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v2.4.0.6
NOTE 9 - STOCKHOLDERS' EQUITY (DEFICIT)
9 Months Ended
Sep. 30, 2012
Equity [Abstract]  
NOTE 9 - STOCKHOLDERS' EQUITY (DEFICIT)

NOTE 9 – STOCKHOLDERS’ EQUITY (DEFICIT)

 

Preferred Stock

 

On May 26, 2011, our board of directors designated 350,000 shares of preferred stock as Series A preferred stock, $0.001 par value. The Series A preferred stock is entitled to a liquidation preference in the amount of $5 per share, votes on an as converted basis with the common stock on all matters as to which holders of common stock shall be entitled to vote, and is convertible into common stock on a one-for-ten basis.

 

During the third quarter 2012, Entia issued 4,600 shares of Series A preferred stock for cash proceeds of $23,000.

 

During the second quarter 2012, Entia issued shares of Series A preferred stock for the following:

 

12,800 shares were issued for cash proceeds of $64,000. The fair value of the common stock into which the Series A preferred stock is convertible exceeded the allocated purchase price of the Series A preferred stock by $21,139 on the date of issuance, resulting in a beneficial conversion feature. Entia recognized the beneficial conversion feature as a one-time, non-cash deemed dividend to the holders of the Series A preferred stock on the date of issuance;

 

1,000 shares were issued in exchange for cancellation of a note payable totaling $10,000; and

 

7,000 shares valued at $35,000 were issued in exchange for consulting services provided.

 

During the first quarter 2012, 19,000 shares of Series A preferred stock were issued with a value of $95,000.

 

Common stock

 

During the third quarter of 2012, Entia’s board of directors agreed to a special price to current holders of warrants and/or options. If they committed to exercising their warrants/options, Entia would allow them to convert at $0.40 per share. This special price was effective only through July 31, 2012. There were a total of 222,500 warrants exercised for proceeds of $89,000. $30,000 was received in cash during third quarter 2012 with the remaining $59,000 was exercised by receiving short-term notes with interest ranging from 6% to 20% due before April 2013. These notes are recorded on the balance sheet as a contra-equity account.

 

During the second quarter of 2012, 50,000 shares of common stock valued at $50,000 were issued in exchange for a license agreement.

 

During the first quarter 2012, 666 shares of common stock were issued to two employees as compensation. This stock had a fair market value of $400.

 

Stock incentive plan

 

On September 17, 2010, our Board of Directors adopted the 2010 Stock Incentive Plan (“Plan”). The Plan provides for the grant of options to purchase shares of our common stock, and stock awards consisting of shares of our common stock, to eligible participants, including directors, executive officers, employees and consultants of the Company. We have reserved 1,500,000 shares of common stock for issuance under the Plan with an annual increase in shares of 50,000 as of January 1 of each year; commencing January 1, 2012. The fair value of the option grants were estimated at the date of the grants using the Black-Scholes option pricing model with the following assumptions: expected volatility of 233.73% - 248.63%, a risk free rate of 0.84% - 1.15%, and an expected life of 4 - 10 years for the period ended September 30, 2012.

 

There were 103,513 authorized shares available under the Plan, and there were options to purchase 807,281 shares of stock exercisable, with a remaining contractual term of 10 years at September 30, 2012. The weighted average grant date fair value of stock options granted during the quarter ended September 30, 2012 was $0.53. The weighted average exercise price of stock options granted and exercisable is $0.56 on September 30, 2012. The aggregate fair value of options vested on September 30, 2012 is $170,342. Unvested options amounted to $263,227 at September 30, 2012 and there were 20,000 options forfeited with a value of $7,655, none exercised, or expired during the quarter ended September 30, 2012.

 

At September 30, 2012 there was $762,430 of aggregate intrinsic value of outstanding stock options, including $512,137 of aggregate intrinsic value of exercisable stock options. Intrinsic value is the total pretax intrinsic value for all “in-the-money” options (i.e., the difference between the Company’s closing stock price on the last trading day of third quarter 2012 and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all option holders exercised their options as of September 30, 2012. This amount changes based on the fair market value of the Company’s stock.

 

The Company had $263,227 of total unrecognized compensation cost related to unvested stock options at September 30, 2012, which is expected to be recognized over a weighted average period of 7 years.

 

Warrants – Consulting Agreements

 

During the third quarter of 2012, Entia’s board of directors agreed to a special price to current holders of warrants and/or options. If they committed to exercising their warrants/options, Entia would allow them to convert at $0.40 per share. This special price was effective only through July 31, 2012. There were a total of 222,500 warrants exercised for proceeds of $89,000. $30,000 was received in cash during third quarter 2012 with the remaining $59,000 was exercised by receiving short-term notes with interest ranging from 6% to 20% due before April 2013.

 

During the second quarter 2012, we issued warrants to purchase 30,496 shares of common stock under agreements for consulting services and warrants to purchase 308,750 shares of common stock under debt agreements to raise capital. These warrants have an exercise price ranging from $0.45 to $5.00 per share and have an average term of 5.75 years.

 

During first quarter 2012, we issued warrants to purchase 152 shares of common stock under agreements for consulting services. These warrants have an exercise price of $5.00 per share and have a term of 7 years.

 

We use the Black-Scholes option-pricing model to determine the fair value of warrants on the date of grant. In determining the fair value of warrants, we employed the following key assumptions during the periods ended September 30:

 

    2012 2011
Risk-Free interest rate   0.84% - 1.08% 1.27 - 2.80%
Expected dividend yield   0% 0%
Volatility   202.65% - 264.48% 183.17 - 187.30%
Expected life   5 - 7 years 4 - 10 years
Weighted-average Black-Scholes value of warrants granted   $0.56 $2.60