company used Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative are as follows:</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>&nbsp;</p> <table border="0" cellspacing="0" cellpadding="0" style='line-height:115%;margin-left:26.15pt;border-collapse:collapse'> <tr align="left"> <td width="439" valign="bottom" style='width:329.35pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp; </p> </td> <td width="189" valign="bottom" style='width:141.6pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> </td> </tr> <tr align="left"> <td width="439" valign="bottom" style='width:329.35pt;background:#CCEEFF;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Stock price on the valuation dates</p> </td> <td width="189" valign="bottom" style='width:141.6pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>$0.013&nbsp;- $0.77</p> </td> </tr> <tr align="left"> <td width="439" valign="bottom" style='width:329.35pt;background:white;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>Conversion price for the debt</p> </td> <td width="189" valign="bottom" style='width:141.6pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>$0.005 - $0.50</p> </td> </tr> <tr align="left"> <td width="439" valign="bottom" style='width:329.35pt;background:#CCEEFF;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Dividend yield</p> </td> <td width="189" valign="bottom" style='width:141.6pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>0.00%</p> </td> </tr> <tr align="left"> <td width="439" valign="bottom" style='width:329.35pt;background:white;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>Years to Maturity</p> </td> <td width="189" valign="bottom" style='width:141.6pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>1 - 2</p> </td> </tr> <tr align="left"> <td width="439" valign="bottom" style='width:329.35pt;background:#CCEEFF;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Risk free rate</p> </td> <td width="189" valign="bottom" style='width:141.6pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>.05% - .25%</p> </td> </tr> <tr align="left"> <td width="439" valign="bottom" style='width:329.35pt;background:white;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>Expected volatility</p> </td> <td width="189" valign="bottom" style='width:141.6pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>90.93% - 369.31%</p> </td> </tr> </table> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>The value of the derivative liability balance at June 30, 2013 was $935,936.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>7&nbsp;&nbsp;&nbsp;&nbsp; SUBSEQUENT EVENTS</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>Management has evaluated subsequent events according to the requirements of ASC TOPIC 855, and has reported the following:</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>On July 8, 2013, the Company received in consideration upon execution of a note for funds received in the amount of $42,500 on a securities purchase agreement entered into for the sale of a 8% convertible promissory note in the aggregate principal amount of $42,500. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of 58% multiplied by the market price representing a discount of 42%. The market price means the average of the lowest three (3) trading prices for the common stock during a ten (10) trading day period ending on the latest complete trading day prior to the conversion date. The note matures on April 10, 2014.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>During the month of July, the Company issued 7,476,276 shares of common stock in conversion of various promissory notes consisting of principal of $33,841, plus accrued interest of $354.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>During the month of August, the Company issued 4,242,571 shares of common stock in conversion of various promissory notes consisting of principal of $13,309, plus accrued interest of $151.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'><u>Development Stage Activities and Operations</u></p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>The Company is in its initial stages of formation and has insignificant revenues. A development stage activity is one in which all efforts are devoted substantially to establishing a new business and even if planned principal operations have commenced, revenues are insignificant.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-indent:.25in;line-height:normal;text-autospace:none'><u>Revenue Recognition</u></p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>The Company will recognize revenue when services are performed, and at the time of shipment of products, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured. To date, the Company has had no revenues and is in the development stage.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'><u>Cash and Cash Equivalents</u></p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'><u>Loss per Share Calculations</u></p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>The Company adopted the accounting pronouncement for loss per share, which dictates the calculation of basic earnings per share and diluted earnings per share. Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company&#146;s diluted loss per share is the same as the basic loss per share for the six months ended June 30, 2013 as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'><u>Stock-Based Compensation</u></p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>Share based payments applies to transactions in which an entity exchanges its equity instruments for goods or services, and also applies to liabilities an entity may incur for goods or services that are to follow a fair value of those equity instruments. We will be required to follow a fair value approach using an option-pricing model, such as the Black Scholes option valuation model, at the date of a stock option grant. The deferred compensation calculated under the fair value method would then be amortized over the respective vesting period of the stock option. The adoption of share based compensation has no material impact on our results of operations.