Annual report pursuant to Section 13 and 15(d)

Note 6 - Common Stock, Preferred Stock, Warrants and Options

v3.20.1
Note 6 - Common Stock, Preferred Stock, Warrants and Options
12 Months Ended
Dec. 31, 2019
Notes to Financial Statements  
Stockholders' Equity Note Disclosure [Text Block]
Note
6
Common Stock,
Preferred Stock, Warrants and Options
 
Common Stock
 
On
December 27, 2019,
the Company issued
123,330,807
shares of Common Stock of the Company upon the conversion of debt held by certain Legacy Holders. (see Note
4
)
 
Series A Convertible Preferred Stock
 
The terms of the Series A Convertible Preferred Stock, Warrants and Options are as follows:  
 
A total of
500,000
shares of Series A Convertible Preferred Stock (the “Series A Preferred Stock”) have been authorized for issuance under the Certificate of Designation of Preferences, Rights and Limitation of Series A Convertible Preferred Stock of the Company (the “Certificate of Designation”), which Certificate of Designation was filed with the Secretary of State of the State of Oklahoma on
December 11, 2013.
The shares of Series A Preferred Stock have a par value of
$0.0002
per share and a stated value of
$1.00
per share (the “Stated Value”) and shall receive a dividend of
6%
of their Stated Value per annum payable or upon conversion or redemption of Series A Preferred at the option of the Corporation. We have
not
paid any cash or stock dividends to the holders of our Series A Preferred. As of
December 31, 2019,
dividends in arrears totaled approximately
$128,000.
Under the Certificate of Designation, the holders of the Series A Preferred Stock have the following rights, preferences and privileges:
 
The Series A Preferred Stock
may,
at the option of the Investor, be converted at any time after the
first
anniversary of the issuance of the Series A Preferred Stock or from time to time thereafter into
166,667
post-split shares of Common Stock that such investor is entitled to in proportion to the
500,000
shares of Series A Preferred so designated in the Certificate of Designation.
 
The Series A Preferred Stock will automatically be converted into Common Stock anytime the post-split
5
-day average VWAP of the Company’s Common Stock prior to such conversion is equal to
$15.00
or more. Such mandatory conversion would be converted by the same method described above for discretionary conversions. 
 
Except as otherwise required by law, the holders of shares of Series A Preferred Stock shall
not
have voting rights or powers. 
 
In the event of any (i) liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, or ii) sale, merger, consolidation, reorganization or other transaction that results in a change of control of the Company, each holder of a share of Series A Preferred shall be entitled to receive, subject to prior preferences and other rights of any class or series of stock of the Company senior to the Series A Preferred, but prior and in preference to any distribution of any of the assets or surplus funds of the Company to holders of Common Stock, or any other class or series of stock of the Company junior to the Series A Preferred, an amount equal to the Stated Value plus accrued and unpaid dividends (as adjusted for any stock dividends, combinations or splits with respect to such shares) (the “Preference Amount”). After such payment has been made to the holders of Series A Preferred of the full Preference Amount to which such holders shall be entitled, the remaining net assets of the Company available for distribution, if any, shall be distributed pro rata among the holders of Common Stock. In the event the funds or assets legally available for distribution to the holders of Series A Preferred are insufficient to pay the Preference Amount, then all funds or assets available for distribution to the holders of capital stock shall be paid to the holders of Series A Preferred pro rata based on the full Preference Amount to which they are entitled.
 
The Company
may
not
declare, pay or set aside any dividends on shares of any class or series of capital stock of the Company (other than dividends on shares of Common Stock payable in shares of Common Stock) unless the holders of the Series A Preferred Stock shall
first
receive, or simultaneously receive, a dividend on each outstanding share of Series A Preferred in an amount equal to the dividend per share that such holders would have received had they converted their shares of Series A Preferred into shares of Common Stock immediately prior to the record date for the declaration of the Common Stock dividend in an amount equal to the average VWAP during the
5
trading days prior to the date such dividend is due.
 
 
Series A Warrants
 
The Series A Warrants expired in
November 2017
and
January 2018,
four
years from date of issuance.
 
Options
 
On
August 7, 2019
the Company issued
21,500,000
five
(
5
) year options to purchase common stock of the Company at an exercise price of
$0.041
per share. The estimated fair value of the options was
$881,500.
Michael Kraft, CEO was issued
10,000,000
options, Concordia Financial Group was issued
10,000,000
options, Ramez Elgammal, CTO was issued
1,000,000
options and Ronald Robinson CFO was issued
500,000
options. Mr. Kraft’s options were issued for
$90,869
in accrued compensation due him,
$25,000
under the terms of his employment agreement and
$294,132
as additional compensation for his services as CEO. Concordia’s, Mr. Elgammal’s and Mr. Robinson’s options were issued for additional compensation for services during the year ended
December 31, 2019.
 
