Annual report pursuant to section 13 and 15(d)

Note 4 - Shareholders' Deficit

v2.4.0.6
Note 4 - Shareholders' Deficit
12 Months Ended
Dec. 31, 2012
Notes to Financial Statements  
Note 4 - Shareholders' Deficit

Note 4- Shareholders’ Deficit

 

Common Stock

IPR issued 30,916,710 shares of its common stock on the date of incorporation to the founders of the corporation.

 

IPR has entered into consulting agreements with various consultants for service to be provided to the Company. The agreements stipulate a monthly fee and a certain number of shares that the consultant vests over the term of the contract. The consultant is issued a prorated number of the shares of common at the beginning of the contract that the consultant earns over a three-month period. At the anniversary of each quarter, the consultant is issued a new allotment of common stock. In accordance with ASC 505-50 – Equity-Based Payment to Non-Employee, the common stock shares issued to the consultant are valued upon issuance. The shares of common stock that have been issued were valued based on a valuation performed by an independent valuation firm. As of December 31, 2012, the total awards granted were 32,326,380 shares with 13,292,930 shares vested and issued and 19,033,450 shares unvested. The total expense recorded for the years ended December 31, 2012 and 2011, was $241,635 and $74,892, respectively.

 

The following table presents the issuance, vesting and shares to be vested of the stock grants. The unvested as of December 31, 2012 and 2011 will vest on a weighted average of approximately 2.75 years and 2.0 years, respectively:

 

  Number of shares   Estimated Market value
 Beginning balance, September 1, 2011  -       
 Issued  18,513,000    
 Vested  (2,776,950)    
 Forfeited  -       
 Balance unvested, December 31, 2011  15,736,050 $  267,513
 Issued  13,813,380    
 Vested  (10,515,980)    
 Forfeited  -       
 Ending balance, December 31, 2012  19,033,450 $  19,033

 

 

During the year ended December 31, 2012, the Company issued 2,251,079 shares its common stock at a fair value of $53,771 (as determined by a valuation performed by a third party valuation firm) for services rendered.

 

During the year ended December 31, 2012, the Company issued 700,000 shares its common stock for $175,000.

 

During the year ended December 31, 2012, the Company issued to two consultants options to purchase in the aggregate 4,000,000 shares of the Company’s common stock.

 

Stock Options

In, May 2012, The Company issued stock options to purchase 1,000,000 shares of the Company’s common stock at a price of $0.25 per shares and the option expires five years from the date of vesting. The option vests in eight equal installments of 125,000 options with the first tranche vesting on August 31, 2012.

 

In August 2012, the Company issued stock options to 3,000,000 shares of the Company’s common stock at a price of $0.25 per share and the options expire five years from the date of vesting. The options vest over twelve equal installments of 250,000 options with the first tranche vesting on date of issuance.

 

The fair value for stock options was estimated at the date of grant using the Black-Scholes pricing model using a risk free interest rate ranging from 0.39% to 0.42%, expected dividend yield of 0, expected life of three years and a volatility ranging from 107% to 112%.

 

The risk-free interest rate used in the Black-Scholes valuation method is based on the implied yield currently available for U.S. Treasury securities at maturity with an equivalent term. The Company has not declared or paid any dividends on its common stock and does not currently expect to do so in the future. The Company does not have any experience to determine the expected term of the options, so the expected term of the options was determined by using the provisions of Staff Accounting Bulletin No. (“SAB No.”) 110, simplified calculation. There was no market for the Company’s common stock. To determine the expected volatility, the Company used the provisions of ASC 718 to calculate the estimated volatility based annualized daily historical volatility using the implied volatility for comparable entities within the Company’s industry.

 

The Company’s stock price volatility, risk free-rate, and option lives involve management’s best estimates, both of which impact the fair value of the option calculated under the Black-Scholes methodology and, ultimately, the expense that will be recognized over the life of the option. Also, the Company recognizes compensation expense for only the portion of the options that are expected to vest. Based on the current economical factors for the Company, the Company applied estimated forfeiture rates of zero. If the actual number of forfeitures differs from the Company’s estimates, additional adjustments to compensation expense may be required in future periods.

 

The weighted average exercise price of options exercisable at December 31, 2012 was $0.25. The weighted average fair value of options granted was $14,445 and $0 during 2012 and 2011, respectively.

 

The total fair value of stock options vested and charged to expense during the year ended December 31, 2012 and 2011 was $2,297 and $0, respectively.

 

The weighted average exercise price for the options granted during December 31, 2012 and outstanding as of December 31, 2012 was $0.25 and $0.25, respectively, with a weighted average remaining contractual term of 4.5 years.

 

The following table presents the issuance, vesting and options to be vested. Subsequent to December 31, 2012, all of the unvested stock options were terminated, as the independent contractors executed new agreements.

 

  Number of options
   
 Balance unvested, December 31, 2011  -   
 Issued  4,000,000
 Vested  750,000
 Forfeited  -   
 Ending balance, December 31, 2012  4,750,000
 December 31, 2012 expected to be vested 750,000