Note 7 - Stockholders' Deficit |
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| Stockholders' Equity Note Disclosure [Text Block] |
NOTE 7
- STOCKHOLDERS’
DEFICIT
At June 30, 2016 the Company had 300,000,000 shares of common stock, par value of $0.001 authorized for issuance, of which
209,375,137 shares were issued and outstanding.
In addition, at June 30, 2016, the Company is authorized to issue up to 5,000,000 shares of preferred stock, par value of $0.001, in one or more classes or series within a class pursuant to the Company’s Amended and Restated Articles of Incorporation. As of June 30, 2016 and 2015 there were no shares of preferred stock issued and outstanding.
H olders of common stock are entitled to receive dividends, when, as, and if declared by the Board of Directors, out of any assets legally available to the Company. Dividends are declared and paid in an equal per-share amount on the outstanding shares of each series of common stock. To date the Board of Directors has neither declared nor paid common stock dividends to shareholders.
Common Stock and Warrants Private Placement – Fiscal 2016
In April 2016, our Board of Directors approved the private placement of up to 77,500,000 shares of our common stock to select accredited investors for a total amount of $3,100,000, or $0.04 per share of common stock. On July 28, 2016, our Board of Directors increased the aggregate amount offered to up to $4,000,000 and extended the termination date to August 31, 2016 (the “Offering”). As of June 30, 2016, a total of $2,425,000 has been raised of which $1,050,000 was received in cash and $1,375,000 was received via the settlement of outstanding liabilities. Esenjay, our controlling shareholder and primary credit line holder, participated in the Offering as an investor by purchasing 6,250,000 shares for cash proceeds of $250,000 and 33,750,000 shares in exchange for the settlement of $1,350,000 of debt owed to Esenjay by the Company. In addition, we sold 20,000,000 shares (of which 2,500,000 shares were not issued until subsequent to June 30, 2016) shares to two unrelated accredited investors for $800,000 in cash and 625,000 shares in exchange for settlement of accounts payable to a vendor
. On April 15, 2016, we entered into an agreement with Esenjay, whereby Esenjay agreed to limit its right of conversion under the Unrestricted Line of Credit to such number of shares so that upon conversion, if any, it will not cause us to exceed our authorized number of shares of common stock. The securities offered and sold in the Offering have not been registered under the Securities Act. The securities were offered and sold to accredited investors in reliance upon exemptions from registration pursuant to Rule 506 promulgated thereunder. Subsequent to June 30, 2016 we sold an additional 36,875,000 shares under the private placement (See Note 14).
The initial closing of the Offering in May 2016 at a price of $0.04 per share triggered an anti-dilution provision for warrant holders under our 2012 Private Placement pursuant to which an aggregate of 2,907,347 shares of common stock may be purchased upon exercise . As a result, the exercise price of such warrants was reduced from $0.27 to $0.15 per share. The remaining terms, including expiration dates, of all effected warrants remain unchanged. The modified exercise price of the warrants to $0.15 resulted in a repricing modification charge of $12,000 that was recorded as a cost of capital raised in connection with the offering (See Note 8 and Note 14).
Private Placements - 2015 On July 31, 2014, the Board of Directors approved a private placement equity financing that was intended to raise up to a total of $990,000. In connection with this private placement, we offered accredited investors units, consisting of 1,000,000 shares of common stock and 500,000 warrants at a purchase price of $90,000 per unit. During fiscal 2015, we have sold 5.95 units to 14 investors for total gross proceeds of approximately $536,000, pursuant to which we issued 5,949,999 shares of common stock and warrants to purchase up to 2,974,999 shares of common stock. The warrants are exercisable for three years and each warrant entitles the holder to purchase one share of common stock at $0.25 per share. SRA served as our placement agent and earned a cash commission of approximately $35,000 based on 9% of gross proceeds and earned warrants to purchase 385,500 shares of our common stock at an exercise price of $0.09 for its services. The cash commission of approximately $35,000 was recorded as a cost of equity financing. The securities offered and sold in this offering have not been registered under the Securities Act. The securities were offered and sold to accredited investors in reliance upon exemptions from registration pursuant to Rule 506 promulgated thereunder.
Advisory Agreements Monarch Bay Securities . Catalyst Global LLC. On October 14, 2013, we entered into a contract with Catalyst Global LLC (“CGL”), pursuant to which CGL agreed to provide investor relations services for 12 months in exchange for monthly fees of $2,000 per month and 450,000 shares of restricted common stock issued as follows: 180,000 shares upon signing and 90,000 shares on each of the subsequent three-, six-, and nine-month anniversaries of the contract. The fourth tranche of 90,000 shares was issued on October 15, 2014 and was valued at $0.12 per share, or $10,800. During the year ended June 30, 2015, we recorded expense of $44,000, in connection with this agreement.
