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STOCKHOLDERS' EQUITY
12 Months Ended
Dec. 31, 2011
Notes to Financial Statements  
NOTE 9 - STOCKHOLDERS' EQUITY

Preferred Stock

 

The articles of incorporation of the Company authorize the issuance of 10,000,000 shares of $0.001 par value Preferred Stock.  The Board of Directors is authorized, from time to time, to divide the preferred shares into “Series” and to fix and determine separately for each Series any or all of the relative rights and preferences.

 

In connection with an employment agreement, the Company issued 1,000 shares of Series A Preferred Stock in August 2011.  The Series A Preferred Stock has voting rights on all shareholder matters equal to fifty-one percent (51%) of the total vote.  There are no other liquidation, conversion or redemption rights.

 

On February 17, 2012, the Board of Directors designated “Series B Convertible Preferred Stock” and the number of shares initially constituting such series will be up to 6,000,000 shares.

 

The Board of Directors does not formally approve the declaration of the preferred stock dividends; therefore, as checks for payment of preferred dividends are approved by the CEO of the Company,  dividend expense is recognized. For the years ended December 31, 2011 and 2010, the preferred stock dividend expense was $875 and $12,706, respectively.

 

Common Stock

 

The Company is authorized to issue up to 1,000,000,000 shares of $0.001 par value common stock.

 

In August 2010, the Company exchanged 6,373,239 shares of common stock for notes payable of $1,964,721 plus accrued interest of $777,712.  The exchange value was approximately $0.43 per share which was the negotiated with the owners of the notes payable.

 

In connection with the employment agreement with Floyd L. Smith, the Company issued: (1) stock options to purchase 12,000,000 shares of the Company’s common stock at an exercise price of $0.0039 per share, with cashless exercise rights and a five year term, which vest immediately, and (2) 1,000 shares of Series A Preferred Stock which provide him Super Majority Voting Rights. The stock options and Series A preferred stock were valued at $377,458 and $4,791, respectively, using a Black-Scholes Option Pricing model. In connection with the valuation of the stock options, the Company used the following assumptions: dividend yield 0%, risk free rate 0.96%, volatility 44.44% and an expected term of 5 years.

 

On August 25, 2011, the Company’s Board of Directors approved a one hundred-to-one (100:1) forward stock split of the issued and outstanding shares of common stock for stockholders of record on August 25, 2011.   The effect of this stock split has been applied retroactively in the accompanying financial statements.

 

Warrants

 

The following summarizes the stock purchase warrant transactions for the year ended December 31, 2011 and 2010.

 

          Weighted  
          Average  
    Number of     Exercise  
    Warrants     Price  
             
Outstanding, December 31, 2009     1,032,496     $ 0.50  
Warrants Issued     711,787     $ 0.50  
Warrants Exercised     (551,000 )   $ 0.50  
Warrants Forfeited, Expired or Cancelled     (675,241 )   $ 0.50  
Outstanding, December 31, 2010     518,042     $ 0.50  
Warrants Issued     0          
Warrants Exercised     0          
Warrants Forfeited, Expired or Cancelled     (518,042 )   $ 0.50  
Outstanding, December 31, 2011     0