MediaShift, Inc. - FORM 10-Q - XML - IDEA: XBRL DOCUMENT - November 16, 2012

7 - Stockholders’ Equity

Common Stock

The Company is authorized to issue up to 25,000,000 shares of Common Stock.  As of the date of this Report, there are 5,543,409 shares of Common Stock issued and outstanding. The holders of our Common Stock are entitled to one vote per share. The holders of our Class M Preferred Stock are entitled to 200 votes for each Class M Preferred share they own (on a pre-Automatic Conversion and pre-Reverse Stock Split basis) and 100 votes for each Class M Preferred share they own (on a post-Automatic Conversion and post-Reverse Stock Split basis) on all matters to be voted on by the stockholders. All shares of Common Stock and Series M Preferred Stock are entitled to participate in any distributions or dividends that may be declared by the Board of Directors, subject to any preferential dividend rights of outstanding shares of our Preferred Stock. Subject to prior rights of creditors, all shares of Common Stock are entitled, in the event of our liquidation, dissolution or winding up, to participate ratably in the distribution of all our remaining assets. Our Common Stock has no preemptive or conversion rights or other subscription rights.

Preferred Stock

There are 10,000,000 shares of Preferred Stock authorized for issuance. As of the date of this Report, there are 169,973.88 shares of Series M Preferred Stock issued and outstanding.

Series M Preferred Stock

In connection with the Ad-Vantage merger and pursuant to the filing of a Certificate of Designation with the Nevada Secretary of State on August 28, 2012, the Board of Directors of the Company authorized the issuance of Class M Preferred Stock. Pursuant to the Merger Agreement, the Company agreed to issue shares of its Class M Preferred to the Ad-Vantage Owners in exchange for the shares of Ad-Vantage common stock and preferred stock (and to issue new options for shares of Ad-Vantage common stock underlying Ad-Vantage options).

Holders of the Class M Preferred are entitled, on a post-Automatic Conversion basis, to the same rights and privileges, including voting rights, as holders of our common stock. The holders of our Class M Preferred Stock are entitled to 200 votes per share on a pre-Automatic Conversion and pre-Reverse Stock Split basis and one vote per common share on a post-Automatic Conversion and post-Reverse Stock Split basis on all matters to be voted on by the stockholders.  Pursuant to the Merger Agreement, the Company agreed to increase the number of shares of common stock that the Company is authorized to issue from 25,000,000 shares to 100,000,000 shares (the “Authorized Share Increase”). The Authorized Share Increase will be effected by the Company filing an amendment to its Articles of Incorporation as soon as reasonably practicable following the Closing of the Merger.  Upon the effectiveness of the Authorized Share Increase, all of the issued and outstanding shares of Class M Preferred shall automatically, without the requirement of any further action by holders of such shares or by the Company, convert into shares of the Company’s common stock, with such conversion occurring at the Exchange Ratio of 100:1.

Warrants and Options

As of September 30, 2012, we have the following warrants and options outstanding:

Common Stock Warrants

Following the consummation of the Reverse Stock Split, the number of outstanding JMG warrants will be 184,625, 869,750, 881,901 and 95,000, respectively, and the exercise prices will be $12.00, $8.50, $10.00 and $14.00, respectively. The total warrants outstanding after the Reverse Stock Split will be 2,031,276.

Options

We assumed the option plan of Ad-Vantage, under which options for the purchase of 3,729,916 shares of Ad-Vantage common stock were outstanding at the closing of the Merger (the “Outstanding Ad-Vantage Options”).  The Outstanding Ad-Vantage Options were converted into options to purchase 37,299.16 shares of Class M Preferred (which represents 3,729,916 shares of the Company’s Common Stock after giving effect to the Automatic Conversion). The Outstanding Ad-Vantage Options expire in 2021 and 2022. At the closing of the Merger, and as of the date of this report, there were 110,000 Options outstanding to purchase the Company’s Common Stock (which will represent 55,000 shares of the Company’s Common Stock after consummation of the Reverse Stock Split).

The Ad-Vantage Board of Directors adopted the Ad-Vantage Plan in September 2010. The Ad-Vantage Plan provided long-term incentives to employees, members of the Board, and advisers and consultants of the Company who were able to contribute towards the creation of or have created stockholder value by providing them stock options and other stock and cash incentives. Provisions such as vesting, repurchase and exercise conditions and limitations were determined by the Ad-Vantage Board of Directors on the grant date. The total number of shares that could be issued pursuant to the Ad-Vantage Plan could not exceed 1,250,000 shares, subject to adjustment in the event of certain recapitalizations, reorganizations, and similar transactions.

