REDEEMABLE CONVERTIBLE PREFERRED STOCK	9 Months Ended
Sep. 30, 2014
Notes to Financial Statements
Note 5 - REDEEMABLE CONVERTIBLE PREFERRED STOCK	On September 1, 2013, the Company entered into a Stock Purchase Agreement (“SPA”) with Pinewood Trading Fund, LP, (“Pinewood”) an existing shareholder and related party, to purchase up to 3,000 shares of Series D Convertible Preferred Stock at $1,000 per share. In November 2013, the Company designated 15,000 shares of Preferred Stock as Series D. The Series D Preferred shares rank senior to the Series A, Series C and Series B Preferred, which all rank senior to the Company’s common stock with respect to the payment of any dividends and amounts upon liquidation or dissolution. Pinewood must approve certain corporate actions of the Company, regardless of the total Common Stock votes for or against such actions. Such actions include, but are not limited to: any increase or decrease in the authorized number of shares of Common Stock or Preferred Stock; the delisting of any of the Company’s securities from the OTCQB or any national securities exchange; any redemption or repurchase of the Company’s Common or Preferred Stock; any liquidation, dissolution or winding-up of the business and affairs of the Company; any material modification or deviation from the Company’s annual business plan and operating budget; any payment or declaration of a dividend or other distribution on any shares of Common or Preferred Stock made by the Board of Directors; and any change in the principal business of the Company. In addition to the foregoing, holders of the Series D Preferred Stock have the right to elect one director of the Company so long as at least 35% of the shares of Series D Preferred Stock are issued and outstanding. Each share of Series D Preferred Stock is convertible into 2,000 shares of the Company’s common stock. In addition, Pinewood may, but is not obligated to, nominate one Director to add to the Company’s existing Board currently comprised of four people (for a total of five directors). The Company is further restricted, precluded, and prohibited from increasing the number of directors beyond four (or five should Pinewood elect to nominate a director) without the consent of Pinewood. This gives Pinewood the ability, at its sole discretion, without restriction or notice, to install a board member at any time, subject to applicable law and the Company’s charter document. Preferred Stock Private Placements For each share of Series D Preferred Stock purchased, the Company issued one Series A Warrant to purchase 2,000 shares of the Company’s common stock, exercisable for 5 years and one Series B Warrant to purchase 2,000 shares of common stock, exercisable for 5 years. In November 2013, the Company issued 800 shares of Series D Preferred Stock to Pinewood Trading Fund, LP, a related party, for $1,000 per share for an aggregate purchase price of $800,000. Pinewood also received 800 Series A Warrants and 800 Series B Warrants. In December 2013, the Company issued 200 shares of Series D Preferred Stock to Pinewood Trading Fund, LP, a related party for $1,000 per share for an aggregate purchase price of $200,000. Pinewood also received 200 Series A Warrants and 200 Series B Warrants. In December 2013, the Company issued 20 shares of Series D Preferred Stock to Craig Eagle, a director of the Company, for $1,000 per share for an aggregate purchase price of $20,000. Craig Eagles also received 20 Series A Warrants and 20 Series B Warrants. In December 2013, the Company issued 50 shares of Series D Preferred Stock to an existing investor for $1,000 per share for an aggregate purchase price of $50,000. The investor also received 50 Series A Warrants and 50 Series B Warrants. In July 2014 through September 2014, the Company issued an aggregate total of 340 shares of Series D Preferred Stock to investors for $1,000 per share for an aggregate purchase price of $340,000 which includes 30 shares of Series D Preferred Stock purchased by Sageborne, LLC, an affiliate of Pinewood for an aggregate purchase price of $30,000. For each share of Series D Preferred Stock purchased, an investor received one Series A Warrant and one Series B Warrant. As part of the private placements, the investors received warrants to purchase an aggregate of 4,280,000 shares of the Company’s common stock. The warrants are exercisable for a period of five years from the date of issuance at an initial exercise price of $0.50, subject to adjustment. The investor may exercise the warrant on a cashless basis if the shares of common stock underlying the warrant are not then registered pursuant to an effective registration statement. The outstanding warrants are subject to certain anti-dilution protection clauses which provide exercise price adjustments in the event that any common stock or common stock equivalents are issued at an effective price per share that is less than the exercise price per share. Accordingly, the stock warrants are classified as a warrant liability on the accompanying consolidated balance sheets as of September 30, 2014 and December 31, 2013. The Securities Purchase Agreements (“SPA”) for the purchase of Series D Preferred Stock contain a Milestone Adjustment provision. If by March 1, 2014, the Company’s income, on a Special Adjustment Basis (“SAB”) for the period beginning on January 1, 2014 and ending on February 28, 2014 (the “Measurement Period”) is not positive, then the Company will immediately issue (after the cash-flow on SAB calculation is final) 2,400 shares of Series D Preferred Stock to Investors, pro-rata based on their ownership of Series D Preferred Stock. For each share of Series D Preferred Stock issued pursuant to the Milestone Adjustment provision, one Series A Warrant and one Series B Warrant will be issued and the exercise price of all warrants then held by the Investors (including the Warrants and any previously issued warrants of the Company then held by Investors) shall be reduced to $0.40, such price shall be subject to adjustment for issuances or circumstances following the Closing Date that would otherwise result in an adjustment to the exercise