Stockholders’ Equity

6 Months Ended

Jun. 30, 2020

Equity [Abstract]

Stockholders’ Equity

Note 7 – Stockholders’ Equity

Common Stock

Securities Purchase Agreement Dated May 11, 2020

On May 11, 2020, the Company and an institutional investor and existing Company shareholder (the “Investor”) entered into a securities purchase agreement (the “Purchase Agreement”) pursuant to which the Company agreed to sell to the Investor in a registered direct offering 2,400,000 shares of common stock, par value $0.001, and pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 3,260,377 shares of common stock, for gross proceeds of approximately $6 million and net proceeds of $5,950,010 after issuance costs. The purchase price for each share of common stock was $1.06 and the purchase price for each Pre-Funded Warrant was $1.05999. The exercise price for each Warrant was $0.001. Net proceeds from the sale were used to repurchase 262 shares of the Company’s Series E Preferred Stock, convertible into 1,048,000 shares of common stock currently held by the Investor at a repurchase price of $1.06 per share of common stock (see below). The Company expects to use the balance for working capital and general corporate purposes. The Company has increased net loss available to common stockholders’ in computing earnings per share for the excess of the consideration paid for the Series E Preferred Stock over its carrying value totaling $848,880.

Pursuant to the terms of the Purchase Agreement, the Company has agreed to certain restrictions on future stock offerings, including that during the 60-day period following the closing, the Company will not issue (or enter into any agreement to issue) any shares of common stock or common stock equivalents, subject to certain exceptions. The exercise price of the Warrants and the shares of the common stock issuable upon the exercise thereof will be subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Warrants. The Warrants will be exercisable on a “cashless” basis in certain circumstances.

Securities Purchase Agreement Dated June 24, 2020

On June 24, 2020, the Company and the Investor entered into a securities purchase agreement (the “Purchase Agreement”) pursuant to which the Company agreed to sell to the Investor in a registered direct offering 4,407,400 shares of common stock, par value $0.001, pre-funded warrants to purchase up to 1,956,236 shares of common stock, and warrants to purchase up to 2,455,476 shares of common stock at an exercise price of $1.35 per share (the “Warrants”), for gross proceeds of $7 million (which includes subsequent payment of the exercise price of the Pre-Funded Warrants in the amount of $1,956) and net proceeds of $6,950,000 after issuance costs. Upon exercise of the Warrants in full by the Investor, the Company would receive additional gross proceeds of $3,314,892. The shares of common stock underlying the Pre-Funded Warrants and the Warrants are referred to as “Warrant Shares.”

The purchase price for each share of common Stock is $1.10 and the purchase price for each Pre-Funded Warrant is $1.099. The exercise price for each Pre-Funded Warrant is $0.001. Net proceeds from the sale will be used for working capital, capital expenditures and general corporate purposes. The Shares, Pre-funded Warrants, Warrants and Warrant Shares are being offered by the Company pursuant to an effective shelf registration statement on Form S-3 (File No. 333-239157), which was declared effective on June 19, 2020.

Pursuant to the terms of the Purchase Agreement, the Company agreed to certain restrictions on future stock offerings, including that during the 75-day period following the closing, the Company will not issue (or enter into any agreement to issue) any shares of common stock or common stock equivalents, subject to certain exceptions, including if the consolidated closing price on the trading market on which the Company’s common stock is traded at the time is greater than $1.90 (adjusted for any subsequent stock splits or similar capital adjustments) for five consecutive trading days, the Company may issue such securities at not less than $1.90 per common stock Equivalent. The Investor has a right from the date of the Purchase Agreement until December 31, 2020 to participate in a subsequent financing by the Company or any of its Subsidiaries of common stock or common stock Equivalents for cash consideration, indebtedness or a combination of units thereof (a “Subsequent Financing”), in an amount equal to 50% of the Subsequent Financing on the same terms, conditions and price provided for in the Subsequent Financing.

