Stockholders' Equity

9 Months Ended

Sep. 30, 2013

Equity [Abstract]

Stockholders' Equity

Note 5 – Stockholders’ Equity

At September 30, 2013, there were 12,878,947 shares of common stock, par value $.01 per share, outstanding for the Company.

Effective February 16, 2012, the Company issued options to purchase 1,233,129 shares of the Company’s common stock to eight management employees with an initial exercise price of $0.38 per share and which contain various vesting schedules and expiration dates. Upon completion of the Merger, the total number of options to purchase such shares was reduced to 823,757 and the per share exercise price was correspondingly adjusted to $0.573 per share in accordance with the terms of the Merger Agreement. On May 31, 2013, one of the aforementioned options were exercised using a cashless exercise method based on the closing share price on that date. A total of 111,731 shares were issued.

Effective February 16, 2012, in connection with the $250,000 Convertible Promissory Note dated October 15, 2010 between the Company and James and Kristin Black, who were originating investors in the predecessor Company (“iSatori Technologies, LLC”), the Company exchanged 493,252 Common Shares of stock for the cancellation of the Note Payable. In accordance with the terms of the Merger, the total number of shares was reduced to 329,502.

Warrant Grants

As of September 30, 2013, there were common stock warrants outstanding to purchase aggregate shares of common stock pursuant to the warrant grants described below. On November 1, 2010, the Company issued warrants to purchase 150,000 shares of the common stock of the Company to Transition Partners, Limited with a an indeterminable exercise price per share in connection with a consulting services agreement. These warrants were subject to a conditional vesting schedule, in one-third increments. As of December 31, 2010, the first 50,000 of these warrants were fully vested and were due to expire on November 1, 2013. On June 17, 2011, the second 50,000 of these warrants were fully vested and due to expire on November 1, 2013. On April 6, 2012 the third 50,000 of these warrants were fully vested and were due to expire on November 1, 2013. Upon completion of and in accordance with the terms of the Merger, the total number of warrants to purchase such shares was reduced to 123,563 and the per share exercise price was fixed at $0.57 per share. In addition, the expiration of the warrants was extended to July 31, 2015. These warrants were exercised in two installments on May 29, and June 20, 2013, using a cashless exercise method based on the closing share price on that date, resulting in the issuance of 103,762 shares of common stock.

On June 17, 2011 the Company also issued warrants to purchase 50,000 shares of the common stock of the Company to AVIDBank Corporate Finance, a division of AVIDBank, with an exercise price equal to one-hundredth of a dollar in connection with the $1.0 million revolving line of credit arrangement (See Note 8, Revolving Lines of Credit and Related Interest). These warrants are fully vested and expire on June 17, 2016. Upon completion of the Merger, the total number of warrants to purchase such shares was reduced to 33,401 and the per share exercise price remained the same. These warrants were exercised in full on June 28, 2013, and 33,401 shares of common stock were issued to AVIDBank.

On July 15, 2011 the Company also issued warrants to purchase 3% of fully diluted shares of the common stock of the Company to Breakwater Structured Growth Opportunity Fund, L.P., with an imputed exercise price equal to approximately one-hundredth of a dollar in connection with the $1.025 million subordinated mezzanine loan arrangement (See Note 9, Long Term Indebtedness and Interest). These warrants are fully vested and expire on June 15, 2016. In accordance with the terms of the Merger, the total number of warrants to purchase such shares was increased from 328,411 shares to 420,549 and the per share exercise price remained the same.

Included in the aforementioned Breakwater warrant, was an obligation by the Company to, among other things, honor an irrevocable put right through which the Company agreed to purchase up to the 3% of fully diluted shares of its common stock underlying the warrant, which expires on July 15, 2016 (See Note 9, Long Term Indebtedness and Interest). Upon completion of the Merger, the irrevocable put right was removed.

