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8. STOCKHOLDERS' EQUITY | 12 Months Ended
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Dec. 31, 2015
Notes to Financial Statements |
NOTE 8. STOCKHOLDERS' EQUITY | The Company’s Board of Directors may, without further action by the Company’s stockholders, from time to time, direct the issuance of any authorized but unissued or unreserved shares of preferred stock in series and at the time of issuance, determine the rights, preferences and limitations of each series. The holders of such preferred stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of the Company before any payment is made to the holders of our common stock. Furthermore, the Board of Directors could issue preferred stock with voting and other rights that could adversely affect the voting power of the holders of our common stock. Convertible Series A Preferred Stock The Company has authorized 1,000,000 shares of Convertible Series A Preferred Stock, $0.01 par value. At December 31, 2015 and 2014, there were 510,000 shares issued and outstanding, respectively. The Convertible Series A Preferred Stock is convertible at the rate of one share of common stock for one share of Convertible Series A Preferred Stock. Convertible Series B Preferred Stock The Company has authorized 4,000 shares of Convertible Series B Preferred Stock, $1,000 stated value, 7.5% Cumulative dividend. At December 31, 2015 and 2014, there were no shares issued and outstanding, respectively. Common Stock During the year ended December 31, 2014, the Company issued 326,035 shares of common stock valued at approximately $105,893 for professional services rendered. During the year ended December 31, 2014, the Company issued 44,319 shares of common stock valued at $15,000 to Harold Paul as payment for legal services rendered. During the year ended December 31, 2014, the Company issued 455,000 shares to the Rolyn Companies, Inc. (“Rolyn”) for labor and services support valued at $203,950 of which 230,000 shares valued at $128,800 were recorded as common stock to be issued at December 31, 2013. In addition, the Company issued 76,226 shares valued at $25,000 to a consultant for services rendered for the year ended December 31, 2014. During the year ended December 31, 2014, the Company issued 78,125 shares as consideration for payment of accrued compensation to the CEO amounting to $25,000. The Company also issued 100,000 shares to the COO amounting to $29,000 as part of his employment agreement. During the year ended December 31, 2014, the Company sold 377,778 shares of common stock at $.27 per share for gross proceeds of $102,000. In connection with the sale, the Company incurred a cash finder fee in the amount of $3,060 in addition to a finder’s fee paid in common stock of 11,332 shares valued at $3,060. During the year ended December 31, 2014, the Company sold 2,290,243 equity units. Each unit consisted of 1 share of common stock and 2.5 warrants. The warrants have an exercise price of $.29 per share and a term of five years. Gross proceeds to the Company amounted to $663,262. In connection with the sale, the Company incurred a cash finder’s fee in the amount of $66,347 in addition to a finder’s fee to be paid in common stock of 68,707 shares valued at $19,925. During the year ended December 31, 2015, the Company issued 1,094,679 shares of common stock valued at approximately $454,418 for services rendered (Note 11). In addition, the Company issued 225,000 shares of common stock valued at $101,250 to Harold Paul as payment for legal services rendered (Note 9). During the year ended December 31, 2015, the Company’s Board of Directors approved the issuance of 225,000 shares of common stock from the 2008 Plan valued at $101,250 as a bonus to Halden Shane, CEO, in August of 2015 (Note 9). During the year ended December 31, 2015, the Company issued 50,146 shares of common stock valued at $18,000 to Nick Jennings, CFO, as part of his annual compensation from the Company. In addition, the Company’s Board of Directors approved the issuance of 62,000 shares of common stock under the Company’s 2008 plan valued at $27,900 as a bonus in August of 2015 (Note 9). During the year ended December 31, 