The exercise price of the Prefunded Warrants and the Warrants and the number of Warrant Shares issuable upon the exercise thereof will be subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Prefunded Warrants and the Warrants. The Warrants will be exercisable on a “cashless” basis only in the event there is no effective registration statement registering, or the prospectus contained therein is not available for the sale of the shares underlying the Warrants. The Pre-Funded Warrants allow for cashless exercise at any time. The Pre-Funded Warrants and the Warrants each contain a beneficial ownership limitation, such that none of such Pre-Funded Warrants nor the Warrants may be exercised, if, at the time of such exercise, the holder would become the beneficial owner of more than 9.99% of our outstanding shares of common stock following the exercise of such Pre-Funded Warrant or Warrant.

Issuances of Stock

On April 13, 2020, the Company issued in connection with the 2019 Executive Compensation Plan, 100,000 restricted shares to Mr. Barrett Mooney and 70,000 restricted shares to Ms. Nicole Fernandez-McGovern. The Company recognized a total of $59,500 of expense at a fair value of $0.35 per share within stock compensation costs related to these issuances.

On June 30, 2020, the Company issued in connection with a consulting agreement, dated May 3, 2019, 250,000 shares of its common stock to the consulting company as a part of their compensation for services. The Company recognized a total of $297,500 of expense at a fair value of $1.19 per share within general and administrative costs related to these issuances.

Series C Preferred Stock

As a result of the Merger, the Company’s Series C Convertible Preferred Stock (the “Series C Preferred Stock”) included 2,879 of remaining shares after the conversion and retirement of all the Company’s promissory notes due. These shares were convertible into 1,471,425 shares of the Company’s common stock. Furthermore, an additional 4,000 shares of Series C Preferred Stock were issued and were convertible into 3,020,797 shares of the Company’s common stock, as they were issued to the current holder of Series C Preferred Stock in connection with a $4 million financing of Series C Preferred Stock (the “Financing”).

On May 11, 2018, the Company issued an additional 250 shares of our Series C Preferred Stock, convertible into 163,265 shares of common stock and received a cash payment of $250,000 for the issuance of the Series C Preferred Stock. The Series C Preferred Stock included a beneficial ownership limitation preventing conversion of shares of Series C Preferred Stock into more than 9.99% of the number of shares of our common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Series C Preferred Stock.

Each share of Series C Preferred Stock was convertible into a number of shares of common stock equal to the quotient determined by dividing (x) the stated value of $1,000 per share, by (y) an original conversion price of $1.53. Until the volume weighted average price of common stock on NYSE exceeds $107.50 with average trading volume of 200,000 shares per day for ten consecutive trading days, the conversion price of Series C Preferred Stock was subject to full-ratchet, anti-dilution price protection. Under that provision, if, while that full-ratchet, anti-dilution price protection is in effect, the Company issues shares of common stock at a price per share (the “Dilutive Price”) that is less than the conversion price, then the conversion price of the Series C Preferred Stock is automatically reduced to be equal to the Dilutive Price. The effect of that reduction is that, upon the issuance of shares of common stock at a Dilutive Price, the Series C Preferred Stock would be convertible into a greater number of shares of common stock.

The Series C preferred stock anti-dilution protection was initially triggered on December 27, 2018 as a result of the Company issuing the Series D Preferred Stock, (the “Series D Preferred Stock”) as described below. The Series D Preferred Stock had a $0.54 conversion price thereby qualifying as a subsequent equity offering at a price less than $1.53. 

On April 7, 2020, upon the issuance of the Series E Preferred Stock, (the “Series E Preferred Stock”) offering (see below), a subsequent anti-dilution provision was triggered for the Series C Preferred Stock whereby the conversion price was further adjusted from $0.54 per share to $0.25 per share (a “Down Round), which resulted in approximately 13,248,000 shares of common stock being issuable upon conversion of the remaining Series C Preferred Stock. As a result of this Down Round being triggered, the Company recorded a deemed dividend in the amount of $3,841,920 representing the intrinsic spread between the previous conversion price of $.54 and the adjusted conversion price of $.25 multiplied by approximately 13,248,000 common stock shares issuable upon conversion. The deemed dividend was recorded as a reduction of retained earnings and increase in additional paid-in-capital and increased the net loss to common stockholders by the same amount in computing earnings per share.

 During the month of January 2020, Alpha Capital Anstalt (“Alpha”) converted 189 shares of Series C Preferred Stock into 350,000 shares of common stock at a conversion price of $0.54. During the month of April 2020, Alpha converted 3,312 shares of Series C Preferred Stock into 13,247,984 shares of common stock at a conversion price of $0.25.  As of June 30, 2020, no Series C Preferred Stock remain issued and outstanding.

