Stockholders' Equity | 9 Months Ended |
Sep. 30, 2013 |
Stockholders' Equity [Abstract] | ' |
STOCKHOLDERS' EQUITY | ' |
NOTE 5 – STOCKHOLDERS’ EQUITY |
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Common Stock |
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During the nine months ended September 30, 2013, the Company executed the following common stock transactions: |
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● | the issuance of an aggregate 4,992,500 common shares to accredited investors in a private placement. Total consideration from this issuance of common stock amounted to $1,248,125 at September 30, 2013. The common stock issued included warrants with a fair value of $208,797. | | | | | | | |
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● | the issuance of an aggregate 1,706,929 shares of the Company’s common stock with a fair value of $395,685 for consulting services. | | | | | | | |
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● | the issuance of an aggregate 898,200 shares of the Company’s common stock with a fair value of $186,736 in payment of settlement of accounts payable and retainer for legal services. | | | | | | | |
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● | the issuance of 375,750 shares of common stock fair valued at $78,975 for software development services. | | | | | | | |
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The fair value of common stock issued, in connection with services rendered by various professionals, was determined based upon the evaluation of fair value made by the Company’s management, which considered the values associated with securities offerings during the period. |
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Preferred Stock |
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The Company is authorized to issue 50,000,000 shares of preferred stock with a par value of $0.001 per share. The preferred stock may be issued in one or more series and the first series consisted of 18,000,000 shares and is designated as series A convertible preferred stock (“Series A Preferred Stock”). The holders of Series A Preferred Stock are entitled to receive, if, when and as declared by the Board, dividends at an annual rate of 8% of the original purchase price of Series A Preferred Stock. No dividends were declared for the nine months ended September 30, 2013. In the event of any liquidation, dissolution or winding up of the Company, voluntary or involuntary, the holders of the Series A Preferred Stock are entitled to receive the amount of $0.50 per share. Each share of Series A Preferred Stock is convertible at the option of the holder at any time after the date of issuance into equal number of shares of common stock. Each share of Series A Preferred Stock issued and outstanding is entitled to the number of votes equal to the number of shares of common stock into which such share of Series A Preferred Stock could be converted. No shares of preferred stock have been issued during the nine months ended September 30, 2013. |
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In connection with the Company’s December 31, 2012 sale of $802,500 in units consisting of an aggregate of 3,210,000 shares of the Company’s Series A Preferred Stock and warrants to purchase an aggregate of 3,210,000 shares of the Company’s common stock, the Company was required to file a registration statement registering the shares of common stock such Series A Preferred Stock were convertible into (3,210,000 shares) and the shares the warrants were exercisable for. Such registration statement was required to be filed within 60 days of the final closing date (the “Filing Date”) and to be declared effective by 150 days from the Filing Date. The Company did not meet the required Filing Date and the required effectiveness date has already passed. Pursuant to the registration rights agreement, if the registration statement was not filed on a timely basis or was not declared effective by the SEC for any reason on a timely basis, the Company was required to pay each investor monthly liquidated damages equal to 1.0% of the investment amount subscribed for by such investor (capped at 12%) until the registration statement is filed or declared effective, as the case may be. At September 30, 2013, the Company accrued $47,000 of estimated liquidated damages that it will owe to the holders of the outstanding Series A Preferred Stock. In the event the Company is unable to gain effectiveness of the registration statement, it could owe such investors up to an aggregate of $96,300. |
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Warrants |
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During the nine months ended September 30, 2013, the Company issued warrants to purchase common stock to investors in private placements for the right to purchase 4,992,500 shares of the Company’s common stock at $0.50 per share. The warrants vested immediately and have a term of five years from the date the warrants were issued. The warrants were valued at $208,797, using the Black-Scholes option pricing model. |
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On March 11, 2013, the Company entered into a Software Development Agreement pursuant to which a warrant to purchase 350,000 shares of the Company’s common stock at $0.25 per share was issued. The warrant has a cashless exercise feature and vests as follows: (a) 50,000 shares on July 31, 2013, (b) 50,000 shares on October 31, 2013, and (c) 25,000 shares at the end of every three months starting on January 31, 2014. The warrants were valued at $26,880 using the Black-Scholes option pricing model. |
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On April 1, 2013, the Company entered into a Software Development Agreement pursuant to which a warrant to purchase 800,000 shares of the Company’s common stock at $0.25 per share was issued. The warrant has a cashless exercise feature and vests as follows: (a) 100,000 shares on July 31, 2013, (b) 100,000 shares on October 31, 2013, and (c) 60,000 shares at the end of every three months starting on January 31, 2014. The warrants were valued at $75,040 using the Black-Scholes option pricing model. |