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'><u>Fair Value of Financial Instruments</u></p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>Disclosures about fair value of financial instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of December 31, 2012, the amounts reported for cash, accrued interest and other expenses, and notes payable approximate the fair value because of their short maturities.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>We adopted ASC Topic 820 (originally issued as SFAS 157, &#147;Fair Value Measurements&#148;) as of January 1, 2008 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:1.0in;text-indent:-.25in;line-height:normal;text-autospace:none'>&#183;&#160;&#160;&#160;&#160;&#160;&#160; Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:1.0in;text-indent:-.25in;line-height:normal;text-autospace:none'>&#183;&#160;&#160;&#160;&#160;&#160;&#160; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:1.0in;text-indent:-.25in;line-height:normal;text-autospace:none'>&#183;&#160;&#160;&#160;&#160;&#160;&#160; Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at June 30, 2013:</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <table border="0" cellspacing="0" cellpadding="0" style='line-height:115%;margin-left:26.2pt;border-collapse:collapse'> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;padding:0in 0in 3.0pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp; </p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>Total</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>(Level 1)</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>(Level 2)</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>(Level 3)</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp; </p> </td> <td width="90" valign="bottom" style='width:67.8pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:#CCEEFF;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Assets</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:white;padding:0in 0in 1.5pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>&nbsp; </p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:#CCEEFF;padding:0in 0in 1.5pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Total assets measured at fair value</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:white;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>&nbsp; </p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:#CCEEFF;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Liabilities</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>&nbsp;</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:white;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>&nbsp; </p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:#CCEEFF;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Derivative liability</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>$935,936</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>$935,936</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:white;padding:0in 0in 1.5pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>Convertible promissory note</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>404,795</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>404,795</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:#CCEEFF;padding:0in 0in 3.0pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Total liabilities measured at fair value</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>$1,340,731</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>$1,340,731</p> </td> </tr> </table> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'><u>Recently Issued Accounting Pronouncements</u></p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>&nbsp;</p> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;text-align:justify;text-justify:inter-ideograph;line-height:normal;text-autospace:none'>Management reviewed accounting pronouncements issued during the three months ended June 30, 2013, and no pronouncements were adopted during the period.</p> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> <table border="0" cellspacing="0" cellpadding="0" style='line-height:115%;margin-left:26.2pt;border-collapse:collapse'> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;padding:0in 0in 3.0pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp; </p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>Total</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>(Level 1)</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>(Level 2)</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>(Level 3)</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp; </p> </td> <td width="90" valign="bottom" style='width:67.8pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:#CCEEFF;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Assets</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:white;padding:0in 0in 1.5pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>&nbsp; </p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:#CCEEFF;padding:0in 0in 1.5pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Total assets measured at fair value</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:white;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>&nbsp; </p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:#CCEEFF;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Liabilities</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>&nbsp;</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:white;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>&nbsp; </p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:#CCEEFF;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Derivative liability</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>$935,936</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>$935,936</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:white;padding:0in 