• Filing Date: 2015-04-09
  • Form Type: 10-K
  • Description: Annual report
v2.4.1.9
9. STOCKHOLDERS EQUITY
12 Months Ended
Dec. 31, 2014
Equity [Abstract]  
STOCKHOLDERS EQUITY

Preferred Stock

 

There are currently 5,000,000 shares of Series A Preferred Stock authorized, with no shares of Series A Preferred Stock issued or outstanding as of December 31, 2014 and 2013.

 

Effective June 24, 2010, the Company filed a Certificate of Designations, Number, Voting Power, Preferences and Rights of Series B Convertible Redeemable Preferred Stock (the “Certificate”) with the Texas Secretary of State, designating 7,500 shares of Series B Preferred Stock, par value $10.00 per share (the “Series B Shares”). The Series B Shares rank senior to shares of all other common and preferred stock with respect to dividends, distributions, and payments upon dissolution.  Each of the Series B Shares is convertible at the option of the holder into shares of common stock as provided in the Certificate.  There were no Series B Shares issued or outstanding as of December 31, 2014 and 2013.

  

On October 11, 2013, the Company filed a Certificate of Designations, Number, Voting Power, Preferences and Rights of Series C Convertible Preferred Stock (the “Certificate of Designations”), under which it designated 100,000 shares of Series C Preferred Stock, par value $10.00.  The Series C Preferred Stock is entitled to accruing dividends (payable, at the Company’s options, in either cash or stock) of 5% per annum until October 10, 2016, and 3% per annum until October 10, 2018. The Series C Preferred Stock is senior to the Company’s common stock and any other currently issued series of the Company’s preferred stock upon liquidation, and is entitled to a liquidation preference per share equal to the original issuance price of such shares of Series C Preferred Stock together with the amount of all accrued but unpaid dividends thereon.  Each of the Series C Shares is convertible at the option of the holder into 1,000 shares of common stock as provided in the Certificate.  Additionally, each holder of Series C Preferred Stock shall be entitled to vote on all matters submitted for a vote of the holders of Common Stock a number of votes equal to the number of full shares of Common Stock into which such holder’s Series C shares could then be converted. As of December 31, 2014 and December 31, 2013 there were 70,411 and 38,232 shares of Series C Preferred Stock issued and outstanding, respectively.

 

On November 13, 2013, the Company filed a Certificate of Designations, Number, Voting Power, Preferences and Rights of Series D Convertible Preferred Stock (the “Certificate of Designations”), under which it designated 25,000 shares of Series D Preferred Stock. Shares of Series D Preferred Stock are not entitled to any preference with respect to dividend or upon liquidation, and will automatically convert (at a ratio of 1,000-to-1) into shares of the Company’s common stock, par value $0.001 upon approval of the Company’s stockholders (and filing of) and amendment to the Company’s Certificate of Incorporation increasing the number of authorized shares of Common Stock from 100,000,000 to 250,000,000. As of December 31, 2014 and December 31, 2013 there were 0 and 15,000 shares of Series D Preferred Stock issued and outstanding, respectively. On September 3, 2014, the company increased its authorized common stock to 250,000,000 shares. As a result, all outstanding Series D preferred shares were converted to common stock.

 

On May 30, 2014, the Company filed a Certificate of Designations, Number, Voting Power, Preferences and Rights of Series E Convertible Preferred Stock (The “Certificate of Designations”), under which it designated 5,000 shares of Series E Preferred Stock.  Shares of Series E Preferred Stock are not entitled to any preference with respect to dividends or upon liquidation, and will automatically convert (at a ratio of 1,000 shares of Common Stock for every one share of Series E Preferred Stock) into shares of the Company’s common stock, $0.001 par value upon approval of the Company’s stockholders (and filing of) and amendment to the Company’s Certificate of Incorporation increasing the number of authorized shares of Common Stock from 100,000,000 to 250,000,000. As of December 31, 2014 there were no shares of Series E Preferred Stock issued and outstanding.

