Annual report pursuant to Section 13 and 15(d)

Shareholders' Deficit

v3.19.1
Shareholders' Deficit
12 Months Ended
Dec. 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 Authorized     Number of Shares Outstanding at December 31, 2018     Par Value     Liquidation Value per Share  
Series AA     1,000,000       25,000     $ 0.0010     $ -  
Preferred Series B     50,000       600     $ 0.0001     $ 100  
Preferred Series C     8,000       1,720     $ 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 $0.001 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. As of December 31, 2018 and 2017, there were 25,000 and 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. During the year ended December 31, 2018, 1,350 shares of Series B and 4,805,600 warrant shares have been issued of which 750 Series B shares have been converted into 2,941,176 common shares. As of December 31, 2018, there are 600 shares of Series B 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 December 31, 2018 and 2017. The Company’s obligation to redeem the C Preferred is secured by a security interest in the RGN Assets. For the years ended December 31, 2018 and 2017, the Company has sold 1,020 and 700 shares of Series C in units comprised of shares of C Preferred and common stock purchase warrants exercisable into up to 6,457,381 and 2,725,289 shares of common stock for consideration of $1,020,191 and $700,000. The warrants resulted in a debt discount after amortization of $180,712 and $101,808 at December 31, 2018 and 2017, respectively, and are recorded as a discount to the preferred stock liability on the consolidated balance sheet.

 

Common Stock

 

During the year ended December 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; and 2,000,000 shares of common stock for cash of $25,000. The Company also issued 92,772,581 shares of common stock for the conversion of notes and accrued interest in the amount of $3,440,725.

 

During the year ended December 31, 2018, the Company issued 477,399 shares of common stock valued at $17,194 related to the extension of outstanding notes and lock-up agreements; 1,000,000 shares valued at $22,200 were issued in connection with a $550,000 note payable; 2,941,176 shares were issued on the conversion of Preferred Series B Stock; and 6,183,243 shares were issued for the cashless exercise of 6,200,000 warrant shares.

 

During the year ended December 31, 2017, the Company issued pursuant to a private placement offering 46,437,104 shares of common stock and the same number of warrants for cash of $1,290,250 and conversion of notes and accrued interest in the amount of $113,138. The Company also issued 123,163,542 shares of common stock for the conversion of notes and accrued interest in the amount of $4,975,949.

 

During the year ended December 31, 2017, the Company issued 379,294 shares of common stock valued at $25,270 related to the extension of outstanding notes and lock-up agreements; 2,142,387 shares valued at $119,282 were issued in connection with $95,597 notes payable; 6,725,000 shares valued at $235,681 were issued in connection with a settlement entered into in 2017; 250,000 shares were issued for cash of $5,050 as a result of a common stock warrant exercise; and 180,274 shares were cancelled valued at $10,294 related to a settlement agreement.

 

The Company had entered into consulting agreements with various consultants for service to be provided to the Company. The agreements stipulated a monthly fee and a certain number of shares that the consultant vests in over the term of the contract. The consultant was issued a prorated number of shares of common stock at the beginning of the contract, which the consultant earned over a three-month period. At the anniversary of each quarter, the consultant was issued a new allotment of common stock during the first 3 years of engagement. In accordance with ASC 505-50 – Equity-Based Payment to Non-Employees, the common stock shares issued to the consultant were valued upon their vesting, with interim estimates of value as appropriate during the vesting period. During the years ended December 31, 2018 and 2017, the Company issued 7,175,000 shares of common stock with a value of $224,785 and 3,698,022 shares of common stock with a value of $204,306, respectively, related to these consulting agreements.

 

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

 

During the year ended December 31, 2018, the Company granted a stock option to independent contractor exercisable into up to 1,350,000 shares of common stock with an exercise prices ranging from $0.0298 to $0.047 per share, lives of two to three years, and cashless exercise rights and were valued at $29,246 using the Black Scholes option pricing model. The stock options vest over four to twelve months and $15,459 was expensed during the year ended December 31, 2018.

 

During the year ended December 31, 2017, the Company granted stock options to independent contractors exercisable into up to 25,272,305 shares of common stock with exercise prices ranging from $0.0269 to $0.054 per share, lives ranging from three to ten years, and cashless exercise rights and were valued at $1,139,403 using the Black Scholes option pricing model. The stock options vested on grant and were expensed in full during the year ended December 31, 2017.

 

In addition, during the year ended December 31, 2017, the Company issued stock options to independent contractors exercisable into up to 67,931,064 shares of common stock in exchange for the conversion of $1,467,311 of deferred compensation due to the independent contractors. These options have an exercise price of $0.0216 per share, a three-year life and cashless exercise rights. These options vested on grant.

 

The weighted average grant date fair value of stock options issued during the years ended December 31, 2018 and 2017 were $0.0217 and $0.03 per share, respectively.