Series D Preferred Stock

 On December 27, 2018, the Company entered into a Securities Purchase Agreement (the “Agreement”) with Alpha. Pursuant to the terms of the Agreement, the Board of Directors of the Company (the “Board”) designated a new series of preferred stock by filing a certificate of designation, the Series D Preferred Stock, which is non-convertible and provides for an 8% annual dividend and is subject to optional redemption by the Company. The Company issued 2,000 shares of Preferred Stock and a warrant to purchase 3,703,703 shares of common stock, par value $0.001 per share (the “Warrant,” and the shares of common stock underling the warrants, the “Warrant Shares”) for $2,000,000 in gross proceeds. The Company also entered into a Registration Rights Agreement, granting registration rights to Alpha with respect to the Warrant Shares.

The Agreement provides that upon a subsequent financing or financings with net proceeds of at least $500,000, the Company must exercise its optional redemption of the Preferred Stock (as more fully described below in Item 5.03) and apply any and all net proceeds from such financing(s) to the redemption in full of the Preferred Stock.

The Preferred Stock is non-convertible, provides for an 8% annual dividend payable semi-annually and has liquidation rights senior to the common stock, but pari passu with the Company’s Series C Preferred Stock. During the six months ended June 30, 2020 and 2019, the Company recorded $69,778 and $80,444 of accrued dividends, respectively.

The Preferred Stock has no voting rights, except that the Company shall not undertake certain corporate actions as set forth in the Certificate of Designation that would materially impact the holders of Preferred Stock without their consent.

 The Preferred Stock is subject to optional redemption by the Company at 115% of the stated value of the Preferred Stock outstanding at the time of such redemption, plus any accrued but unpaid dividends and all liquidated damages or other amounts due. Any such optional redemption may only be exercised after giving notice and upon satisfaction of certain equity conditions set forth in the Certificate of Designation, including (i) all dividends, liquidated damages and other amounts have been paid; (ii) there is an effective registration statement covering the Warrant Shares, or the Warrant Shares can be exercised through a cashless exercise without restriction under Rule 144, (iii) the Warrant Shares are listed on an exchange, (iv) the holder is not in possession of material, non-public information, (v) there is a sufficient number of authorized shares for issuance of all Warrant Shares, and (vi) for each trading day in a period of 20 consecutive trading days prior to the redemption date, the daily trading volume for the common stock on the principal trading market exceeds $200,000 per trading day.

On April 7, 2020, upon the issuance of the Series E Preferred Stock, (the “Series E Preferred Stock”) offering (see below), a subsequent anti-dilution provision was triggered for the Series D Warrants whereby the exercise price of the Warrant Shares was adjusted from $0.54 to $0.25 per share (a “Warrant Down Round). Upon the Warrant Down Round being triggered, the Company recognized $208,918 of a deemed dividend for the difference between the fair value of the original warrants right before modification and the fair value of the modified warrants. The fair value of the warrants was determined using the Black-Scholes option-pricing model based on the following assumptions: expected life of 3.5 years, expected dividend rate of 0%, volatility of 90.0%, and an interest rate of 0.29%. The deemed dividend to the preferred stockholders was a recorded as additional paid in capital and a reduction of retained earnings and as an increase to net loss attributable to common stockholders in computing earnings per share.

On June 5, 2020, the Company and Alpha entered into a letter agreement whereby they agreed to amend the Original Series D Preferred Stock, and terminate the Purchase Agreement. Alpha is a current holder of less than 10% of the Company’s issued and outstanding common stock and has no material relationship with the Company.

On June 5, 2020, the Board of Directors of the Company approved an amendment to the Original Series D Preferred Stock Certificate of Designation for Nevada Profit Corporations with the Secretary of State of the State of Nevada (the “Original Series D Preferred Stock Certificate of Designation”). The amendment among other things, (i) provided for the ability of the Holder to convert the Original Series D, including all accrued, but unpaid dividends on the Original Series D, into shares of common stock, par value $0.001 per share of the Company, (ii) set a conversion price at $0.54 per share (subject to customary adjustments), and (iii) increased the stated value of the Original Series D from $1,000 to $1,116.67. The Amended and Restated Certificate of Designation of the Series D Preferred Stock was filed with the Secretary of the State of Nevada effective as of June 8, 2020.