 

During the year ended December 31, 2013, the Company issued an aggregate of 27,660 shares of Series C preferred stock for the conversion of $1,660,822 of principal and $275,378 of accrued interest on related party and unrelated party notes payable.

 

During the year ended December 31, 2013, the Company issued an aggregate of 10,572 shares of Series C preferred stock for cash proceeds of $740,030.

 

During the year ended December 31, 2014, the Company issued an aggregate of 32,179 shares of Series C preferred stock for cash proceeds of $2,252,510.

 

The Series C preferred stock earned dividends of $233,792 and $6,271 for the years ended December 31, 2014 and December 31, 2013, respectively. As of the date of this filing, no Series C preferred stock dividends have been declared or paid.

 

During the year ended December 31, 2013, the Company granted an aggregate of 15,000 shares of Series D preferred stock to employees and nonemployees for services. 13,000 of the shares were granted to employees and vest immediately upon grant, 1,000 of the shares were granted to an employee and vest in equal tranches over three years through October 1, 2016 and 1,000 of the shares were granted to a nonemployee and vest in equal tranches over three years through September 15, 2016. The aggregate fair value of the awards was determined to be $1,046,669 of which $925,787 was recognized during the year ended December 31, 2013 and $79,318 was recognized during the year ended December 31, 2014. $41,565 will be recognized over the remaining vesting periods.

  

In February of 2014, the Company issued 350 shares of Series D preferred stock to a nonemployee for services rendered.  The shares vest immediately and were recorded at their fair value of $42,000

 

In July of 2014, the Company issued 750 shares of Series D preferred stock valued at $75,000 to a nonemployee for services rendered.  The shares vest immediately and were recorded at their fair value of $75,000.

 

In September, 2014 the Company granted 556 shares of Series D preferred stock valued at $50,040 to a contractor according to the terms of his service agreement. In December, 2014, the contractor returned 111 shares of Series D preferred stock in exchange for cash amount of $9,990. The remaining Series D shares were not yet issued as of the date of this filing.

 

During the year ended December 31, 2014, the Company granted an aggregate of 1,000 shares of Series D preferred stock to two employees according to the terms of their employment agreements.  The shares vest in equal annual amounts over three years and the aggregate fair value of the awards was determined to be $120,000. During the year ended December 31, 2014, $65,178 was expensed and $54,822 remains to be expensed over the remaining vesting period.  The Series D shares were not yet issued as of the date of this filing.

 

On September 3, 2014, the Company increased its authorized common stock to 250,000,000 shares. Accordingly, the 16,545 outstanding shares of Series D preferred stock were automatically converted into 16,545,000 common shares.

 

The Company evaluated the Series C and Series D preferred stock under FASB ASC 815 and determined that they do not qualify as derivative liabilities. The Company then evaluated the Series C and Series D preferred stock for beneficial conversion features under FASB ASC 470-30 and determined that none existed.

 

Common Stock

 

During the year ended December 31, 2013, $5,760 was received and 240,000 common shares were issued for the exercise of 240,000 warrants and 1,029,334 common shares were issued for the cashless exercise of 1,299,769 warrants.

 

During the year ended December 31, 2013, an aggregate of 288,140 common shares with a fair  value of $16,612 were issued according to the terms of the Forbearance Agreement related to the June 21, 2011 Note Payable (see Note 4).

 

During the year ended December 31, 2013, the Company issued an aggregate of 4,084,615 common shares for services valued at $275,927.

 

During the year ended December 31, 2013, the Company issued an aggregate of 11,239,999 common shares for the conversion of principal of $401,145 and accrued interest of $5,500 of unrelated party debt.

 

On September 3, 2014, the Company held its annual meeting of stockholders.  The stockholders approved an amendment to the Company’s Articles of Incorporation to increase the authorized shares of common stock of the Company from 100,000,000 to 250,000,000.

 

In January of 2014, the Company issued 1,087,762 common shares for the conversion of notes payable and accrued interest in the amounts of $90,000 and $3,728, respectively.

