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10. SHAREHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2020

Stockholders' Equity:

NOTE 10. SHAREHOLDERS' EQUITY

Our Board of Directors (the “Board”) may, without further action by our shareholders, 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 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

Our authorized Convertible Series A Preferred Stock, $0.01 par value, consists of 1,000,000 shares. At March 31, 2020 and December 31, 2019, there were 510,000 shares issued and outstanding. 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

Our authorized Convertible Series B Preferred Stock, $1,000 stated value, 7.5% cumulative dividend, consists of 4,000 shares. At March 31, 2020 and December 31, 2019, there were no shares issued and outstanding, respectively. Each share of Convertible Series B Preferred Stock may be converted (at the holder’s election) into two hundred shares of our common stock.

Common Stock

During the three months ended March 31, 2019, we issued 400,000 shares of common stock valued at $44,000 to members of our board of directors (see Note 12). 

During the three months ended March 31, 2020, we issued 400,000 shares of common stock valued at $48,000 to members of our board of directors (see Note 12). 

In March 2020, 8,333,332 shares of common stock were issued in connection with the conversion of convertible notes payable aggregating $4,500,000 (see Note 9).

In March 2020, 83,333 shares of common stock were issued in connection with the exercise of warrants for which we received proceeds of $57,500.

Stock Options

In January 2019, pursuant to an employment agreement, we issued options to purchase an aggregate of 250,000 shares of common stock to our Chief Operating Officer, valued at $24,694. The options have an exercise price of $0.11 per share and expire in January 2024. The options were valued using the Black-Scholes model using the following assumptions: volatility: 144%; dividend yield: 0%; zero coupon rate: 2.47%; and a life of 5 years. The value of the options was expensed in the fourth quarter of 2018 and included in accrued expenses at December 31, 2018.

In January 2019, we issued options to purchase an aggregate of 50,000 shares of common stock to our Chief Financial Officer, valued at $4,483. The options have an exercise price of $0.10 per share and expire in January 2024. The options were valued using the Black-Scholes model using the following assumptions: volatility: 143%; dividend yield: 0%; zero coupon rate: 2.58%; and a life of 5 years.

In January 2020, we issued two options to purchase an aggregate of 250,000 shares of common stock to the COO at an exercise price of $0.10 and $0.12 per share pursuant to her employment agreement with the Company. The options were valued at a total of $23,595 and have a term of 5 years. We utilized the Black-Scholes method to fair value the options received by the COO with the following assumptions: volatility, 135%; expected dividend yield, 0%; risk free interest rate, 1.64%; and a life of 5 years. The grant date fair value of each share of common stock underlying the options was $0.09 and $0.10. The value of the stock option was included in accrued expenses at December 31, 2019.

The following table summarizes stock options outstanding as of March 31, 2020 and December 31, 2019:

		March 31, 2020 (Unaudited)								December 31, 2019
		Number of Options				Weighted Average Exercise Price				Number of Options				Weighted Average Exercise Price
Outstanding, beginning of period			620,000			$	0.32				320,000			$	0.52
Granted			250,000				0.11				300,000				0.11
Exercised			-				-				-				-
Expired			(40,000	)			2.10				—				—
Outstanding, end of period			830,000			$	0.17				620,000			$	0.32

Options outstanding and exercisable by price range as of March 31, 2020 were as follows:

	Outstanding Options								Average Weighted				Exercisable Options
	Range				Number				Remaining Contractual Life in Years				Number				Weighted Average Exercise Price
	$	0.05				20,000				0.77				20,000			$	0.05
	$	0.10				220,000				4.85				220,000			$	0.10
	$	0.11				250,000				3.76				250,000			$	0.11
	$	0.12				200,000				3.77				200,000			$	0.12
	$	0.27				40,000				4.76				40,000			$	0.27
	$	0.55				100,000				5.85				100,000			$	0.55
						830,000				4.28				830,000			$	0.17

Stock Warrants

               In January 2019 we issued a warrant to purchase 1,000,000 shares of common stock to the CEO at an exercise price of $0.10 per share pursuant to an employment agreement. The warrant was valued at $89,654 and has a term of 5 years. We utilized the Black-Scholes model to fair value the warrant received by the CEO with the following assumptions: volatility, 143%; expected dividend yield, 0%; risk free interest rate, 2.58%; and a life of 5 years. The grant date fair value of each share of common stock underlying the warrant was $0.09.

