STOCKHOLDERS' DEFICIT

3 Months Ended

Sep. 30, 2013

Notes

STOCKHOLDERS' DEFICIT

NOTE 9 - STOCKHOLDERS' DEFICIT

As of September 30, 2013, there were 25,424,824 shares of common stock outstanding, 2,895,592 common stock authorized and unissued and 3,500,000 preferred shares outstanding.

Preferred Stock

On March 22, 2013, the company pledged 3,000,000 shares of its preferred stock as collateral in connection with its line of credit. The shares are held in trust and have been recorded at the par value of $3,000.

Common Stock

In February 28 2013, the Company issued 35,592 shares of its common stocks for the settlement of debt in the amount of $35,592 of which the Company’s chief executive officer was indirectly owed $14,263. As of September 30, 2013 the Company recorded a gain of $19,195 in connection with the settlement. As of September 30, 2013, the shares are unissued.

On February 25, 2013, the Company authorized the issuance of a total of 720,000 shares of its common stock , of which 360,000 shares were attributable to Le Flav Spirits for license agreement and the remaining 360,000 attributable to Flavor Flav, in connection with its consulting agreement. The fair value of each grant totaled $32,400. The Company recorded intellectual property in the amount of $32,400 representing the shares issued for the license agreement and $32,400 as prepaid equity-based compensation representing the shares attributable to the consulting agreement to be amortized on a straight line basis over the three-year term of the consulting agreement. During the nine-month period ended September 30, 2013, the Company has recognized compensation expense of $6,300 and the unamortized prepaid balance totaled $26,100.  As of September 30, 2013, the shares are unissued.

On April 1, 2013, the Company authorized the issuance of 2,140,000 shares of common stock in connection with two consulting agreements. The estimated fair value of the shares totaled $139,100 and will be amortized over the respect terms of the agreements (Note 6). As of September 30, 2013, the shares are unissued.

On June 1, 2013, the Company authorized the issuance of 500,000 shares of common stock in connection with a consulting agreement. The estimated fair value of the shares totaled $40,000 and will be amortized over the term of the agreements (Note 6). As of September 30, 2013, the Company recognized $6,667 in consulting expense with an unamortized prepaid balance of $33,333.

On June 3, 2013, the Company authorized the issuance of 300,000 shares of common stock in connection with a consulting agreement. The estimated fair value of the shares totaled $24,000 and will be amortized over the term of the agreements (Note 6). As of September 30, 2013, the Company recognized $13,714 in consulting expense with an unamortized prepaid balance of $10,286.

On June 13, 2013, the Company issued a total of 500,000 shares of common stock of which 214,286 related to the cashless exercise of 500,000 warrants and 285,714 shares recorded as additional compensation to the warrant holder valued at $40,000.

Treasury Stock

In April 2013, the Company agreed to re-purchase 900,000 shares of its common stock from three investors for cash totaling $10,000 and warrants to purchase up to 900,000 shares at an exercise price of $0.25 for a term of five years. The fair value of the warrants granted utilizing the Black-Scholes Model totaled $36,000. Pursuant to the terms of the re-purchase agreement, the cash portion of the re-purchase payment will be paid by the Company in ten (10) equal monthly installments totaling $1,000. As of September 30, 2013, the Company has record treasury stock in the amount of $46,000 comprised of the cash and warrant fair values.

Warrants

On March 22, 2013, the Company granted a warrant to purchase up to 300,000 shares of the Company’s common stock in connection with its line of credit agreement. The warrant is excisable at $1.00 for a term of five years. The estimated fair value of the warrant utilizing the Black-Scholes Model totaled $21,000 and has been recorded as interest expense as of September 30, 2013.

On April 30, 2013, the Company granted a warrant to purchase up to 5,000 shares of the Company’s common stock in connection with its $10,000 note payable agreement. The warrant is excisable at $1.00 for a term of five years. The estimated fair value of the warrant utilizing the Black-Scholes Model totaled $150 and has been recorded as interest expense as of September 30, 2013.

On June 3, 2013, the Company granted a warrant to purchase a total of 4,300,000 shares of the Company’s common stock at an exercise price of $0.08 subject to specific vesting and for a term of eighteen months. The vesting provisions are as follows: 800,000 at signing; 1,500,000 on December 1, 2013; 2,000,000 on June 1, 2014. As of September 30, 2013, the Company recognized $63,657 as consulting expense.

On July 10, 2013, the Company issued a warrant valued at $1,000 to purchase up to 5,000 shares of the Company’s common stock in connection with its $10,000 Convertible Promissory Note dated the same. The warrant is exercisable at a price of $1.00 per share for a term of three years. The value of these warrants was estimated by using the Black-Scholes option pricing model with the following assumptions: expected life of years; risk free interest rate of .73%; dividend yield of 0% and expected volatility of 455%. The value totaled of $1,000 has been recorded as interest expense as of September 30, 2013.

In August 2013, the Company issued a warrant valued at $22,343 to purchase up to 250,000 shares of the Company’s common stock at an exercise price of $0.01 for a term of one year pursuant to a consulting agreement. The value of these warrants was estimated by using the Black-Scholes option pricing model with the following assumptions: expected life of 1 years; risk free interest rate of .12%; dividend yield of 0% and expected volatility of 455%. This has been recorded as a prepaid consulting fee which will be recognized over 12 months equal to the term of the agreement. As of September 30, 2013 a total of $3,724 was recognized as a consulting expense.

The following table summarizes the Company’s warrant information:

			Weighted
	Number of		Average
	Warrants		Exercise Price
Balance, December 31, 2011		10,000,000	$	0.01
Granted		-0-		-
Expired		-0-		-
Cancelled or forfeited		-0-		-
Exercised		-0-		-
Balance, December 31, 2012		10,000,000	$	0.01
Granted		4,860,000		0.19
Expired		-0-		-
Cancelled or forfeited		-0-		-
Exercised		-0-		-
Balance, September 30, 2013		14,860,000	$	0.07
Exercisable		11,360,000	$	0.06