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6. SHAREHOLDERS' EQUITY
 9 Months Ended
Sep. 30, 2012
Notes to Financial Statements  
NOTE 6. SHAREHOLDERS' EQUITY

The Company’s Board of Directors may, without further action by the Company’s stockholders, from time to time, direct the issuance of any authorized but unissued or unreserved shares of preferred stock in series and at the time of issuance, determine the rights, preferences and limitations of each series. The holders of such preferred stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of the Company before any payment is made to the holders of our common stock. Furthermore, the Board of Directors could issue preferred stock with voting and other rights that could adversely affect the voting power of the holders of our common stock.

 

Convertible Series A Preferred Stock

 

The Company has authorized 1,000,000 shares of Convertible Series A Preferred Stock, $0.01 par value. At September 30, 2012 and December 31, 2011, there were 510,000 shares issued and outstanding, respectively. The Convertible Series A Preferred Stock is convertible at the rate of one share of common stock for one share of Convertible Series A Preferred Stock.

 

Common Stock

 

The Company has authorized 200,000,000 shares of common stock, par value $0.01. At September 30, 2012 and December 31, 2011, there were 73,437,444 and 64,629,033 shares issued and outstanding, respectively.

 

During the nine months ended September 30, 2012, the Company issued an aggregate of 5,918,260 shares of common stock for gross proceeds of $420,000.

 

During the nine months ended September 30, 2012, the Company issued 352,250 shares of common stock valued at $14,438 to Harold Paul as payment for legal services rendered and 500,000 shares of common stock valued at $15,000 to another attorney as payment for legal services rendered. During the nine months ended September 30, 2012, the Company issued 351,945 shares of common stock valued at $17,628 to outside consultants as payment for professional services rendered.

 

During the nine months ended September 30, 2012, the Company issued 100,000 shares of common stock valued at $3,000 to a former director in connection with payment of accrued liabilities.

 

Stock Options

 

The Company issued a total of 20,000 options valued at $600 to one director in January 2012. The options have an exercise price of $0.03. The options expire on January 2022. The options were valued using the Black-Scholes model using the following assumptions: volatility: 322%; dividend yield: 0%; zero coupon rate: 0.25%; and a life of 10 years. The following table summarizes stock option as of September 30, 2012:

 

    September 30, 2012  
    Number of     Weighted Average  
    Options     Exercise Price  
Outstanding, January 1, 2012     60,000     $ 1.42  
Granted     20,000       0.03   
Exercised     (20,000)       (0.03)   
Outstanding, September 30, 2012     60,000     $ 1.42  

 

Options outstanding and exercisable by price range as of September 30, 2012 were as follows:

 

Outstanding Options    

Average

Weighted

     Exercisable Options  
Range     Number    

Remaining

Contractual

Life in Years

     Number    

Weighted

Average

Exercise Price

  
                                     
$ 2.10       40,000       7.25       40,000     $ 2.10  
                                     
$ 0.05       20,000       8.25       20,000     $ 0.05  

  

Stock Warrants

 

In connection with the issuance of 10% Convertible Notes (see Note 5. Notes and Loans Payable) on November 21, 2011 and February 20, 2012 the Company issued a total of 975,000 warrants to purchase its common stock.  The following table summarizes the outstanding common stock warrants as of September 30, 2012:

 

    September 30, 2012  
    Number of     Weighted Average  
    Warrants     Exercise Price  
Outstanding, January 1, 2012     375,000       0.05  
Granted     600,000       0.05  
Exercised     -       -  
Outstanding, September 30, 2012     975,000     $ 0.05  

 

Warrants outstanding and exercisable by price range as of September 30, 2012 were as follows:

 

Outstanding Warrants    

Average

Weighted

     Exercisable Warrants  
Range     Number    

Remaining

Contractual

Life in Years

     Number    

Weighted

Average

Exercise Price

  
                                     
$ 0.05       975,000       4.87       975,000     $ 0.05