The accompanying notes are an integral part of these condensed financial statements.
The accompanying notes are an integral part of these condensed financial statements.
The accompanying notes are an integral part of these condensed financial statements.
Notes to Condensed Financial Statements
March 31, 2017
Note A - Basis of presentation, Background and Description of Business
Basis of presentation
The accompanying unaudited condensed financial statements of SMSA Crane Acquisition Corp. have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or the SEC, including the instructions to Form 10-Q and Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, they do not include all the information and notes necessary for comprehensive financial statements and should be read in conjunction with our audited financial statements for the year ended December 31, 2016, included in our Annual Report on Form 10-K for the year ended December 31, 2016.
In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the six month period have been made. Results for the interim period presented are not necessarily indicative of the results that might be expected for the entire fiscal year. When used in these notes, the terms "Company", "we", "us" or "our" mean SMSA Crane Acquisition Corp.
Background and Description of Business
SMSA Crane Acquisition Corp. was organized on September 9, 2009 as a Nevada corporation to effect the reincorporation of Senior Management Services of Crane, Inc., a Texas corporation, mandated by the plan of reorganization discussed below.
The Company's emergence from Chapter 11 of Title 11 of the United States Code on August 1, 2007 caused a change in majority ownership and voting control - that is, loss of control by the then-existing stockholders, a court-approved reorganization, and a reliable measure of the entity's fair value - resulting in a fresh start, creating, in substance, a new reporting entity. Accordingly, the Company, post-bankruptcy, had no significant assets, liabilities or operating activities. Therefore, the Company, as a new reporting entity, qualified as a shell company as defined in Rule 405 under the Securities Act of 1933, and Rule 12b-2 under the Securities Exchange Act of 1934.
On November 5, 2010, the Company entered into a Share Purchase Agreement with Carolyn C. Shelton, a resident of Tyler, Texas, pursuant to which on November 10, 2010 she acquired 9,500,000 shares of our common stock for approximately $9,500 cash or $0.001 per share.
On August 29, 2013, Coquí Radio Pharmaceuticals, Corp. ("Coquí") closed a transaction through which Coquí purchased 9,500,000 outstanding shares of common stock and agreed to purchase an additional 400,000 outstanding shares of common stock of the Company from existing shareholders in a private transaction in exchange for $280,000. The additional 400,000 shares were subsequently acquired on October 24, 2013 and Coquí became the majority controlling stockholder of the Company.
The Company was contemplating a possible merger with Coquí. The Company's business plan is now to pursue a business combination through the acquisition of, or merger with, an existing company seeking the perceived advantages of being a publicly traded corporation. The Company is not restricting its potential target companies to any specific business, industry or geographical location. No assurances can be given that the Company will be successful in locating or negotiating with any target company.
4
Note B - Reorganization Under Chapter 11 of the U. S. Bankruptcy Code
The Company's Plan of Reorganization (the "Plan") was confirmed by the United States Bankruptcy Court, Northern District of Texas Dallas Division on August 1, 2007 and became effective on August 10, 2007. On November 5, 2010, the Company entered into a transaction with Carolyn C. Shelton as discussed in Note A and a Certificate of Compliance with certain bankruptcy confirmation provisions was issued by the Bankruptcy Court on November 10, 2010.
Note C Going Concern
We have incurred recurring losses since inception and expect to continue to incur losses as a result of legal and professional fees and our corporate general and administrative expenses. Our net losses incurred for the three months ended March 31, 2017 and 2016, amounted to approximately $820 and $560, respectively, and working capital (deficits) was approximately $(245,000) and $(244,000), respectively, at March 31, 2017 and December 31, 2016. As a result, there is substantial doubt about our ability to continue as a going concern. In the event that we are unable to generate sufficient cash from our operating activities or raise additional funds, we may be required to delay, reduce or severely curtail our operations or otherwise impede our on-going business efforts, which could have a material adverse effect on our business, operating results, financial condition and long-term prospects. The Company expects to seek to obtain additional funding through future equity issuances. There can be no assurance as to the availability or terms upon which such financing and capital might be available.
Note D - Summary of Significant Accounting Policies and Recent Accounting Pronouncements
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the valuation of deferred tax assets. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all cash on hand and in banks, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents.
Income taxes
The Company files income tax returns in the United States of America and various states, as appropriate and applicable.
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Income Taxes. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company has adopted the provisions of ASC 740-10 "Accounting for Uncertain Income Tax Positions". The Codification Topic requires the recognition of potential liabilities as a result of management's acceptance of potentially uncertain positions for income tax treatment on a "more-likely-than-not" probability of an assessment upon examination by a respective taxing authority. As a result of the implementation of Codification's Income Tax Topic, the Company did not incur any liability for unrecognized tax benefits.
