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8. STOCKHOLDERS EQUITY
12 Months Ended
Dec. 31, 2017
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, 2017 and 2016.

 

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, 2017 and 2016.

 

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, 2017, and December 31, 2016, there were 85,561 and 85,646 shares of Series C Preferred Stock issued and outstanding, respectively.

 

During the year ended December 31, 2016, the Company issued 6,428 shares of Series C preferred stock to Directors of the Company for cash proceeds of $450,000.

 

On March 10, 2017, the Company issued 715 shares of Series C preferred stock in exchange for cash in the amount of $50,050.

 

During 2017, one shareholder converted 800 shares of Series C preferred stock and dividend of $9,692 to common stock of 937,556 shares.

 

Series C preferred stock dividends were $139,006 and $261,716 for the years ended December 31, 2017 and December 31, 2016, respectively. As of December 31, 2017, the aggregate outstanding accumulated arrearages of cumulative dividends was $909,557, ($10.63 per share). As of the date of this filing, $1,060,098 Series C preferred stock dividends have been converted to 15,144,247 shares of common stock at $0.07 per share.

 

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. 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.

 

In November of 2013, the Company granted an aggregate of 15,000 shares of Series D preferred stock to employees and nonemployees for services. 9,000 of the shares were granted to employees and vested immediately upon grant; 4,000 shares were granted to a nonemployee and vested immediately upon grant; 1,000 of the shares were granted to an employee and vested in equal tranches over three years through October 1, 2016; and 1,000 of the shares were granted to a nonemployee and vested 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; $79,318 was recognized during the year ended December 31, 2014; $6,628, (net forfeitures of $19,173) was recognized during the year ended December 31, 2015; and $8,109 was recognized during the year ended December 31, 2016. As of October 1, 2016, all shares have vested, no further expense is to be recognized.

 

During the year ended December 31, 2014, the Company granted an aggregate of 1,445 shares of Series D preferred stock to three nonemployees which vested immediately upon grant. The aggregate fair value of the awards was determined to be $157,050 which was recognized during the year ended December 31, 2014 and no further expense is to be recognized.

 

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.

 

As of December 31, 2017, and December 31, 2016 there were no shares of Series D Preferred Stock issued and outstanding.

 

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, 2017, there were no shares of Series E Preferred Stock issued and outstanding.

 

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

 

COMMON STOCK

 

On September 3, 2014, the Company held a stockholders meeting. 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.

  

On March 31, 2016 the Company issued 1,098,904 shares of common stock in conversion of 1,000 shares of Series C Preferred stock and $6,924 of related dividends.

 

On October 26, 2016, the Company issued 1,150,000 shares of common stock valued at $57,500 to employees. During the year ended December 31, 2016, an aggregate of 499,967 common shares were issued upon the vesting of previously granted stock awards and the Company recorded a net reversal of $2,220 of stock-based compensation related to the amortization of stock awards to employees and nonemployees net of reversal of the unvested portion of forfeited awards.

 

On October 26, 2016, the Company agreed to grant three tranches of shares of common stock, 250,000, 250,000, and 250,000 to a sales consultant which are to be earned upon meeting specific performance measures agreed upon. The measures include achieving three specific sales targets per month for 3 consecutive months. The first one of these was earned January 31st, 2017, and 250,000 shares were granted in March 2017.

 

During the year ended December 31, 2016, an aggregate of 166,667 shares of fully vested common stock under previously issued stock awards was returned and cancelled. The share cancellation was recognized at par value.

 

On March 9, 2017, the Company issued 150,000 shares of common stock to each of the Company’s then four Board Directors, (a total of 600,000 shares valued at $42,000).

 

On March 10, 2017, the Company issued 250,000 shares of common stock valued at $18,250 to a contract consultant upon achievement of specified revenue targets which occurred January 31, 2017.

 

On July 31, 2017, the Company issued 937,556 shares of common stock for the conversion of 800 shares of Series C Convertible Preferred Stock and $9,629 of related Series C dividends

 

On November 22, 2017, the Company issued 1,200,000 shares of common stock valued at $84,000 for settlement of debt (see NOTE 11 below for a discussion of the settlement).

 

On November 22, 2017, the Company issued 750,000 shares of common stock valued at $0 to a contract consultant upon termination of contract (see NOTE 3 above for a discussion of the termination).

