Quarterly report pursuant to Section 13 or 15(d)

Shareholders' Deficit

v3.21.1
Shareholders' Deficit
3 Months Ended
Mar. 31, 2021
Equity [Abstract]  
Shareholders' Deficit

Note 7 - 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     Par     Liquidation  
    Authorized     at September 30, 2020     Value     Value  
Series AA     1,000,000       25,000     $ 0.0010     $ -  
Preferred Series B     50,000       600     $ 0.0001     $ 100  
Preferred Series C     8,000       763     $ 0.0001     $ 1,000  
Preferred Series D     20,000       305     $ 0.0001     $ 1,000  
Undesignated     3,922,000       -       -       -  

 

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. The Series AA Super Voting Preferred Stockholders will receive no dividends nor any value on liquidation. As of March 31, 2021, there were 25,000 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, 2021, 600 shares of Series B are outstanding.

 

Series C Convertible 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. Management determined that the Series C should be classified as liability per the guidance in ASC 480 Distinguishing Liabilities from Equity as of December 31, 2019. On January 29, 2020, the Company filed the amended and restated certificate of designation fort its Series C Secured Redeemable Preferred Stock. The amendment changed the rights of the Series C by (a) removing the requirement to redeem the Series C, (b) removing the obligation to pay dividends on the Series C, (c) Allowing the holders of shares of Series C to convert the stated value of their shares into common stock of the Company at 75% of the closing price of such common stock on the day prior to the conversion. 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.

 

During the three months ended March 31, 2021, and 2020, the Company converted 0 and 936 shares of Series C into 0 and 1,636,166 shares of common stock. As of March 31, 2021, there are 763 shares of Series C outstanding.

 

Series D Convertible Preferred Stock

 

On November 11, 2019, the Company filed a certificate of designation for 20,000 shares of Series D Convertible Preferred Stock designated as Series D (“Series D”), which are authorized and convertible, at the option of the holder, at any time from the date of issuance, into shares of common shares. On or prior to August 1, 2020, for each share of Series D, the holder, on conversion, shall receive a number of common shares equal to 0.01% of the Company’s issued and outstanding shares on conversion date and for conversion on or after August 2, 2020, the holder shall receive conversion shares as though the conversion date was August 1, 2020, with no further adjustments for issuances by the Company of common stock after August 1, 2020, except for stock split or reverse stock splits of the common stock. Management classified the Series D in permanent equity as of March 31, 2021.

 

The Series D holders have no voting rights. Upon liquidation, the holder of Series D, 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. The Company did not issue any shares of Series D in the three months ended March 31, 2021. As of March 31, 2021, there are 305 shares of Series D outstanding.

  

Common Stock

 

On May 18, 2020, the Company and Cavalry Fund I LP (the “investor”) entered into an Equity Line Purchase Agreement (“ELPA”) pursuant to which the investor committed to purchase, subject to certain restrictions and conditions, up to $10,000,000 (the “Commitment”) worth of the Company’s common stock, over a period of 24 months from the effectiveness of the registration statement registering the resale of shares purchased by the investor pursuant to the ELPA.

 

The Company agreed to issue shares of its common stock (the “commitment shares”) to the investor having a market value of 5% of the commitment ($500,000 and 3,859,630 shares) based on the market price of the shares at the execution of the ELPA to be delivered in three tranches of 385,963 shares on: (i) the execution of the ELPA; (ii) thirty days after the effectiveness of the registration statement to be filed under the RRA (the “registration right agreement” or the “registration statement”), and (iii) 90 trading days after the effectiveness of the registration statement with the balance of the commitment shares to be issued pro-rata over the first $3,000,000 of puts in accordance with a formula set forth in the ELPA.

 

The ELPA provides that at any time after the effective date of the registration statement and provided the closing sale price of the common shares on the OTCQB is not below $0.01, from time to time on any business day selected by the Company (the “Purchase Date”), the Company shall have the right, but not the obligation, to direct the investor to buy up to 300,000 shares of the common stock (the “regular purchase amount”) at a purchase price equal to the lower of: (i) the lowest applicable sales price on the date of the put and (ii) 85% of the arithmetic average of the 3 lowest closing prices for the common stock during the 10 consecutive trading days ending on the trading day immediately preceding such put date. The regular purchase amount may be increased as follows: to up to 400,000 shares of common stock if the closing price of the common shares is not below $0.25 per share and up to 500,000 shares if the closing price is not below $0.40 per share.

 

Under the ELPA the Company has the right to submit a regular purchase notice to the investor as often as every business day. The payment for the shares covered by each put notice will generally occur on the day following the put notice. The ELPA contains provisions which allow for the Company to make additional puts beyond the regular purchase amount at greater discounts to the market price of the common stock as forth in the ELPA.

 

The ELPA requires the Company to apply at least 50% of the proceeds of puts to the payment of certain variable rate convertible notes issued by the Company. The Company does not anticipate that it will raise any funds under the ELPA.

 

During the three months ended March 31, 2021, the Company issued 17,686,548 shares of common stock for the conversion of notes and accrued interest in the amount of $310,046.

 

During the three months ended March 31, 2021, the Company issued 2,300,334 shares of common stock labeled as commitment shares in connection with the issuance of promissory notes.

 

During the three months ended March 31, 2021, the Company issued 7,000,000 shares of common stock for total consideration of $126,000.

 

During the three months ended March 31, 2020, the Company issued 4,388,291 shares of common stock for the conversion of notes and accrued interest in the amount of $2,545,714.

 

During the three months ended March 31, 2020, the Company issued 1,636,166 shares of common stock with a value of approximately $1,247,800, related to the conversion of Series C.

 

Stock Options

 

The balance of all stock options outstanding as of March 31, 2021, is as follows:

 

          Weighted
Average
    Weighted
Average
Remaining
    Aggregate  
          Exercise Price     Contractual     Intrinsic  
    Options     Per Share     Term (years)     Value  
Outstanding at January 1, 2021     3,014,080     $ 0.37       1.67             -  
Granted     -     $ -       -       -  
Cancelled     (350 )   $ 47.00       -       -  
Exercised     -     $ -       -       -  
Outstanding at March 31, 2021     3,013,730     $ 0.37       2.79     $ -  
                                 
Exercisable at March 31, 2021     763,730     $ 1.01       1.72     $ -  

 

Share-based compensation expense for the three months ended March 31, 2021, and 2020, totaled $20,471 and $9,567, respectively.

 

The total unrecognized compensation expense amounts to approximately $178,000 and should be recognized evenly over a 26-month period.

 

On June 11, 2020, the Board of Directors approved the issuance of 74,668,000 non-incentive stock options to officers, directors, and key consultants. The key terms and conditions of the award have not been mutually understood and agreed upon, and as a result, the Company has not recognized stock compensation for such award for the three months ended March 31, 2021.

 

Warrants

 

A summary of the status of the warrants granted under these agreements at March 31, 2021, and changes during the three months then ended is presented below:

 

    Outstanding Warrants        
          Weighted Average     Weighted Average Remaining  
          Exercise Price     Contractual  
    Shares     Per Share     Term (years)  
Outstanding at January 1, 2021     39,295     $ 200.72       0.93  
Granted     -     $ -       -  
Cancelled     (8,770 )   $ 510.04       -  
Exercised     -     $ -          
Outstanding at March 31, 2021     30,525     $ 111.86       0.90  
                         
Exercisable at March 31, 2021     30,525     $ 111.86       0.90