• Filing Date: 2016-11-15
  • Form Type: 10-Q/A
  • Description: Quarterly report (Amendment)
v3.5.0.2
6. STOCKHOLDERS' EQUITY
9 Months Ended
Sep. 30, 2016
Equity [Abstract]  
STOCKHOLDERS' EQUITY

Preferred Stock

 

On June 3, 2013, the Company filed a Certificate of Amendment of Articles of Incorporation with the State of Nevada Secretary of State giving it the authority to issue 50,000,000 shares of preferred stock with a par value of $0.0001 per share. As of September 30, 2016, there were 200,000 Series A Non-Voting Convertible Stock shares and 250,000 Series B Voting Convertible Preferred Stock shares issued and outstanding.

 

On March 31, 2014, the Board of Directors of the Company approved the creation of a Series A Non-Voting Convertible Preferred Stock (the “Series A Preferred Stock”). On April 1, 2014, the Company filed a Certificate of Designation for the Company’s Series A Preferred Stock in Nevada of which the Company is authorized to issue up to 7,000,000 shares with a par value of $0.0001 per share. In general, each share of Series A Preferred Stock has no voting or dividend rights, a stated value of $1.00 per share (the “Stated Value”), and is convertible nine months after issuance into common stock at the conversion price equal to one-tenth (1/10) of the Stated Value, or at $0.10 per common share.

 

On December 11, 2015, the Board of Directors of the Company approved the creation of the Corporation’s Series B Voting Convertible Preferred Stock (“Series B Preferred Stock”). On December 16, 2015, the Corporation filed a Certificate of Designation for the Series B Preferred Stock in Nevada of which the Company is authorized to issue up to 250,000 shares with a par value of $0.0001 per share. Holders of Series B Preferred Stock shall be entitled to 1,000 votes for each share of Series B Preferred Stock. Votes of shares of Series B Preferred Stock shall be added to votes of shares of common stock of the Company at any meeting of stockholders of the Company at which stockholders have the right to vote. Series B Preferred Stock shall have voting rights for a period of three years from the date of issuance. On the third anniversary of the issuance of shares of Series B Preferred Stock, each share of Series B Preferred Stock shall be converted into four shares of common stock without further action of the Board of Directors. Series B Preferred Stock shall have the same dividends per share and, except as provided above, the same powers, designations, preferences and relative rights, qualifications, limitations or restrictions as those of shares of Series A Preferred Stock of the Company.

 

Common Stock

 

During the nine months ended September 30, 2016, the Company entered into a series of stock purchase agreements with accredited investors for the sale of 76,587,106 shares of its common stock in amount of $4,014,823. Additionally, 15,392,858 shares of common stock were issued for consulting services valued at $0.052 to $0.077 per share, based upon the fair value of the common stock on the measurement date totaling $992,800, which was recognized immediately as general and administrative expense. The Company issued 32,562,500 shares of common stock for the conversion of convertible notes totaling $1,302,500. Additionally, approximately 1,000,000 shares of common stock were cancelled and returned to the treasury.

 

Unless otherwise set forth above, the securities described above were not registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) under the Securities Act and Regulation D promulgated thereunder and corresponding provisions of state securities laws, which exempt transactions by an issuer not involving any public offering.

 

Options for Common Stock

 

A summary of option activity as of September 30, 2016 is presented below:

 

  

Number

Outstanding

  

Weighted-Average

Exercise Price

Per Share

  

Weighted-Average

Remaining

Contractual Life

(Years)

  

Aggregate

Intrinsic

Value

 
                 
Outstanding at January 1, 2015   6,000,000   $0.02    4.17   $ 
Granted                
Exercised   (4,000,000)            
Canceled/forfeited/expired   (350,000)   0.06         
Outstanding at December 31, 2015   1,650,000    0.04    4.53     
                     
Granted                
Exercised                
Canceled/forfeited/expired                
Outstanding at September 30, 2016   1,650,000    0.04    3.78     
Options vested and exercisable at September 30, 2016   1,650,000   $0.04    3.78   $ 

 

 

On June 30, 2014, the Board of Directors of the Company approved a new employment agreement with the Company’s Chief Executive Officer, Randy Letcavage (the “Employment Agreement”). The Employment Agreement has a retroactive effective date of January 1, 2014 and replaces all prior agreements between the Company and Mr. Letcavage. The Employment Agreement provides for an annual base salary of $240,000, a discretionary bonus of $50,000 over each 12-month period, expense reimbursement, and a grant of stock options on 5,000,000 shares vesting over 2 years at an initial exercise price per share equal to $.0025 per share. Stock options are vesting at the following rate:

 

·1,000,000 (one million) shares of common stock on the Commencement Date;
·1,000,000 (one million) shares of common stock on the sixth (6th) month anniversary of the Commencement Date;
·1,000,000 (one million) shares of common stock on the first anniversary of the Commencement Date;
·1,000,000 (one million) shares of common stock on the 18th month anniversary of the Commencement Date; and
·1,000,000 (one million) shares of common stock on the second anniversary of the Commencement Date.

 

In addition, the Company agreed to indemnify Mr. Letcavage to the fullest extent permitted by law for claims related to Mr. Letcavage’s role as an officer and director of the Company, or its subsidiaries. The Company recorded $355,725 and $516,591 as his stock based compensation related to the stock options for the years ended December 31, 2015 and 2014, respectively. As of December 31, 2015, $872,316 had been recorded as his stock based compensation related to the stock options, with $0 unrecognized cost related to the stock options remaining. On October 8, 2015, Mr. Letcavage exercised 4,000,000 options for common stock at an aggregate price of $10,000, which was paid through the reduction of accounts payable owed Mr. Letcavage.

 

On December 31, 2014, the Board of Directors of the Company granted 150,000 stock options to each of its three board members with vesting immediately at an initial exercise price per share equal to $.15 per share.

 

The Company valued the options using the Black-Scholes option pricing model with the following assumptions: dividend yield of zero, years to maturity of between 0.5 and 5 years, risk free rates of between 1.65 and 1.73 percent, and annualized volatility of between 108% and 217%.

 

Warrants for Common Stock

 

A summary of warrant activity as of September 30, 2016 is presented below:

 

  

Number

Outstanding

  

Weighted-Average

Exercise Price

Per Share

  

Weighted-Average

Remaining

Contractual Life

(Years)

  

Aggregate

Intrinsic

Value

 
                 
Outstanding at January 1, 2015   2,793,694   $0.157    1.10   $ 
Granted   12,428,629    0.194    2.58     
Exercised                
Canceled/forfeited/expired   (2,793,694)            
Warrants vested and exercisable at December 31, 2015   12,428,629    0.194    2.58     
                     
Granted   130,526,256    0.087    2.05     
Exercised                
Canceled/forfeited/expired   (4,709,963)   0.200    1.99     
Outstanding at September 30, 2016   138,244,922    0.093    2.03     
Warrants vested and exercisable at September 30, 2016   138,244,922   $0.093    2.03   $ 

 

 

During the nine months ended September 30, 2016, the Company issued 1,966,650 warrants included with certain convertible notes payable (see Note 4) with a value of $70,397. The Company valued the warrants using the Black-Scholes option-pricing model with the following assumptions: dividend yield of zero, years to maturity of 3 years, risk free rates of between 0.85 and 1.31 percent, and annualized volatility of between 124% and 130%.

 

During the nine months ended September 30, 2016, the Company issued 128,559,606 warrants included with certain stock purchases from accredited investors, with exercise prices ranging from $0.07 to $0.10, and expiration dates ranging from 7 months to 5 years. There was no expense resulting from these warrants.