Quarterly report pursuant to Section 13 or 15(d)

Note 5 - Commitments and Contingencies

v3.20.2
Note 5 - Commitments and Contingencies
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Commitments and Contingencies Disclosure [Text Block]
Note
5
– Commitments and Contingencies
 
Warrants
 
Under the terms of the DAF Credit Agreement, warrants to subscribe for and purchase
3,000,000
shares of common stock at an exercise price of
$0.052
per share are available to be issued to DAF. The warrants are being issued in amounts of
150,000
and
210,000
per month during the funding period. In the event that funding advances deviate from the planned schedule then warrants will be issued pro-rata at
1.2
warrants for every
$1
of funding. As of
September 30, 2020,
1,770,000
warrants have been granted under the terms of the DAF Credit Agreement. The estimated value of the warrants granted monthly, with each advance, is calculated using the Black-Scholes option pricing model. The expected dividend yield is based on the average annual dividend yield as of the grant date. Expected volatility is based on the historical volatility of our stock. The risk-free interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date. The resulting estimated value of the warrant is used to proportionally allocate the fair value of the debt advance and the fair value of the warrant.
 
Warrants Summary
 
The following table summarizes the Company's warrant activity during the
nine
months ended
September 30, 2020:
 
   
 
 
 
 
 
 
 
 
Weighted
   
 
 
 
   
 
 
 
 
Weighted
   
Average
   
 
 
 
   
 
 
 
 
Average
   
Remaining
   
Aggregate
 
   
Number of
   
Exercise
   
Life
   
Intrinsic
 
   
Warrants
   
Price
   
In Years
   
Value
 
                                 
Outstanding, December 31, 2019
   
570,000
    $
0.052
     
 
     
 
 
Granted
   
1,200,000
     
0.052
     
 
     
 
 
Outstanding, September 30, 2020
 
 
1,770,000
   
$
0.052
   
 
4.44
   
$
-
 
 
 
Options
 
Stock options for employees, directors or consultants that vest immediately, are valued at the date of award, which does
not
precede the approval date, and compensation cost is recognized in the period the options are vested. For options subject to future service conditions, compensation cost is recognized over the vesting period on a straight-line basis.  Stock options generally become exercisable on the date of grant and expire based on the terms of each grant.
 
The estimated fair value of options for common stock granted is determined using the Black-Scholes option pricing model. The expected dividend yield is based on the average annual dividend yield as of the grant date. Expected volatility is based on the historical volatility of our stock. The risk-free interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date. The expected life of the option is based on historical exercise behavior and expected future experience.
 
The following table summarizes the Company's option activity during the
nine
months ended
September 30, 2020:
 
   
 
 
 
 
Weighted
Average
   
 
Remaining
   
 
Aggregate
 
   
Number of
   
Exercise
   
Life
   
Intrinsic
 
   
Options
   
Price
   
In Years
   
Value
 
                                 
Outstanding, December 31, 2019
   
21,716,557
    $
0.076
     
 
     
 
 
Expired
   
(4,383
)    
52.50
     
 
     
 
 
Exchanged for common stock
   
(3,000,000
)    
0.041
     
 
     
 
 
Granted
   
1,500,000
     
0.057
     
 
     
 
 
Outstanding, September 30, 2020
 
 
20,212,174
   
$
0.068
   
 
3.95
   
$
-
 
                                 
Exercisable, September 30, 2020
 
 
19,212,174
   
$
0.068
   
 
3.90
   
$
-
 
 
On
June 8, 2020,
the Board of Directors consented to a share exchange agreement with holders of
21,500,000
options awarded on
August 7, 2019. 
The agreement allows for holders to exchange their options for rule
144
common stock at an exchange rate of
0.6
shares per
1
option.  The modification of these options did
not
result in any additional compensation because there was
no
change in the fair value. As of
September 30, 2020,
3,000,000
options have been exchanged for
1,800,000
shares that were issued under the executed exchange agreement.
 
The following table summarizes the Company's options as of
September 30, 2020:
 
               
Weighted
         
 
 
 
 
 
 
 
 
Average
   
 
 
 
 
 
 
 
Outstanding
   
Remaining
   
Exercisable
 
Exercise
   
Number of
   
Life
   
Number of
 
Price
   
Options
   
In Years
   
Options
 
                             
$
0.041
     
19,000,000
     
3.88
     
19,000,000
 
$
0.065
     
1,000,000
     
4.75
     
-
 
$
0.240
     
208,160
     
6.47
     
208,160
 
$
70.260
     
3,449
     
1.75
     
3,449
 
$
420.000
     
565
     
0.62
     
565
 
Total
   
 
20,212,174
   
 
3.95
   
 
19,212,174
 
 
Litigation, Claims, and Assessments
 
The Company
may
be involved in legal proceedings, claims and assessments arising in the ordinary course of business. In the opinion of management, such matters are currently
not
expected to have a material impact on the Company's condensed consolidated financial statements. The Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable settlements. 
 
Office Leases
and rent expenses
 
The Company had an amended office lease in Tulsa, Oklahoma that expired on
July 31, 2018.
The Company was on a month to month basis at
$1,980
per month under the terms of the Tulsa lease. The Company gave notice of termination of the Tulsa office lease and vacated the property on
June 23, 2020
and the security deposit has been refunded.
 
Additionally, on
December 3, 2019,
the Company signed a
one
-year office lease in Ann Arbor, Michigan commencing
January 1, 2020.
The remaining rent obligation on the Ann Arbor office is
$7,560
(
$1,260
per month) as of
September 30, 2020.
 
Rent expense for the operating leases was
$22,134
and
$17,820
for the
nine
months ended
September 30, 2020
and
2019,
respectively.
 
Supply Agreement
 
During
June 2020,
the Company entered into a supply agreement with Evonik Operations GmbH to purchase cyclohexasilane,
Si6H12
(CHS) for
$185,000
per
500
grams. The supply agreement is valid until
March 31, 2021.
The Company paid Evonik Operations GmbH
$92,500
on
July 20, 2020,
to initiate production of CHS, in accordance with the agreement.