Stockholders' Equity (Deficit)

9 Months Ended

Sep. 30, 2022

Equity [Abstract]

Stockholders' Equity (Deficit)

NOTE 11: STOCKHOLDERS’ EQUITY (DEFICIT)

On July 19, 2021, the Company filed a Certificate of Amendment with the State of Nevada to change the par value of all common and preferred stock to all be $0.0001. All changes to the par value dollar amount for these classes of stock and adjustment to additional paid in capital have been made retroactively.

Preferred Stock

The Company has 50,000,000 shares of preferred stock authorized. The Company has designated a Series A Preferred Stock, Series B Preferred Stock and as of July 16, 2021, designated a Series C Preferred Stock.

Series A Preferred Stock

The Company has designated 10,000,000 shares of Series A Preferred Stock, par value of $0.0001. As of September 30, 2022 and December 31, 2021, the Company has 5,875,000 shares of Series A Preferred Stock issued and outstanding, respectively. The 5,875,000 shares were issued to former officers of the Company in settlement of debt.

On April 7, 2022, the Company amended the Certificate of Designation for its Series A Preferred Stock to (a) provide for an annualized dividend of $0.0125 per share  to be paid monthly; (b) amend the conversion ratio for each share of Series A Preferred Stock to convert into 2 shares of common stock instead of 20 shares of common stock; and (c) provide for the Company to have the option to repurchase the Series A Preferred Stock at any time at a price of $1 per share. In connection with the Amendment to the Certificate of Designation, the former officers entered into a letter agreement dated April 4, 2022 with Crom and the Company for Crom to purchase 1,750,000 shares of Common Stock from the former officers for $455,000, the proceeds of which were paid directly to the former officers. The letter agreement also provided for the former officers to sell certain amounts of the common stock they own through the date of the public offering.

For the nine months ended September 30, 2022, the Company recognized $36,719 in Series A dividends, of which $30,569 has been paid as of September 30, 2022.

Series B Preferred Stock

The Company has designated 10,000,000 shares of Series B Preferred Stock, par value of $0.0001. As of September 30, 2022 and December 31, 2021, the Company has 3,075,000 and 3,610,000 shares of Series B Preferred Stock issued and outstanding, respectively. The 3,610,000 shares were issued to directors of the Company and a third party in June 2019. Each share of Series B Preferred Stock converts into 5 shares of common stock and has 10,000 votes per preferred share.

In the nine months ended September 30, 2022, there were 535,000 shares of Series B Preferred Stock converted into 2,675,000 common shares.

Series C Preferred Stock

The Company has designated 10,000,000 shares of Series C Preferred Stock, par value of $0.0001 (effective July 19, 2021).

In the nine months ended September 30, 2022, the Company raised $150,000 for 150,000 shares of Series C Preferred Stock along with 15,000 common shares. In the year ended December 31, 2021, the Company raised $620,000 for 620,000 shares of Series C Preferred Stock along with 62,000 common shares.

Each share of the Series C Preferred Stock is convertible into 0.625 common shares, and the Series C Preferred Stock pays a $.06 dividend per Series C Preferred share. The dividend commenced accruing when the Series C Preferred Shares were fully designated and issued.

For the nine months ended September 30, 2022, the Company has preferred stock dividends recognized of $33,825 of which all have been paid as of September 30, 2022. The holders of the Series C Preferred Stock under their subscription agreements were issued 0.1 of a share of common stock for each share of preferred stock which they purchased. As a result, the Company issued 77,000 common shares for the 770,000 Series C Preferred shares purchased.

Common Stock

The Company has 3,000,000,000 shares of common stock, par value $0.0001 authorized. The Company has 24,788,132 and 19,960,632 shares issued and outstanding as of September 30, 2022 (unaudited) and December 31, 2021, respectively.

The Company issued the following common shares in the nine months ended September 30, 2022:

The Company issued 15,000 shares of common stock in accordance with the Series C Preferred Stock subscription agreements.

The Company issued 15,000 shares of common stock in the exercise of stock options.

The Company issued 7,500 shares of common stock that vest over twelve months to an advisory board member.

The Company issued 2,675,000 shares of common stock in conversion of 535,000 Series B Preferred shares.

The Company issued 125,000 shares of common stock to Crom for entering into the SPA. The Company expensed this as a financing fee and include the amount in interest expense in the condensed consolidated statements of operations for the nine months ended September 30, 2022; and 125,000 shares of common stock for entering into the Eisiminger note.

The Company issued 1,250,000 shares of common stock to Crom for $500,000 cash.

