Stock transactions and preferred stock dividends

6 Months Ended

Jun. 30, 2013

Stock transactions and preferred stock dividends

5. Stock transactions and preferred stock dividends

During the six months ended June 30, 2013, the Company issued 45,000 shares of common stock for payment of fees accrued to a consultant. The Board of Directors has declared the semi-annual dividend payable to preferred shareholders of record as of March 31, 2013. The Board of Directors declared the preferred dividend of $391,875 on April 26, 2013 and paid the dividend in cash on April 28, 2013.

Effective June 28, 2013, several holders of the Company’s 15% Series A1 Convertible Preferred Stock (“Series A1 Preferred Stock”) elected to convert shares of such stock into the Company’s common stock at a redemption price of $0.75 per common share. In connection with those predemptions all such holders agreed to waive all dividend rights on their shares of Series A1 Preferred Stock subsequent to March 30, 2013. Information regarding the conversions is set forth below.

Name of Holder	Number of Shares of Series A1 Preferred Stock Converted	Number of Common Shares Issued
Burlingame Equity Investors II, LP	16	100,800
Burlingame Equity Investors Master Fund, LP	184	1,159,200
Charles B. Davis*	100	1,333,333
Tucker Family Investments LLLP	25	333,333
Mark Venjohn	10	133,333
Pete Haman	35	466,667
Nicholas L. Scheidt*	100	1,333,333
Michael J. Finney	5	66,667
William and Sara Kroske	2.5	33,333
Michael A. Geller	10	133,333
John H. Rosasco	10	133,333

* Executive Officer and Director of the Company

In addition, in connection with the conversions of Series A1 Preferred Stock by Burlingame Equity Investors II, LP and Burlingame Equity Investors Master Fund, LP, the Company also entered into transactions with such entities in exchange for cash consideration, promissory notes and cancellation of certain Series A1 Preferred Shares.

Name of Holder	Cash Consideration		Promissory Note –  Principal		Series A1 Preferred Shares Cancelled
Burlingame Equity Investors II, LP	$	4,000	$	48,000		16
Burlingame Equity Investors Master Fund, LP	$	46,000	$	552,000		184

The above promissory notes bear interest at 7% per annum, with interest payable quarterly and all unpaid interest and principal due on July 23, 2014. If the promissory notes are not paid when due or declared due, the entire principal and interest thereon will bear interest at the rate of 12% per annum.

The redemption of preferred stock on the earning per share applicable to common stockholders was calculated as the difference between the fair market value of common shares received on June 28, 2013 and the cost of the preferred stock redeemed.