The holder of the Original Series D approved the amendment to the Original Series D. There is no class or series of stock which is senior to the Original Series D as to the payment of distributions upon dissolution of the Company, and therefore the approval of any other class or series of stock of the Company to the amendments to the Original Series D Preferred Stock Certificate of Designation is not required pursuant to Nevada law.

On the date of the above amendment to the Original Series D Preferred Stock the fair value of the Company’s common stock price was $1.45 which is higher than the effective conversion price of $0.54 that was agreed to on June 5^th, 2020. Due to the modification of the Series D Preferred Stock, the Company recorded a deemed dividend of $3,763,591 representing the intrinsic value of $.91 multiplied by the number of common stock shares to be issued upon conversion. The deemed dividend to the preferred stockholders was a recorded as additional paid in capital and a reduction of retained earnings and has an increase to net loss attributable to common stockholders in computing earnings per share

During the three months ended June 30, 2020, the Series D Preferred Stockholders converted 1,890 shares of Series D Preferred Stock and outstanding accrued dividends totaling $233,333 into 3,500,000 shares of common stock at a conversion price of $0.54. As of June 30,2020, and December, 31, 2019, accumulated accrued dividends totaled $0 and $163,555, respectively, as presented on the condensed interim consolidated balance sheets.

 Series E Preferred Stock

On April 7, 2020 the Company entered into a Securities Purchase Agreement with Alpha, pursuant to the terms of the Agreement, the Board of Directors of the Company authorized 1,050 shares of a newly designated series of preferred stock, the Series E Convertible Preferred Stock. The Preferred Stock was convertible at $0.25 per share into an aggregate of 4,200,000 shares of the common stock, par value $0.001 per share. The purchase price for the Preferred Stock was $1,050,000 of which the Company received net proceeds of $1,010,000. The Preferred Stock has liquidation rights senior to the common stock, but pari passu with the Series C Preferred Stock and the Series D Preferred Stock. The Preferred Stock has no voting rights. The conversion price adjusts for stock splits and combinations and is subject to anti-dilution protection for subsequent equity issuances until such time as no shares of Series E Preferred Stock are outstanding. The Certificate of Designation of the Series E Convertible Preferred Stock was filed with the State of Nevada on April 2, 2020.The Company also entered into a Registration Rights Agreement, granting registration rights to Alpha with respect to the Conversion Shares and common stock underlying warrants currently owned by Alpha.

On the date that the Series E Preferred Stock was consummated the fair value of the Company’s common stock price was $0.37 which is higher than the effective conversion price of $0.25 that was agreed to on April 7^th, 2020. As a result, the Company recognized a beneficial conversion feature (“BCF”) of $378,240 on 788 of Preferred Shares representing the intrinsic value of $.12 multiplied by the number of common stock shares to be issued upon conversion. The remaining amount of 262 shares was repurchased as described below. The discount to the Series E Preferred Stock resulting from the BCF has been presented as an increase to net loss attributable to common stockholders in computing earnings per share.

On May 11, 2020, we entered into a Securities Purchase Agreement for the sale of common stock as described above with Alpha whereby we agreed to repurchase 262 shares of Series E Preferred Stock with the proceeds from the new issuance. The repurchase of the Preferred Series E Stock was convertible into 1,048,000 shares of common stock at a repurchase price of $1.06 per share. The Company has increased net loss available to common stockholders’ in computing earnings per share for the excess of the consideration paid for the Series E Preferred Stock over it’s carrying value totaling $848,880.

Filing of Registration Statement

Pursuant to the terms of the Registration Rights Agreement executed on April 7, 2020, the Company filed an initial registration statement registering the Conversion Shares and the Warrant Shares on April 27, 2020. The Company’s registration statement was declared effective May 6, 2020.