 

During the year ended December 31, 2014, the Company issued 500,000 shares of common stock valued at $60,000 to company directors and 1,650,000 shares of common stock for services valued at $162,550.

 

Warrants

 

On June 19, 2013, the Company issued a total of 600,000 stock purchase warrants with a five year term to a lender as part of a note payable agreement.  Of the 600,000 warrants issued, 225,000 are immediately exercisable at $0.09 per share.  The remaining 375,000 warrants are exercisable at $0.09 per share only upon the Company’s default under the terms of the note payable agreement. The fair value of the warrants was determined to be $29,365 using the Black-Scholes Option Pricing Model and it was recorded as a discount to the associated debt.

  

On June 25, 2013, the company issued 175,000 stock purchase warrants to a lender related to a note purchase agreement.  The five year warrants are immediately exercisable into common stock at $0.09 per share.  The fair value of the warrants was determined to be $11,947 using the Black-Scholes Option Pricing Model and it was recorded as a discount to the associated debt.

 

On August 12, 2013 the Company issued 200,000 stock purchase warrants with a five year term to a lender as part of a note payable agreement.  The warrants are immediately exercisable at $0.075 per share.  The fair value of the warrants was determined to be $10,331 using the Black-Scholes Option Pricing Model and it was recorded as a discount to the associated debt.

 

On September 26, 2013, the Company issued the WelldDyne Warrant (see Note 4 “Significant Transactions”). The warrant allows the purchase of shares of the Company’s Common Stock equal to 4,500,000 shares. The WellDyne Warrant has a term of five years and an exercise price of $0.06, subject to adjustment as provided for therein. The fair value of the warrants was determined to be $287,599 using the Black-Scholes Option Pricing Model and it was recognized as warrant expense during the year ended December 31, 2013.

 

During the fourth quarter of 2013, the Company discovered 1,515,544 outstanding warrants that were originally granted in 2011 for services, but never recognized. The warrants are exercisable at $0.44 per share, vested on August 22, 2011 and expire on August 22, 2016. The initial grant date fair value of the warrants was determined to be $489,614 using the Black-Scholes Option Pricing Model and it was recognized as a true-up related to warrants expense during the year ended December 31, 2013.

 

At December 31, 2013, there were 15,670,143 warrants outstanding with a weighted average exercise price of $0.37.

 

At December 31, 2014, there were 10,936,844 warrants outstanding with a weighted average exercise price of $0.23.

 

A summary of the status of the warrants granted at December 31, 2014 and 2013 and changes during the years then ended is presented below:

 

For the Year Ended December 31, 2013  
    Shares     Weighted Average Exercise Price  
Outstanding at beginning of period     12,099,968     $ 0.65  
Granted     6,990,544       0.15  
Exercised     (1,539,769 )     1.38  
Forfeited     (750,000 )     0.09  
Expired     (1,130,600 )     0.83  
Outstanding at end of period     15,670,143     $ 0.37  

 

For the Year Ended December 31, 2014  
    Shares     Weighted Average Exercise Price  
Outstanding at beginning of period     15,670,143     $ 0.37  
Granted     -       -  
Exercised     -       -  
Forfeited     -       -  
Expired     (4,733,299 )     0.68  
Outstanding at end of period     10,936,844     $ 0.23  

  

The following table summarizes the outstanding warrants as of December 31, 2014:

 

      As of December 31, 2014     As of December 31, 2014  
      Warrants Outstanding     Warrants Exercisable  
Range of Exercise Prices     Number Outstanding     Weighted-Average Remaining Contract Life     Weighted- Average Exercise Price     Number Exercisable     Weighted-Average Exercise Price  
$ 0.06       4,500,000       3.8     $ 0.06       4,500,000     $ 0.06  
  0.08       550,000       3.2       0.08       550,000       0.08  
  0.09       625,000       3.3       0.09       625,000       0.09  
  0.15       1,571,300       2.6       0.15       1,571,300       0.15  
  0.25       120,000       0.8       0.25       120,000       0.25  
  0.40       3,000,000       0.6       0.40       300,000       0.40  
  0.44       1,515,544       1.6       0.44       1,515,544       0.44  
  0.50       370,000       1.3       0.50       370,000       0.50  
  0.60       975,000       1.7       0.60       975,000       0.60  
  0.75       120,000       0.8       0.75       120,000       0.75  
  1.00       290,000       1.4       1.00       290,000       1.00  
$ 0.06-1.00       10,936,844       2.8     $ 0.23       10,936,844     $ 0.23  

