8. STOCKHOLDERS' DEFICIT

12 Months Ended

Dec. 31, 2012

Equity [Abstract]

8. STOCKHOLDERS' DEFICIT

PREFERRED STOCK

The Company is authorized to issue up to 20,000,000 shares of preferred stock, $0.01 par value per share in series to be designated by the Board of Directors. There were no shares issued and outstanding as of December 31, 2012 and 2011.

Stock Split

A majority of shareholders approved a resolution providing the Company’s Board of Directors with the authority to effect a one-for-twenty-thousand (1:20,000) reverse stock split for stockholders of record as of March 13, 2012. The reverse split took effect July 5, 2012, resulting in 919,219 shares outstanding. All figures have been presented on the basis of reverse split where ever applicable for all the periods presented in these financial statements.

COMMON STOCK

CONVERSION OF DEBT

During 2012, the Company entered into various agreements to convert $28,125 of principal and $2,500 of accrued interest into 35,268 shares of common stock. The fair market value of the stock on the dates of agreement and issuance was $141,071. The Company recorded a loss on settlement of debt of $110,446.

During 2011, the Company entered into various agreements to convert $439,255 of principal and $36,019 of accrued interest into 199,800 shares of common stock. The fair market value of the stock on the dates of agreement and issuance was $1,934,642. The Company recorded a loss on settlement of debt of $1,459,321.

STOCK ISSUED FOR SERVICES

During the year ended December 31, 2012, the Company issued an aggregate of 196,110 shares of its common stock to various employees of the Company as compensation. The shares were valued at a total of $390,815. A total of 225,000 shares of its common stock were issued to the Company’s president and CEO. The fair market value of the shares issued to the Company’s president and CEO was $450,000.

During the year ended December 31, 2012, the Company entered into various agreements for strategic business planning, financial advisory, investor relations, and professional and public relations services. As compensation for the services rendered, the Company issued 158,225 shares of common stock, valued at $112,905, the fair market value of the stock on the day of issuance.

In addition to the above issuances, the Company also issued 160,000 shares of common stock to its president and CEO for payment of outstanding debt, during 2012, valued at $320,000.

During the year ended December 31, 2011, the Company issued an aggregate of 57,451 shares of its common stock to various employees of the Company as compensation. The shares were valued at a total of $438,678.

During the year ended December 31, 2011, the Company entered into various agreements for strategic business planning, financial advisory, investor relations, and professional and public relations services. As compensation for the services rendered, the Company issued 13,049 shares of common stock, valued at $137,912, the fair market value of the stock on the day of issuance.

STOCK OPTION PLAN

On February 11, 2008, the Board of Directors adopted the 2008 Equity Incentive Plan (“the Plan”). The Plan provides for the granting of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs), Restricted Stock, Performance Units, and Performance Shares, to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 15,000 shares of common stock for awards to be made under the Plan. 15,000 shares reserved under this plan have been issued.

On April 29, 2008, the Board of Directors adopted the 2008-2 Equity Incentive Plan (“the Plan”). The Plan provides for the granting of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs), Restricted Stock, Performance Units, and Performance Shares, to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 16,500 shares of common stock for awards to be made under the Plan. 16,343 of the shares reserved under this plan have been issued.

On July 1, 2008, the Board of Directors adopted the 2008-3 Equity Incentive Plan (“the Plan”). The Plan provides for the granting of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs), Restricted Stock, Performance Units, and Performance Shares, to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 125 shares of common stock for awards to be made under the Plan. 125 of the shares reserved under this plan have been issued.

On September 2, 2008, the Board of Directors adopted the 2008-4 Equity Incentive Plan (“the Plan”). The Plan provides for the granting of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs), Restricted Stock, Performance Units, and Performance Shares, to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 190 shares of common stock for awards to be made under the Plan. 190 of the shares reserved under this plan have been issued.

On February 15, 2009, the Board of Directors adopted the 2009 Equity Incentive Plan (the “Plan.”) The Plan provides for the granting of the nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs), Restricted Stock, Performance Units, and Performance Shares, to their employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are no it connection with the offer and sale of securities in a capital raising transactions. The company initially reserved 500 shares of its common stock for awards to be made under the Plan. 500 of the shares reserved under this plan have been issued.