Options

On March 26, 2018, the EnerJex 2017 Omnibus Equity Incentive Plan (the “Plan”) became effective. Under the Plan, the Company can grant equity-based and other incentive awards to officers, employees and directors of, and consultants and advisers to, the Company. The purpose of the Plan is to help the Company attract, motivate and retain such persons and thereby enhance shareholder value. The Plan shall continue in effect, unless sooner terminated, until the tenth (10th) anniversary of the date on which it is adopted by the Board of Directors (except as to awards outstanding on that date). The Board of Directors in its discretion may terminate the Plan at any time with respect to any shares for which awards have not theretofore been granted; provided, however, that the Plan’s termination shall not materially and adversely impair the rights of a holder, without the consent of the holder, with respect to any award previously granted.

On July 15, 2020 the Company held its 2020 annual meeting of stockholders and approved a proposal to increase the number of shares of common stock reserved for issuance under the Plan from 3,000,000 to 4,000,000. To the extent that an award lapses, expires, is canceled, is terminated unexercised or ceases to be exercisable for any reason, or the rights of its holder terminate, any shares subject to such award shall again be available for the grant of a new award. The number of shares for which awards which are options or SARs may be granted to a participant under the Plan during any calendar year is limited to 500,000. For purposes of qualifying awards as “performance-based” compensation under Code Section 162(m), the maximum amount of cash compensation that may be paid to any person under the Plan in any single calendar year shall be $500,000.

During the six months ended June 30, 2020, the Company issued options to purchase 296,167 shares of common stock, in the aggregate, to directors and employees of the Company at the fair value exercise price ranging from $0.41 to $1.27 per share expiring on dates between March 30, 2025 and June 29, 2025. The Company determined the fair-market value of the options to be $177,402. In connection with the issuance of these options to employees and directors, the Company recognized $2,686 in stock compensation expense for the three and six months ended June 30, 2020. During the three and six months ended June 30, 2020, the Company recognized $9,636 and $64,271, respectively, in stock compensation expense in connection with options issued to employees and directors.

During the six months ended June 30, 2019, the Company issued options to purchase 602,000 shares of common stock, in the aggregate, to directors and employees of the Company at the fair value exercise price ranging from $0.29 to $0.54 per share expiring on dates between December 31, 2023 and March 28, 2029. The Company determined the fair-market value of the options to be $166,756. In connection with the issuance of these options to employees and directors, the Company recognized $14,545 and $16,488, respectively in stock compensation expense for the three and six months ended June 30, 2019.

The fair value of options granted during the six-month periods ending June 30, 2020 and 2019 were determined using the Black-Scholes option valuation model. The expected term of options granted is based on the simplified method in accordance with Securities and Exchange Commission Staff Accounting Bulletin 107 and represents the period of time that options granted are expected to be outstanding. The Company makes assumptions with respect to expected stock price volatility based on the average historical volatility of peers with similar attributes. In addition, the Company determines the risk-free rate by selecting the U.S. Treasury with maturities similar to the expected terms of grants, quoted on an investment basis in effect at the time of grant for that business day.

The significant weighted average assumptions relating to the valuation of the Company’s stock options granted during the six months ended June 30, 2020 were as follows:

	June 30, 2020
Dividend yield		0.00	%
Expected life		3.5 Years
Expected volatility		90.09	%
Risk-free interest rate		0.29	%

A summary of the options activity for the six months ended June 30, 2020 is as follows:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2020		2,480,470		$	0.39		6.28	$	378,111
Granted		296,167			0.99		4.95		—
Exercised/Forfeited		(226,250	)		1.65		—		—
Outstanding at June 30, 2020		2,550,387			0.35		5.91	$	2,162,940
Exercisable at period end		1,609,175		$	0.22		5.69	$	1,559,751

For options granted during the six months ended June 30, 2020, the fair value of the Company’s stock was based upon the close of market price on the date of grant. As of June 30, 2020, the future expected stock-based compensation expense to be recognized in future years is $333,199, through June 30, 2022.

Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) or at June 30, 2020 (for outstanding options), less the applicable exercise price.

A summary of the options activity for the six months ended June 30, 2019 is as follows:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2019		1,494,158		$	0.46		6.93	$	409,678
Granted		602,000			0.41		8.08		—
Exercised/Forfeited		(70,438	)		0.49		—		—
Outstanding at June 30, 2019		2,025,720			0.44		6.97		215,883
Exercisable at period end		1,218,544		$	0.34		6.57	$	208,659