CAPITAL STOCK

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Note 8. CAPITAL STOCK

Authorized

The Company is authorized to issue 50,000,000 shares (previously 200,000,000 shares) of preferred stock, having a par value of $0.0001 per share, and 300,000,000 shares (previously 150,000,000 shares) of common stock having a par value of $0.0001 per share.

Forward Stock Split and Authorized Capital Stock

Effective September 15, 2011, by Articles of Amendment, the Company effected the following changes:

(1)	forward split all outstanding shares of the Corporation’s common stock on a 3 for 1 basis. Accordingly, common share disclosure has been presented on a post split basis, except where noted.
(2)	increased authorized capital stock to 500,000,000 shares, of which 300,000,000 shares shall be common stock, par value $0.0001, and 200,000,000 shares shall be preferred stock, par value $0.0001, and to give the Board of Directors the power to fix by resolution the rights, preferences and privileges of preferred stock.

On October 5, 2011, by approval of shareholders of the Company and the Florida Secretary of State, the authorized number of Series A Convertible Preferred Stock was changed to 50,000,000 shares from the previously authorized 200,000,000 shares of preferred stock. The Certificate of Designation for these shares provides among other rights and privileges the requirement that 75% of the outstanding Series A Convertible Preferred must give their prior consent, before the Company can elect members to the Board of Directors, issue any securities of the Company or affect any fundamental transaction (defined as acquisitions, mergers, sale or purchase of substantially all assets, etc.).

The Company effectuated these amendments during the fourth fiscal quarter of 2011.

The shareholders of convertible preferred stock are voted equally with the shares of the Company’s common stock. Each share of the convertible preferred stock is convertible into two fully paid and non-assessable shares of common stock, subject to certain adjustments, as follows:

(i)

during the period commencing on September 15, 2013 and terminating on September 15, 2015 (“the quarterly conversion period”), each holder of convertible preferred stock may elect to convert, on each March 31, June 30, September 30 and December 31 occurring during the quarterly conversion period, that number of shares of convertible preferred stock equal to 25% of the total number of shares of convertible preferred stock initially issued to such Holder into full paid and non-assessable shares of common stock; and

(ii)

after the quarterly conversion period, each Holder may elect to convert all or any portion of its shares of convertible preferred stock then outstanding into full paid and non-assessable shares of common stock.

Issued and Outstanding

Preferred Stock

There were 7,732,824 preferred shares issued and outstanding as of March 31, 2012 and December 31, 2011.

On October 10, 2011, the Company issued a total of 8,340,000 shares of series A convertible preferred stock, par value $0.0001, in exchange for the purchase and cancellation of certain convertible debentures and other outstanding obligations of DEDC, a subsidiary of the Company, to four debenture holders, all directors of the Company, in the total amount of $1,146,565.

On December 30, 2011, the original issuance total was adjusted to 7,732,824 shares, in order to reflect certain payments in the amount of $121,435 made to one of the debenture holders during the period ending December 31, 2011. As a result, the total amount of the debt cancelled was adjusted to $1,146,565, in exchange for a total issuance of 7,732,824 shares of Series A convertible preferred stock.

Common Stock

There were 81,304,504 common shares issued and outstanding as of March 31, 2012 and December 31, 2011.

During the three month period ended March 31, 2012, there were no common share transactions.

During the year ended December 31, 2011, the following share transactions occurred, presented on a retroactive post forward split basis:

(1)	Prior to the reverse merger and in connection to the reverse merger and recapitalization -
(i)		158,141,439 shares had been issued prior to the reverse merger;
(ii)		134,358,566 shares were acquired for cash payment of $322,000 and returned to treasury;
(iii)		45,110,076 shares were issued in connection with the reverse merger;

(iv)	6,000,000 shares were issued to a convertible debenture holder as an investment bonus for investment;
(v)	22,871,100 shares were issued on recapitalization, i.e. immediately prior to the effective time of the merger.

The Company's reverse merger transaction has been accounted for as a recapitalization of the Company whereby the historical financial statements and operations of the acquired company become the historical financial statements of the Company, with no adjustment of the carrying value of the assets and liabilities.