Income (Loss) per share
Basic earnings (loss) per share is computed by dividing the net income (loss) available to common stockholders by the weighted-average number of common shares outstanding during the respective period presented in our accompanying financial statements.
5
Fully diluted earnings (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of common stock equivalents (consisting of outstanding warrants).
Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding warrants, using the treasury stock method, at either the beginning of the respective period presented or the date of issuance, whichever is later, and only if the common stock equivalents are considered dilutive based upon the Company's net income (loss) position at the calculation date.
As of March 31, 2017, the Company had no outstanding stock warrants, options or convertible securities which could be considered dilutive for purposes of the loss per share calculation. At March 31, 2017 there were 151,300 outstanding common stock warrants, which could dilute future earnings per share.
Recently Adopted Accounting Pronouncements
Going Concern
ASU 2014-15 Presentation of Financial StatementsGoing ConcernDisclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern (ASU 2014-15). In August 2014, FASB issued guidance that requires management to perform interim and annual assessments of an entitys ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entitys ability to continue as a going concern. The updated accounting guidance was effective for the Company on December 31, 2016. We have implemented this new accounting standard and we will update our liquidity disclosures as necessary.
Recent Accounting Pronouncements
Recently-Issued Accounting Standards: Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
Income Taxes
In October 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory ("ASU 2016-16"), which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-06 will be effective for the Company in its first quarter of 2019. The Company is currently evaluating the impact of adopting ASU 2016-16 on its consolidated financial statements.
Note E - Fair Value of Financial Instruments and fair value measurements
The carrying amount of cash, accounts payable and accrued expenses and due to stockholder, approximates fair value due to the short term nature of these items and/or the current interest rates payable in relation to current market conditions.
The carrying amount of due to the shareholder and accrued liabilities, as applicable, approximates fair value due to the short-term nature of these items. The fair value of the related party notes payable cannot be determined because of the Company's affiliation with the parties with whom the agreements exist. The carrying amount approximates its fair value at March 31, 2017 and December 31, 2016. The use of different assumptions or methodologies may have a material effect on the estimates of fair values.
6
ASC Topic 820, "Fair Value Measurements and Disclosures," requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, "Financial Instruments," defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
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·
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Level 1:
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Observable inputs such as quoted prices in active markets;
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·
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Level 2:
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Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
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·
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Level 3:
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Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
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Note F - Distribution to Shareholder and Related Party Transactions
The Company has distributed all of the net proceeds of its private placements to Coquí, the Shareholder, which advances have not been documented by any loan agreements or notes. Additionally, the Company's former Chief Executive Officer, who is the brother of the Company's current Chief Executive Officer, was a principal of Pariter which raised capital in the private placements and has received compensation directly from the private placement fees. See Note L.
In 2014, the Company has distributed $4,754,961 of the net proceeds from the sales of its common stock in its private placements to Coquí, which was recorded as distribution to shareholder of additional paid-in capital.
Halter Financial Group, Inc., pursuant to the Plan, managed the $1,000 in cash transferred from the bankruptcy creditor's trust on our behalf until exhausted and contributed additional monies through September 16, 2013 (the date of sale of shares of common stock to Coquí, (see Note A) to support our operations.
Note G - Due to Shareholder
As of March 31, 2017 and December 31, 2016, the Company owes $157,195 and $155,670, respectively, to Coquí, the principal shareholder of the Company, for the funding of its current operating expenses. The amount owing is unsecured, non-interest bearing, and due on demand.
Note H - Due to Related Party
As of March 31, 2017 and December 31, 2015, the Company owes $6,618 and $5,405, respectively, to Ms. Carmen I. Bigles, our Chief Executive Officer and sole Director of the Company, for the funding of its current operating expenses. The amount owing is unsecured, non-interest bearing, and due on demand.
Note I - Concentration of Credit Risk
At times cash deposited with financial institutions may exceed federally insured limits. The Company has not experienced any losses in such accounts through March 31, 2017.
Note J - Contingencies
The Company was contemplating a possible merger by the Company and Coquí. The Company's business plan is now to pursue a business combination through the acquisition of, or merger with, an existing company seeking the perceived advantages of being a publicly traded corporation.
Coquí has informed the Company that Coquí is evaluating various strategic alternatives, which may include a merger with the Company or the eventual sale of Coquís interest in the Company to one or more third parties that would be expected to seek a merger with the Company. Until such time as Coquí determines a course of action, the Companys ability to pursue a business combination will be limited. The timing of any such determination by Coquí is uncertain. No assurances can be given that the Company will be successful in pursuing a business combination in the near future or at all.