On February 11, 2015, we entered into a renewal contract with CGL, pursuant to which CGL agreed to provide investor relations services for 12 months in exchange for monthly fees of $2,000 per month and 450,000 shares of restricted common stock issued as follows: 150,000 shares upon signing and the balance vesting pro rata upon each of the three-, six-, nine-, and twelve-month anniversaries of the contract. The initial tranche was valued at $0.07 per share or $10,500 when issued on February 17, 2015, the second tranche of 75,000 shares was issued on May 11, 2015 and was valued at $0.06 per share, or $4,500, the third tranche of 75,000 shares was issued on August 11, 2015 and was valued at $0.04 per share, or $3,000, the fourth tranche of 75,000 shares was issued on November 12, 2015 and was valued at $0.05 per share, or $3,750 and the fifth and final tranche of 75,000 shares was issued on February 11, 2016 and was valued at $0.04 per share or $3,000. During the years ended June 30, 2016, and 2015 we recorded expense of approximately $20,000 and $5,000, respectively. As of June 30, 2015, the total remaining balance of the prepaid investor relation services related to the 2015 contract was approximately $10,000.
Effective April 1, 2016, we entered into a renewal contract with CGL, pursuant to which CGL agreed to provide investor relations services for 12 months in exchange for monthly fees of $2,000 per month and 540,000 shares of restricted common stock issued as follows: 315,000 shares on June 30, 2016 for services provided during the three months ended June 30, 2016 and the balance vesting pro rata upon each of the six-, nine-, and twelve-month anniversaries of the contract. The initial tranche was valued at $0.05 per share or approximately $14,500 when issued on June 30, 2016. During the year ended June 30, 2016, we recorded expense of approximately $14,500.
Security Research Associates, Inc . On June 26, 2013, we entered into an agreement with SRA pursuant to which SRA agreed to provide business and advisory services. SRA served as our placement agent in connection with the Company’s 2014 and 2015 private placement offerings described above. In connection with these private placements, SRA was paid aggregate cash compensation in the amount of $142,155 and warrants to purchase a total of 2,176,500 at exercise prices ranging from $0.06 - $0.09 per share. Compensation under the SRA agreement is based on 9% of the gross proceeds raised and a warrant to purchase the number of shares of our common stock equal to 9% of the aggregate gross proceeds from the offerings received from all investors (excluding Esenjay) placed by SRA divided by $0.06 per share.We entered into a renewal agreement with SRA on March 18, 2015 pursuant to which we retained SRA through July 2015 as our exclusive placement agen t on a “best-efforts” basis in connection with private placement of stock or convertible securities by the Company. No additional funding was received by the Company, and no additional fees were paid to SRA, during the renewal period. On July 31, 2015, the Agency Agreement with SRA reached its termination date, and was not renewed.
Warrant Activity Warrant detail for the year ended June 30, 2015 is reflected below:
No warrants have been issued or exercised during the year ended June 30, 2016. The weighted average exercise price per share and remaining contract term of the outstanding warrants at June 30, 2016 was $0.21 and 0.95-3.75 years, respectively. Stock-based Compensation On November 26, 2014, our board of directors approved our 2014 Equity Incentive Plan (the “ 2014 Plan”), which was approved by our shareholders on February 17, 2015. The 2014 Plan offers selected employees, directors, and consultants the opportunity to acquire our common stock, and serves to encourage such persons to remain employed by us and to attract new employees. The 2014 Plan allows for the award of stock and options, up to 10,000,000 shares of our common stock.
During th e year ended June 30, 2016, we issued 4,385,000 incentive stock options of the Company’s common stock
, with an aggregated estimated grant-date fair value of $113,000, to seventeen of our employees. During the year ended June 30, 2015, we issued 400,000 non-qualified stock options of the Company’s common stock to a consultant, pursuant to a consulting agreement entered into in December 2013. These options were valued using the Black-Scholes model on the day they were originally due to be issued per agreement, and the Company recorded an accrual in the amount of $76,000 during the year ended June 30, 2014. Such options were issued in July 2014 when the current fair value of $64,000 was determined using the Black-Scholes model. The change in fair value of $12,000 was recorded as a reduction to stock based compensation expense during the year ended June 30, 2015. We have not registered the shares of common stock underlying stock options outstanding as of June 30, 2016.
Activity in stock options during the year ended June 30, 2016 and related balances outstanding as of that date are reflected below:
Activity in stock options during the year ended June 30, 2015 and related balances outstanding as of that date are reflected below:
Stock-based compensation expense recognized in our consolidated statements of operations for the year ended June 30, 2016 and 2015, includes compensation expense for stock-based options and awards granted based on the grant date fair value. For options and awards granted, expenses are amortized under the straight-line method over the expected vesting period. Stock-based compensation expense recognized in the consolidated statements of operations has been reduced for estimated forfeitures of options that are subject to vesting. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Our average stock price during the year ended June 30, 2016, was $0.05, and as a result the intrinsic value of the exercisable options at June 30, 2016, was $4,000.
We allocated stock-based compensation expense included in the consolidated statements of operations for employee option grants and non-employee opti on grants as follows:
The Company uses the Black-Scholes valuation model to calculate the fair value of stock options. The fair value of stock options was measured at the grant date using the assumptions (annualized percentages) in the table below:
The remaining amount of unrecognized stock-based compensation expense at June 30,
2016 relating to outstanding stock options, is approximately $80,000, which is expected to be recognized over the weighted average period of 2.22 years.
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