Shareholders' Deficit | NOTE 6 – SHAREHOLDERS’ DEFICIT Common Shares Issued for Cash During the nine months ended June 30, 2018, the Company received $50,000 from the sale of 333,333 shares of its common stock. In connection with the sale, the Company issued warrants to the shareholder to purchase 666,667 shares of the Company’s common stock. The warrants expire five years from the date of grant and have an exercise price of $0.18 per share. Common Shares Issued for Services During the nine months ended June 30, 2018, the Company issued 770,000 shares of its common stock valued at $111,300 for services provided by WCUI and PSI consultants. The shares were valued at the trading price of the common stock at the date of issuance. Common Shares Issued in Connection with the Settlement of an Equity Agreement In 2017, the Company completed a sale of common stock and warrants with a subscriber whereby the Company sold to the subscriber 1,600,000 shares of common stock and warrants to acquire 1,600,000 shares of common at a price of $0.40 per share, for total purchase consideration of $400,000 ($0.25 per unit). The subscription agreement also included a favored nation clause that in the event a subsequent private offering occurs at a price less than $.25 per share that was paid by the subscriber, then the subscriber’s stock unit price shall be proportionately adjusted to the identical ration of 40% discount of the market price in the date of the subscription agreement. Upon issuance of the instrument, no liability for the favored nation clause was considered necessary as it was determined that ASC 480-10 did not apply as it is a conditional obligation embedded in a share. During the period, the Company sold 333,333 shares of common stock at $0.15 per share and a warrant to acquire 666,667 shares of common stock at $0.18 per share to an investor that triggered the Favored Nation Clause. To avoid the issuance of any future potential shares, the Company and the subscriber entered in an agreement on May 15, 2018 whereby the Company would issue an additional 1,066,667 shares common stock to the subscriber, cancel the previously issued 1,600,000 warrants, and issue a new warrant to acquire 5,334,334 shares of common stock at $.18 per share. To account for the settlement, the Company determined that other than par value, no other value would be ascribed to the additional 1,066,667 shares of common stock that were issued and due under the favored nations clause for the reasons detailed above. The Company also determined that it should record the incremental difference of $433,000 between the fair value of the canceled warrant of $185,000 and the fair value of new warrant of $618,000 at the date of the agreement. Given that no services were provided to the Company, the difference in fair value of the warrants before and after the modification was treated as a deemed dividend. Stock Options On December 22, 2010, effective retroactively as of June 30, 2010, the Company’s Board of Directors approved the adoption of the “2010 Non-Qualified Stock Option Plan” (“2010 Option Plan”) by unanimous consent. The 2010 Option Plan was initiated to encourage and enable officers, directors, consultants, advisors and key employees of the Company to acquire and retain a proprietary interest in the Company by ownership of its common stock. A total of 7,500,000 of the authorized shares of the Company’s common stock may be subject to, or issued pursuant to, the terms of the plan. Effective January 1, 2018, the Board of Directors approved to increase the number of authorized shares of the Company’s common stock that may be subject to, or issued pursuant to, the terms of the plan from 7,500,000 to 30,000,000. On January 1, 2018, the Company entered into employment agreements with three employees of SCI. Under the agreements, the Company issued options to purchase a combined total of 1,775,000 shares of its common stock with a fair value of $290,568. The options are exercisable over a term of five years, with an exercise price of $0.19. The Company valued the options using a Black-Scholes option pricing model. A combined total of 675,000 shares vested in equal amounts over a three-month period, starting on January 1, 2018, with the remainder vesting in equal amounts over the following one year and two months. During the three months ended June 30, 2018, an additional 250,000 shares also vested. On May 1, 2018, the Company entered into an employment agreement with one employee of SCI. Under the agreement, the Company issued an option to purchase 250,000 shares of its common stock with a fair value of $29,600. The options are exercisable over a term of five years, with an exercise price of $0.14. The Company valued the options using a Black-Scholes option pricing model. A total of 100,000 shares vest in equal amounts over a three-month period, starting on May 1, 2018, with the remainder vesting in equal amounts over the following one year and two months. During the three months ended June 30, 2018, 66,667 shares vested. During the three and nine months ended June 30, 2018, the Company recorded $46,480 and $156,977, respectively, of stock compensation for the value of the options, and as of June 30, 2018, unvested compensation of $163,190 remained that will be amortized over the remaining vesting period. Further, beginning on January 1, 2018, they will be granted additional stock options to purchase up to an aggregate total of 275,000 shares of the Company’s common stock each quarter. The options are exercisable over a five year