  

Stock option activities for the years ended December 31, 2018 and 2017 are as follows:

 

    Options     Weighted Average Exercise Price Per Share     Weighted Average Remaining Contractual Term (years)     Aggregate Intrinsic Value  
Outstanding at January 1, 2017     -     $ -                  
Granted     93,203,369     $ 0.029                  
Cancelled     -     $ -                  
Exercised     -     $ -                  
Outstanding at December 31, 2017     93,203,369     $ 0.029       3.96     $ 2,721,538  
                                 
Granted     1,350,000     $ 0.034                  
Cancelled     -     $ -                  
Exercised     -     $ -                  
Outstanding at December 31, 2018     94,553,369     $ 0.029       2.94     $ -  
                                 
Exercisable at December 31, 2018     93,886,702     $ 0.029       2.95     $ -  

 

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

 

      Outstanding     Exercisable  
            Weighted                    
            Average     Weighted           Weighted  
Range of           Remaining     Average           Average  
Exercise     Number     Contractual     Exercise     Number     Exercise  
Prices     Outstanding     Life     Price     Exercisable     Price  
                                 
  Options                                          
$ 0.0540       19,250,000       8.29     $ 0.0540       19,250,000     $ 0.0540  
$ 0.0470       350,000       2.12     $ 0.0470       350,000     $ 0.0470  
$ 0.0298       1,000,000       1.61       0.0298       333,333       0.0298  
$ 0.0269       6,022,305       1.72     $ 0.0269       6,022,305     $ 0.0269  
$ 0.0216       67,931,064       1.55     $ 0.0216       67,931,064     $ 0.0216  
          94,553,369       2.94     $ 0.029       93,886,702     $ .029  

 

Warrants

 

During the year ended December 31, 2018, in conjunction with the sale of Common Stock, the Company issued three-year common stock purchase warrants to acquire up to 2,137,750 shares of common stock with exercise prices ranging from $0.069 to $1.00 per share.

  

In addition, during the year ended December 31, 2017, 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 notes payable; a two-year cashless common stock purchase warrant to acquire up to 6,200,000 shares of common stock valued at $380,750 for services provided with an exercise price of $0.0001 per share which was subsequently exercised into 6,183,243 shares of common stock; two-year common stock purchase warrants to acquire up to 642,157 shares of common stock valued at $19,417 related to the extension of notes with exercise prices ranging from $0.0368 to $0.0370; and two and three-year common stock purchase warrants to acquire up to 11,262,981 shares of common stock with exercise prices ranging from $0.0218 to $1.00 in conjunction with the

 

issuance of preferred stock. Also, one common stock purchase warrant to acquire up to 300,000 shares of common stock expired during the year ended December 31, 2018.

 

During the year ended December 31, 2017, in conjunction with the sale of Common Stock, the Company issued three-year and five-year common stock purchase warrants to acquire up to 46,437,100 shares of common stock with exercise prices ranging from $0.0188 to $1.00 per share.

 

In addition, during the year ended December 31, 2017, the Company issued two-year common stock purchase warrants to acquire up to 2,300,000 shares of common stock valued at $83,453 with an exercise prices ranging from $0.0508 to $0.25 in conjunction with the issuance of notes payable; five-year common stock purchase warrants to acquire up to 1,100,678 shares of common stock valued at $71,113 for services provided with exercise prices ranging from $0.096 to $0.267 per share; and two-year common stock purchase warrants to acquire up to 2,725,269 shares of common stock with exercise prices ranging from $0.047 to $0.058 in conjunction with the issuance of preferred stock.

 

A summary of the status of the warrants granted under these agreements at December 31, 2018, and changes during the years ended December 31, 2017 and 2018 are presented below:

 

    Outstanding Warrants  
          Weighted Average  
          Exercise Price  
    Shares     Per Share  
Outstanding at January 1, 2017     9,494,940     $ 0.33  
Granted     52,563,052     $ 0.31  
Cancelled     -     $ -  
Exercised     (250,000 )   $ 0.02  
Outstanding at December 31, 2017     61,807,992     $ 0.31  
                 
Granted     22,242,888     $ 0.18  
Cancelled     (300,000 )   $ 0.81  
Exercised     (6,200,000 )   $ 0.0001  
Outstanding at December 31, 2018     77,550,880     $ 0.30  
                 
Exercisable at December 31, 2018     77,550,880     $ 0.30  

 

      Outstanding     Exercisable  
            Weighted                    
            Average     Weighted           Weighted  
Range of           Remaining     Average           Average  
Exercise     Number     Contractual     Exercise     Number     Exercise  
Prices     Outstanding     Life     Price     Exercisable     Price  
                                 
  Warrants                                          
                                             
$ 0.0165-0.0500       24,080,628       2.37     $ 0.034       24,080,628     $ 0.034  
$ 0.0508-0.10       24,948,831       2.51     $ 0.073       24,948,831     $ 0.073  
$ 0.108-0.239       6,010,037       2.60     $ 0.161       6,010,037     $ 0.161  
$ 0.25-0..48       2,862,687       1.56     $ 0.276       2,862,687     $ 0.276  
$ 0.5623-1.00       19,648,697       1.89     $ 0.951       19,648,697     $ 0.951  
          77,550,880       2.28     $ 0.298       77,550,880     $ 0.298