Note 5 - Stockholders Deficit

6 Months Ended

Jun. 30, 2011

Stockholders' Equity Note Disclosure [Text Block]

Note 5 – Stockholders’ Deficit

Preferred stock

On June 30, 2008, the Board of Directors resolved to cancel the Company’s previous class of preferred stock and issue up to 5,000,000 shares of a new class of preferred stock, of which 1,000,000 has been designated as a Series A Preferred Stock, $.00001 par value per share. This series has liquidation preference above common stock. The holders of Series A Preferred Stock shall be entitled to receive dividends if and when declared by the Board of Directors. Each share of Series A Preferred Stock shall have voting rights identical to a share of common stock (i.e. one vote per share) and shall be permitted to vote on all matters on which holders of common stock are entitled to vote. So long as any shares of Series A Preferred Stock remain outstanding, the Company shall not without first obtaining the approval of the holders of seventy-five percent (75%) of the then-outstanding shares of Series A Preferred Stock: (i) alter or change the rights, preferences or privileges of the shares of Series A Preferred Stock so as to adversely affect such shares; (ii) increase or decrease the total number of authorized shares of Series A Preferred Stock; (iii) issue any Senior Securities; or (iv) take any action that alters or amends this Series.

During the second quarter of 2008, the Company issued 545,455 shares of Series A Preferred Stock in exchange for $3,000,000 of corporate notes payable. At June 30, 2011 and December 31, 2010, there were 545,455 shares of Series A Preferred Stock issued and outstanding.

Common stock

During the period ending March 31, 2011 4,500 shares of common stock were issued to a related party for services as a director valued at $285 based on the closing stock price on the date the service period was completed.

There was no stock issued in the quarter ending June 30, 2011 but 1,500 shares were accrued for a related party for services as a director. These shares were valued at $90 based on the closing stock price on the dated the service period was completed, and recorded within stock payable as of June 30, 2011.

Warrants

During the third quarter of 2009, warrants to acquire 1,500,000 shares of the Company’s common stock were issued containing exercise price reset provisions, were classified as a derivative liability as of August 21, 2009 as these warrants were not deemed to be indexed to the Company’s own stock. These warrants had an exercise price of $7.50 upon issuance and expire in August 2012. The exercise price is subject to ratchet provisions which resulted in a derivative liability. The price was ratcheted down to $5.47 after issuance.

500,000 warrants were issued to a third party at an exercise price of $.07/share. These shares vested upon grant and have a ten year term. The shares were calculated using the Black Sholes model and were valued at $29,731.The key inputs to the model were a stock price of $0.06 on the valuation date, discount rate of 2.97% , and volatility of 162%. These warrants were issued in order to extend an agreement concerning the production payment on the Marion property.

The following is a summary of the warrant activity for the period ended June 30, 2011:

	Number of Warrants		Weighted Average Exercise Price
Outstanding, December 31, 2010		3,009,749		6.00

Granted		500,000		.06
Exercised		-		-
Expired or cancelled		-		-

Outstanding June 30, 2011		3,509,749		5.15

The following is a summary of the stock option activity for the period ended June 30, 2011:

	2011
	Number of Shares		Weighted Average Exercise Price

Non-vested, beginning of period		-	$	-

Granted		-
Vested		-		-

Non-vested, end of period		-	$

	2011
	Number of Shares		Weighted Average Exercise Price

Outstanding, beginning of period		489,916	$	7.5

Granted		-
Exercised		-		-
Expired or cancelled		-		-

Outstanding, end of period		489,916	$	7.5

- Definition

The entire disclosure for shareholders' equity, comprised of portions attributable to the parent entity and noncontrolling interest, if any, including other comprehensive income (as applicable). Including, but not limited to: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in arrears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms, and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables, effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure.

+ References

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Reference 7: http://www.xbrl.org/2003/role/presentationRef
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+ Details

Conquest Petroleum Inc 10-Q/A