| STOCKHOLDERS' EQUITY | NOTE 14 – STOCKHOLDERS’
EQUITY Common stock The Company is authorized
to issue 3,000,000,000 shares of its common stock. All shares of common stock are equal to each other with respect to voting,
liquidation, dividend, and other rights. Owners of shares are entitled to one vote for each share owned at any Shareholders’
meeting. The common stock of the Company does not have cumulative voting rights, which means that the holders of more than fifty
percent (50%) of the shares voting in an election of directors may elect all of the directors if they choose to do so. Preferred stock The Company is authorized
to issue 10,000,000 shares of its preferred stock with a no par value per share. Series A convertible
preferred stock: The Company has 9,000 shares
of Series A preferred stock outstanding at July 31, 2018. These shares were issued from the designated 10,000,000 shares of preferred
stock, no par value, with the following rights and preferences:
● Liquidation
preference: Upon a liquidation event, an amount in cash equal to $100 per share, for a total of $900,000 computed as of July
31, 2018, shall be paid prior to liquidation payments to holders of the Company securities junior to the Series A preferred
stock.
● Dividends:
Holders of the Series A preferred stock are not entitled to receive a dividend.
● Voting:
Each share of preferred stock has 10,000 votes and votes with the common shares on all matters submitted to the shareholders
for a vote.
● Non-transferrable:
The shares of Series A preferred stock are not transferrable except under a plan for wealth transfer and estate planning or
upon conversion or redemption as set forth below.
● Conversion:
On July 31, 2021, any shares of the Series A preferred stock outstanding will be convertible, at the discretion of the shareholder,
for a period of three years, into common stock purchase warrants of the Company with an exercise price of $1.00 per share
on the basis of 110 shares of common stock for each one share of Series A preferred stock outstanding. Series B convertible
preferred stock: The Company has 50,000 shares
of Series B preferred stock outstanding at July 31, 2018. These shares were issued from the designated 10,000,000 shares of preferred
stock, no par value, with the following rights and preferences:
● Liquidation
preference: Upon a liquidation event, an amount in cash equal to $100 per share, for a total of $5,000,000 computed as of
July 31, 2018, shall be paid prior to liquidation payments to holders of Company securities junior to the Series B preferred
stock. Holders of the Company’s Series A preferred stock shall be paid in advance of holders of the Series B preferred
stock on the occurrence of a liquidation event.
● Dividends:
Holders of the Series B preferred stock are not entitled to receive a dividend.
● Voting:
The Series B preferred stock has no voting rights other than to be voted when required by the laws of the State of Nevada.
● Non-transferrable:
The shares of Series B preferred stock are not transferrable except under a plan for wealth transfer and estate planning or
upon conversion or redemption as set forth below.
● Conversion:
On July 31, 2021, any shares of the Series B preferred stock outstanding will be convertible, at the discretion of the shareholder,
for a period of three years, into common stock purchase warrants of the Company with an exercise price of $1.00 per share
on the basis of 110 shares of common stock for each one share of Series B preferred stock outstanding. Redemption of preferred
stock In connection with the issuance
of the Series A and Series B Preferred Stock as discussed above, for each new oil and gas well drilled by the Company with funds
raised or delivered due to the efforts of the former GSSI officers, who for a period of time served as Company officers, the Company
was to pay Jed Miesner $10,000 in exchange for 100 shares of Series A Preferred Stock and Robert Bories $10,000 in exchange for
100 shares of Series B Preferred Stock. For the year ended July 31, 2017, there was no redemption or accrual made under
this provision. During the year ended July 31, 2018, the Company acquired all of the working interests to which these provisions
were attached effectively terminating the Company’s obligation to redeem the preferred shares. Common Stock: During the years ended July
31, 2018 and 2017, the Company issued 12,920,010 and 6,249,959 shares of common stock, respectively, for cash of $3,230,000 and
$1,636,212. During the years ended July
31, 2018 and 2017, the Company issued 856,628 and 31,625 shares of common stock with total fair values of $535,200 and $12,375,
respectively, as compensation for professional services. During the years ended July
31, 2018 and 2017, the Company issued 3,617,556 and -0- shares of common stock for oil and gas property working interests with
total fair values of $1,736,429 and $-0-, respectively. On May 27, 2017, the related
party noteholders of notes payable agreed to extend the maturity date of the notes to December 31, 2017. As consideration for
the change in terms, the Company issued to the noteholders an aggregate 460,000 shares of the Company’s common stock with
a fair value of $105,800 which was recognized as a financing fee associated with debt modification in the year ended July 31,
2017. Warrants: At July 31, 2017, the Company
had 2,674,576 warrants outstanding that had an exercise price of $0.60 and an expiration date of July 31, 2019. During the year
ended July 31, 2018, the Company issued 3,469,391 warrants to purchase common stock with total fair value of $1,038,587 as compensation