In January 2019 we issued a warrant to purchase 250,000 shares of common stock to an employee at an exercise price of $0.12 per share. The warrant was valued at $21,931 and has a term of 3 years. We utilized the Black-Scholes model to fair value the warrant received by the employee with the following assumptions: volatility, 148%; expected dividend yield, 0%; risk free interest rate, 2.55%; and a life of 3 years. The grant date fair value of each share of common stock underlying the warrant was $0.09. The value of the warrants was expensed in the fourth quarter of 2018 and included in accrued expenses at December 31, 2018.

In January 2020 we issued a warrant to purchase 1,250,000 shares of common stock to the CEO at an exercise price of $0.15 per share pursuant to an employment agreement. The warrant was valued at $164,201 and has a term of 5 years. We utilized the Black-Scholes model to fair value the warrant received by the CEO with the following assumptions: volatility, 136%; expected dividend yield, 0%; risk free interest rate, 1.64%; and a life of 5 years. The grant date fair value of each share of common stock underlying the warrant was $0.13.

In January 2020 we issued a warrant to purchase 41,667 shares of common stock to an employee at an exercise price of $0.12 per share. The warrant was valued at $3,594 and has a term of 5 years. We utilized the Black-Scholes model to fair value the warrant received by the employee with the following assumptions: volatility, 135%; expected dividend yield, 0%; risk free interest rate, 1.58%; and a life of 5 years. The grant date fair value of each share of common stock underlying the warrant was $0.09. The value of the warrants was expensed in the fourth quarter of 2019 and included in accrued expenses at December 31, 2019.

In February 2020 we issued a warrant to purchase 150,000 shares of common stock to an employee at an exercise price of $0.15 per share. The warrant was valued at $18,571 and has a term of 3 years. We utilized the Black-Scholes model to fair value the warrant received by the employee with the following assumptions: volatility, 155%; expected dividend yield, 0%; risk free interest rate, 1.64%; and a life of 3 years. The grant date fair value of each share of common stock underlying the warrant was $0.12.

The following table summarizes the outstanding common stock warrants as of March 31, 2020 and December 31, 2019:

		March 31, 2020 (Unaudited)								December 31, 2019
		Number of Warrants				Weighted Average Exercise Price				Number of Warrants				Weighted Average Exercise Price
Outstanding, beginning of period			17,240,523			$	0.39				26,550,611			$	0.34
Granted			1,441,667				0.12				1,300,000				0.11
Exercised			(83,333	)			(0.69	)			-				-
Expired			(1,799,999	)			(0.47	)			(10,610,088	)			(0.23	)
Outstanding, end of period			16,798,858			$	0.36				17,240,523			$	0.39

Warrants outstanding and exercisable by price range as of March 31, 2020 were as follows: 

	Outstanding Warrants												Exercisable Warrants
	Exercise Price				Number				Average Weighted Remaining Contractual Life in Years				Number				Weighted Average Exercise Price
	$	0.08				250,000				3.65				250,000			$	0.08
	$	0.10				1,265,000				3.51				1,265,000			$	0.10
	$	0.12				3,791,667				2.69				3,791,667			$	0.12
	$	0.14				50,000				4.05				50,000			$	0.14
	$	0.15				1,400,000				4.63				1,400,000			$	0.15
	$	0.17				10,000				2.57				10,000			$	0.17
	$	0.27				250,000				1.75				250,000			$	0.27
	$	0.29				4,615,525				1.91				4,615,525			$	0.29
	$	0.30				1,200,000				0.89				1,200,000			$	0.30
	$	0.32				250,000				1.50				250,000			$	0.32
	$	0.42				250,000				1.25				250,000			$	0.42
	$	0.50				250,000				1.00				250,000			$	0.50
	$	0.55				100,000				0.83				100,000			$	0.55
	$	0.69				116,666				0.10				116,666			$	0.69
	$	1.00				3,000,000				0.09				3,000,000			$	1.00
						16,798,858				2.01				16,798,858			$	0.36

There were no unvested warrants outstanding as of March 31, 2020.

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- Definition

The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08(e)(1))
-URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.3-04)
-URI http://asc.fasb.org/extlink&oid=120397183&loc=d3e187085-122770

Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-URI http://asc.fasb.org/topic&trid=2208762

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