2015, the Company’s Board of Directors approved the issuance of 100,000 shares of common stock from the 2008 Plan valued at $45,000 as a bonus to Norris Gearhart, COO, in August of 2015 (Note 9). During the year ended December 31, 2015, the Company sold, 1,760,002 equity units. Each unit consisted of 1 share of common stock and 2.5 warrants. The warrants have an exercise price of $.29 per share and a term of seven years. Gross proceeds to the Company amounted to $510,213. In connection with the sale, the Company incurred a cash finder’s fee in the amount of $51,000 in addition to a finder’s fee to be paid in common stock of 52,800 shares valued at $15,312. During the year ended December 31, 2015, the Company issued 14,913,968 shares of common stock in connection with the conversion of the convertible notes and the related accrued interest amounting to $3,897,916 (Note 6). During the year ended December 31, 2015, the Company directly sold to two investors, 17,986,111 shares of common stock. Gross proceeds to the Company in connection with the shares sold amounted to approximately $8,225,000. Stock Options The Company issued 20,000 options valued at $8,723 to a director in January 2014. The options have an exercise price of $0.44 per share. The options expire in January 2024. The options were valued using the Black-Scholes model using the following assumptions: volatility: 233%; dividend yield: 0%; zero coupon rate: 1.72%; and a life of 10 years. The Company issued a total of 40,000 options valued at $10,798 to two directors in January 2015. The options have an exercise price of $0.27 per share. The options expire in January 2025. The options were valued using the Black-Scholes model using the following assumptions: volatility: 237%; dividend yield: 0%; zero coupon rate: 1.61%; and a life of 10 years. The following table summarizes stock options outstanding as of December 31, 2015 and December 31, 2014:
|  | December 31, 2015 |  |  | December 31, 2014 |
|  | Number of Options |  |  | Weighted Average Exercise Price |  |  | Number of Options |  |  | Weighted Average Exercise Price |
Outstanding, beginning of period |  |  | 60,000 |  |  | $ | 1.42 |  |  |  | 60,000 |  |  | $ | 1.42 |
Granted |  |  | 40,000 |  |  |  | 0.27 |  |  |  | 20,000 |  |  |  | 0.44 |
Exercised |  |  | - |  |  |  | - |  |  |  | (20,000 | ) |  |  | 0.44 |
Outstanding, end of period |  |  | 100,000 |  |  | $ | 0.96 |  |  |  | 60,000 |  |  | $ | 1.42 |
Options outstanding and exercisable by price range as of December 31, 2015 were as follows:
Outstanding Options |  |  | Average Weighted |  |  | Exercisable Options |
Range |  |  | Number |  |  | Remaining Contractual Life in Years |  |  | Number |  |  | Weighted Average Exercise Price |
$ | 2.10 |  |  |  | 40,000 |  |  |  | 4.01 |  |  |  | 40,000 |  |  | $ | 2.10 |
$ | 0.05 |  |  |  | 20,000 |  |  |  | 5.02 |  |  |  | 20,000 |  |  | $ | 0.05 |
$ | 0.27 |  |  |  | 40,000 |  |  |  | 9.02 |  |  |  | 40,000 |  |  | $ | 0.27 |
|  |  |  |  | 100,000 |  |  |  |  |  |  |  | 100,000 |  |  |  |  |
Stock Warrants On February 11, 2014, as part of the employment agreements entered into with its three executive officers (CEO, President and COO), the Board of Directors approved the grant of 3,000,000 stock warrants to each of them as executive compensation. The warrants have a term of five years and vest as follows: 1,000,000 warrants will vest upon issuance; 1,000,000 warrants will vest as of February 11, 2015, and 1,000,000 warrants will vest as of February 11, 2016. The exercise price of the warrants is $0.30 per share based on the closing price of the Company’s common stock on the grant date of $0.32. If employment is terminated, the terms of any then outstanding warrant held by the holder shall extend for a period ending on the earlier of the date on which such warrant would otherwise expire or three months after such termination of employment and the warrant shall be exercisable to the extent it was exercisable as of the date of termination of employment. Any unvested warrants shall immediately vest on termination. The Company utilized the Black-Scholes method to fair value the 3,000,000 warrants received by these individuals totaling approximately $952,000 for each