Annual report pursuant to Section 13 and 15(d)

Stockholders' Deficit

v2.4.0.6
Stockholders' Deficit
 12 Months Ended
Dec. 31, 2011
Notes to Financial Statements  
Stockholders' Deficit

NOTE 6 - 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 December 31, 2011 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.
 
Common Stock
 
On February 4, 2010, the Company had entered into a Consulting Agreement with Colonial Ventures, LLC (the “Consultant”), a company controlled by former CEO of the Company. Pursuant to the Agreement, the Company shall pay Consultant $10,000 per month during the term of the Agreement. The Company issued 10,000,000 (post-merger) shares pursuant to this consulting agreement, 50% of which vested upon execution of the Agreement and the remaining 50% of which will vest on the one year anniversary of the Agreement as long as the Consultant is still engaged by the Company and Designated Person is still serving as chief executive officer or as a member of the board of directors of the Company. The Company valued these common shares at the fair market value on the date of grant of $575,000.  On December 13, 2010, the Company’s Consulting Agreement with Colonial Ventures, LLC was amended by cancelling certain unvested shares issued to or on behalf of the Consultant as compensation.  As a result 5,000,000 shares of the Company’s common stock have been returned for cancellation. In connection with the issuance of these shares during the year ended December 31, 2010, the Company recorded stock based compensation of $575,000. In connection with the return of the 5,000,000 shares of common stock, the Company recorded such cancellation of shares at par value. As of December 31, 2010, such consulting agreement has been terminated by the Company.
 
On February 5, 2010, the Company issued an aggregate of 6,000,000 shares (12,000,000 post-merger) of the Company’s common stock of the Company to two persons for consulting services rendered. The Company valued these common shares at the fair market value on the date of grant at $0.115 per share or $690,000. In connection with the issuance of these shares during the year ended December 31, 2010, the Company recorded stock based consulting of $690,000.
 
On April 15, 2010, the Company issued an aggregate of 22,388,354 shares of the Company’s common stock of the Company to two consultants for consulting services rendered. The Company valued these common shares at the fair market value on the date of grant at $1,920,000. In connection with the issuance of these shares during the year ended December 31, 2010, the Company recorded stock based consulting of $1,920,000.
 
On June 21, 2010, in connection with the Asset Purchase Agreement with BIG, the Company issued 20,000,000 shares of common stock valued at $0.04 per share or $800,000. The Company valued these common shares at the fair market value on the date of grant (see Note 1). These shares were cancelled in December 2010 in connection with the Spinoff agreement.
 
Pursuant to an Employment Agreement dated on June 21, 2010 the Company issued 10,000,000 shares of common stock to the Company’s former Chief Executive Officer. The Company valued these common shares at the fair market value on the date of grant at $0.04 per share or $400,000. In connection with the issuance of these shares during the year ended December 31, 2010, the Company recorded stock based compensation of $400,000. These shares were cancelled in December 2010 in connection with the Spinoff agreement.
 
In July 2010, in connection with the sale of the Company’s common stock, the Company issued 1,500,000 shares of common stock for net proceeds of approximately $75,000.
 
In December 2010, the Company entered into a spin off agreement (the “Spinoff”) with SD Acquisition Corp. (“SD”), Brand Interaction Group, LLC (“BIG”) and Mr. Eric Simon, the Company’s former CEO, pursuant to which the Company will return the Superdraft business to Mr. Simon by exchanging 100% of the issued and outstanding capital stock of SD which owned and operated the Superdraft business, for the cancellation of 30,000,000 shares of the Company owned by Mr. Simon and BIG, the cancellation of the Asset Purchase Agreement and Employment Agreement entered into between the Company, Mr. Simon and BIG in June 2010. The Company recorded the cancellation of the 30,000,000 shares of common stock at par value in accordance with ASC 505 – 30 “Treasury stock”.
 
During 2010, in a private equity transaction, a shareholder of the Company transferred 3,000,000 shares of the Company’s common stock he owned to the holder of this Senior Convertible Debentures amounting to $75,000. As a result of this private equity transaction and pursuant to a release notice agreement, the Company was released from this Senior Convertible Debentures. During fiscal 2010, the Company cancelled such debenture and recognized capital contribution of $75,000 to additional paid in capital.
 
In January 2011, the Company issued 219,863 shares in connection with the payment of accrued directors’ fee of $10,000. The Company valued these common shares at the fair market value on the date of grants at approximately $0.045 per share or $10,000.
 
In January 2011, two note holders (the “Assignors”) of the Company’s 6% convertible debentures entered into an Assignment agreement with an unrelated party (the “Assignee”) whereby the Assignors assigned a total principal amount of $250,000 of the convertible debentures (the “Assigned Debenture”) and 5,000,000 warrants (the “Assigned Warrants”)(the Assigned Debenture and the Assigned Warrants collectively, the  ”Assigned Securities”). The Assignee purchased the Assigned Securities for $300,000. Contemporaneously with the closing of this agreement, the Assignee converted the Assigned Debenture into shares of the Company’s common stock and exercised the Assigned Warrants for total net proceeds of $125,000 to the Company. The Company issued 10,000,000 shares in connection with the conversion of the Assigned Debenture and 5,000,000 shares in connection with the exercise of the Assigned Warrants. The fair value of such shares issued amounted to $0.025 per share.
 