price of any such warrant. In addition, if the Milestone Adjustment is required, Pinewood shall be entitled thereafter to elect a majority of the Board of Directors, to be accomplished in any manner that Pinewood deems most expedient and in compliance with applicable laws and the Company’s charter documents. The SAB shall be based on the trailing two month net income of the Company, excluding stock-based compensation and non-cash other (non-operating) expenses. The Milestone Adjustment feature is not free standing from the Series D Preferred Stock and will not be separately classified from the preferred security. The fair value of the Milestone Adjustment will be recorded if the Milestone Adjustment is required. In March 2014, the Company did not meet the requirements of the Milestone Provision of reaching positive net income on a Special Adjusted Basis (“SAB”) for the trailing two months ending February 2014. As a result, the Company issued an additional 856 shares of Series D Preferred stock and additional 3,424,000 warrants to purchase common stock at $0.40 to the Series D Preferred stockholders. In addition, the exercise price on warrants to purchase an aggregate total of 4,280,000 common shares has been reduced to $0.40 per share. Pinewood is also entitled to elect a majority of the Board of Directors, to be accomplished in any manner that it deems most expedient and in compliance with applicable laws and the Company’s charter documents. The Company recorded a $662,057 Milestone Adjustment for preferred stock, which is a deemed dividend distribution for accounting purposes. The Series D Preferred Stock SPAs also contain a mandatory redemption provision. If, as of January 1, 2016: (i) the Common Stock has traded on the 20 trading days prior to January 1, 2016 at an average closing price of less than $1.00; or (ii) the Common Stock has had during the 30 trading days prior to January 1, 2016 an average daily trading volume of less than 70,000 shares, then the Company shall immediately, to the extent it may lawfully do so, redeem all outstanding shares of Series D Preferred Stock at a purchase price of $2,000 per share, plus a cumulative preference of 8% per annum compounded annually. Such redemption shall have preference over redemption of any other class of shares. If the mandatory redemption does not occur within 10 business days, then payments to the Convertible Debt holders shall be subordinated, pursuant to that certain Subordination Agreement executed by the Convertible Debt holders, until the shares of Series D Preferred Stock are redeemed. If the mandatory redemption does not occur within 60 business days, Pinewood shall have the right to elect a majority of the Company’s Board of Directors, and may seek a sale of the Company, subject to the determination of the Board of Directors. Failure to immediately redeem the Series D Preferred shares will, at Pinewood’s election, result in the Company immediately issuing to Pinewood an additional (i) 2,400 shares of Series D Preferred Stock and (ii) for each share of Series D Preferred Stock issued above, one Series A Warrant and one Series B Warrant, and the exercise price of all warrants then held by Pinewood (including the Warrants and any previously issued warrants of the Company then held by Investor) shall be reduced to $0.10 (such price shall be subject to adjustment for issuances of circumstances following the Closing that would otherwise result in an adjustment to the exercise price of any such warrant). The mandatory redemption feature is not freestanding from the Series D Preferred Stock and will not be separately classified from the preferred security. Since the mandatory redemption is conditioned upon the Company’s stock price and volume which are not solely within the control of the issuer and the price and date are fixed, the Series D Preferred are classified as temporary equity on the consolidated balance sheets as of September 30, 2014 and December 31, 2013. Management analyzed the terms of the mandatory redemption feature and evaluated whether it was probable that the instruments will become redeemable and concluded that it was probable that the instruments will become redeemable. Management elected to recognize changes in the redemption value immediately as they occur and adjusted the redemption value as if it were also the redemption date for the instrument. As a result, management increased the carrying value of the preferred instrument by $2,192,588 and $555,585 for the redemption feature on the Series D Preferred Stock in the year ended December 31, 2013 and nine months ended September 30, 2014, respectively. The redemption feature on the Series D Preferred Stock is a deemed dividend distribution for accounting purposes. The Series D Preferred stock includes a conversion feature in which each share of Series D Preferred Stock is initially convertible into 2,000 shares of the Company’s common stock. Management analyzed the terms of the conversion option and concluded that the conversion feature was derivative since it met the definition of a derivative and did not qualify for any of the exceptions. The initial aggregate fair value of the derivatives was determined to be $238,171 and $34,144, for the year ended December 31, 2013 and the nine months ended September 30, 2014, respectively, which was recorded as a derivative liability on the Consolidated Balance Sheet as of December 31, 2013 (See Note 3 Derivative Liability for further details). The Company allocated the proceeds of these preferred issuances, by first allocating the proceeds to warrant liability and derivative liability based on fair value and then allocated the remaining residual proceeds, net of closing costs to the preferred stock security. As of September 30, 2014, a total of 2,266 Series D Shares had been issued, which is convertible into 4,532,000 shares of common stock. As a result of the transaction with Precise Analytical, LLC. on April 16, 2015, all of the Series D Preferred shares were cancelled and the Series D preferred holders will receive distributions in accordance with the Plan of Reorganization as described in Note 14, Subsequent Events.

