Quarterly report pursuant to Section 13 or 15(d)

Shareholders' Deficit

v3.8.0.1
Shareholders' Deficit
3 Months Ended
Mar. 31, 2018
Equity [Abstract]  
Shareholders' Deficit

 Note 6 - Shareholders’ Deficit

 

Preferred Stock

 

The Company has authorized 5,000,000 shares of preferred stock which have been designated as follows:

 

    Number of Shares     Number of Shares Outstanding at     Par     Liquidation  
    Authorized     March 31, 2018     Value     Value  
Series AA     1,000,000       5,000     $ 0.0001     $ -  
Preferred Series B     50,000       1,350     $ 0.0001     $ 100  
Preferred Series C     8,000       760     $ 0.0001     $ 1,000  
Undesignated     3,942,000       -       -       -  

 

Series AA Preferred Shares

 

On February 22, 2013, the Board of Directors of the Company authorized an amendment to the Company’s Articles of Incorporation, as amended (the “Articles of Incorporation”), in the form of a Certificate of Designation that authorized the issuance of up to one million (1,000,000) shares of a new series of preferred stock, par value $0.0001 per share, designated “Series AA Super Voting Preferred Stock,” for which the board of directors established the rights, preferences and limitations thereof.

 

Each holder of outstanding shares of Series AA Super Voting Preferred Stock shall be entitled to one hundred thousand (100,000) votes for each share of Series AA Super Voting Preferred Stock held on the record date for the determination of stockholders entitled to vote at each meeting of stockholders of the Company. The Series AA Super Voting Preferred Stock holders will receive no dividends nor any value on liquidation. As of March 31, 2018, there were 5,000 shares of Series AA Preferred stock outstanding.

 

Series B Convertible Preferred Stock

 

On February 7, 2017, the Company filed a certificate of designation for 50,000 shares of Series B Convertible Preferred Stock designated as Series B (“Series B”) which are authorized and convertible, at the option of the holder, commencing six months from the date of issuance into common shares and warrants. For each share of Series B, the holder, on conversion, shall receive the stated value divided by 75% of the market price on the date of purchase of Series B and a three-year warrant exercisable into up to a like amount of common shares with an exercise price of 150% of the market price as defined in the Certificate of Designation. Dividends shall be paid only if dividends on the Company’s issued and outstanding Common Stock are paid and the amount paid to the Series B holder will be as though the conversion shares had been issued. The Series B holders have no voting rights. Upon liquidation, the holder of Series B, shall be entitled to receive an amount equal to the stated value, $100 per share, plus any accrued and unpaid dividends thereon before any distribution is made to Series C Secured Redeemable Preferred Stock or common stockholders. As of March 31, 2018, 1,350 shares of Series B and 4,805,600 warrant shares have been issued and are outstanding.

 

Series C Secured Redeemable Preferred Stock

 

On December 22, 2017, the Company filed a certificate of designation for 8,000 shares of Series C Secured Redeemable Preferred Stock (“Series C”). Each share of the C Preferred is entitled to receive a $20.00 quarterly dividend commencing March 31, 2018 and each quarter thereafter and is to be redeemed for the stated value, $1,000 per share, plus accrued dividends in cash (i) at the Company’s option, commencing one year from issuance and (ii) mandatorily as of December 31, 2019. The C Preferred does not have any rights to vote with the common stock. Upon liquidation, the holder of Series C, shall be entitled to receive an amount equal to the stated value, $1,000 per share, plus any accrued and unpaid dividends thereon before any distribution is made to common stockholders but after distributions are made to holders of Series B. Since the C Preferred is mandatorily payable, the obligation has been included in long term liabilities on the consolidated balance sheets as of March 31, 2018 and December 31, 2017. The Company’s obligation to redeem the C Preferred is secured by a security interest in the RGN Assets. As of March 31, 2018, the Company has sold 760 shares of C Preferred in units comprised of shares of C Preferred and common stock purchase warrants exercisable into up to 2,995,780 shares of common stock for consideration of $760,000. The warrants resulted in a debt discount of $110,080 and $101,808 at March 31, 2018 and December 31, 2017, respectively, and are recorded as a discount to the preferred stock liability on the consolidated balance sheet.

