Quarterly report pursuant to Section 13 or 15(d)

STOCKHOLDERS' DEFICIT

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STOCKHOLDERS' DEFICIT
 9 Months Ended
Sep. 30, 2012
Equity [Abstract]  
STOCKHOLDERS' DEFICIT
NOTE 5 - STOCKHOLDERS’ DEFICIT

Capital Structure

On March 16, 2010, the Company had filed the Definitive Schedule 14C with the SEC notifying its stockholders that on March 2, 2010, a majority of the voting capital stock of the Company took action in lieu of a special meeting of stockholders authorizing the Company to enter into the Merger Agreement with its then newly-formed wholly-owned subsidiary, EClips Media Technologies, Inc., a Delaware corporation for the purpose of changing the state of incorporation of the Company to Delaware from Florida. Pursuant to the Merger Agreement, the Company had merged with and into EClips Media with EClips Media continuing as the surviving corporation on April 12, 2010.

On the effective date of the Merger, (i) each issued and outstanding share of Common Stock of the Company had been converted into two (2) shares of EClips Media Common Stock, (ii) each issued and outstanding share of Series D Preferred Stock of the Company had been converted into two (2) shares of EClips Media Series A Preferred Stock and (iii) the outstanding share of EClips Media Common Stock held by the Company shall be retired and canceled and shall resume the status of authorized and unissued EClips Media Common Stock. All shares and per share values were retroactively stated at the effective date of merger. Except as otherwise noted, amounts set forth as of September 30, 2012 reflects the effect of the merger.

The authorized capital of the Company consists of 750,000,000 shares of common stock, par value $0.0001 per share and 10,000,000 shares of preferred stock, par value $0.0001 per share of which 3,000,000 shares have been designated as series A Preferred Stock.

Each share of Series A Preferred Stock is convertible into one share each of the Company’s common stock, subject to equitable adjustments after such events as stock dividends, stock splits or fundamental corporate transactions. The holders of the Company’s Series A Preferred Stock are entitled to 250 votes for each share of Series A Preferred Stock owned at the record date for the determination of shareholders entitled to vote, or, if no record date is established, at the date such vote is taken or any written consent of shareholders is solicited. In the event of a liquidation, dissolution or winding up of our business, the holder of the Series A Preferred Stock would have preferential payment and distribution rights over any other class or series of capital stock that provide for Series A Preferred Stock’s preferential payment and over the Company’s common stock. The Series A Preferred stock does not include any mandatory redeemable provisions.

Common Stock

On February 7, 2012, the note holders of the Company’s 6% convertible debentures converted a total principal amount of $55,000 of the convertible debentures into common stock. The Company issued 2,200,000 shares in connection with the conversion of these convertible debentures. The conversion price of such shares issued amounted to $0.025 per share.

On February 21, 2012, the Company entered into a stock option cancellation agreement (the “Cancellation Agreement”) with Daniel Bleak, pursuant to which the stock option (the “Option”) to purchase 30,000,000 shares of common stock granted on May 2, 2011 to Mr. Bleak in connection with his appointment as the Chairman and Chief Executive Officer of the Company was cancelled. As of the date of the Cancellation Agreement, the entire Option remained unexercised.

On February 21, 2012 the Company granted Mr. Bleak 25,000,000 restricted shares of common stock as compensation for his continued services. The Company valued these common shares at the fair market value on the date of grant at $0.14 per share or $3,500,000.

Stock Options

On May 2, 2011, the Board of Directors appointed Daniel Bleak as Chairman and Chief Executive Officer. On May 2, 2011 the Company issued to Daniel Bleak a five year option to purchase 30 million shares of Common Stock. The option may be exercised for cash or shares of Common Stock at an exercise price of $0.05 per share as defined in the option agreement. The options vest and become exercisable in equal installments of the first three anniversaries of the effective date, provided Mr. Bleak continues to serve the Company as a director on such dates. The option was issued in connection with the appointment of Mr. Bleak as the Chairman and Chief Executive of the Company and the transfer and conveyance of certain silver mining claims owned by Can-Am Gold Corp. whereby its President and sole director is Mr. Bleak. The 30 million options were valued on the grant date at $0.05 per option or a total of $1,494,596 using a Black-Scholes option pricing model with the following assumptions: stock price of $0.05 per share (based on the recent selling price of the Company’s common stock), volatility of 259%, expected term of 5 years, and a risk free interest rate of 1.96%.
 
On February 21, 2012, the Company entered into a stock option cancellation agreement (the “Cancellation Agreement”) with Daniel Bleak, pursuant to which the stock option to purchase 30 million shares of common stock granted on May 2, 2011 to Mr. Bleak in connection with his appointment as the Chairman and Chief Executive Officer of the Company was cancelled.

For the nine months ended September 30, 2012 and 2011, the Company recorded stock-based compensation expense of $41,516 and $207,584.

A summary of the status of the Company’s outstanding stock options and changes during the period then ended is as follows:
 
 
 
Number of Options
 
 
Weighted Average Exercise Price
 
 
Weighted Average Remaining Contractual Life (Years)
 
Balance at January 1, 2012
 
 
30,000,000
 
 
$
0.05
 
 
 
4.58
 
Granted
 
 
—
 
 
 
—
 
 
 
—
 
Exercised
 
 
—
 
 
 
—
 
 
 
—
 
Forfeited
 
 
—
 
 
 
—
 
 
 
—
 
Cancelled
 
 
(30,000,000
) 
 
 
0.05
 
 
 
4.41
 
Balance outstanding at September 30, 2012
 
 
—
 
 
$
—
 
 
 
—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Options exercisable at September 30, 2012
 
 
—
 
 
$
—
 
 
 
 
 
Options expected to vest
 
 
—
 
 
 
 
 
 
 
 
 
Weighted average fair value of options granted during the nine months ended September 30, 2012
 
 
 
 
 
$
—
 
 
 
 
 

Stock Warrants

A summary of the status of the Company’s outstanding stock warrants and changes during the period then ended is as follows:
 
 
 
Number of Warrants
 
 
Weighted Average Exercise Price
 
Balance at December 31, 2011
 
 
36,000,000
 
 
$
0.025
 
Granted
 
 
750,000
 
 
 
0.05
 
Exercised
 
 
—
 
 
 
—
 
Balance at September 30, 2012
 
 
36,750,000
 
 
$
0.026
 
 
 
 
 
 
 
 
 
 
Warrants exercisable at September 30, 2012
 
 
36,750,000
 
 
$
0.026
 
Weighted average fair value of warrants granted during the nine months ended September 30, 2012
 
 
 
 
 
$
—
 

The following table summarizes the Company’s stock warrants outstanding at September 30, 2012:
 
 
Warrants Outstanding
 
 
Warrants Exercisable
 
 
Range of Exercise Price
    
Number Outstanding at
September 30,
 2012
    
Weighted Average Remaining Contractual Life
 
Weighted Average Exercise Price
 
 
Number Exercisable at
September 30,  2012
 
 
Weighted Average Exercise Price
 
$ 0.025    
36,000,000
    
2.31 Years
 
$
0.025
 
 
 
36,000,000
 
 
$
0.025
 
  0.05    
750,000
    
4.61 Years
 
 
0.05
 
 
 
750,000
 
 
 
0.05
 
$ 0.026    
36,750,000
    
2.36 Years
 
$
0.026
 
 
 
36,750,000
 
 
$
0.026