REDEEMABLE CONVERTIBLE PREFERRED STOCK

9 Months Ended

Sep. 30, 2014

Note 5 - REDEEMABLE CONVERTIBLE PREFERRED STOCK

On September 1, 2013, the Company entered into a Stock Purchase Agreement (“SPA”) with Pinewood Trading Fund, LP, (“Pinewood”) an existing shareholder and related party, to purchase up to 3,000 shares of Series D Convertible Preferred Stock at $1,000 per share.

In November 2013, the Company designated 15,000 shares of Preferred Stock as Series D. The Series D Preferred shares rank senior to the Series A, Series C and Series B Preferred, which all rank senior to the Company’s common stock with respect to the payment of any dividends and amounts upon liquidation or dissolution.

Pinewood must approve certain corporate actions of the Company, regardless of the total Common Stock votes for or against such actions. Such actions include, but are not limited to: any increase or decrease in the authorized number of shares of Common Stock or Preferred Stock; the delisting of any of the Company’s securities from the OTCQB or any national securities exchange; any redemption or repurchase of the Company’s Common or Preferred Stock; any liquidation, dissolution or winding-up of the business and affairs of the Company; any material modification or deviation from the Company’s annual business plan and operating budget; any payment or declaration of a dividend or other distribution on any shares of Common or Preferred Stock made by the Board of Directors; and any change in the principal business of the Company. In addition to the foregoing, holders of the Series D Preferred Stock have the right to elect one director of the Company so long as at least 35% of the shares of Series D Preferred Stock are issued and outstanding. Each share of Series D Preferred Stock is convertible into 2,000 shares of the Company’s common stock.

In addition, Pinewood may, but is not obligated to, nominate one Director to add to the Company’s existing Board currently comprised of four people (for a total of five directors). The Company is further restricted, precluded, and prohibited from increasing the number of directors beyond four (or five should Pinewood elect to nominate a director) without the consent of Pinewood. This gives Pinewood the ability, at its sole discretion, without restriction or notice, to install a board member at any time, subject to applicable law and the Company’s charter document.