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On April 1, 2013, the Company entered into a Software Development Agreement pursuant to which a warrant to purchase 125,000 shares of the Company’s common stock at $0.25 per share was issued. The warrant has a cashless exercise feature and vests 12,500 shares at the end of every three months with the first tranche vesting on January 31, 2014. The warrants were valued at $11,725 using the Black-Scholes option pricing model. |
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On July 1, 2013, the Company entered into a Software Development Agreement pursuant to which a warrant to purchase 60,000 shares of the Company’s common stock at $0.25 per share was issued. The warrant has a cashless exercise feature and vests as follows: (a) 10,000 shares on January 1, 2014, and (b) 5,000 shares at the end of every three months starting on April 1, 2014. The warrants were valued at $5,640 using the Black-Scholes option pricing model. |
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On August 28, 2013, the Company entered into a Consulting Agreement pursuant to which a warrant to purchase 300,000 shares of the Company’s common stock at $0.25 per share was issued. The warrant has a cashless exercise feature and vests immediately. The warrants were valued at $23,400 using the Black-Scholes option pricing model. |
On August 13, 2013, the Company entered into a Consulting Agreement pursuant to which a warrant to purchase 25,000 shares of the Company’s common stock at $0.25 per share was issued. The warrant has a cashless exercise feature and vests 6,250 shares at the end of every three months starting December 1, 2013. The warrants were valued at $2,160 using the Black-Scholes option pricing model. |
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The assumptions used in the Black-Scholes option pricing model are as follows: |
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Risk-free interest rate | | | 0.29% - 0.84 | % | | | | |
Expected dividend yield | | | 0 | % | | | | |
Expected lives | | 2.5 years – 3.5 years | | | | | |
Expected volatility | | | 70 | % | | | | |
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Warrants to purchase an aggregate of 26,082,500 shares of the Company’s common stock with exercise prices ranging from $0.01 to $0.75 were outstanding as of September 30, 2013. A summary of the Company’s warrant activity and related information for the nine months ended September 30, 2013 is as follows: |
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| | Warrants | | | Weighted Average Exercise Price | |
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Outstanding at January 1, 2013 | | | 19,605,000 | | | $ | 0.37 | |
Granted | | | 6,652,500 | | | | 0.44 | |
Exercised | | | - | | | | - | |
Forfeited/Expired | | | (175,000 | ) | | | 0.25 | |
Outstanding at September 30, 2013 | | | 26,082,500 | | | | 0.38 | |
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Stock Options |
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During 2010, the Board of Directors approved and adopted the 2010 Stock Option, Deferred Stock and Restricted Stock Plan (the “Plan”) to provide for the issuance of non-qualified and/or incentive stock options to employees, officers, directors and consultants and other service providers. The Plan was subsequently amended on various dates. Generally, all options granted expire five to ten years from the date of grant. It is the policy of the Company to issue new shares for stock options exercised, rather than issue treasury shares. Options generally vest over ten years. Effective July 1, 2012, the total number of shares of common stock reserved for issuance was reduced to 15,000,000 shares, subject to annual increases of up to an amount equal to 15% of the outstanding fully-diluted shares of common stock of the Company, and any such increase cannot be made until the fully diluted shares of common stock outstanding exceeds 100,000,000 shares. The Company did not grant any stock options during the nine months ended September 30, 2013. Options to purchase 17,100,000 shares of common stock at an average exercise price of $0.034 per share are outstanding at September 30, 2013. Of that amount, 9,750,000 are exercisable at an average price of $0.03 per share. |
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As of September 30, 2013, there was $554,050 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average period of 1.8 years. |
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The estimated aggregate pretax intrinsic value (the difference between the Company’s estimated stock price on the last day of the period ended September 30, 2013 and the exercise price, multiplied by the number of in-the-money options) is approximately $1,740,000. This amount changes based on the fair market value of the Company’s common stock. |
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Public Offering |
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As of the date of this filing, the SEC is in the review process of a Registration Statement the Company filed On May 13, 2013. The Company provided for the registration of (i) up to 10,000,000 shares of common stock of the Company to be offered to public stockholders for up to $5,000,000 in gross proceeds (net $4,537,000 after expenses); (ii) the distribution of 10,558,896 shares (the "Distribution Shares") of common stock of the Company owned by Innolog Holdings Corporation (formerly named uKarma Corporation, or "Innolog"); and (iii) the resale (the "Resale") of an aggregate of 6,420,000 shares of the Company's common stock owned by twenty-two (22) selling shareholders identified therein. No payment will be made by any recipient of the Distribution Shares to either Innolog or the Company and the Company will not receive any proceeds from the Resale. The proceeds from the offering are expected to be used for engineering and research and development; business development and sales and marketing; and general and administrative expenses. The registration statement is subject to approval by the SEC. |