The Company issued 600,000 shares of common stock as described in Note 3, “Acquisitions” to the selling shareholder of LSG.

The Company issued 15,000 shares of common stock for services to vendors.

The Company issued the following common shares in the year ended December 31, 2021:

The Company issued 1,114,023 common shares in the acquisition of MFSI which were issued April 29, 2021 and June 15, 2021. In addition, upon the issuance of these shares the Company has cancelled 250,000 shares on May 12, 2021 that were previously issued to MFSI and returned those shares to treasury, with a reduction to equity of $400,000.

On August 6, 2021, the Company issued 500,000 shares in the acquisition of Merrison, and on August 25, 2021, the Company issued 2,600,000 shares in the acquisition of SSI. The Company issued 32,095 additional shares in October 2021 for payment of the working capital surplus delivered to the Company in the SSI acquisition.

In September through December 2021, the Company issued 62,000 shares of common stock in accordance with the Series C Preferred Stock subscription agreements.

In November 2021, the Company issued 481,250 shares of common stock in the SSI acquisition of certain assets of The Albers Group LLC.

In December 2021, 10,000 shares of common stock were issued in the exercise of stock options for $8,000.

Warrants

The following represents a summary of warrants for the nine months ended September 30, 2022 and the year ended December 31, 2021:

	Nine Months Ended September 30, 2022				Year Ended December 31, 2021
	Number		Weighted Average Exercise Price		Number		Weighted Average Exercise Price
Beginning balance		3,161,568	$	1.60		1,090,717	$	0.00
Granted		1,017,268		2.60		2,070,851		2.40
Exercised Cashless		-		-		-		-
Forfeited		-		-		-		-
Expired		-		-		-		-
Ending balance		4,178,836	$	1.79		3,161,568	$	1.60
Warrants exercisable		4,178,836				3,161,568
Intrinsic value of warrants	$	10,468,925			$	5,706,473
Weighted Average Remaining Contractual Life (Years)		5.26

During the nine months ended September 30, 2022, the Company granted 361,017 warrants to two of its officers at $3.80 per share that expire May 2, 2029 valued at $1,603,219 as well as 656,250 warrants with an exercise price of $1.84 that expire April 4, 2027 to Crom as part of the SPA with them dated April 4, 2022, and during the nine months ended September 30, 2021, the Company granted 130,000 warrants to two of its officers at $1.60 per share that expire January 20, 2028 valued at $188,186. The warrants were issued as part of a bonus achieved under the respective employment agreements for two of the officers of the Company. On August 20, 2021, the Company granted 320,000 (160,000 each) warrants to two of its officers at $3.40 per share that expire August 20, 2028 valued at $775,792 ($387,896 each), and on August 20, 2021, the Company granted to the same two officers 1,450,850 (725,425 each) warrants at $2.00 per share that expire August 20, 2028 valued at $2,070,624 ($1,035,312 each). These were warrants granted pursuant to the terms of their employment agreements as a bonus for the acquisition of both Merrison and SSI.

All of the warrants have been fully expensed through September 30, 2022.

Options

The Company on November 9, 2021, approved the Stock Incentive Plan, that authorizes the Company to grant up to 2,500,000 shares. Prior to this date, the granting of options was not done in accordance with a stock option plan. As of September, 30, 2022 no stock options have been granted under the Stock Incentive Plan.

The following represents a summary of options for the nine months ended September 30, 2022 and the year ended December 31, 2021:

	Nine Months Ended September 30, 2022						Year Ended December 31, 2021
	Number			Weighted Average Exercise Price			Number			Weighted Average Exercise Price
Beginning balance		4,594,688		$	2.094			1,856,250		$	0.80
Granted		2,535,000			3.60			4,087,500			2.40
Exercised		(15,000	)		(0.80	)		(10,000	)		(0.80	)
Forfeited		(289,688	)		(0.60	)		(1,339,062	)		(0.60	)
Expired		-			-			-			-
Ending balance		6,825,000		$	0.1368			4,594,688		$	2.094
Vested options		1,610,506						1,410,938
Nonvested options		5,214,494						3,183,750
Intrinsic value of options	$	12,876,650					$	6,140,313
Weighted Average Remaining Contractual Life (Years)		6.14						6.21

Stock based compensation expense for the nine months ended September 30, 2022 and 2021 was $3,131,993 and $2,271,097, respectively, which is comprised of $2,733,718 and $929,384 in service-based grants and $398,275 and $1,341,713 in performance-based grants, for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, there remains unrecognized stock-based compensation expense related to these grants of $15,647,325 comprising of $11,894,583 in service-based grants and $3,752,742 in performance-based grants, respectively. The vesting of these grants run through December 2026. The Company uses the Black-Scholes method for valuing the expense related to the grants. See below for the criteria used for each of the respective periods.