Preferred Stock Private Placements

For each share of Series D Preferred Stock purchased, the Company issued one Series A Warrant to purchase 2,000 shares of the Company’s common stock, exercisable for 5 years and one Series B Warrant to purchase 2,000 shares of common stock, exercisable for 5 years.

In November 2013, the Company issued 800 shares of Series D Preferred Stock to Pinewood Trading Fund, LP, a related party, for $1,000 per share for an aggregate purchase price of $800,000. Pinewood also received 800 Series A Warrants and 800 Series B Warrants.

In December 2013, the Company issued 200 shares of Series D Preferred Stock to Pinewood Trading Fund, LP, a related party for $1,000 per share for an aggregate purchase price of $200,000. Pinewood also received 200 Series A Warrants and 200 Series B Warrants.

In December 2013, the Company issued 20 shares of Series D Preferred Stock to Craig Eagle, a director of the Company, for $1,000 per share for an aggregate purchase price of $20,000. Craig Eagles also received 20 Series A Warrants and 20 Series B Warrants.

In December 2013, the Company issued 50 shares of Series D Preferred Stock to an existing investor for $1,000 per share for an aggregate purchase price of $50,000. The investor also received 50 Series A Warrants and 50 Series B Warrants.

In July 2014 through September 2014, the Company issued an aggregate total of 340 shares of Series D Preferred Stock to investors for $1,000 per share for an aggregate purchase price of $340,000 which includes 30 shares of Series D Preferred Stock purchased by Sageborne, LLC, an affiliate of Pinewood for an aggregate purchase price of $30,000. For each share of Series D Preferred Stock purchased, an investor received one Series A Warrant and one Series B Warrant.

As part of the private placements, the investors received warrants to purchase an aggregate of 4,280,000 shares of the Company’s common stock. The warrants are exercisable for a period of five years from the date of issuance at an initial exercise price of $0.50, subject to adjustment. The investor may exercise the warrant on a cashless basis if the shares of common stock underlying the warrant are not then registered pursuant to an effective registration statement. The outstanding warrants are subject to certain anti-dilution protection clauses which provide exercise price adjustments in the event that any common stock or common stock equivalents are issued at an effective price per share that is less than the exercise price per share. Accordingly, the stock warrants are classified as a warrant liability on the accompanying consolidated balance sheets as of September 30, 2014 and December 31, 2013.

The Securities Purchase Agreements (“SPA”) for the purchase of Series D Preferred Stock contain a Milestone Adjustment provision. If by March 1, 2014, the Company’s income, on a Special Adjustment Basis (“SAB”) for the period beginning on January 1, 2014 and ending on February 28, 2014 (the “Measurement Period”) is not positive, then the Company will immediately issue (after the cash-flow on SAB calculation is final) 2,400 shares of Series D Preferred Stock to Investors, pro-rata based on their ownership of Series D Preferred Stock. For each share of Series D Preferred Stock issued pursuant to the Milestone Adjustment provision, one Series A Warrant and one Series B Warrant will be issued and the exercise price of all warrants then held by the Investors (including the Warrants and any previously issued warrants of the Company then held by Investors) shall be reduced to $0.40, such price shall be subject to adjustment for issuances or circumstances following the Closing Date that would otherwise result in an adjustment to the exercise price of any such warrant.

In addition, if the Milestone Adjustment is required, Pinewood shall be entitled thereafter to elect a majority of the Board of Directors, to be accomplished in any manner that Pinewood deems most expedient and in compliance with applicable laws and the Company’s charter documents. The SAB shall be based on the trailing two month net income of the Company, excluding stock-based compensation and non-cash other (non-operating) expenses. The Milestone Adjustment feature is not free standing from the Series D Preferred Stock and will not be separately classified from the preferred security. The fair value of the Milestone Adjustment will be recorded if the Milestone Adjustment is required.

