Annual report pursuant to Section 13 and 15(d)

Stockholders' (Deficit)

v2.4.0.8
Stockholders' (Deficit)
 12 Months Ended
Dec. 31, 2013
Stockholders' Equity [Abstract]  
Stockholders' Equity
Note 11 - Stockholders’ (Deficit)
 
Capital Stock
 
The Company has 260,000,000 shares of capital stock authorized, consisting of 250,000,000 shares of Common Stock, par value $0.001, 10,000,000 shares of Preferred Stock, par value $0.001 per share.
 
 
Common Stock Options
 
2008 Equity Incentive Plan
 
In October 2008, the Company’s board of directors (the “Board”) adopted, the 2008 Equity Incentive Plan (the “2008 Plan).  Under the 2008 Plan, we may grant options (including incentive stock options) to purchase our common stock or restricted stock awards to our employees, consultants or non-employee directors. The 2008 Plan is administered by the Board. Awards may be granted pursuant to the 2008 Plan for 10 years from the date the Board approved the 2008 Plan. Any grant under the 2008 Plan may be repriced, replaced or regranted at the discretion of the Board.
 
The material terms of options granted under the 2008 Plan (all of which have been nonqualified stock options) are consistent with the terms described in the footnotes to the "Outstanding Equity Awards at Fiscal Year-End December 31, 2011”, including 5 year graded vesting schedules and exercise prices equal to the fair market value of our common stock on the date of grant.  Stock grants made under the 2008 Plan have not been subject to vesting requirements. The 2008 Plan was terminated with respect to the issuance of new awards as of February 3, 2012.  There are 3,075,938 options outstanding under this plan as of December 31, 2013.  During the year ended December 31, 2013 DSC issued no shares under the 2008 Plan.
 
2010 Incentive Award Plan
 
The Company has reserved 5,000,000 shares of common stock for issuance under the terms of the DSC 2010 Incentive Award Plan (the “2010 Plan”). The 2010 Plan is intended to promote the interests of the Company by attracting and retaining exceptional employees, consultants, directors, officers and independent contractors (collectively referred to as the “Participants”), and enabling such Participants to participate in the long-term growth and financial success of the Company. Under the 2010 Plan, the Company may grant stock options, which are intended to qualify as “incentive stock options” under Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified stock options, stock appreciation rights and restricted stock awards, which are restricted shares of common stock (collectively referred to as “Incentive Awards”). Incentive Awards may be granted pursuant to the 2010 Plan for 10 years from the Effective Date.  From time to time, we may issue Incentive Awards pursuant to the 2010 Plan.  Each of the awards will be evidenced by and issued under a written agreement.  
 
On April 23, 2012, the Board of Directors of the Company amended and restated the DSC 2010 Plan. The 2010 Plan, as amended and restated, has been renamed the “Amended and Restated DSC Incentive Award Plan”.  The new plan provides for flexibility in vesting periods and includes a limit of $100,000 per employee per year for incentive stock options.
 
A summary of the Company's option activity and related information follows:
 
   
Number of
Shares
 Under Options
    
Range of
Option Price
 Per Share
    
Weighted
 Average
 Exercise Price
  
Options Outstanding at January 1, 2012
    
2,563,115
    
$
0.02 - 0.36
    
$
0.14
  
   Options Granted
    
3,706,656
      
0.41 - 0.85
      
0.24
  
   Options Exercised
    
-
              
-
  
   Options Cancelled
    
(36,779
)
    
0.32
      
0.85
  
Options Outstanding at December 31, 2012
    
6,232,992
    
$ 
0.02 - 0.85
    
$ 
0.26
  
   Options Granted
    
828,568
      
0.15
      
0.15
  
   Options Exercised
    
-
      
-
      
-
  
   Options Cancelled
    
(140,477
)
    
0.35
      
0.35
  
Options Outstanding at December 31, 2013
    
6,921,084
    
$ 
0.02 - 0.85
    
$ 
0.24
  
                         
Options Exercisable at December 31, 2013
    
5,267,762
    
$ 
0.02 - 0.85
    
$ 
0.24
  
 
Share-based compensation expense for options totaling $232,501 was recognized in our results for the year ended December 31, 2013 is based on awards vested. The options were valued at the grant date at $62,028.
 
The valuation methodology used to determine the fair value of the options issued during the year was the Black-Scholes option-pricing model, an acceptable model in accordance with FASB ASC 718-10-10 Share Based Payments. The Black-Scholes model requires the use of a number of assumptions including volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of the warrants.
 
The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the Warrants and is calculated by using the average daily historical stock prices through the day preceding the grant date.
 
Estimated volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected life of the award.  The Company’s estimated volatility is an average of the historical volatility of peer entities whose stock prices were publicly available.  The Company’s calculation of estimated volatility is based on historical stock prices of these peer entities over a period equal to the expected life of the awards.  The Company uses the historical volatility of peer entities due to the lack of sufficient historical data of its stock price.
 