7
Note K - Income Taxes
The components of income tax (benefit) expense for each of the three months ended March 31, 2017 and 2016 are as follows:
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Three months ended
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March 31,
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2017
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2016
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Federal:
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Current
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$
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$
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Deferred
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State:
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Current
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Deferred
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Total
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$
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$
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As of March 31, 2017 and December 31, 2016, the Company has a net operating loss carryforward of approximately $307,000 and $306,000, respectively to offset future taxable income. The amount and availability of any net operating loss carryforwards will be subject to the limitations set forth in the Internal Revenue Code. Such factors as the number of shares ultimately issued within a three year look-back period; whether there is a deemed more than a 50 percent change in control; the applicable long-term tax exempt bond rate; continuity of historical business; and subsequent income of the Company all enter into the annual computation of allowable annual utilization of any net operating loss carryforward(s).
The Company's income tax expense (benefit) for each of the three months ended March 31, 2017 and 2016 varied from the statutory rate of 34% as follows:
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Three months ended
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March 31,
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2017
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2016
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Statutory rate applied to income before income taxes
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$
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(300
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)
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$
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(200
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)
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Increase (decrease) in income taxes resulting from:
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State income taxes
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Other, including reserve for deferred tax asset and application of net operating loss carryforward
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300
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200
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Income tax expense
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$
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|
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$
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The Company's only temporary difference due to statutory requirements in the recognition of assets and liabilities for tax and financial reporting purposes, as of March 31, 2017 and December 31, 2016, respectively, relate solely to the Company's net operating loss carryforward(s). This difference gives rise to the financial statement carrying amounts and tax bases of assets and liabilities causing either deferred tax assets or liabilities, as necessary, as of March 31, 2017 and December 31, 2016, respectively:
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As of
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As of
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March 31,
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December 31
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2017
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2016
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Deferred tax assets
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Net operating loss carryforwards
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$
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104,200
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$
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103,900
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Less valuation allowance
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(104,200
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)
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(103,900
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)
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Net Deferred Tax Asset
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$
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$
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During the each of the three months ended March 31, 2017 and 2016, respectively, the valuation allowance for the deferred tax asset increased by approximately $300 and $200, respectively. Open tax years are from 2011.
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Note L- Stockholders' Equity
Pursuant to our Articles of Incorporation, our board has the authority, without further stockholder approval, to provide for the issuance of up to 10,000,000 shares of our preferred stock in one or more series and to determine the dividend rights, conversion rights, voting rights, rights in terms of redemption, liquidation preferences, the number of shares constituting any such series and the designation of such series. Our board has the power to afford preferences, powers and rights (including voting rights) to the holders of any preferred stock preferences, such rights and preferences being senior to the rights of holders of common stock. There were no preferred shares issued and outstanding at March 31, 2017 and December 31, 2016. There were 11,663,448 shares of common stock issued and outstanding at March 31, 2017 and December 31, 2016.
Stock Warrants
The following table summarizes all warrant activity:
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Warrants
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Weighted
Average
Exercise
Price
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Weighted Average
Remaining
Contractual
Life (Years)
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Aggregate
Intrinsic
Value
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Outstanding at December 31, 2015
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151,300
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$
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3.31
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3.26
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Granted
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Exercised
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Outstanding at December 31, 2016
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151,300
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$
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3.31
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2.25
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Granted
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Exercised
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Outstanding at March 31, 2017
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151,300
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$
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3.31
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2.01
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Exercisable at March 31, 2017
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151,300
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$
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3.31
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2.01
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Note M- Subsequent Events
During the period from January 2017 to March, 2017, Coqui entered into an Exchange Agreement with 48 investors (Coqui Shareholders) who previously acquired shares of common stock, par value of $0.001 per share of our Company (the SMSA Crane Shares), in a private placement from SMSA Crane, at a price of $3.31 per share. The 48 investors agreed to exchange their SMSA Crane Shares for an equal value of shares of Coquis common stock, par value $0.1 per share (the Coqui Shares), and Coqui agreed to proceed with the proposed exchange. As a result, 1,663,443 SMSA Crane Shares and 151,300 warrants issued to the placement agent were exchanged for Coqui Shares and warrants and were cancelled.
On April 5, 2017, the Board of Directors approved the cancellation of 1,611,743 SMSA Crane Shares held by the Coqui Shareholders and the cancellation of 51,700 SMSA Crane Shares that were issuable to three Coqui Shareholders but that were not yet issued and recorded as outstanding by the Companys transfer agent as of the date of the Exchange Agreement.
On May 16, 2017, the Board of Directors approved the issuance of 47,490 shares of its common shares to Coquí, based on the private placement share price of $3.31 in satisfaction for the total debt owed to Coqui of $157,195.
As of the date of this filing, the number of outstanding common shares of SMSA Crane was 10,047,495 common shares and the number of stock warrants outstanding was zero, after the stock and warrant exchanges with Coqui, the Shareholder and Pariter disclosed above.
9