In June 2011, a note holder (the “Assignor”) of the Company’s 6% convertible debentures entered into an Assignment agreement with two unrelated parties (the “Assignees”) whereby the Assignor assigned a total principal amount of $125,000 of the convertible debentures (the “Assigned Debenture”). The Assignees purchased the Assigned Debenture for $125,000. Contemporaneously with the closing of this agreement, the Assignees converted the Assigned Debenture into shares of the Company’s common stock. The Company issued 5,000,000 shares in connection with the conversion of the Assigned Debenture. The fair value of such shares issued amounted to $0.025 per share.
 
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 10 million shares of the Company’s common stock and 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.  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 Company valued these common shares at the recent subscription price on the date of grant at $0.05 per share (based on the recent selling price of the Company’s common stock below) or $500,000. Accordingly, the Company recorded mineral cost of $500,000 in connection with the transfer and conveyance of certain silver mining claims to the Company.
 
On May 23, 2011, the Company entered into subscription agreements with certain investors whereby it sold an aggregate of 11 million shares of the Company’s common stock at a purchase price of $0.05 per share or an aggregate purchase price of $550,000.  As set forth in the subscription agreements, the Company has agreed to file a “resale” registration statement with the Securities and Exchange Commission (the “SEC”) covering 50% of the shares of the Common Stock sold to each investor in this offering within 60 days (the “Filing Date”).  The Company has agreed to use its best efforts to cause the registration statement to be declared effective within 120 days (the “Effectiveness Deadline”). The Company has agreed to maintain the effectiveness of the registration statement from the effective date until the date all securities have been sold or are otherwise freely tradeable under the Securities Act of 1933, as amended (the “Securities Act”).  If a registration statement is not filed on or prior to the Filing Date, or is not effective with the SEC on or prior to the Effectiveness Deadline, the Company will make payments to this investors of 1% of the investors’ investment for every thirty (30) day period up to a maximum of 5% following the Filing Date or the Effectiveness Deadline, as applicable.  Such payments shall be made to these investors in cash or shares of common stock, at the Company’s option.
 
In December 2011, the note holders of the Company’s 6% convertible debentures converted a total principal amount of $325,000 of the convertible debentures into common stock. The Company issued 13,000,000 shares in connection with the conversion of these convertible debentures. The conversion price of such shares issued amounted to $0.025 per share.
  
In December 2011, the Company issued 1,000,000 shares of the Company’s common stock of the Company to a consultant for consulting and investor relations services rendered. The Company valued these common shares at the fair market value on the date of grant at $0.13 per share or $130,000. In connection with the issuance of these shares during the year ended December 31, 2011, the Company recorded stock based consulting of $130,000.
  
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%. For the year ended December 31, 2011, the Company recorded stock-based compensation expense of $332,132.
 
A summary of the status of the Company's outstanding stock options as of December 31, 2011 and changes during the period then ended is as follows:
 
A summary of the stock options as of December 31, 2011 and changes during the period are presented below:
       
   
Number of Options
    
Weighted Average Exercise Price
    
Weighted Average Remaining Contractual Life (Years)
  
Balance at beginning of year
     -     $ -       -  
Granted
     30,000,000       0.05       5.0  
Exercised
     -       -       -  
Forfeited
     -       -       -  
Cancelled
     -       -       -  
Balance outstanding at the end of year
     30,000,000     $ 0.05       4.58  
                         
Options exercisable at end of year
     -     $ -          
Options expected to vest
     -                  
Weighted average fair value of options granted during the year
           $ 0.05          
 
Stock options outstanding at December 31, 2011 as disclosed in the above table have approximately $2,700,000 intrinsic value at the end of the year.
 
Stock Warrants
 
A summary of the status of the Company's outstanding stock warrants as of December 31, 2011 and changes during the period then ended is as follows:
 
   
Number of Warrants
    
Weighted Average Exercise Price
  
Balance at December 31, 2009
    
-
    
$
-
  
Granted
    
41,000,000
      
0.025
  
Exercised
    
-
      
-
  
Balance at December 31, 2010
    
41,000,000
      
0.025
  
Granted
    
-
      
-
  
Exercised
    
(5,000,000
)
    
0.025
  
Balance at December 31, 2011
    
36,000,000
    
$
0.025
  
                 
Warrants exercisable at end of year
    
36,000,000
    
$
0.025
  
Weighted average fair value of warrants granted during the year
          
$
-
  
 
The following table summarizes the Company's stock warrants outstanding at December 31, 2011:
 
 
Warrants Outstanding
    
Warrants Exercisable
  
 
Range of Exercise Price
  
Number Outstanding at
December 31,
 2011
  
Weighted Average Remaining Contractual Life
  
Weighted Average Exercise Price
    
Number
Exercisable at
December 31,
 2011
    
Weighted Average Exercise Price
  
$
0.025
     36,000,000  
3.31 Years
   $ 0.025       36,000,000     $ 0.025  
 
 
     36,000,000       $ 0.025       36,000,000     $ 0.025  
 
The following table summarizes the Company's stock warrants outstanding at December 31, 2010:
 
 
Warrants Outstanding
    
Warrants Exercisable
  
 
Range of Exercise Price
  
Number Outstanding at
December 31,
 2010
  
Weighted Average Remaining Contractual Life
  
Weighted Average Exercise Price
    
Number
Exercisable at
December 31,
 2010
    
Weighted Average Exercise Price
  
$ 0.025     41,000,000  
4.31 Years
   $ 0.025       41,000,000     $ 0.025  
        41,000,000       $ 0.025       41,000,000     $ 0.025