for services. In addition, the Company issued 136,666 for oil and gas working interests with total fair value of $77,961. The
weighted average fair value of warrants and the key assumptions used in the Black-Scholes valuation model to calculate the fair
value, are as follows:
Weighted
average fair value $0.30 - $0.59
Stock
price 0.32 - 0.69
Exercise
price 0.37 - 1.00
Expected
term (in years) 3 - 5
Risk-free
rate 2.33% - 2.85%
Volatility 166.4% - 177.65% The Company’s outstanding
warrants at July 31, 2018 are as follows:
Expiration
Date - Year ending July 31, Number
of Warrants Exercise
Price
2019 2,674,576 $
0.60
2020 1,200,000 $0.50
2021 1,858,332 $0.40
to $1.00
2022 305,000 $0.40
to $0.60
2023 242,725 $0.34
to $0.74
6,280,633 No warrants exercised during
the year ended July 31, 2018. Stock Options: In February 2017, the Board
of Directors adopted and approved the 2017 Stock Option Plan (the “2017 Plan”). Pursuant to the 2017 Plan terms, if the 2017 Plan was not approved by a majority of the shareholders of the
Company within twelve months of the adoption of the 2017 Plan, the 2017 Plan would become void. The 2017 Plan was never approved
by a majority vote of the shareholders of the Company and therefore is now void. No options were ever issued pursuant to the 2017
Plan. The 2017 Plan also has terms
and conditions, including without limitations that the exercise price for incentive stock options granted under the Stock Option
Plan must equal the stock's fair market value, based on the closing price per share of common stock, at the time the stock option
is granted. The fair value of each option award is estimated on the date of grant utilizing the Black-Scholes model and commonly
utilized assumptions associated with the Black-Scholes methodology. Options granted under the Plan have a ten-year maximum term
and varying vesting periods as determined by the Board. The Company's policy is to issue new shares to satisfy option exercises.
To date, the Company has not issued any options pursuant to the 2017 Plan. On August 11, 2017, the
Board of Directors authorized the grant of 5,835,000 options to purchase shares of common stock of the Company to certain officers
related to their employment agreements (the “Listing Options”). The Listing Options will vest and be immediately exercisable
on the date the Company's stock is traded on the American Stock Exchange, the New York Stock Exchange, or any of the NASDAQ trading
tiers. The Listing Options shall have an exercise price equal to the closing price on the date such trading commences. As of July
31, 2018, management has determined the probability of such an event is doubtful and, therefore, has not recognized any compensation
expense to date regarding the Listing Options. On August 11, 2017, the
Board of Directors authorized the grant of 11,750,000 options to purchase shares of common stock of the Company to certain officers.
The options have an exercise price of $0.40 and expire five years from the date of grant. 2,937,500 of the options vested immediately
on the grant date and the remainder vest 25% annually upon each anniversary of the grant date. For the year ended July 31, 2018,
the Company recognized stock based compensation of $1,436,575 for the vested options and the ratable recognition of unvested options
as stock-based compensation. Unrecognized compensation related to the option grant is $1,436,575 as of July 31, 2018, to be recognized
over the remaining vesting term of the options. On August 11, 2017, the
Board of Directors authorized the grant of 10,000,000 options to purchase shares of common stock of the Company to its Chief Executive
Officer. The options have an exercise price of $0.40 per share and expire five years from the date of grant. 2,000,000 options
vested on the date of grant. The fair value of the grant was $489,047 which was recognized as stock-based compensation at the
date of grant. The remaining 8,000,000 options contained market and performance conditions, of which 4,000,000 options are to
vest based on market conditions being met and 4,000,000 options will vest upon achievement of certain performance objectives.
Management has assessed the likelihood of market conditions and the probability of performance conditions being realized and recognize
a fair value of $647,987 for the year ending July 31, 2018. On September 26, 2017, the
Board of Directors also authorized the grant of 500,000 options to purchase shares of common stock of the Company to certain directors.
The options vested immediately at the date of grant. These options have an exercise price of $0.40 and expire on September
26, 2021. The fair value of the grant was $137,056 which the Company recognized as stock-based compensation for the year ended
July 31, 2018. The following is a summary
of the Company's options for the year ended July 31, 2018. No options were granted in prior years:
Options Exercise
Price Weighted
Average Remaining Term in Years
Outstanding
at the beginning of the year - -
Issued 28,085,000 $ 0.40
Exercised - -
Expired - -
Outstanding
at the end of the year 28,085,000 $ 0.40 4.01
Outstanding
at the end of the year, vested 5,437,500 $ 0.40 3.95 At July 31, 2018, the Company
had reserved 34,365,633 common shares for future exercise of warrants and options. At July 31, 2018, the vested options had an
intrinsic value of approximately $462,000. Options granted were valued
using the Black-Scholes Option Pricing Model. The assumptions used in calculating the fair value of the options were as follows:
Weighted
average fair value $0.245 - $0.285
Stock
price $0.26 - $0.30
Exercise
price $0.40
Expected
term (in years) 4 - 5
Risk-free
rate 1.57% - 1.74%
Volatility 175.1 - 200.6% |