In March 2014, the Company did not meet the requirements of the Milestone Provision of reaching positive net income on a Special Adjusted Basis (“SAB”) for the trailing two months ending February 2014. As a result, the Company issued an additional 856 shares of Series D Preferred stock and additional 3,424,000 warrants to purchase common stock at $0.40 to the Series D Preferred stockholders. In addition, the exercise price on warrants to purchase an aggregate total of 4,280,000 common shares has been reduced to $0.40 per share. Pinewood is also entitled to elect a majority of the Board of Directors, to be accomplished in any manner that it deems most expedient and in compliance with applicable laws and the Company’s charter documents. The Company recorded a $662,057 Milestone Adjustment for preferred stock, which is a deemed dividend distribution for accounting purposes.

The Series D Preferred Stock SPAs also contain a mandatory redemption provision. If, as of January 1, 2016: (i) the Common Stock has traded on the 20 trading days prior to January 1, 2016 at an average closing price of less than $1.00; or (ii) the Common Stock has had during the 30 trading days prior to January 1, 2016 an average daily trading volume of less than 70,000 shares, then the Company shall immediately, to the extent it may lawfully do so, redeem all outstanding shares of Series D Preferred Stock at a purchase price of $2,000 per share, plus a cumulative preference of 8% per annum compounded annually. Such redemption shall have preference over redemption of any other class of shares.

If the mandatory redemption does not occur within 10 business days, then payments to the Convertible Debt holders shall be subordinated, pursuant to that certain Subordination Agreement executed by the Convertible Debt holders, until the shares of Series D Preferred Stock are redeemed. If the mandatory redemption does not occur within 60 business days, Pinewood shall have the right to elect a majority of the Company’s Board of Directors, and may seek a sale of the Company, subject to the determination of the Board of Directors.

Failure to immediately redeem the Series D Preferred shares will, at Pinewood’s election, result in the Company immediately issuing to Pinewood an additional (i) 2,400 shares of Series D Preferred Stock and (ii) for each share of Series D Preferred Stock issued above, one Series A Warrant and one Series B Warrant, and the exercise price of all warrants then held by Pinewood (including the Warrants and any previously issued warrants of the Company then held by Investor) shall be reduced to $0.10 (such price shall be subject to adjustment for issuances of circumstances following the Closing that would otherwise result in an adjustment to the exercise price of any such warrant).

The mandatory redemption feature is not freestanding from the Series D Preferred Stock and will not be separately classified from the preferred security. Since the mandatory redemption is conditioned upon the Company’s stock price and volume which are not solely within the control of the issuer and the price and date are fixed, the Series D Preferred are classified as temporary equity on the consolidated balance sheets as of September 30, 2014 and December 31, 2013. Management analyzed the terms of the mandatory redemption feature and evaluated whether it was probable that the instruments will become redeemable and concluded that it was probable that the instruments will become redeemable. Management elected to recognize changes in the redemption value immediately as they occur and adjusted the redemption value as if it were also the redemption date for the instrument. As a result, management increased the carrying value of the preferred instrument by $2,192,588 and $555,585 for the redemption feature on the Series D Preferred Stock in the year ended December 31, 2013 and nine months ended September 30, 2014, respectively. The redemption feature on the Series D Preferred Stock is a deemed dividend distribution for accounting purposes.

The Series D Preferred stock includes a conversion feature in which each share of Series D Preferred Stock is initially convertible into 2,000 shares of the Company’s common stock. Management analyzed the terms of the conversion option and concluded that the conversion feature was derivative since it met the definition of a derivative and did not qualify for any of the exceptions. The initial aggregate fair value of the derivatives was determined to be $238,171 and $34,144, for the year ended December 31, 2013 and the nine months ended September 30, 2014, respectively, which was recorded as a derivative liability on the Consolidated Balance Sheet as of December 31, 2013 (See Note 3 Derivative Liability for further details).

The Company allocated the proceeds of these preferred issuances, by first allocating the proceeds to warrant liability and derivative liability based on fair value and then allocated the remaining residual proceeds, net of closing costs to the preferred stock security.

As of September 30, 2014, a total of 2,266 Series D Shares had been issued, which is convertible into 4,532,000 shares of common stock. As a result of the transaction with Precise Analytical, LLC. on April 16, 2015, all of the Series D Preferred shares were cancelled and the Series D preferred holders will receive distributions in accordance with the Plan of Reorganization as described in Note 14, Subsequent Events.