executive with the following assumptions: volatility, 233%; expected dividend yield, 0%; risk free interest rate, 1.54%; and a life of 5 years. The grant date fair value of each warrant was $0.32. Effective September 25, 2014, the President and COO resigned from their positions with the Company and accordingly, the remaining unvested warrants immediately vested. As of December 31, 2014, their warrants expired. On February 11, 2014, the Company’s Board of Directors approved the granting of 300,000 stock warrants to its CFO Chris Chipman as incentive compensation. Effective July 18, 2014, Chris Chipman resigned from his position of Chief Financial Officer of the Company and accordingly, his unvested share of warrants were deemed to be null and void. For the year ended December 31, 2014, the Company recorded approximately $2,531,000 in equity based compensation expense on the vested and accrued portion of the warrants issued to executives. During the year ended December 31, 2014, the Company issued 5,725,608 warrants in connection with the private placement of common stock equity units. See note 8 (common stock) for additional details. For the year ended December 31, 2015, the Company recognized equity based compensation of approximately $316,000 on the warrants issued to the CEO in connection with the employment agreement (Note 9). In addition, the Company recognized approximately $10,800 for director options (See Note 8-Stock Options), $1,350,000 to consultant’s (Note 9 and 11), and $30,000 on the vesting of warrants issued to the CFO on October 1, 2014 (Note 9). During the year ended December 31, 2015, the Company issued 4,400,005 warrants in connection with the equity units sold to investors. See note 8 (common stock) for additional details. In addition, the Company issued 3,225,000 warrants to two consultants during the year ended December 31, 2015. See note 11 (contracts and agreements) for additional details. The following table summarizes the outstanding common stock warrants as of December 31, 2015 and December 31, 2014:
|  | December 31, 2015 |  |  | December 31, 2014 |
|  | Number of Warrants |  |  | Weighted Average Exercise Price |  |  | Number of Warrants |  |  | Weighted Average Exercise Price |
Outstanding, beginning of period |  |  | 28,051,408 |  |  | $ | 0.23 |  |  |  | 19,325,800 |  |  | $ | 0.21 |
Granted |  |  | 7,625,005 |  |  |  | 0.58 |  |  |  | 15,325,608 |  |  |  | 0.30 |
Expired |  |  | - |  |  |  | - |  |  |  | (300,000 | ) |  |  | 0.77 |
Expired |  |  | - |  |  |  | - |  |  |  | (6,300,000 | ) |  |  | 0.30 |
Outstanding, end of period |  |  | 35,676,413 |  |  | $ | 0.30 |  |  |  | 28,051,408 |  |  | $ | 0.23 |
Warrants outstanding and exercisable by price range as of December 31, 2015 were as follows:
Outstanding Warrants |  |  |  |  |  | Exercisable Warrants |
Range |  |  | Number |  |  | Average |  |  | Number |  |  |  |
| Weighted |  |  |  |
| Remaining |  |  | Weighted |
| Contractual |  |  | Average |
| Life in Years |  |  | Exercise Price |
$ | 0.01 |  |  |  | 1,575,000 |  |  |  | 1.53 |  |  |  | 1,575,000 |  |  | $ | 0.01 |
$ | 0.05 |  |  |  | 975,000 |  |  |  | 1.62 |  |  |  | 975,000 |  |  | $ | 0.05 |
$ | 0.15 |  |  |  | 7,750,000 |  |  |  | 1.80 |  |  |  | 7,750,000 |  |  | $ | 0.15 |
$ | 0.26 |  |  |  | 100,000 |  |  |  | 2.49 |  |  |  | 100,000 |  |  | $ | 0.26 |
$ | 0.29 |  |  |  | 10,125,613 |  |  |  | 4.80 |  |  |  | 10,125,613 |  |  | $ | 0.29 |
$ | 0.30 |  |  |  | 11,925,800 |  |  |  | 2.75 |  |  |  | 10,825,800 |  |  | $ | 0.30 |
$ | 0.33 |  |  |  | 75,000 |  |  |  | 2.75 |  |  |  | 75,000 |  |  | $ | 0.33 |
$ | 0.50 |  |  |  | 75,000 |  |  |  | 2.31 |  |  |  | 75,000 |  |  | $ | 0.50 |
$ | 0.62 |  |  |  | 75,000 |  |  |  | 2.50 |  |  |  | 75,000 |  |  | $ | 0.62 |
$ | 1.00 |  |  |  | 3,000,000 |  |  |  | 4.34 |  |  |  | 3,000,000 |  |  | $ | 1.00 |
|  |  |  |  | 35,676,413 |  |  |  |  |  |  |  | 34,576,413 |  |  |  |  |
Unvested warrants outstanding as of December 31, 2015 were as follows:
Unvested Warrants |  |  |  |
Weighted Average Exercise Price |  |  | Number |  |  | Average Weighted Remaining Contractual Life in Years |
$ | 0.30 |  |  |  | 1,100,000 |  |  |  | 5.0 |

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