On May 15, 2009, the Board of Directors adopted the 2009-2 Equity Incentive Plan (The “Plan”.) The Plan provides for the granting of the nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs), Restricted Stock, Performance Units, and Performance Shares, to their employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital raising transaction. The Company initially reserved 3,000 shares of its common stock for awards to be made under the Plan. 2,980 of the shares under this plan have been issued.

On November 6, 2009, the Board of Directors adopted the 2009-3 Equity Incentive Plan (The “Plan”.) The Plan provides for the granting of the nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs), Restricted Stock, Performance Units, and Performance Shares, to their employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital raising transaction. The Company initially reserved 10,000 shares of its common stock for awards to be made under the Plan. 10,000 of the shares under this plan have been issued.

The Company recognized marketing expenses over a straight-line basis over the vesting periods based on the market price of their stock at grant date.

The Company granted 5,040 restricted shares during the year ended December 31, 2009. Of the shares granted, 5,000 shares vested immediately and 40 shares vest over a six-month period. The Company recognized marketing expense on a straight-line basis over the vesting periods based on the market price of their stock on the grant date.

On May 6, 2011, the Board of Directors adopted the 2011 Equity Incentive Plan (The “Plan”.) The Plan provides for the granting of the nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs), Restricted Stock, Performance Units, and Performance Shares, to their employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital raising transaction. The Company initially reserved 30,000 shares of its common stock for awards to be made under the Plan. 30,000 of the shares under this plan have been issued.

On October 27, 2011, the Board of Directors adopted the 2011 Equity Incentive Plan II (the “2011-II Plan”). The 2011-II Plan provides for the granting of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs), Restricted Stock, Performance Units, and Performance Shares, to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital raising transaction. The Company initially reserved 60,000 shares of its common stock for awards to be made under the 2011-II Plan. 48,750 of the shares under this plan have been issued.

WARRANTS

There were 80,000 warrants granted during 2012 and 0 in 2011.

The following table summarizes the activity of options and warrants under all agreements and plans for the two years ended December 31, 2012 and 2011:

						Weighted
						Average		Aggregate
	Number of					Exercise		Intrinsic
	Options			Warrants		Price		Value
Outstanding, December 31, 2010		27			–		140,000		–
Granted		–			–		–		–
Exercised		–			–		–		–
Expired/cancelled		(25	)		–		–		–
Outstanding, December 31, 2011		2			0		2,244,000		–
Granted		–			–		–		–
Exercised		–			80,000		1		–
Expired/cancelled		–			–		–		–
Outstanding, December 31, 2012		2			80,000		19.7		–

Options:

The Company adopted ASC 718 (previously SFAS No. 123-R) effective July 1, 2006 using the modified prospective method. Under this transition method, stock compensation expense recognized in the year ended December 31, 2011 includes compensation expense for all stock-based compensation awards vested during year ended December 31, 2011 based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123-R.

Methods of estimating fair value:

Under ASC 718 (previously SFAS No. 123-R), the fair value of stock options is determined using the Black-Scholes model. The Company’s expected volatility assumption is based on the historical volatility of the Company’s stock. The expected life assumption is primarily based on historical exercise patterns and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The weighted average assumptions used in the model were as follows:

	2012	2011
Risk-free interest rate	0.19%	N/A
Volatility	320%	N/A
Expected life	One Year	N/A
Dividend yield	0%	0%

The following table summarizes information about stock options and warrants outstanding at December 31, 2012:

OPTIONS
OUTSTANDING			EXERCISABLE
RANGE OF EXERCISE PRICES	NUMBER OUTSTANDING	WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE-YEARS	WEIGHTED AVERAGE EXERCISE PRICE	NUMBER EXERCISABLE
$1,320,000	2	0.63	1,320,000	2
	–			–
	2	0.63	1,320,000	2

WARRANTS
OUTSTANDING			EXERCISABLE
RANGE OF EXERCISE PRICES	NUMBER OUTSTANDING	WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE-YEARS	WEIGHTED AVERAGE EXERCISE PRICE	NUMBER EXERCISABLE
$1	80,000	8.73	1.00	80,000
	–			–
	80,000	8.73	1.00	80,000