period, are issuable on the last day of each quarter ending and vest immediately on the date of grant. All options accelerate and become fully vested upon the sale or change of control of the Company. During the nine months ended June 30, 2018, the Company issued options to purchase 525,000 shares of its common stock to the employees with an exercise price of $0.12 and $0.13 per share. During the three and nine months ended June 30, 2018, the Company valued the options using a Black-Scholes option pricing model and recorded $27,940 and $55,341, respectively, of stock compensation for the value of the options vested. In April 2018, the Company granted options to purchase 8,480,000 shares of its common stock to its officers, directors and two of its corporate employees with a fair value of $1,000,640. The options have an exercise price of $0.14 per share and expire five years from the date of grant. All of the shares will vest ratably on a monthly basis over 36 months. Also in April 2018, the Company granted options to purchase 1,230,000 shares of its common stock to an officer and a corporate employee with a fair value of approximately $145,140. The options have an exercise price of $0.14 per share and expire five years from the date of grant. All of the shares vested immediately. On June 30, 2018, the Company granted an option to purchase 37,500 shares of its common stock to a corporate employee with a fair value of approximately $3,809. The options have an exercise price of $0.14 per share and expire five years from the date of grant. All of the shares vested immediately. During the three and nine months ended June 30, 2018, the Company recorded $274,324 of stock compensation for the value of the options, and as of June 30, 2018, unvested compensation of $730,125 remained that will be amortized over the remaining vesting period. The assumptions used for options granted during the nine months ended June 30, 2018 are as follows: Exercise price $ 0.13 - 0.19 Expected dividends - Expected volatility 123.8% - 130.2% Risk free interest rate 2.01% - 2.43% Expected life of options 2.5 The table below summarizes the Company’s stock option activities for the nine months ended June 30, 2018: Number of Option Shares Exercise Price Range Per Share Weighted Average Exercise Price Fair Value at Date of Grant Balance, September 30, 2017 6,822,500 $ 0.10 - 2.00 $ 0.51 $ 1,865,628 Granted 11,067,500 0.12 - 0.19 0.15 1,379,861 Cancelled - - - - Exercised - - - - Expired - - - - Balance, June 30, 2018 17,890,000 $ 0.10 – 2.00 $ 0.29 $ 3,245,489 Vested and exercisable, June 30, 2018 10,654,882 $ 0.10 – 2.00 $ 0.29 $ 2,128,918 Unvested, June 30, 2018 7,235,118 $ 0.14 – 0.19 $ 0.18 $ 1,116,571 The aggregate intrinsic value for option shares outstanding at June 30, 2018 was $3,875, and as of June 30, 2018, unvested compensation of $893,315 remained that will be amortized over the remaining vesting period. The following table summarizes information concerning outstanding and exercisable options as of June 30, 2018: Options Outstanding Options Exercisable Range of Exercise Prices Number Outstanding Average Remaining Contractual Life (in years) Weighted Average Exercise Price Number Exercisable Average Remaining Contractual Life (in years) Weighted Average Exercise Price $ 0.10 - 0.39 14,367,500 4.28 $ 0.15 7,132,382 3.72 $ 0.15 0.40 - 0.99 2,122,500 0.80 0.40 2,122,500 0.80 0.40 1.00 - 1.99 750,000 2.50 1.00 750,000 2.50 1.00 2.00 650,000 2.50 2.00 650,000 2.50 2.00 $ 0.01 - 2.00 17,890,000 3.73 $ 0.29 10,654,882 2.93 $ 0.18 As of June 30, 2018, there were 12,110,000 shares of stock options remaining available for issuance under the 2010 Plan. Stock Warrants During the nine months ended June 30, 2018, the Company issued warrants to purchase 12,698,337 shares with exercise prices ranging from $0.14 to $0.20 per share in connection with the conversion of loans payable from officers and shareholders (see Note 4), the issuance of a convertible note payable (see Note 5) and the issuance of shares relating to an equity investment. The warrants expire five years from the date of grant. During the nine months ended June 30, 2018, warrants to purchase 1,407,619 shares of the Company’s common stock were exercised for $170,914. The table below summarizes the Company’s warrants activities for the nine months ended June 30, 2018: Number of Warrant Shares Exercise Price Range Per Share Weighted Average Exercise Price Fair Value at Date of Issuance Balance, September 30, 2017 64,161,304 $0.12 - 1.00 $ 0.24 $ 2,151,219 Granted 12,698,337 0.14 - 0.20 0.17 132,000 Cancelled (1,600,000 ) - - - Exercised (1,407,619 ) 0.12 – 0.15 0.12 - Expired (4,829,270 ) 0.30 – 0.45 0.43 - Balance, June 30, 2018 69,022,753 $0.12 - 1.00 $ 0.21 $ 2,283,219 Vested and exercisable, June 30, 2018 69,022,753 $0.12 - 1.00 $ 0.21 $ 2,283,219 Unvested, June 30, 2018 - $ - $ - $ - There was no aggregate intrinsic value for warrant shares outstanding at June 30, 2018. The following table summarizes information concerning outstanding and exercisable warrants as of June 30, 2018: Warrants Outstanding Warrants Exercisable Range of Exercise Prices Number Outstanding Average Remaining Contractual Life (in years) Weighted Average Exercise Price Number Exercisable Average Remaining Contractual Life (in years) Weighted Average Exercise Price $ 0.12 – 0.20 55,221,778 2.92 $ 0.15 55,221,778 2.92 $ 0.15 0.21 – 0.49 9,341,237 1.97 0.33 9,341,237 1.97 0.33 0.50 – 1.00 4,459,738 0.21 0.75 4,459,738 0.21 0.75 $ 0.12 – 1.00 69,022,753 2.60 $ 0.21 69,022,753 2.60 $ 0.21 |