 

WARRANTS

 

At December 31, 2017, there were 5,100,000 warrants outstanding with a weighted average exercise price of $0.06. At December 31, 2016, there were 67,246,300 warrants outstanding with a weighted average exercise price of $0.12.

 

A summary of the status of the warrants granted at December 31, 2017 and 2016, and changes during the years then ended is presented below:

 

  For the Year Ended December 31, 2017
    Shares     Weighted Average Exercise Price  
Outstanding at beginning of period     67,246,300     $ 0.12  
Granted     -       -  
Exercised     -       -  
Forfeited     (60,051,300 )     0.12  
Expired     (2,095,000 )     0.13  
Outstanding at end of period     5,100,000     $ 0.06  

 

  For the Year Ended December 31, 2016
    Shares     Weighted Average Exercise Price  
Outstanding at beginning of period     9,736,844     $ 0.19  
Granted     60,000,000       0.12  
Exercised     -       -  
Forfeited     -       -  
Expired     (2,490,544 )     0.60  
Outstanding at end of period     67,246,300     $ 0.12  

 

The following table summarizes the outstanding warrants as of December 31, 2017:

 

   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       1     $ 0.06       4,500,000     $ 0.06  
    0.08       200,000       1       0.08       200,000       0.08  
    0.09       400,000       1       0.09       400,000       0.09  
  $ 0.06 -0.09       5,100,000       1     $ 0.06       5,100,000     $ 0.06  

 

The following table summarizes the outstanding warrants as of December 31, 2016:

 

   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       2     $ 0.06       4,500,000     $ 0.06  
    0.08       550,000       1       0.08       550,000       0.08  
    0.09       625,000       1       0.09       625,000       0.09  
    0.12       60,000,000       4       0.12       12,000,000       0.12  
    0.15       1,571,300       1       0.15       1,571,300       0.15  
  $ 0.06 -.15       67,246,300       4     $ 0.12       19,246,300     $ 0.12  

 

STOCK OPTIONS

 

A summary of the status of the stock options granted for the years ended December 31, 2017 and 2016, and changes during the period then ended is presented below:

 

  For the Year Ended December 31, 2017  
    Options     Weighted Average Exercise Price  
Outstanding at beginning of period     1,093,500     $ 0.15  
Granted     1,150,000       0.06  
Exercised     -       -  
Forfeited     (150,000 )   (a)  
Expired     (943,500 )     0.15  
Outstanding at end of period     1,150,000     $ 0.06  

 

  For the Year Ended December 31, 2016  
    Options     Weighted Average Exercise Price  
Outstanding at beginning of period     1,093,500     $ 0.15  
Granted     -       -  
Exercised     -       -  
Forfeited     -       -  
Expired     -       -  
Outstanding at end of period     1,093,500     $ 0.15  

 

(a) On January 1, 2015, the Company granted three tranches of options, 25,000, 25,000, and 100,000 which vest upon meeting specific performance measures. The measures include achieving three specific sales targets per month for 3 consecutive months. The exercise price and expiration date of each tranche will be set upon achieving the targets. As of the date of this filing the performance measures have not been met. As a result, the exercise price is undetermined and these options are excluded from the calculation of weighted average remaining life. As of December 31, 2017, the options were forfeited.

 

On December 31, 2017, the Company granted a total of 1,150,000 options to five employees. The shares vest in equal annual amounts over three years and the aggregate fair value of the awards was determined to be $61,322 and no expense was recognized.

 

The following table summarizes the outstanding options as of December 31, 2017:

 

  As of December 31, 2017      As of December 31, 2017    
    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  
  $ 0.06       1,150,000       5     $ 0.06       -     $ -  
                                               

 

The following table summarizes the outstanding options as of December 31, 2016:

 

        As of December 31, 2016           As of December 31, 2016    
    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       943,500       1.75     $ 0.15       943,500     $ 0.15  
    (a)       150,000       -       -       -       -  
  $ 0.15       1,093,500       1.63     $ 0.15       943,500     $ 0.15  

 

(a) On January 1, 2015, the Company granted three tranches of options, 25,000, 25,000, and 100,000 which vest upon meeting specific performance measures. The measures include achieving three specific sales targets per month for 3 consecutive months. The exercise price and expiration date of each tranche will be set upon achieving the targets. As of the date of this filing the performance measures have not been met. As a result, the exercise price is undetermined and these options are excluded from the calculation of weighted average remaining life. As of December 31, 2017, the options were forfeited.