 

The following table summarizes the outstanding warrants as of December 31, 2013:

 

      As of December 31, 2013     As of December 31, 2013  
      Warrants Outstanding     Warrants Exercisable  
Range of Exercise Prices     Number Outstanding     Weighted-Average Remaining Contract Life     Weighted- Average Exercise Price     Number Exercisable     Weighted-Average Exercise Price  
$ 0.06       4,500,000       4.8     $ 0.06       4,500,000     $ 0.06  
  0.08       550,000       4.2       0.08       550,000       0.08  
  0.09       625,000       4.3       0.09       625,000       0.09  
  0.15       1,571,300       3.6       0.15       1,571,300       0.15  
  0.25       120,000       1.8       0.25       120,000       0.25  
  0.40       1,299,999       0.7       0.40       300,000       0.40  
  0.44       1,515,544       2.6       0.44       1,515,544       0.44  
  0.50       2,236,650       0.5       0.50       370,000       0.50  
  0.60       975,000       2.7       0.60       975,000       0.60  
  0.75       120,000       1.8       0.75       120,000       0.75  
  1.00       2,156,650       0.5       1.00       290,000       1.00  
$ 0.06-1.00       15,670,143       2.7     $ 0.37       10,936,844     $ 0.37  

 

Stock Options

 

As of December 31, 2012, $309,450 was recorded as deferred compensation associated with the unvested options granted during 2012. During the year ended December 31, 2013, 100,000 unvested options were forfeited due to a resignation and 1,000,000 unvested options were forfeited due to the vesting performance conditions not being met. These forfeitures resulted in $184,800 of the deferred compensation being reversed during 2013. During the year ended December 31, 2013, $86,350 of the deferred compensation was recognized as expense due to options vesting. The remaining deferred compensation associated with unvested options of $38,300 was written-off to equity during the year ended December 31, 2013.

  

A summary of the status of the stock options granted for the years ended December 31, 2014 and 2013, and changes during the period then ended is presented below:

 

For the Year Ended December 31, 2013  
    Options     Weighted Average Exercise Price  
Outstanding at beginning of period     5,043,500     $ 0.15  
Granted     -       -  
Exercised     -       -  
Forfeited     (1,100,000 )     0.15  
Expired     -       -  
Outstanding at end of period     3,943,500     $ 0.15  

 

 

For the Year Ended December 31, 2014  
    Options     Weighted Average Exercise Price  
Outstanding at beginning of period     3,943,500     $ 0.15  
Granted     -       -  
Exercised     -       -  
Forfeited     -       -  
Expired     -       -  
Outstanding at end of period     3,943,500     $ 0.15  

 

The following table summarizes the outstanding options as of December 31, 2014:

 

      As of December 31, 2014     As of December 31, 2014  
      Stock Options Outstanding     Stock Options Exercisable  
Exercise Price     Number Outstanding     Weighted-Average Remaining Contract Life     Weighted- Average Exercise Price     Number Exercisable     Weighted-Average Exercise Price  
$ 0.15       3,943,500       2.63       0.15       3,943,500     $ 0.15  
                                             

 

The following table summarizes the outstanding options as of December 31, 2013:

 

      As of December 31, 2013     As of December 31, 2013  
      Stock Options Outstanding     Stock Options Exercisable  
Exercise Price     Number Outstanding     Weighted-Average Remaining Contract Life     Weighted- Average Exercise Price     Number Exercisable     Weighted-Average Exercise Price  
$ 0.15       3,943,500       3.62       0.15       3,826,833     $ 0.15