Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity (Deficit)

v2.4.0.6
Stockholders' Equity (Deficit)
 6 Months Ended
Jun. 30, 2012
Notes to Financial Statements  
NOTE 7 - Stockholders' Equity (Deficit)

Common Stock

 

On March 2, 2012, the Company issued 150,000 common stock shares at a price of $1.22 per share totaling $183,000 for consulting services. The shares were valued based on the closing stock price for the date granted.

 

On February 1, 2012, the Company authorized 75,000 common stock shares at a price of $1.16 per share totaling $87,000 for investor relations consulting services. In May 2012 the Company issued the common stock shares which were valued based on the closing stock price for the date granted.

 

On May 18, 2012, the Company issued 86,812 common stock shares at a price of $0.65 per share totaling $56,428 in share based compensation. The issuance was pursuant to the Mobivity Acquisition Agreement Amendment #1 to the Secured Subordinated Promissory Note and due to the default on the Mobivity Note for the May 18th, 2012 extended quarterly payment. The shares were valued based on the closing stock price for the date granted and constituted a late penalty payment to the note holder; not a principal or interest repayment.

 

On May 25, 2012, the Company issued 148,629 common stock shares at a price of $0.70 per share totaling $104,040 in share based compensation. The issuance was pursuant to the Mobivity Acquisition Agreement Amendment #1 to the Secured Subordinated Promissory Note and due to the default on the Mobivity Note for the May 25th, 2012 penalty for failure to prepay final payment. The shares were valued based on the closing stock price for the date granted and constituted a late penalty payment to the note holder; not a principal or interest repayment.

 

As of June 30, 2012, the Company has 23,214,749 common shares outstanding.

 

Stock-based Compensation

 

2010 Incentive Stock Option Plan

 

On December 24, 2010, the Company adopted the 2010 Incentive Stock Option Plan (“the 2010 Plan”), subject to shareholder approval within one year.  Shareholder approval was not obtained within one year, therefore incentive stock options granted under the 2010 Plan converted to non-qualified stock options.  The 2010 Plan permits the Company to grant up to 3,124,000 shares of common stock and options to purchase shares of common stock.  The 2010 Plan is designed to retain directors, executives and selected employees and consultants and reward them for making major contributions to the success of the Company.  These objectives are accomplished by making long-term incentive awards under the 2010 Plan thereby providing participants with a proprietary interest in the growth and performance of the Company.

 

The Company believes that such awards better align the interests of its employees with those of its shareholders.  Option awards are generally granted with an exercise price that equals the fair market value of the Company's stock at the date of grant.  These option awards generally vest based on four years of continuous service and have five-year or 10-year contractual terms.

 

A summary of option activity under the 2010 Plan as of June 30, 2012 and changes during the six months then ended is presented below:

 

          Weighted -    

 

Weighted -

  
          Average    

 

Average

  
    Number     Exercise Price    

 

Remaining

Contractual

  
    Outstanding     Per Share     Life (Years)  
Outstanding at January 1, 2012     1,610,000     $ 0.82       4.63  
Granted     367,500       0.70       4.94  
Exercised     -       -       -  
Canceled/forfeited/expired     (187,814 )     0.32       3.48  
Outstanding at June 30, 2012     1,789,686     $ 0.85       4.81  
                         
Options vested and exercisable at June 30, 2012     557,803     $ 0.76       4.63  

 

Expense Information

 

The Company measures and recognizes compensation expense for all stock-based payment awards made to employees and directors based upon estimated fair values.   The Company recorded stock-based compensation in operating expenses for employees totaling $96,568 and $138,258 for the three months ended June 30, 2012 and 2011, respectively.  The Company also recorded stock-based compensation in operating expenses for employees totaling $210,429 and $243,666 for the six months ended June 30, 2012 and 2011, respectively.

