Annual report pursuant to Section 13 and 15(d)

11. Subsequent Events

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11. Subsequent Events
12 Months Ended
Dec. 31, 2018
Subsequent Events [Abstract]  
Subsequent Events

11. Subsequent Events

 

Unregistered Sales of Equity Securities

 

Subsequent to the reporting period of this Form 10-K for the year ended December 31, 2018, the Company closed a private placement sale of unregistered equity securities. From November 1, 2018, through March 31, 2019, the Company issued and sold to accredited US investors and non-U.S. investors an aggregate of $2,112,000 Convertible Promissory Notes (the “Notes”) and warrants to purchase an aggregate of 42,233,400 shares of common stock (the “Warrants”) (collectively, the private placement sale of the Notes and Warrants shall be referred to as the “Winter 2018-2019 Offering”). The Company received proceeds from the Winter 2018-2019 Offering of $1,920,000, which funds were used, and are being used, for general corporate purposes and working capital.

 

The Notes are due twelve (12) months from their respective issuance dates (the “Maturity Date”). The Notes do not bear interest and were issued in the face amount equal to 110% of the purchasers’ commitments. The Notes are convertible into shares of the Company’s common stock at a rate of $0.05 per share. If the Notes are not paid in full by the Maturity Date, the balance remaining on the Maturity Date shall be increased by 10% and the Company shall be required to pay interest at a rate of 10% per annum thereon until all sums thereunder are paid in full.

 

The Warrants are exercisable into shares of the Company’s common stock for a term of one (1) year at an exercise price of $0.05 per share. The Warrants also contain provisions that protect the holders against dilution by adjustment of the conversion price in certain events involving a reduction or increase in the Company’s shares.

 

Due to the timing of the Winter 2018-2019 Offering, beginning in 2018 and ending in 2019, the Notes and Warrants are and will be reported in the Company’s Consolidated Financial Statements in two separate portions, as follows:

 

First, from November 1, 2018 up to December 31, 2018, the Company issued and sold Notes in aggregate of $1,377,000 convertible to 27,533,000 shares of common stock of the Company and Warrants to purchase 13,766,500 shares of common stock of the Company, and the Company received cash proceeds of $1,252,000. For the avoidance of doubt, this is a subset of the total Notes and Warrants sold under the Winter 2018-2019 Offering. As a result, the Company recorded a note discount of $1,252,000 to account for the relative fair value of the Warrants, the Notes’ beneficial conversion feature and original issue discount which is reported in these Consolidated Financial Statements for the period end December 31, 2018 and will be amortized as interest expense over the life of the Notes.

 

Second, the remainder of the Notes and Warrants in the Winter 2018-2019 Offering were issued and sold subsequent to the reporting period of this Form 10-K. From January 1, 2019 up to March 31, 2019, the Company issued and sold Notes in aggregate of $735,000 convertible to 14,700,400 shares of common stock of the Company and Warrants to purchase 7,350,200 shares of common stock of the Company, and the Company received cash proceeds of $668,000. Again, for the avoidance of doubt, this is a subset of the total Notes and Warrants sold under the Winter 2018-2019 Offering. As a result, the Company will record a note discount of $668,000 to account for the relative fair value of the warrants, the Notes’ beneficial conversion feature and original issue discount which will be amortized as interest expense over the life of the Notes.

 

The Winter 2018-2019 Offering was made to non-U.S investors and to U.S. “accredited investors,” as the term is defined in Regulation D under the Securities Act of 1933, as amended (the “Securities Act”), and were made without general advertising or solicitation. The securities sold in the Winter 2018-2019 Offering were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on exemptions from registration including the exemption from registration afforded by Section 4(a)(2) of the Securities Act and Regulation S promulgated under the Securities Act, and corresponding provisions of state securities law, which, respectively, exempt transactions by an issuer not involving any public offering or transactions with non-U.S. Investors.

 

Conversion of Convertible Notes

 

From January 1, 2019 up to March 31, 2019, Company issued 22,467,945 shares of common stock upon conversion of previously issued convertible notes in aggregate value of $1,025,000.

 

Exercise of Warrants

 

In January 2, 2019 up to March 31, 2019, the Company issued 1,333,750 shares of common stock upon the exercise of previously issued warrants for aggregate cash proceeds of $96,000.

 

Amendment to Employee Agreements

 

Effective March 31, 2019, the Company amended employment agreements of the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Prior these amendments, both employment agreements had been scheduled to terminate on March 31, 2019. As amended, each contract has been extended by 90 days to give the Board sufficient time to negotiate new contracts with these Executive Officers.

 

Grant of Stock Options

 

The Company granted members of the Board of Directors stock options to purchase a total of 4,687,500 shares of common stock. The stock options vest over one year, exercisable at $0.08 per share and will expire in 10 years. Total fair value of the stock options amounted to $306,000 which will be expensed over the vesting period.

 

Amendment to Separation Agreement

 

Effective March 31, 2019, a separation agreement between the Company and a former Chief Executive Officer was amended, continuing payments of $10,000 per month, payment of health insurance premiums, and extending the term on a month-to-month basis until paid in full or otherwise terminated.

 

Cash Deposit Paid

 

In January 2019, the Company paid $500,000 as a deposit under terms of a work order for work to be performed by a pipeline operator.