0in 1.5pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>Convertible promissory note</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>404,795</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>404,795</p> </td> </tr> <tr align="left"> <td width="266" valign="bottom" style='width:199.65pt;background:#CCEEFF;padding:0in 0in 3.0pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Total liabilities measured at fair value</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>$1,340,731</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="90" valign="bottom" style='width:67.8pt;border:none;border-bottom:double black 2.25pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>$1,340,731</p> </td> </tr> </table> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>&nbsp;</p> <table border="0" cellspacing="0" cellpadding="0" style='line-height:115%;margin-left:26.2pt;border-collapse:collapse'> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;padding:0in 0in 1.5pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp; </p> </td> <td width="176" colspan="2" valign="bottom" style='width:131.8pt;border:none;border-bottom:solid black 1.0pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>6/30/2013</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp; </p> </td> <td width="88" valign="bottom" style='width:65.9pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> </td> <td width="88" valign="bottom" style='width:65.9pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>Weighted</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp; </p> </td> <td width="88" valign="bottom" style='width:65.9pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>Number</p> </td> <td width="88" valign="bottom" style='width:65.9pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>average</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp; </p> </td> <td width="88" valign="bottom" style='width:65.9pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>of</p> </td> <td width="88" valign="bottom" style='width:65.9pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>exercise</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;padding:0in 0in 1.5pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp; </p> </td> <td width="88" valign="bottom" style='width:65.9pt;border:none;border-bottom:solid black 1.0pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>Options</p> </td> <td width="88" valign="bottom" style='width:65.9pt;border:none;border-bottom:solid black 1.0pt;padding:0'> <p align="center" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:center;line-height:normal;text-autospace:none'>price</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;background:#CCEEFF;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Outstanding, beginning of period</p> </td> <td width="88" valign="bottom" style='width:65.9pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>1,137,500</p> </td> <td width="88" valign="bottom" style='width:65.9pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>$2.39</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;background:white;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>Granted</p> </td> <td width="88" valign="bottom" style='width:65.9pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>-</p> </td> <td width="88" valign="bottom" style='width:65.9pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>-</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;background:#CCEEFF;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Exercised</p> </td> <td width="88" valign="bottom" style='width:65.9pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> <td width="88" valign="bottom" style='width:65.9pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>-</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;background:white;padding:0in 0in 1.5pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>Expired</p> </td> <td width="88" valign="bottom" style='width:65.9pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>(1,037,500)</p> </td> <td width="88" valign="bottom" style='width:65.9pt;border:none;border-bottom:solid black 1.0pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>2.44</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;background:#CCEEFF;padding:0in 0in 3.0pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Outstanding, end of period</p> </td> <td width="88" valign="bottom" style='width:65.9pt;border:none;border-bottom:double black 2.25pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>100,000</p> </td> <td width="88" valign="bottom" style='width:65.9pt;border:none;border-bottom:double black 2.25pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>$1.88</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;background:white;padding:0in 0in 3.0pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>Exercisable at the end of period</p> </td> <td width="88" valign="bottom" style='width:65.9pt;border:none;border-bottom:double black 2.25pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>87,000</p> </td> <td width="88" valign="bottom" style='width:65.9pt;border:none;border-bottom:double black 2.25pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>$1.58</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;background:#CCEEFF;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Weighted average fair value of</p> </td> <td width="88" valign="bottom" style='width:65.9pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>&nbsp;</p> </td> <td width="88" valign="bottom" style='width:65.9pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>&nbsp;</p> </td> </tr> <tr align="left"> <td width="452" valign="bottom" style='width:339.05pt;background:white;padding:0in 0in 3.0pt 0in'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>&nbsp;&nbsp;options granted during the period</p> </td> <td width="88" valign="bottom" style='width:65.9pt;background:white;padding:0in 0in 3.0pt 0in'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>&nbsp;</p> </td> <td width="88" valign="bottom" style='width:65.9pt;border:none;border-bottom:double black 2.25pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>-</p> </td> </tr> </table> <!