Shareholders' Equity | NOTE 7 – SHAREHOLDERS’ EQUITY Authorized shares During the year ended September 30, 2016, the Company was authorized by its Articles of Incorporation to issue up to 75,000,000 shares of common stock, par value $0.001 per share. Holders of shares of common stock have full voting rights, one vote for each share held of record. Shareholders are entitled to receive dividends as may be declared by the Board out of funds legally available therefore and share pro rata in any distributions to shareholders upon liquidation. Shareholders have no conversion, pre-emptive or subscription rights. All outstanding shares of common stock are fully paid and non-assessable. During the year ended September 30, 2017, the Company amended its Articles of Incorporation to authorize it to issue up to 185,000,000 shares of common stock, par value $0.001 per share, through a filing of a Certificate of Amendment on January 12, 2017. As of September 30, 2018, and 2017 there were 100,952,569 and 90,284,916 shares of common stock issued and outstanding, respectively. Common shares issued for cash During the year ended September 30, 2017, the Company received $884,600 from the sale of 5,837,500 shares of its common stock. In connection with the sales, the Company issued warrants to the shareholders to purchase 13,715,000 shares of the Company’s common stock. The warrants expire five years from the date of grant and have exercise prices ranging from $0.12 per share to $0.40 per share. Certain of these shares induced a “Favored Nation Clause”, which required issuance of further shares in the event that future sales of common stock went below $0.25 per share. See “Common Shares Issued in Connection with the Settlement of an Equity Agreement” below. During the year ended September 30, 2018, the Company received $177,000 from the sale of 1,614,286 shares of its common stock. In connection with the sales, the Company issued warrants to the shareholders to purchase 3,228,572 shares of the Company’s common stock. The warrants expire five years from the date of grant and have exercise prices of $0.15 and $0.18 per share. Common shares issued for services During the year ended September 30, 2017, the Company issued 450,000 shares of its common stock for services valued at $138,500. The shares were valued at the trading price of the common stock at the date of issuance. During the year ended September 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. Retirement of common shares in legal settlement During the year ended September 30, 2017, the Company reached a settlement agreement with the former shareholders of PSI. Under the settlement agreement, 250,000 shares of the Company’s common stock owned by the former owners was retired. Along with the retirement of the shares, liabilities owed to the former owners totaling to $260,027 were forgiven and were recorded as a gain on extinguishment of debt on the consolidated statement of operations for the year ended September 30, 2017 (see Note 3). Common Shares Issued in Connection with the Settlement of an Equity Agreement During the year ended September 30, 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 year ended September 2018, 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 issuance, 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. Subsequent to the above issuance, the Company and the shareholder entered into a settlement agreement that will eliminate the Favored Nation clause. As such, in November 2018, the Company issued 296,534 shares and a warrant to acquire 770,987 shares of common stock at $0.18 per share. The fair value of the shares issued was $17,792 and the fair value of the warrants was $38,935. As these values were part of a settlement agreement, the total amount of $56,727 was recorded as a financing cost during the year ended September 30, 2018. 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. The Company’s policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award. Additionally, the Company’s policy is to issue new shares of common stock to satisfy stock option exercises. The Company applied fair value accounting for all share based payments awards. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model. Grants during Fiscal Year Ended September 30, 2017 During the year ended September 30, 2017, the Company issued options to purchase 1,150,000 shares of its common stock to an officer and consultants of the Company with exercise prices ranging from $0.12 to $0.40 per share. The options vested immediately and expire five years from the date of grant. During the year ended September 30, 2017, the Company valued the options using a Black-Scholes option pricing model and recorded $220,009 of stock compensation for the value of the options. During the year ended September 30, 2017, the Company issued options to purchase 500,000 shares of its common stock to a Director, Dr. Jay Joshi, relating to the sale of NPC Inc. shares (see Note 3). The options had an exercise price of $0.24 per share, vested immediately and expire five years from the date of grant. During the year ended September 30, 2017, the Company valued the options using a Black-Scholes option-pricing model and recorded $106,350 for the value of the options, which was recorded as a cost to the Company in computing the total gain on the transaction (see Note 3). The assumptions used for options granted during the year ended September 30, 2017 are as follows: Exercise price $ 0.12 - 0.40 Expected dividends - Expected volatility 138.2% - 152.3% Risk free interest rate 0.96% - 1.39% Expected life of options 2.5 Grants during Fiscal Year Ended September 30, 2018 Options Granted in Accordance with Employment Agreements During the year ended September 30, 2018, the Company entered into employment agreements with four employees of SCI. Under the agreements, the Company issued options to purchase a combined total of 2,800,000 shares of its common stock with a fair value of $396,308. The options are exercisable over a term of five years, with exercise prices ranging from $0.10 to $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. 