Effective January 1, 2013, the Company entered into a one year agreement, subject to quarterly cancellation at the Company’s sole discretion, with Microcap Headlines, Inc. In connection with this agreement, the Company issued warrants to purchase an aggregate of 100,000 shares of the Company’s common stock at an exercise price of $2.25 per share. These warrants were subject to conditional vesting schedule in one-fourth (quarterly) increments, subject to the Company’s sole discretion. The first increment was granted and fully vested on January 1, 2013, the second increment was granted and fully vested on April 1, 2013, and the third increment was granted and fully vested on July 1, 2013. All vested warrants expire on January 1, 2018.

Effective July 16, 2013, the Company entered into an business consulting agreement with Optivest Global Partners, LLC. In connection with this agreement, the Company issued warrants to purchase an aggregate of 250,000 shares of the Company’s common stock at an exercise price of $2.25 per share. These warrants are fully vested and expire July 16, 2018. These warrants will be assignable and transferable, at Optivest’s discretion.

Option Grants

On September 6, 2012, the Company entered into a one year investor relations consulting contract with RJ Falkner & Company, Inc (“RJ Falkner”), which includes a grant to R. Jerry Falkner, the owner of RJ Falkner, as an individual, a five year option to purchase 125,000 of share of common stock and an exercise price of $2.25 per share. These options were subject to a conditional vesting schedule, in one-fourth increments. The first installment vested and became exercisable upon execution of the consulting contract on September 6, 2012. The second installment upon the publication of the first “Research Profile” report, which was completed November 30, 2012, The third installment vested on February 28, 2013, 90 days following the publication of the aforementioned report, and the fourth installments will vest 180 days following the publication of the report. As of September 30, 2013, all four increments were fully vested and are due to expire on September 5, 2017.

Effective September 28, 2012, the Company issued options to purchase 54,479 shares of the Company’s common stock to ten employees with an exercise price of $2.25 per share and which contain three year vesting schedules of 1/3 each year through September 2015. These options are due to expire on September 27, 2022.

Effective November 30, 2012, the Company issued options to purchase 100,000 shares of the Company’s common stock to two consultants with an exercise price of $2.50 per share and were subject to a three year vesting schedule, in one-third increments. The first vesting period begins on November 30, 2013. These options are due to expire on November 30, 2022.

Effective September 17, 2013, the Company issued options to purchase 50,000 shares of the Company’s common stock to an employee with an exercise price of $2.10 per share and which contain three year vesting schedules of 1/3 each year through September 2016. These options are due to expire on September 17, 2023.

The Company, in developing a fair value for the Microcap option at July 1, 2013, used a current stock value of $2.47 per share, for the Optivest Global Partners, LLC warrant obligation at July 16, 2013, used a current stock price of $1.63, and for the employee option used a current stock price of $1.60, all which represents a discount of 24% from the quoted stock price for lack of marketability. Other assumptions used in the above valuations include (a) risk-free interest rate of 1.38-2.26% based on duration, (b) weighted average expected terms ranging from 4.5 to 6.0 years; (c) weighted average expected stock volatility of 45.95 % and (e) expected dividends of 0%.

The Company used a lattice model in developing a fair value for the Breakwater warrant obligation at September 30, 2013, using a quoted stock value of $1.64 per share, which represents a discount of 50% from the closing stock price. This reduction was based on the application of a discount for lack of liquidity. Other assumptions used in the above valuations include (a) risk-free interest rate of .63% based on duration, (b) weighted average expected term years of 2.79 (c) weighted average expected stock volatility of 45.95 % (e) expected dividends of 0%, (f) stock price movements ranging from 1.0657952 to 0.93826656 and (g) risk neutral probabilities ranging from 0.48502515 to 0.51497485.

These valuations resulted in an expense of $160,182 in the Statement of Operations for the three month period ended September 30, 2013. These valuations resulted in an expense of $358,943 in the Statement of Operations for the nine month period ended September 30, 2013. In addition, as of June 28, 2013, $87,755 was reclassified to additional paid in capital from derivative liability due to the exercise of the AVIDBank warrant.