 

Common Stock

 

During the three months ended March 31, 2018, the Company issued pursuant to a private placement offering 1,561,950 shares of common stock and the same number of warrants for cash of $60,000. The Company also issued 19,327,397 shares of common stock for the conversion of notes and accrued interest in the amount of $513,530.

 

During the three months ended March 31, 2018, the Company issued 17,003 shares of common stock valued at $1,046 related to the extension of outstanding notes and lock-up agreements.

 

During the three months ended March 31, 2018, the Company issued 100,000 shares of common stock with a value of $4,535, related to services and fees.

 

The Variable Debentures issued by the Company each have a provision requiring the Company to reserve a variable amount of shares of common stock for when the holder of the Variable Debenture converts.

 

Stock Options

 

The balance of all stock options outstanding as of March 31, 2018 is as follows:

 

          Weighted Average     Weighted Average     Aggregate  
          Exercise Price     Remaining Contractual     Intrinsic  
    Options     Per Share     Term (years)     Value  
Outstanding at January 1, 2018     93,203,369     $ 0.029       3.96          
Granted     -     $ -                  
Cancelled     -     $ -                  
Exercised     -     $ -                  
Outstanding at March 31, 2018     93,203,369     $ 0.029       3.71     $ 484,658  
                                 
Exercisable at March 31, 2018     93,203,369     $ 0.029       3.71     $ 484,658  

 

Warrants

 

During the three months ended March 31, 2018, in conjunction with the sale of Common Stock, the Company issued three-year common stock purchase warrants to acquire up to 1,561,950 shares of common stock with exercise prices ranging from $0.0734 to $1.00 per share.

 

In addition, during the three months ended March 31, 2018, the Company issued a five-year common stock purchase warrant to acquire up to 2,000,000 shares of common stock valued at $71,521 with an exercise price of $0.05 in conjunction with the issuance of a note payable; three-year common stock purchase warrants to acquire up to 4,805,600 shares of common stock with exercise prices ranging from $0.051 to $1.00 in conjunction with the issuance of Series B preferred stock; two-year common stock purchase warrants to acquire up to 270,511shares of common stock with exercise prices ranging from $0.0404 to $0.0516 in conjunction with the issuance of Series C preferred stock; a 2-year common stock purchase warrant to acquire up to 6,200,000 shares of common stock valued at $380,750 with an exercise price of $0.0001.

 

The Company measures the fair value of warrants issued using the Black Scholes option pricing model using the following assumptions:

 

    Three months ended March 31, 2018
     
Expected term   2 years - 5 years
Exercise price   $0.0001-$0.0516
Expected volatility   176%-193%
Expected dividends   None
Risk-free interest rate   1.92% to 2.65%
Forfeitures   None

 

 

A summary of the status of the warrants granted under these agreements at March 31, 2018, and changes during the three months then ended is presented below:

 

    Outstanding Warrants  
          Weighted Average  
          Exercise Price  
    Shares     Per Share  
Outstanding at January 1, 2018     61,807,992     $ 0.31  
Granted     14,838,061     $ 0.24  
Cancelled     (300,000 )   $ 0.81  
Exercised     -     $ -  
Outstanding at March 31, 2018     76,346,053     $ 0.30  
                 
Exercisable at March 31, 2018     76,346,053     $ 0.30  

 

As of March 31, 2018, the Company has 500,000,000 shares of common stock authorized. After the exercise of stock options and warrants and the conversion of variable rate debentures, the Company could potentially have a shortfall of common stock. Should there be a shortfall in common stock, the shareholders of the Company would need to approve an increase in the authorized common stock to an amount sufficient to satisfy such exercises and conversions or reclassify the obligations to liabilities payable in some form other than common stock.