The
$881,500
estimated fair value of options to purchase common stock issued in
August 2019
was determined using the Black-Scholes option pricing model. The expected dividend yield of
$0
is based on the average annual dividend yield at the date issued. Expected volatility of
337.19%
is based on the historical volatility of the stock. The risk-free interest rate of
1.52%
is based on the U.S. Treasury Constant Maturity rates as of the issue date. The expected life of the options of
five
years is based on historical exercise behavior and expected future experience
 
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 were issued to DAF. The warrants will be issued in amounts of
150,000
and
210,000
per month during the funding period. As of
December 31, 2019,
570,000
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 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.
 
As of
December 31, 2018,
Golden State had warrants outstanding to purchase
61
shares of common stock at a price of
$114,450
per share which expired
December 31, 2018,
subsequently extended to
September 30, 2019
and cancelled in
October 2019
with the retirement of the Golden State convertible debenture. Global Capital had warrants outstanding to purchase
1,000
shares of common stock at a price of
$0.96
per shares which expired on
March 31, 2019.
 
 
 
Warrants Summary
 
The following table summarizes the Company’s warrant activity during the year ended
December 31, 2019:
 
   
 
 
 
 
 
 
 
 
Weighted
   
 
 
 
   
 
 
 
 
Weighted
   
Average
   
 
 
 
   
 
 
 
 
Average
   
Remaining
   
Aggregate
 
   
Number of
   
Exercise
   
Life
   
Intrinsic
 
   
Warrants
   
Price
   
In Years
   
Value
 
                                 
Outstanding, December 31, 2018
   
1,061
    $
6,589
     
0.26
     
 
 
Granted
   
570,000
     
0.052
     
4.84
     
 
 
Expired
   
(1,061
)
   
(6,589
)    
 
     
 
 
Exercised
   
-
     
-
     
 
     
 
 
                                 
Outstanding, December 31, 2019
   
570,000
    $
0.52
     
4.84
    $
-
 
                                 
Exercisable, December 31, 2019
   
570,000
    $
570,000
     
4.84
    $
-
 
 
The following table summarizes the Company’s warrants as of
December 31, 2019:
 
Warrants Outstanding
 
 
Warrants Exercisable
 
 
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
 
 
Outstanding
 
 
Average
 
 
Exercisable
 
Exercise
 
 
Number of
 
 
Remaining Life
 
 
Number of
 
Price
 
 
Warrants
 
 
In Years
 
 
Warrants
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
.052
 
 
 
570,000
 
 
 
4.84
 
 
 
570,000
 
 
Options Summary
 
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. 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 was 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 year ended
December 31, 2019:
 
 
 
 
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
 
 
 
 
Weighted
 
 
Average
 
 
 
 
 
 
 
 
 
 
 
Average
 
 
Remaining
 
 
Aggregate
 
 
 
Number of
 
 
Exercise
 
 
Life
 
 
Intrinsic
 
 
 
Options
 
 
Price
 
 
In Years
 
 
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding, December 31, 2018
 
 
216,557
 
 
$
3.51
 
 
 
7.26
 
 
$
-
 
Granted
 
 
21,500,000
 
 
 
0.04
 
 
 
4.61 
 
 
 
-
 
Expired
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Exercised
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Outstanding, December 31, 2019
 
 
2
1
,716,
557
 
 
$
0.08
 
 
 
4.63
 
 
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercisable, December 31, 2019
 
 
2
1
,716
,557
 
 
$
0.08
 
 
 
4.63
 
 
$
-
 
  
The following table summarizes the Company’s options as of
December 31, 2019:
 
Options Outstanding
 
 
Options Exercisable
 
 
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
 
 
Outstanding
 
 
Average
 
 
Exercisable
 
Exercise
 
 
Number of
 
 
Remaining Life
 
 
Number of
 
Price
 
 
Options
 
 
In Years
 
 
Options
 
                             
$
                         0.41
 
 
 
   21,500,000
 
 
 
  4.61
 
 
 
              21,500,000
 
$
0.24
 
 
 
208,160
 
 
 
7.5
 
 
 
208,160
 
$
52.50
 
 
 
4,383
 
 
 
0.5
 
 
 
4,383
 
$
70.26
 
 
 
3,449
 
 
 
2.5
 
 
 
3,449
 
$
420.00
 
 
 
565
 
 
 
1.4
 
 
 
565
 
 
 
 
 
 
2
1
,716
,557
 
 
 
4.
63
 
 
 
2
1
,716
,557