Preferred Stock

12 Months Ended

Dec. 31, 2012

Equity [Abstract]

Preferred Stock

Note 6. Preferred Stock

During 2011, the Company issued 4,000 shares of its series B preferred stock to a shareholder, Banyan Holdings, LLC. The preferred shares were issued for $100 per share, or $400,000 in the aggregate. The proceeds of the money received were used to fund working capital requirements.

The issuance price of the series B preferred stock is $100 per share and it is convertible into common stock by the holder at the earlier of:

· The common stock is listed for trading on Nasdaq or any national securities exchange;

· The bid price of the common stock is equal to or exceeds $5.00 a share for 30 consecutive days, and thereafter so long as the bid price continues to equal or exceed $5.00 per share;

· The trading volume of the common stock is equal to or exceeds 10,000 shares a day for 30 consecutive days, and thereafter so long as the daily trading volume continues to equal or exceed 10,000 shares; or

· October 15, 2013.

At that time the Company may also elect to convert or redeem the series B preferred stock. The conversion price is $2.25 per share of common stock, subject to adjustment for stock dividends, stock splits and reorganizations.

The series B preferred stock ranks senior to the common stock and pari-passu with the series A preferred stock of the Company as to dividends and distribution of assets upon the liquidation, dissolution or winding up of the Company. The Company has no obligation to redeem the series B preferred stock at any time.

In July 2011, the Company filed a certificate of designation with the Delaware Secretary of State designating 10,000 shares of its preferred stock as Series C Preferred stock. The issuance price of the Series C Preferred stock is substantially the same as Series A and B Preferred stock with the exception of the conversion price and the date of conversion as June 30, 2014.

The conversion price will be the closing price of the Company’s Common Stock on the trading date preceding the issuance of that share of Series C Preferred Stock, subject to adjustment for stock dividends, stock splits and reorganizations. If the Common Stock is not quoted on any market or exchange, the Conversion Price will be determined by the Board of Directors on the date of issuance.

The Series C Preferred stock ranks senior to the common stock and pari-passu with the Series A and Series B Preferred stock of the Company as to dividends and distribution of assets upon the liquidation, dissolution or winding up of the Company.

During 2012 and 2011, the Company issued 9,950 and 7,850 shares of its Series C Preferred stock to Banyan Holdings, respectively. The preferred shares were issued for $100 per share, or $995,000 and 785,000 in the aggregate for 2012 and 2011, respectively at a conversion price of ranging between $0.90 and $2.50 per share of common stock. The proceeds of the money received were used to fund working capital requirements.

Also in 2012, the Company issued 2,150 shares of Series C Preferred stock to a significant shareholder and board member for $100 per share, or $215,000 in the aggregate with a conversion price of $2.50 per share of common stock. The proceeds of the money received were used to fund working capital requirements.

On September 24, 2012, the Company issued 434,783 shares of common stock for $500,000 to Banyan Holdings. The proceeds of the money received were used to fund working capital requirements.

Preferred stock dividends for Series A, B and C are accrued for the semi-annual period ended December 31, 2012 in the amount of $483,660. During 2012, due to the lack of cash flow, the Company offered to pay the accrued dividends in common stock in lieu of cash. Substantially all preferred shareholders accepted the common stock in lieu of cash and the common shares for these dividends are expected to be paid in March 2013.

As of December 31, 2012, Banyan Holdings owned 3,000, 10,000, 17,800 and 1,121,066 shares of Series A Preferred, Series B Preferred, Series C Preferred and Common stock, respectively. If converted Banyan Holdings would own 2,899,739 shares of common stock.