The financial statements have been prepared as if the reverse merger transactions had occurred retroactively as of the periods presented. Share and share amounts reflect the effects of the recapitalization for all periods presented. Accordingly, all of the outstanding shares of the acquired company's common stock at the completion date of the reverse merger transaction have been exchanged for the Company's common stock for all periods presented.

(2)	Subsequent to the reverse merger -
(i)		1,728,000 shares were issued as settlement of debt of $275,000;

(ii) 3,000,000 shares and an additional 1,065,226 shares under anti-dilutive provisions were issued for strategic business services rendered.

On December 29, 2011, the Company executed separate securities exchange agreements with thirteen certain non-related debenture holders regarding debentures owed by DEDC, a subsidiary of the Company, in the aggregate amount of $226,500, plus accrued interest of $45,300, for a total of $271,800. These debentures were acquired, as well as accrued interest due to the debenture holders in exchange for the private issuance to the thirteen debenture holders as a group of 1,494,909 shares of restricted common stock. The fair value of the share compensation was calculated as $179,389.

During the first quarter of 2012, the Company issued a total of two Warrants for the purchase of a total of 1,500,000 Shares with a total fair value of $140,000 as follows:

(1) On January 17, 2012, the Company issued a Warrant for the purchase of 1,000,000 Shares to TMDS, LLC ("TMDS"'), a company controlled by a director of the Company, as consideration for services rendered per a Contractor Agreement, dated July 9, 2011, and as further amended December 30, 2011. TMDS receives a Warrant to purchase 1,000,000 Shares every ninety days during the term of the Contractor Agreement for a total of five (5) years. The Warrants are exercisable at $0.0001 per share, and have term expiring on the fifth anniversary date from the date of each issuance. A total of 25 million stock purchase warrants are issuable over the term of the agreement. The fair value of the stock purchase warrants issued in the first quarter is $70,000, based on Black-Scholes option-pricing model using risk free interest rate of 0.79%, expected life of 5 years and expected volatility of 473.82%.

(2) On March 17, 2012, the Company issued a Warrant for the purchase of 500,000 Shares, at an exercise price of $0.001 per share, with a term expiring on the fifth anniversary date from the date of issuance, to a departing Chief Financial Officer, who resigned effective March 14, 2012. The fair value of these stock purchase warrants is $70,000, based on Black-Scholes option-pricing model using risk free interest rate of 1.13%, expected life of 5 years and expected volatility of 460.03%.

	Outstanding Warrants
	Number of Shares		Exercise Price		Fair Value		Remaining Contractual Term (Years)		Financing Expense
Issued in 2011
Issued July 9, 2011		9,000,000	$	0.0330	$	0.107		3.28	$	964,297
Issued July 21, 2011		3,000,000	$	0.0001	$	0.110		3.31
Issued October 19, 2011		3,000,000	$	0.0001	$	0.110		3.55	$	659,755
Outstanding at Dec. 31, 2011		15,000,000
Issued in 2012
Issued January 17, 2012		1,000,000	$	0.0001	$	0.070		4.80	$	70,000
Issued March 17, 2012		500,000	$	0.0010	$	0.140		4.96		70,000
Outstanding at Mar. 31, 2012		16,500,000							$	140,000

________

* Includes warrants issued July 21,2011.

Warrants outstanding and currently exercisable at March 31, 2012 are as follows:

	Warrants Outstanding				Warrants Exercisable
	Outstanding		Remaining Life (Years)		Exercise Price		Outstanding		Exercise Price
Issued July 9, 2011		9,000,000		3.28	$	0.0330		3,000,000	$	0.0330
Issued July 21, 2011		3,000,000		3.31	$	0.0001		3,000,000	$	0.0001
Issued October 19, 2011		3,000,000		3.55	$	0.0001		3,000,000	$	0.0001
Issued January 17, 2012		1,000,000		4.80	$	0.0001		1,000,000	$	0.0001
Issued March 17, 2012		500,000		4.96	$	0.0010		-
		16,500,000						10,000,000