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 year ended September 30, 2018, the Company recorded $271,804 of stock compensation for the value of the options, and as of September 30, 2018, unvested compensation of $28,063 remained that will be amortized over the remaining vesting period. Other Grants During the year ended September 30, 2018, the Company granted options to purchase 8,517,500 shares of its common stock to its officers, directors and employees with a fair value of $1,004,450. The options have an exercise price of $0.14 per share and expire five years from the date of grant. The shares will vest in various periods. The Company valued the options using a Black-Scholes option pricing model. During the year ended September 30, 2018, the Company recorded $340,699 of stock compensation for the value of the options, and as of September 30, 2018, unvested compensation of $663,750 remained that will be amortized over the remaining vesting period. The assumptions used for options granted during the year ended September 30, 2018 are as follows: Exercise price $ 0.10 - 0.19 Expected dividends - Expected volatility 121.1% - 130.2% Risk free interest rate 2.01% - 2.85% Expected life of options 2.5 The table below summarizes the Company’s stock option activities for the years ended September 30, 2018 and 2017: Number of Option Shares Exercise Price Range Per Share Weighted Average Exercise Price Fair Value at Date of Grant Balance, September 30, 2016 5,227,500 $ 0.01 – 2.00 $ 0.60 $ 1,539,269 Granted 1,650,000 0.12 – 0.40 0.21 326,359 Cancelled (5,000 ) 0.09 0.09 - Exercised - - - - Expired (50,000 ) 1.00 1.00 - Balance, September 30, 2017 6,822,500 $ 0.10 - 2.00 $ 0.51 $ 1,865,628 Granted 11,317,500 0.10 - 0.19 0.14 1,379,127 Cancelled (183,333 ) 0.14 0.14 - Exercised - - - - Expired (10,000 ) 0.75 0.75 - Balance, September 30, 2018 17,946,667 $ 0.10 – 2.00 $ 0.28 $ 3,244,755 Vested and exercisable, September 30, 2018 11,693,095 $ 0.10 - 2.00 $ 0.36 $ 2,149,818 Unvested, September 30, 2018 6,253,572 $ 0.14 – 0.19 $ 0.15 $ 1,094,937 There was no aggregate intrinsic value for option shares outstanding at September 30, 2018. The following table summarizes information concerning outstanding and exercisable options as of September 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 $ 0.01 - 0.39 14,434,167 4.04 $ 0.15 8,180,595 3.71 $ 0.15 0.40 - 0.99 2,112,500 0.56 0.40 2,112,500 0.56 0.40 1.00 - 1.99 750,000 2.25 1.00 750,000 2.25 1.00 2.00 650,000 2.25 2.00 650,000 2.25 2.00 $ 0.01 - 2.00 17,946,667 3.41 $ 0.28 11,693,095 2.97 $ 0.36 As of September 30, 2018, there were 12,053,333 shares of stock options remaining available for issuance under the 2010 Plan. Stock Warrants During the year ended September 30, 2017: ● The Company issued warrants to purchase 13,715,000 shares with exercise prices of $0.12 and $0.40 per share as part of the sale of equity units. The warrants expire five years from the date of grant. ● The Company issued warrants to purchase 330,000 shares with an exercise price of $0.31 per share in connection with the issuance of a convertible note payable (see Note 6). The warrants expire five years from the date of grant. ● Warrants were exercised to purchase 4,065,414 shares of the Company’s common stock for $3,000. During the year ended September 30, 2018: ● The Company issued warrants to purchase 3,228,572 shares with exercise prices of $0.15 and $0.18 per share as part of the sale of equity units. The warrants expire five years from the date of grant. ● The Company issued warrants to purchase 1,100,000 shares with an exercise price of $0.20 per share in connection with the issuance of a convertible notes payable (see Note 6). The warrants expire five years from the date of grant. ● The Company issued warrants to purchase 6,038,336 shares with exercise prices of $0.14 and $0.18 per share in connection with the conversion of loans payable from officers and shareholders (see Note 5). ● The Company issued warrants to purchase 6,104,322 shares with an exercise price of $0.18 per share in connection with the initial equity agreement and the settlement of that equity agreement. Also, in connection with the agreement, a warrant to purchase 1,600,000 shares was also cancelled with an exercise price of $0.40 per share. ● Warrants were exercised to purchase 1,407,619 shares of the Company’s common stock for $170,914. The table below summarizes the Company’s warrants activities for the years ended September 30, 2018 and 2017: Number of Warrant Shares Exercise Price Range Per Share Weighted Average Exercise Price Fair Value at Date of Issuance Balance, September 30, 2016 54,938,158 $ 0.01 - 2.31 $ 0.25 $ 2,063,637 Granted 14,045,000 0.12 - 0.40 0.19 87,582 Canceled - - - - Exercised (4,065,414 ) 0.12 – 0.25 0.15 - Expired (756,440 ) 0.45 - 2.31 0.86 - Balance, September 30, 2017 64,161,304 $ 0.12 - 1.00 $ 0.24 $ 2,151,219 Granted 16,471,230 0.14 - 0.20 0.17 1,283,341 Cancelled (1,600,000 ) 0.40 0.40 - Exercised (1,407,619 ) 0.12 - 0.15 0.12 - Expired (9,717,187 ) 0.30 - 2.31 0.56 - Balance, September 30, 2018 67,907,728 $ 0.12 - 1.00 $ 0.17 $ 3,434,560 Vested and exercisable, September 30, 2018 67,907,728 $ 0.12 - 1.00 $ 0.17 $ 3,434,560 Unvested, September 30, 2018 - $ - $ - $ - There was no aggregate intrinsic value for warrant shares outstanding at September 30, 2018. The following table summarizes information concerning outstanding and exercisable warrants as of September 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 58,994,670 3.04 $ 0.15 58,994,670 3.04 $ 0.15 0.21 – 0.49 8,574,570 1.78 0.28 8,574,570 1.78 0.28 0.50 – 1.00 338,488 0.78 0.68 338,488 0.78 0.68 $ 0.12 – 1.00 67,907,728 2.87 $ 0.17 67,907,728 2.87 $ 0.17 |