--egx--><p style='margin:0in;margin-bottom:.0001pt;line-height:115%;margin-left:.25in;line-height:normal;text-autospace:none'>&nbsp;</p> <table border="0" cellspacing="0" cellpadding="0" style='line-height:115%;margin-left:26.15pt;border-collapse:collapse'> <tr align="left"> <td width="439" valign="bottom" style='width:329.35pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp; </p> </td> <td width="189" valign="bottom" style='width:141.6pt;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;text-autospace:none'>&nbsp;</p> </td> </tr> <tr align="left"> <td width="439" valign="bottom" style='width:329.35pt;background:#CCEEFF;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Stock price on the valuation dates</p> </td> <td width="189" valign="bottom" style='width:141.6pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>$0.013&nbsp;- $0.77</p> </td> </tr> <tr align="left"> <td width="439" valign="bottom" style='width:329.35pt;background:white;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>Conversion price for the debt</p> </td> <td width="189" valign="bottom" style='width:141.6pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>$0.005 - $0.50</p> </td> </tr> <tr align="left"> <td width="439" valign="bottom" style='width:329.35pt;background:#CCEEFF;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Dividend yield</p> </td> <td width="189" valign="bottom" style='width:141.6pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>0.00%</p> </td> </tr> <tr align="left"> <td width="439" valign="bottom" style='width:329.35pt;background:white;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>Years to Maturity</p> </td> <td width="189" valign="bottom" style='width:141.6pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>1 - 2</p> </td> </tr> <tr align="left"> <td width="439" valign="bottom" style='width:329.35pt;background:#CCEEFF;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:#CCEEFF;text-autospace:none'>Risk free rate</p> </td> <td width="189" valign="bottom" style='width:141.6pt;background:#CCEEFF;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:#CCEEFF;text-autospace:none'>.05% - .25%</p> </td> </tr> <tr align="left"> <td width="439" valign="bottom" style='width:329.35pt;background:white;padding:0'> <p style='margin:0in;margin-bottom:.0001pt;line-height:115%;line-height:normal;background:white;text-autospace:none'>Expected volatility</p> </td> <td width="189" valign="bottom" style='width:141.6pt;background:white;padding:0'> <p align="right" style='margin:0in;margin-bottom:.0001pt;line-height:115%;text-align:right;line-height:normal;background:white;text-autospace:none'>90.93% - 369.31%</p> </td> </tr> </table> 935936 935936 404795 404795 1340731 1340731 100000000 0.001 20000000 0.001 6036896 79023 1700 26890 0.95 3.40 1137500 2.39 100000 1.88 87000 1.58 81175 379748 460000 20379 30379 0.0500 66621 0.1000 0.0800 75000 0.0800 75000 The notes are convertible into shares of common stock of the Company at a price equal to a variable conversion price of 58% multiplied by the market price representing a discount of 42%. The market price means the average of the lowest three (3) trading prices for the common stock during a ten (10) trading day period ending on the latest complete trading day prior to the conversion date. 2013-06-21 2013-09-14 46250 1700 28750 60382 54243 6136 327500 convertible into shares of common stock of the Company at a conversion price equal to (a) the lesser of $0.54 per share or (b) 50% of the lowest trade price recorded on any trade date after the effective date, or (c) the lowest effective price per share granted to any person after the effective date. The notes mature one (1) year from the effective date of the note. 8728 318772 327500 179452 148048 244452 0.0500 are convertible into shares of common stock of the Company at a conversion price equal to the lesser of $0.20 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. 237742 59008 178982 0.1000 40000 The notes are convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.09 per share or fifty percent (50%) of the lowest trade price recorded after the effective date. The notes mature one (1) year from their effective date. 5805 34195 75000 81784 54843 52845 9576 25000 2917 27917 22487 14909 If the notes are repaid before 90 days, the interest rate will be zero percent (0%), otherwise a one-time interest rate of five percent (5%) will be applied to the principal sums outstanding. As of June 30, 2013, all interest was owed. The note is convertible into shares of common stock of the Company at a price equal to the lesser of $0.72 or 70% of the lowest trade price in the 25 trading days previous to the conversion. 29500 0.0500 convertible into shares of common stock of the Company at a conversion price equal to the lesser of $0.15 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. 97000 0.1000 The notes are convertible into shares of common stock of the Company at a price equal to a conversion price of the lesser of $0.028 per share or fifty percent (50%) of the lowest trade price recorded after the effective date. 97000 17244 79756 0.0500 25000 are convertible into shares of common stock of the Company at a conversion price equal to the lesser of $0.035 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion 0.0500 215000 convertible into shares of common stock of the Company at a conversion price equal to the lesser of $0.035 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion 0.013 0.77 0.005 0.50 0.0000 P1Y P2Y 0.0005 0.0025 0.9093 3.6931 935936 42500 0.0800 The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of 58% multiplied by the market price representing a discount of 42%. 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