Stockholders' Equity (Deficit)

6 Months Ended

Jun. 30, 2013

Stockholders' Equity (Deficit) [Abstract]

Stockholders' Equity

Note 6. Stockholders’ Equity (Deficit)

Common stock Split

During the quarter ended June 30, 2013, the Company’s shareholders approved a one for ten reverse split of our common stock. The reverse split will not become effective until we receive approval from the regulatory authorities. Therefore, the reverse split is not reflected in these financial statements. 

Loss per share

A reconciliation of the numerator and the denominator used in the calculation of loss per share is as follows: 

	June 30, 2013		June 30, 2012
	(unaudited)
Basic and Diluted:
Net loss applicable to common stockholder (in thousands)	$	(313)	$	(1,155)
Weighted average common shares outstanding		169,049,356		68,903,645
Net loss per common share	$	(0.00)	$	(0.02)

Warrants to purchase 705,667 and 922,667 common shares and preferred stock convertible into 620,271 and 613,191 common shares were not included in the computation of diluted loss per share applicable to common stockholders as they are anti-dilutive as a result of net losses for the periods ended June 30, 2013 and June 30, 2012, respectively.

Preferred Stock

A summary of the Company’s preferred stock is as follows:

	June 30, 2013	December 31, 2012
Offering	Shares Issued & Outstanding	Shares Issued & Outstanding
	(unaudited)
Series A convertible	47,250	47,250
Series B convertible, 10% cumulative dividend	93,750	93,750
Series C convertible, 10% cumulative dividend	38,333	38,333
Series D convertible, 10% cumulative dividend	175,000	175,000
Series E convertible, 10% cumulative dividend	19,022	19,022
Total Preferred Stock	373,355	373,355

As of June 30, 2013 and 2012, the Company had cumulative preferred undeclared and unpaid dividends. In accordance with the Financial Accounting Standard Board’s Accounting Standards Codification 260-10-45-11, “Earnings per Share”, these dividends were added to the net loss in the net loss per share calculation.

Summary of Preferred Stock Terms

Series A Convertible Preferred Stock 

Liquidation Value:	$4.50 per share, $212,625
Conversion Price:	$103.034 per share
Conversion Rate:	0.04367—Liquidation Value divided by Conversion Price ($4.50/$103.034)
Voting Rights:	None
Dividends:	None
Conversion Period:	Any time

Series B Convertible Preferred Stock

Liquidation Value:	$4.00 per share, $375,000
Conversion Price:	$10.00 per share
Conversion Rate:	0.40—Liquidation Value divided by Conversion Price ($4.00/$10.00)
Voting Rights:	None
Dividends:	10%—Quarterly—Commencing March 31, 2001
Conversion Period:	Any time

Cumulative and undeclared dividends in arrears at June 30, 2013 were $463,000

Series C Convertible Preferred Stock

Liquidation Value:	$3.00 per share, $115,000
Conversion Price:	$6.00 per share
Conversion Rate:	0.50—Liquidation Value divided by Conversion Price ($3.00/$6.00)
Voting Rights:	None
Dividends:	10%—Quarterly—Commencing March 31, 2002
Conversion Period:	Any time

Cumulative and undeclared dividends in arrears at June 30, 2013 were $134,000

Series D Convertible Preferred Stock 

Liquidation Value:	$10.00 per share, $1,750,000
Conversion Price:	$10.00 per share
Conversion Rate:	1.00—Liquidation Value divided by Conversion Price ($10.00/$10.00)
Voting Rights:	None
Dividends:	10%—Quarterly—Commencing April 30, 2002
Conversion Period:	Any time

Cumulative and undeclared dividends in arrears at June 30, 2013 were $2,042,000

Series E Convertible Preferred Stock

Liquidation Value:	$22.00 per share, $418,488
Conversion Price:	$8.00 per share
Conversion Rate:	2.75—Liquidation Value divided by Conversion Price ($22.00/$8.00)
Voting Rights:	Equal in all respects to holders of common shares
Dividends:	10%—Quarterly—Commencing May 31, 2002
Conversion Period:	Any time

Cumulative and undeclared dividends in arrears at June 30, 2013 were $491,000

Issuance of Common Stock for Cash

During the quarter ended June 30, 2013, the Company sold 1,500,000 shares of restricted, unregistered common stock to a qualified investor for $30,000, or $0.02 per share. These shares have not yet been issued.

Issuance of Common Stock as Payment for Services 

During the quarter ended June 30, 2013, the Company issued to two of the Company’s directors, Mauro Scimia (“Scimia”) and Xavier Carbonell (“Carbonell”), 902,764 and 919,234 shares of restricted, unregistered common stock, respectively, for consulting services rendered, and the Company recorded a charge of $32,500, or $0.02 per share, as a selling, general and administrative expense. During the quarter ended March 31, 2013, the Company issued 886,294 shares of restricted, unregistered common stock to Carbonell for consulting rendered and recorded $20,000 as a selling, general and administrative expense.

The Company during the quarter ended June 30, 2013, also issued 2,346,148 shares of restricted, unregistered common stock to a consultant for services rendered, and recorded $36,000 as a selling, general and administrative expense.

During the quarter ended June 30, 2013, the Company reversed $48,000 of consulting compensation expense from a consulting agreement issued several years ago.  The consultant never completed any of the tasks required under the contract and therefore did not meet the requirements to vest any of the 2,055,527 shares granted, but never issued, under the contract.  The $48,000 was a reduction in selling, general & administrative Expense.

Issuance of Common Stock as Settlement of Debt

During the quarter ended June 30, 2013, Robert McCullough, our Chief Executive Officer and Chief Financial Officer, converted $3,250,000 of debt owed to him into 162,500,000 shares of restricted, unregistered common stock at a price of $0.02 per share. As a result of this transaction, Mr. McCullough owns directly or beneficially 167,690,706 shares of common stock or 66.90% of our common stock.

Also during the quarter ended June 30, 2013, the Company issued to two current independent directors, Alexander Milley and Dr. John Abeles, an aggregate 7,500,000 shares of restricted, unregistered common stock, respectively, for past directors fees totaling $150,000, or $0.02 per share. In addition, the Company recorded the payment of $50,000 for services rendered to a former director in the form of 2,500,000 shares of restricted, unregistered common stock valued at $0.02 per share. These shares have not yet been issued.

The shares issued to the Company’s CEO and members of the board of directors in the debt settlements described above were issued at a price higher than the trading price of the common stock the day the Board authorized the settlement. The Company has not treated the transaction as a troubled debt restructuring nor as an extinguishment of the debt, but as essentially a recapitalization of the Company, and therefore no gain or loss has been recorded on the difference in the fair value of the stock as it traded to the amount used to settle the debt.

Issuance of Common Stock as Payment for Employee Compensation

During the three months ended June 30, 2013, the Company issued to Augusto Ocana (“Ocana”), a director and vice president of the Company, 1,805,528 shares of restricted, unregistered common stock, for services rendered. The Company recorded a charge of $35,000, or $0.02 per share, as a selling, general and administrative expense.

Our officers and directors own an aggregate 198,199,145 shares of common stock or 79.07% of our outstanding common stock.