 

Valuation Assumptions

 

The Company uses the Black-Scholes option pricing model in determining its option expense.  The weighted-average estimated fair value of employee stock options granted during the six months ended June 30, 2012 was $0.70 per share.  There were 367,500 options granted during the six months ended June 30, 2012.  The ranges of assumptions used during the six months ended June 30, 2012 are as follows:

 

    Employee  
    Options  
Expected volatility   65% to 73.4%  
Risk-free interest rate   0.39% to 0.51%  
Forfeiture rate     0.0 %
Expected dividend rate     0.0 %
Expected life(yrs)   3.00 to 4.00  

 

 

The expected volatility is based on the weighted average of the historical volatility of publicly traded surrogates in the Company’s peer group.

 

The risk-free interest rate assumption is based upon published interest rates appropriate for the expected life of the Company’s employee stock options.

 

The dividend yield assumption is based on the Company’s history of not paying dividends and no future expectations of dividend payouts.

 

The expected life of the stock options represents the weighted-average period that the stock options are expected to remain outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-based awards.

 

Warrants

 

During the six months ended June 30, 2012, the Company issued warrants totaling 25,000 to non-employee consultants that include graded vesting terms. As of June 30, 2012, 518,120 warrants were vested pursuant to four non-employee warrant agreements; three of which were granted during the prior year. These warrants were valued using a Monte Carlo Simulation; the fair values of the warrants were estimated at the vesting date and are revalued at each subsequent reporting date. At June 30, 2012, the Company recorded current derivative liabilities for the non-employee warrants totaling $224,840.  The change in fair value of the derivative liabilities for the six months ended June 30, 2012 was a gain of $197,898, which was reported as other income/(expense) in the consolidated statements of operations.

 

Valuation Assumptions

 

The Company uses a Monte Carlo simulation in determining the fair values of the warrants.   There were 25,000 warrants granted during the six months ended June 30, 2012.  The Company periodically revalues these warrants as they vest.  The ranges of assumptions used during the six months ended June 30, 2012 are as follows:

 

    Non-Employee  
    Warrants  
Expected volatility   65% to 73.4%  
Risk-free interest rate   0.30% to 1.04%  
Forfeiture rate     0.0 %
Expected dividend rate     0.0 %
Expected life(yrs)   3.00 to 6.00  

 

A summary of non-employee warrant activity during the six months ended and as of June 30, 2012 is presented below:

 

          Weighted -    

 

Weighted -

  
          Average    

 

Average

  
    Number     Exercise Price    

 

Remaining

Contractual

  
    Outstanding     Per Share     Life (Years)  
Outstanding at January 1, 2012     905,000     $ 0.33       4.60  
Granted     25,000       1.16       4.59  
Exercised     -       -       -  
Canceled/forfeited/expired     -       -       -  
Outstanding at June 30, 2012     930,000     $ 0.35       4.60  
                         
Warrants vested and exercisable at June 30, 2012     518,120     $ 0.34       4.20  

 

As discussed in Note 6, the Company is obligated to issue warrants or shares pursuant to its Bridge Financing.  The number of warrants / shares issuable pursuant to the agreements is not known as of June 30, 2012.

 

During the year ended December 31, 2011, the Company issued warrants for the purchase of 688,669 shares of common stock at $2.00 per share in connection with its private placement discussed above under Common Stock.  The warrants are exercisable for four years from the date of issuance, and contain anti-dilution, or down round, price protection as long as the warrant remains outstanding. In addition, the Company issued warrants for the purchase of 153,515 shares of common stock at $2.00 per share in connection with the conversion of its outstanding Notes with a principal amount of $210,000 discussed above in Note 6 under Bridge Financing. The warrants are exercisable for four years from the date of issuance. During the six months ended June 30, 2012, the Company did not issue any additional warrants. These warrants are shown below. These warrants are included in the “Common Stock and Warrants” derivative value (see Note 5) as of June 30, 2012 and December 31, 2011.

 

Beginning balance January 1, 2012     842,184  
Warrants issued     -  
Warrants exercised     -  
Warrants expired     -  
Ending balance June 30, 2012     842,184