Capital Stock

6 Months Ended

Jun. 30, 2011

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

Note 14: Capital Stock

Common Stock:

As of December 31, 2009, 100,000,000 shares of $.001 par value common stock were authorized and 20,000,000 shares of common stock were issued and outstanding.  In May 2010, the Company consummated a .44-for-1 reverse stock split, thereby decreasing the number of issued and outstanding shares to 8,882,545, and increasing the par value of each share to $0.0023.

In connection with the merger with uKarma, uKarma’s Articles of Incorporation were amended such that there are 200,000,000 shares of $.001 par value common stock authorized and 13,629,973 shares of common stock issued and outstanding. The common stock amount has been changed from $20,000 to $13,630 to reflect the change in par value.

During the six months ended June 30, 2011, 500,000 shares of preferred stock were converted to 500,000 shares of common stock.

As of June 30, 2011, there were 14,129,973 shares of Common Stock outstanding.

Preferred Stock:

The Company has authorized 50,000,000 shares of preferred stock, with a par value of $0.001 per share (“Preferred Stock”). The Preferred Stock may be issued from time to time in series having such designated preferences and rights, qualifications and to such limitations as the Board of Directors may determine.

The Company has designated 38,000,000 shares of the preferred stock as Series A Convertible Preferred Stock (“Series A Stock”). The holders of Series A Stock have voting rights with a $2.00 liquidation preference per share, and may convert each share of Series A Stock into one share of common stock at any time.  Series A Stock converts automatically upon the occurrence of an offering meeting certain criteria and the sale of the Company. Holders of the Series A Stock are entitled to accrue dividends based on the prior fiscal year’s net income equal to 10% of such net income.

During the six months ended June 30, 2011, 500,000 shares of preferred stock were converted to 500,000 shares of common stock.

As of  June 30, 2011, there were 36,894,758 shares of Series A Stock outstanding and no dividends have been accrued.

Dividends:

During the six months ended June 30, 2010, the Company assumed two notes payable from Galen totaling $359,405. Of this amount, $279,636 was recorded as dividends to Galen.

Stock Warrant Activity:

On March 31, 2009, the Company granted 4,000,000 warrants to various affiliated individuals in conjunction with their guarantee of the Company’s line of credit (Note 8) and their loans to the Company (Note 10).  The warrants had an exercise price of $0.01 per share and a life of five years.  All warrants were fully vested on the date of grant.  The fair value of the warrants was $520,000 and was charged to interest expense for the period from March 23, 2009 (inception) to December 31, 2009. In May 2010, these warrants were reversed on a .44 to 1 basis to 1,760,000 shares with an exercise price of $.023 as a result of the reverse stock split.

The following assumptions were used in arriving at the fair value of the above noted warrants:

Expected dividend yield	0	%
Expected volatility	70	%
Average risk free interest rate	1.67	%
Expected life (in years)	2.5

For the three months ended June 30, 2010, the Company granted 39,106,857 warrants to various individuals in conjunction with the individuals lending the Company working capital (Notes 8 and 10) or in conjunction with the assignment of the merger rights with a public company. The warrants have an exercise price of $.50 and a life of five years. All warrants were fully vested on the date of the grant. The Company has determined through a Black Scholes analysis that the fair value of the warrants was zero at the time of issue.

The following assumptions were used in arriving at the fair value of the above noted warrants:

Expected dividend yield	0	%
Expected volatility	67	%
Average risk free interest rate	1.79	%
Expected life (in years)	5.0

For the three months ended September 30, 2010, the Company granted 1,515,000 warrants to various individuals in conjunction with the individuals lending the Company funds for working capital (Notes 8 and 10). The warrants have an exercise price of $.50 and a life of five years. All warrants were fully vested on the date of the grant. The Company has determined through a Black Scholes analysis that the fair value of the warrants was zero at the time of issue.

The following assumptions were used in arriving at the fair value of the above noted warrants:

Expected dividend yield	0	%
Expected volatility	68.64	%
Average risk free interest rate	1.27	%
Expected life (in years)	5.0

For the three months ended December 31, 2010, the Company granted 553,000 warrants to various individuals in conjunction with the individuals lending the Company funds for working capital. 150,000 of the warrants have an exercise price of $.01 and a life of 5 years, and the remaining 403,000 of the warrants have an exercise price of $.50 and a life of five years. All warrants were fully vested on the date of the grant. The Company has determined through a Black Scholes analysis that the fair value of the warrants was zero at the time of issue.