For the Nine Months Ended September 30, 2022

In January 2022, the Company granted a total of 725,000 stock options to four individuals as follows: (a) 50,000 service based options vest over 12 months at a strike price of $3.40 per share for a period of 7 years (expire December 31, 2028); (b) 25,000 service based options vest immediately at a strike price of $3.40 per share for a period of 7 years (expire December 31, 2028); (c) 150,000 options (75,000 service based options that vest over four years; and 75,000 performance based options that vest upon the successful implementation of an ERP) at a strike price of $3.40 per share for a period of 7 years (expire December 31, 2028); and (d) 500,000 options (250,000 service based options that vest over 42 months; and 250,000 performance based options that vest upon Corvus achieving an annualized run rate of $18,000,000 and net income of 7%) at a strike price of $3.40 per share for a period of 7 years (expire December 31, 2028).

On February 15, 2022, 15,000 stock options were exercised for $12,000.

In April 2022, the Company granted a total of 1,810,000 stock options to two individuals as follows: (a) 10,000 stock options at a strike price of $3.40 for a period of 7 years (expire March 31, 2029) to a consultant that vested upon the completion of the services he provided in completion of the year end audit; and (b) 1,800,000 stock options to our Chief Financial Officer at a strike price of $3.80 for a period of 7 years (expire April 24, 2029).

For the Nine Months Ended September 30, 2021

In January 2021, the Company granted 150,000 stock options to advisors (125,000) and an employee (25,000), that are service-based options that vest over a one-year period. The options have a strike price of $1.60 per share and expire seven years from the grant date (December 31, 2027).

In February 2021, the Company granted an advisor 50,000 stock options that are service-based options that vest immediately. The options have a strike price of $1.00 per share and expire seven years from the grant date (February 20, 2028).

In March 2021, the Company granted an advisor 50,000 stock options that are service-based options that vest over a one-year period. The options have a strike price of $1.80 per share and expire seven years from the grant date (March 11, 2028).

In April 2021, the Company granted an advisor 150,000 stock options that are that are half time-based and half performance-based options at a strike price of $1.80 per share. These options expire in seven years on March 31, 2028.

In July 2021, the Company granted the Chief Growth Officer 1,500,000 stock options that are half time based and half performance-based options at a strike price of $1.60 per share under his employment agreement. These options expire in seven years on June 30, 2028. The breakout of the 1,500,000 stock options are as follows: 750,000 are considered time based grants over a vesting period of four years; and 750,000 are performance based grants as follows: (a) 250,000 upon the closing of an acquisition in the Navy division of a company with annualized revenue of $12 million or greater; (b) 250,000 upon the Navy division achieving $25 million in revenue and $2.5 million in EBITDA in any 12 month period; and (c) 250,000 upon the overall Company achieving $100 million in revenue run rate based on quarterly performance (i.e. $25 million in any calendar quarter).

In August 2021, the Company granted 12,500 options at an exercise price of $3.40 per share to a consultant of MFSI for services performed. These options vested immediately, and mature August 31, 2028.

In September 2021, the Company granted to the former owner of Merrison, 150,000 stock options (effective August 6, 2021) that are half time based and half performance-based options at an exercise price of $3.40 per share under his employment agreement. These options expire in seven years on August 6, 2028. The breakout of the options are as follows: 75,000 are considered time-based grants over a three-year period, and 75,000 are performance-based grants as follows: (a) 25,000 upon the Company growing revenue and EBITDA at 15% per year; (b) 25,000 by maintaining net margin of at least 15%; and (c) 25,000 if he fills any open employee requisition within 45 calendar days of open position.

In September 2021, the Company granted 900,000 stock options (effective August 12, 2021) to three key employees of SSI that are half time-based and half performance-based. The time-based options vest over 48 months, and each of the three employees has specific criteria based on their positions. These options expire August 10, 2028.

Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each option/warrant is estimated using the Black-Scholes valuation model. The following assumptions were used for the periods as follows:

	Nine Months Ended September 30, 2022			Year Ended December 31, 2021
Expected term		7 years			7 years
Expected volatility		114 – 126	%		135 – 177	%
Expected dividend yield		-			-
Risk-free interest rate		2.00 – 2.85	%		0.10	%