As of September 30, 2012, 1,115,521 options were granted under the Ad-Vantage Plan, and 929,917 remained outstanding at the time of the Merger, at which time they were exchanged for 92,991.70 Class M Preferred Options. No options will be granted under the Ad-Vantage Plan following the Merger.

No common stock options were granted under the Company’s premerger option plan (JMG Exploration, Inc. Equity Compensation Plan- the “JMG Plan”) during the nine month period ended September 30, 2012. A total of 110,000 common stock options were outstanding at JMG prior to the merger with Ad-Vantage., These options are exercisable at $0.22 per share and expire on January 26, 2015. Options granted by the Company following the Merger will be granted under the JMG Plan.

In October 2012, 85,000 JMG Common Stock Options were exercised providing proceeds of $18,700. In October, 2012, common stock options were issued the JMG Plan to an employee to purchase 780,000 shares of the Company’s Common Stock at $3.98 per share (which will represent 390,000 shares of the Company’s Common Stock after consummation of the Reverse Stock Split).

Class M Preferred Stock options

Upon the merger, all issued and outstanding options, warrants and other rights to acquire shares of Ad-Vantage common stock (collectively, “Ad-Vantage Options”) were converted into options, warrants or other rights to acquire shares of Class M Preferred (collectively, “Parent Class M Preferred Stock Options”) at the Exchange Ratio, with such Class M Preferred Stock Options having the same terms and being subject to the same conditions as the Ad-Vantage Options, provided, however, that upon the consummation of the Authorized Share Increase and the Reverse Stock Split all of the Class M Preferred Stock Options shall, without the requirement of any further action, convert into options for shares of JMG common stock, with such conversion occurring at the Conversion Ratio.  No Ad-Vantage Option has accelerated vesting in connection with the Merger.

In August 2012, Ad-Vantage issued a total of 330,000 stock options under the Ad-Vantage 2010 Equity Incentive Plan (the “Ad-Vantage Plan”). The options vest principally over a four year period and are exercisable at $1.14 per share. These stock options were converted into options to purchase 3,300 shares of Class M Preferred (which represents 330,000 shares of the Company’s Common Stock after giving effect to the Automatic Conversion). Ad-Vantage also issued 2,799,999 non-qualified stock options outside the Ad-Vantage Plan to be allocated among senior management, fully vesting at the closing of the Merger with JMG and exercisable at $1.14 per share. These stock options were converted into options to purchase 27,999.99 shares of Class M Preferred (which represents 2,799,999 shares of the Company’s Common Stock after giving effect to the Automatic Conversion). During the nine months ended September 30, 2012, Ad-Vantage granted 518,837 (5,188.37 of Class M Preferred) stock options under the Ad-Vantage Plan to certain employees, directors, and advisers, respectively. A total of 150,000 (1,500 of Class M Preferred) options vest monthly over a 24 month period and 368,837 (3,688.37 Class M Preferred) options vest one quarter (1/4) after one year and the balance over a 36 month period.

A summary of Ad-Vantage common stock option activity from February 23, 2010 (Date of Inception) through September 30, 2012 is as follows:

The exercise price and vesting period of each stock option is specified by the Board of Directors at the time of grant. The stock options expire seven years after the grant date, except for the stock options vesting upon the Merger, which expire six years after the vesting date.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The expected life assumption is based on the expected life assumptions of similar entities. Expected volatility is based on actual share price volatility of similar companies of the preceding twelve months. The risk-free interest rate is the yield currently available on U.S. Treasury zero-coupon issues with an expected term ranging from 2.5 to 5 years used as the input to the Black-Scholes model. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods as options vest, if actual forfeitures differ from those estimates. During the nine months ended September 30, 2012 and December 31, 2011, the Company experienced no forfeitures. The weighted average grant date fair value of options granted during 2012 and 2011 amounted to $0.327 and $0.169 per option, respectively, using the Black Scholes pricing model using the following assumptions:

As of September 30, 2012 there was $444,377 of total unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of approximately 2.83 years.

The following table summarizes information about stock options outstanding at September 30, 2012:

Dividend

In July 2012, the Company licensed certain specific noncore intellectual property and technology to an affiliated entity in exchange for all of the membership interest in the affiliated entity. The membership interests in the affiliated entity were then transferred as a dividend to the shareholders of record of the Company as of July 2, 2012. The value of the intellectual property was approximately $20,000.