Preferred Stock and Common Stock

6 Months Ended

Mar. 31, 2016

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

Note 6. Preferred Stock and Common Stock

Preferred Stock - Our board of directors has the authority to designate and issue up to 5,000,000 shares of $0.001 par value preferred stock in one or more series, and to fix and determine the relative economic rights and preferences of preferred shares any or all of which may be greater than the rights of our common stock, as well as the authority to issue such shares without further stockholder approval. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders preferred rights to our assets upon liquidation, the right to receive dividends before dividends are declared to holders of our common stock, and the right to the redemption of such preferred shares, together with a premium, prior to the redemption of the common stock. In addition, shares of preferred stock could be issued with terms calculated to delay or prevent a change in control or make removal of management more difficult. As of March 31, 2016, we had one class of preferred stock designated; 2,222,022 shares as Series B preferred stock, leaving 2,777,978 shares of undesignated preferred stock.

Series B Preferred Stock - As of March 31, 2016 and September 30, 2015, we have 1,198,236 and 1,203,576 shares of Series B preferred stock issued and outstanding, respectively. Holders of Series B have no redemption rights and each share of Series B is entitled to interest at a simple interest rate of 6% per annum. Series B is convertible, at the discretion of our management, into shares of our common stock, except that the holders of the Series B may elect to convert the Series B into common stock upon or after the resignation or termination of our Chief Executive Officer. The number of shares of common stock issuable upon conversion is calculated by (i) multiplying the number of Series B being converted by the per share purchase price received by the Company for such Series B , and then, multiplying such number by 130% and then dividing this calculated value by the average closing bid price, as defined, or by (ii) first, allocating the Series B proportionately according to the amounts by date of individual cash tranches received by the Company then, second, multiplying the number of Series B being converted, identified by tranche, by the per share purchase price received by the Company for such Series B, and then, multiplying such number or numbers by 130% and, finally, dividing the calculated value(s) by the average closing bid price, as defined. The holders of the Series B are entitled to vote with the holders of our common stock with the number of votes equal to the number of common shares available by conversion to the holders of the Series B. We have the right to redeem the Series B in cash at the face amount plus any accrued, but unpaid dividends.

During the six months ended March 31, 2016, we issued 73,779 shares of Series B preferred stock to Summit Trading Limited at a price per share of $1 for gross cash proceeds of $73,779.

During the six months ended March 31, 2016, we issued 89,875 shares of Series B preferred stock to Sierra Trading Corp at a price per share of $1 for gross cash proceeds of $89,875.

During the six months ended March 31, 2016, the Company opted to convert 83,000 of Series B Preferred Stock together with accrued dividends of $9,446, held by Sierra Trading Corp. into 66,030,614 shares of common stock.

During the six months ended March 31, 2016, the Company opted to convert 85,994 of Series B Preferred Stock together with accrued dividends of $8,562, held by Summit Trading Limited into 69,842,046 shares of common stock.

Pursuant to the terms of the Certificate of Designation of Series B Preferred Stock, redeemed shares are returned to the Company’s general designated pool of preferred stock. As of March 31, 2016, there were 1,023,786 shares remaining of Series B Preferred Stock available for issue.

Common Stock - We are authorized to issue up to 5.4 billion shares of $0.001 par value common stock. Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the holders of our common stock. Subject to the rights of the holders of any class of our capital stock having any preference or priority over our common stock, the holders of shares of our common stock are entitled to receive dividends that are declared by our board of directors out of legally available funds. In the event of our liquidation, dissolution or winding up, the holders of our common stock are entitled to share ratably in our net assets remaining after payment of liabilities, subject to prior rights of preferred stock, if any, then outstanding. Our common stock has no preemptive rights, conversion rights, redemption rights, or sinking fund provisions, and there are no dividends in arrears or in default. All shares of our common stock have equal distribution, liquidation and voting rights and have no preferences or exchange rights.

Long-term incentive compensation plan - Our Long Term Incentive Compensation Plan (the “Plan"), as restated, was approved by shareholders in July 2014. The Plan is administered by our board of directors. In July 2014, shareholders also approved an automatic share reserve increase by an amount equal to ten (10%) percent of the common shares available for issuance under the Plan beginning on August 1, 2014, and on each August 1st of the next nine (9) years. The aggregate number of shares available for issuance under the Plan is 393,250,000 as of March 31, 2016. We have granted stock options under the Plan to employees, members of our board of directors, advisors and consultants. No options have been exercised. Options are exercisable for ten years from date of grant.

The following table summarizes stock option activity for the six months ended March 31,2016:

	Options Outstanding	Weighted Average Exercise Price
Outstanding at September 30, 2015	232,446,007	$	0.00670
Granted	-		-
Exercised	-		-
Expired	(7,500)		6.67000
Forfeited	(6,150,000)		0.01215
Cancelled	-		-
Outstanding at March 31, 2016	226,288,507	$	0.0053
Exercisable at March 31, 2016	223,983,507	$	0.0053

As of March 31, 2016, the aggregate intrinsic value of options outstanding and options vested, representing the excess of the closing market price of our common stock over the exercise price, are both zero. As of March 31, 2016, we had $20,132 of total unrecognized compensation cost related to unvested options. Unrecognized compensation cost is to be recognized over 19 months with the majority to be recognized in the next fiscal year. We determine the value of share-based compensation using the Black-Scholes-Merton fair value option-pricing model. There were no options granted during the six months ended March 31, 2016.

Warrants – At March 31, 2016, there were warrants outstanding for the purchase of 499,066,382 shares of our common stock at a weighted average exercise price of $0.006 per share.

On November 20, 2015, we issued warrants to purchase 1,000,000, shares of common stock at an exercise price of $0.01 per share, in conjunction with an appointment on an individual to the Company’s Strategic Advisory Board. The warrants vested 100% at the time of issuance.

On December 17, 2015, we issued warrants to purchase 1,000,000, shares of common stock at an exercise price of $0.01 per share, to a consultant in conjunction with a consulting agreement. The warrants vested 100% at the time of issuance.

During the three months ending March 31, 2016, we issued warrants to purchase 12,000,000, shares of common stock at an exercise price of $0.0016 per share and 13,000,000, shares of common stock at an exercise price of $0.0029 per share , to consultants in conjunction with consulting agreements. The warrants vested 100% at the time of issuance.

The fair value of the warrants issued was calculated using the Black-Scholes-Merton model. Warrants outstanding at March 31, 2016 expire at various dates from May 2016 to June 2022. A summary of warrant activity during the six months ended March 31, 2016 follows:

	Warrants Outstanding
Outstanding at September 30, 2015	477,542,486
Granted	27,000,000
Exercised	-
Cancelled	-
Expired	(5,476,104)
Outstanding at March 31, 2016	499,066,382

- Definition

The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.

+ References

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Reference 14: http://www.xbrl.org/2003/role/presentationRef
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+ Details

NEAH POWER SYSTEMS, INC. 10-Q