8. CONVERTIBLE PREFERRED STOCK

9 Months Ended

Sep. 30, 2011

Notes to Financial Statements

8. PREFERRED STOCK

In July 2005 the Company issued 7,171,725 shares of Series A Preferred Stock in payment of services.  The issuance had been previously authorized by the Board of Directors.  Each share of Series A Preferred Stock has a liquidation preference, in the event of liquidation of the corporation, of $0.01 per share before any payment or distribution is made to the holders of common stock.  Effective in 2010 the Series A Preferred can be converted into common stock in the ratio of 15:1.  Each share is entitled to fifteen votes and shall be entitled to vote on any matters brought to a vote by common stock stockholders.

During 2008 the Board of Directors approved a reverse split of the stock in which one new share of preferred stock was issued in exchange for each 80 shares of stock outstanding.  Accordingly, the total issued of preferred stock was adjusted from 7,171,725 shares to 89,647 shares.  The par value and the total authorized shares did not change.

During 2011 the Board of Directors authorized the issuance of an additional 1,400,000 shares of Series A Preferred Stock in payment of a loan from a shareholder in the amount of $64,000 and also in payment of services in the amount of $34,000.  These additional shares can be converted to common stock in 2013.

Preferred Stock Issued for Services

During the nine months ended September 30, 2011 the Company issued the following compensatory shares outside of its existing Stock Option and Restricted Share Plans at the discretion of the Board of Directors:

	2011
	Number of		Expense
	Shares		Recognized
Officers and employees		1,000,000	$	10,000
Independent contractors and consultants		500,000		5,000
Total		1,500,000	$	15,000