 
The weighted average fair value of options granted and the assumptions used in the Black-Scholes model during the year ended December 31, 2013 and 2012 are set forth in the table below.
 
   
2013
    
2012
  
Weighted average fair value of options granted
  
$
0.08
    
$
0.26
  
Risk-free interest rate
    
2.88
%
    
 1.59
%
Volatility
    
98.0
%
    
98.0
%
Expected life (years)
    
10
      
10
  
Dividend yield
    
0.00
%
    
0.00
%
 
As of December 31, 2013, there was approximately $273,727 of total unrecognized compensation expense related to unvested employee options granted under the Company’s share based compensation plans that is expected to be recognized over a weighted average period of approximately 1.6 years.
 
Common Stock Warrants
 
   
Number of
Shares Under
Warrants
    
Range of
Warrants
Price
Per Share
    
Weighted
Average
Exercise Price
  
Warrants Outstanding at January 1, 2012
    
173,427
    
$
0.02
    
$
0.02
  
   Warrants Granted
    
-0-
      
-0-
      
-0-
  
   Warrants Exercised
    
144,785
      
0.01
      
0.01
  
   Warrants Cancelled
    
-0-
      
-0-
      
-0-
  
Warrants Outstanding at December 31, 2012
    
28,642
    
$
0.02
    
$
0.02
  
   Warrants Granted
    
133,334
      
0.01
      
0.01
  
   Warrants Exercised
    
-0-
      
-0-
      
-0-
  
   Warrants Expired
    
28,642
      
0.02
      
0.02
  
Warrants Outstanding at December 31, 2013
    
133,334
    
$ 
0.01
    
$ 
0.01
  
                         
Warrants exercisable at December 31, 2013
    
133,334
    
$ 
0.01
    
$ 
0.01
  
 
During the year ended December 31, 2013, 28,642 warrants expired.  During the year ended December 31, 2013 133,334 warrants were issued in connection with the issuances of convertible debt. The warrants were valued at the grant date at $35,702 and were recorded as a debt discount based on their relative fair value. 
 
The weighted average fair value of warrants granted and the assumptions used in the Black-Scholes model during the year ended December 31, 2013 are set forth in the table below.
 
 
2013
Weighted average fair value of warrants granted
$0.15
Risk free rate
1.59-1.89%
Volatility
98%
Expected life (years)
10
Dividend yield
$0
 
 
 
Preferred Stock
 
Liquidation preference
 
Upon any liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, before any distribution or payment shall be made to the holders of any Common Stock, the holders of Series A Preferred Stock shall be entitled to be paid out of the assets of the Corporation legally available for distribution to stockholders, for each share of Series A Preferred Stock held by such holder, an amount per share of Series A Preferred Stock equal to the Original Issue Price for such share of Series A Preferred Stock plus all accrued and unpaid dividends on such share of Series A Preferred Stock as of the date of the Liquidation Event.
 
Conversion
 
The number of shares of Common Stock to which a share of Series A Preferred Stock may be converted shall be the product obtained by dividing the Original Issue Price of such share of Series A Preferred Stock by the then-effective Conversion Price (as defined herein) for such share of Series A Preferred Stock. The Conversion Price for the Series A Preferred Stock shall initially be equal to $0.02 and shall be adjusted from time to time.
 
Voting
 
Each holder of shares of Series A Preferred Stock shall be entitled to the number of votes, upon any meeting of the stockholders of the Corporation (or action taken by written consent in lieu of any such meeting) equal to the number of shares of Class B Common Stock into which such shares of Series A Preferred Stock could be converted.
 
Dividends
 
Each share of Series A Preferred Stock, in preference to the holders of all Common Stock (as defined below), shall entitle its holder to receive, but only out of funds that are legally available therefore, cash dividends at the rate of ten percent (10%) per annum from the Original Issue Date on the Original Issue Price for such share of Series A Preferred Stock, compounding annually unless paid by the Corporation.  Accrued dividends at December 31, 2013 and 2012 were $330,811 and $212,500, respectively.
 
Stock Issuances
 
During the year ended December 31, 2013 the Company issued 2,959,930 shares of the Company’s common stock, $0.001 par value per share (the “Common Stock) at a price of $0.09 for an aggregate of  $293,990.  The shares were issued to Charles M. Piluso, Chief Executive Officer in lieu of accrued compensation. The Company recognized a gain of $27,596 as a result of this transaction.
 
During the year ended December 31, 2012 the Company issued 4,109,293 shares of its common stock; 3,333,333 were issued for $500,000, 50,000 shares were issued in connection with the equity line from Southridge Partners II, LP, 725,960 shares were issued in connection with the acquisition of Message Logic, LLC, and 143,910 under a cashless warrant exercise.

In 2012 convertible debt holders exercised their rights which included the conversion of stock and warrant exercise for a total of 5,523,728 shares of common stock.  In addition the holders received an inducement of 253,393 shares to convert and accept shares in lieu of past due interest payments.  Shares issued for past due interest payments totaled 145,404.  The transaction resulted in the recognition of a loss on extinguishment of debt of $142,925.