Annual report pursuant to Section 13 and 15(d)

Stockholders' Equity

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Stockholders' Equity
 12 Months Ended
Dec. 31, 2012
Stockholders' Equity [Abstract]  
Stockholders' Equity
Note 8 - Stockholders’ Equity
 
Capital Stock
 
During the year ended December 31, 2012 the Company issued Three Million Three Hundred Thirty Three Thousand Three Hundred Thirty-Three (3,333,333) shares of the Company’s common stock, $0.001 par value per share (the “Common Stock) at a price of $0.15 for an aggregate purchase price of $500,000.  The shares were issued to Charles M. Piluso, Cliff Stein, John Coghlan and Jan Burman four directors and their affiliates, the proceeds were used for general working capital.
 
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 Series A 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 Euro Trend, Inc. 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, 2012.  During the year ended December 31, 2012 DSC issued 570,602 shares under the 2008 Plan.
 
2010 Incentive Award Plan
 
The Company has reserved 2,000,000 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
 
There are 3,137,054 options outstanding under this plan as of December 31, 2012. During the year ended December 31, 2012 the Company issued 3,137,054 common stock options under the 2010 Plan which was amended, restated and renamed the “Amended and Restated DSC Incentive Award Plan”.
 
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, 2011
    
3,670,169
    
$
0.02 - 0.36
    
$
0.09
  
   Options Granted
    
522,215
      
0.31 - 0.36
      
0.35
  
   Options Exercised
    
(1,583,592
) 
    
0.02
      
0.02
  
   Options Cancelled
    
(45,677
)
    
0.32
      
0.32
  
Options Outstanding at December 31, 2011
    
2,563,115
    
$ 
0.02 - 0.36
    
$ 
0.14
  
   Options Granted
    
3,707,656
      
0.41 - 0.85
      
0.24
  
   Options Exercised
    
-
      
-
       -  
   Options Expired
    
(36,779
)
    
0.32
      
0.85
  
Options Outstanding at December 31, 2012
    
6,232,992
    
$ 
0.02 - 0.85
    
$ 
0.26
  
                         
Options Exercisable at December 31, 2012
    
2,740,168
    
$ 
0.02 - 0.85
    
$ 
0.27
  
 
Share-based compensation expense for options totaling $300,267 was recognized in our results for the year ended December 31, 2012 is based on awards vested. The company also issued options valued at $443,664. The options were valued at the grant date at $671,687.
 
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, 2012 and 2011 are set forth in the table below.
 
   
2012
    
2011
  
Weighted average fair value of options granted
  
$
0.26
     $
0.37
  
Risk-free interest rate
    
1.59
%
    
 2.20
%
Volatility
    
98.0
%
    
74.98 
%
Expected life (years)
    
10
      
10 
  
Dividend yield
    
0.00
%
    
0.00 
%
  
As of December 31, 2011, there was approximately $424,768 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 2.9 years.
 
Common Stock Warrants
 
There were no common stock warrants granted during the year ended December 31, 2012.
 
   
Number of Shares Under Warrants
    
Range of
Warrants Price Per Share
    
Weighted Average Exercise Price
  
Warrants Outstanding at January 1, 2011
    
3,225,865
    
$
0.02
    
$
0.02
  
   Warrants Granted
    
-0-
      
-0-
      
-0-
  
   Warrants Exercised
    
3,052,438
      
-0-
      
-0-
  
   Warrants Cancelled
    
-0-
      
-0-
      
-0-
  
Warrants Outstanding at December 31, 2011
    
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 exercisable at December 31, 2012
    
28,642
    
$ 
0.02
    
$ 
0.02
  
 
During the year ended December 31, 2011, 3,197,223 warrants were exercised in a cashless transaction resulting in the issuance of 2,997,632 shares of common stock. During the year ended December 31, 2012 warrants were exercised in a cashless transaction resulting in the issuance of 143,910 shares of common stock.
  
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 below) for such share of Series A Preferred Stock. The conversion price for the Series A Preferred Stock shall initially be equal to $.39 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.
 
Stock Issuances
 
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.
 
During the year ended December 31, 2011 the company issued 3,940,777 shares of common stock for an aggregate $255,000 to unrelated independent investors and $1,500,000 to a Director.
 
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.
 
During 2011 the company issued 300,000 shares of common stock in settlement of accounts payable and 50,000 shares in connection with a financing.