Annual report pursuant to Section 13 and 15(d)

OPTIONS AND WARRANTS

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OPTIONS AND WARRANTS
12 Months Ended
Mar. 31, 2018
OPTIONS AND WARRANTS [Text Block]

NOTE 7 – OPTIONS AND WARRANTS

Stock Option Awards

Effective April 28, 2017, we granted a total of 1,790,000 stock options to our directors, officers, consultants employees. The stock options are exercisable at the exercise price of $1.29 per share for a period of ten years from the date of grant. 360,000 of the stock options vest as follows: (i) 120,000 upon the date of grant; and (ii) 120,000 on each anniversary date of grant. 1,430,000 of the stock options vest as follows: (i) 357,500 upon the date of grant; and (ii) 357,500 on each anniversary date of grant. We granted the stock options to 12 U.S. Persons and 3 non U.S. Persons (as that term is defined in Regulation S of the Securities Act of 1933) and in issuing securities we relied on the registration exemption provided for in Regulation S and/or Section 4(a)(2) of the Securities Act of 1933.

On March 1, 2018, pursuant to Warrant Amendment Agreements dated February 22, 2018 with 16 holders (the “Holders” ) of our common stock purchase warrants (the “existing warrants”), we issued an aggregate of 3,900,000 shares of our common stock upon exercise of the Existing Warrants at an exercise price of $0.50 per share for aggregate gross proceeds of $1,950,000. The Existing Warrants were issued by us as part of an offering that closed on March 4, 2016 and were included in our registration statement on Form S-1 (File No. 333-209124). In addition, pursuant to the Warrant Amendment Agreements, we issued new common stock purchase warrants of our company (the “New Warrants” ) in the form of the Existing Warrants to purchase up to a number of shares of our common stock equal to the number of Existing Warrants exercised by the Holders, provided that (i) the exercise price of the New Warrants is $0.60 per share, subject to adjustment in the New Warrants, (ii) the expiry date of the New Warrants is September 1, 2019 and (iii) the New Warrants are non-transferable.

For the years ended March 31, 2018 and March 31, 2017 the Company has recognized compensation expense of $549,602 and $0 respectively, on the stock options granted that vested. The fair value of the unvested shares is $0 as of March, 2018. The aggregate intrinsic value of these options was $0 at March 31, 2017. Stock option activity summary covering options is presented in the table below:

                Weighted-  
          Weighted-     Average  
          Average     Remaining  
    Number of     Exercise     Contractual  
    Shares     Price     Term (years)  
Outstanding at March 31, 2016   4,653,400   $ 0.92     8.2  
Granted   -     -     7.8  
Exercised   (485,000 )   0.52     -  
Expired/Forfeited   (192,000 )   0.52     -  
Outstanding at March 31, 2017   4,145,800     0.92     7.7  
Granted   1,790,000     1.29     9.1  
Exercised   (181,000 )   0.52     9.7  
Expired/Forfeited   3,320,800     0.55     6.9  
Outstanding at March 31, 2018   2,434,000     1.09     8.0  
Exercisable at March 31, 2018   1,105,900     0.84     8.4  

Warrants

The following is a summary of the status of all of our warrants as of March 31, 2018 and changes during the period ended on that date:

          Weighted-  
    Number     Average  
    of Warrants     Exercise Price  
Outstanding at March 31, 2016   4,988,116   $ 1.39  
   Granted   -     -  
   Exercised   (600,000 )   0.50  
   Cancelled or Expired   (195,200 )   1.50  
Outstanding at March 31, 2017   4,192,916     0.79  
   Granted   3,900,000     0.50  
   Exercised   (3,900,000 )   0.50  
   Cancelled or Expired   (162,858 )   4.71  
Outstanding at March 31, 2018   4,030,059     0.79  
Warrants exercisable at March 31, 2018   3,900,000     0.60  

The following table summarizes information about stock warrants outstanding and exercisable at March 31, 2018:

STOCK WARRANTS OUTSTANDING AND EXERCISABLE

  Number of Weighted-Average
  Warrants Remaining Contractual
Exercise Price Outstanding Life in Years
$27.50 2,326 0.8
9.375 19,067 2.1
7.50 6,667 1.7
5.00 102,000 0.8
0.60 3,900,000 1.4

On October 22, 2014, the Company entered into a master lease agreement with Veterans Capital Fund, LLC (the “Lessor”) for a secured lease line of credit financing in an amount not to exceed $600,000. The lease was secured by three new alkaline generating electrolysis system machines. Our wholly-owned subsidiary, Alkaline 88, LLC, and Water Engineering Solutions, LLC acted as co-lessees. Water Engineering Solutions, LLC is an entity that is controlled and owned by our former President, Chief Executive Officer, director and major stockholder, Steven P. Nickolas, and our current President, Chief Executive Officer, director, and major stockholder, Richard A. Wright. Pursuant to the master lease agreement, the Lessor agreed to lease to us the equipment described in any equipment schedule signed by us and approved by the Lessor. The three leases under the master lease agreement were structured for a three-year lease term with fixed monthly lease rental payments based on a monthly lease rate factor of 3.4667% of the Lessor’s capital cost. In connection with the entering into the master lease agreement, the Company also entered into a warrant agreement with the Lessor, pursuant to which the Company agreed to issue a warrant to purchase 72,000 shares of our common stock to the Lessor and/or its affiliates at an exercise price of $6.25 per share for a period of five years.

On February 25, 2015, the Company amended the master lease agreement with Veterans Capital Fund, LLC for an increase in the secured lease line of credit financing to an amount not to exceed $800,000. The lease was secured by a new fourth alkaline generating electrolysis system machines. Our wholly-owned subsidiary, Alkaline 88, LLC, and Water Engineering Solutions, LLC acted as co-lessees. Water Engineering Solutions, LLC is an entity that is controlled and owned by our former President, Chief Executive Officer, director and major stockholder, Steven P. Nickolas, and our current President, Chief Executive Officer, director, and major stock holder, Richard A. Wright. Pursuant to the master lease agreement, the Lessor agreed to lease to us the equipment described in any equipment schedule signed by us and approved by the Lessor. Any lease under the master lease agreement will be structured for a three-year lease term with fixed monthly lease rental payments based on a monthly lease rate factor of 3.4667% of the Lessor’s capital cost. In connection with the entering into the master lease agreement, the Company entered into a warrant agreement with the Lessor, pursuant to which the Company agreed to cancel the previous issued warrant for 72,000 and issue a warrant to purchase 102,000 shares of our common stock to the Lessor and/or its affiliates at an exercise price of $5.00 per share for a period of five years. 18,000 shares vested on October 22, 2014, 13,316 shares on October 28, 2014, 13,606 shares on December 22, 2014, 6,945 shares on February 3, 2015 and 15,799 shares on March 5, 2015. The remaining 18,105 shares will vest on a pro rata basis according to any amounts the Lessor funds pursuant to any lease schedules under the master lease agreement, provided that if we draw on 90% or more of the total lease line under the master lease agreement, then all such shares will be deemed to be vested. The Company recorded the bifurcated value of $309,028 of the warrants issued as additional paid in capital, the value was determine using a Black-Scholes, a level 3 valuation measure.

The fair value of the warrants granted during the year ended March 31, 2018 was estimated at the date of agreement using the Black- Scholes option-pricing model and a level 3 valuation measure, with the following assumptions:

Market value of stock on purchase date $3.75 to $7.10
Risk-free interest rate . 26% to 1.42%
Dividend yield   0.00%  
Volatility factor 116% to 161%
Weighted average expected life (years)   2