Stock transactions and preferred stock dividends

9 Months Ended

Sep. 30, 2013

Stock transactions and preferred stock dividends

5. Stock transactions and preferred stock dividends

During the nine months ended September 30, 2013, the Company issued 45,000 shares of common stock for payment of fees accrued to a consultant. The Board of Directors declared a semi-annual dividend payable to Series A-1 preferred shareholders of record as of March 31, 2013 of $391,875 paid 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 redemptions 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
Lyon Oil & Gas Company		10		133,333
T P Furlong		5		66,667

* 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 these 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 Series A-1 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 Series A-1 Preferred Stock redeemed.