The following assumptions were used in arriving at the fair value of the above noted warrants:

Expected dividend yield	0	%
Expected volatility	63.07	%
Average risk free interest rate	2.01	%
Expected life (in years)	5.0

For the three months ended March 31, 2011, the Company granted 1,457,500 warrants to various individuals in conjunction with the individuals lending the Company funds for working capital (1,125,000) and for consulting (332,500). Of the warrants, 580,000 have an exercise price of $.01 and a life of 5 years, and the remaining 877,500 of the warrants have an exercise price of $.50 and a life of five years. All warrants were fully vested on the date of the grant. The Company has determined through a Black Scholes analysis that the fair value of the warrants was $23,200 at the time of issue.

The following assumptions were used in arriving at the fair value of the above noted warrants:

Expected dividend yield	0	%
Expected volatility	68.53	%
Average risk free interest rate	2.24	%
Expected life (in years)	5.0

For the three months ended June 30, 2011, the Company granted 4,550,000 warrants to various individuals in conjunction with the individuals lending the Company funds for working capital and renewals of loans. Of the warrants, 50,000 have an exercise price of $.01 and a life of 5 years, and the remaining 4,500,000 of the warrants have an exercise price of $.06 and a life of five years. All warrants were fully vested on the date of the grant. The Company has determined through a Black Scholes analysis that the fair value of the warrants was $46,500 at the time of issue.

The following assumptions were used in arriving at the fair value of the above noted warrants:

Expected dividend yield	0	%
Expected volatility	67.17	%
Average risk free interest rate	1.48	%
Expected life (in years)	5.0

A summary of the Company’s warrant activity and related information is as follows:

Warrant Summary	Warrants			Weighted Average Exercise Price
Outstanding, January 1, 2010		1,760,000		$	.0227
Granted		41,174,857		$	0.498
Merger with uKarma		142,272		$	10.47
Exercised		-		$	-
Forfeited/Expired		-		$	-
Outstanding, December 31, 2010		43,077,129		$	.5134
Granted		6,007,500		$	.1190
Exercised		-
Forfeited/Expired		(22,480	)	$	11.12
Outstanding, June 30, 2011		49,062,149		$	.4588

At June 30, 2011, there were 49,062,149 warrants outstanding and exercisable.  These warrants had a weighted average exercise price of  $.4588 and a weighted average remaining life of  51.6 month

Stock Option Plan:

Upon merger with uKarma on August 17, 2010, the Company assumed uKarma’s existing stock option plan, the Deferred Stock and Restricted Stock Plan (the “Plan”), under which employees, officers, directors, consultants and other service providers may be granted non-qualified and/or incentive stock options. Generally, all options granted expire five years from the date of grant.  All options have an exercise price equal to or higher than the fair value of the Company’s stock on the date the options are granted.  Options generally vest over three years with the exception of the initial grants of 2010, which vested immediately.  

A summary of the status of stock options issued by the Company as of  June 30, 2011 is presented in the following table. Shares have been adjusted to reflect uKarma’s reverse stock split of 11.120904 to 1 effective as of the date of merger:

	Number of Options			Weighted Average  Exercise Price
Outstanding at beginning of year 2011		13,451,980		$	0.503
Granted		-
Exercised/Expired/Cancelled		(22,480	)		2.22
Outstanding at June 30, 2011		13,429,500		$	0.50
Exercisable at June 30, 2011		13,047,897		$	0.50

The fair value of the stock options granted is estimated on the date of grant using the Black-Scholes option valuation model. This model uses the assumptions listed in the table below. Expected volatilities are based on the estimated volatility of the Company’s stock. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company has determined through a Black Scholes analysis that the fair value of the options was zero at the time of issue.

The following assumptions were used in arriving at a fair value of the options:

Weighted average fair value per options granted	$0.00
Risk free interest rate	1.27%
Expected dividend yield	0%
Expected lives	60 months
Forfeiture rate	0%
Expected volatility	68.64%

These stock options have a weighted average remaining life of  49.9 months.The intrinsic value is not greater than the grant price.