AGHC Aeon Global Health Corporation (CE)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

o          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from        to      

Commission File Number: 000-20190

1-888-661-0225

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Securities registered pursuant to Section 12(b) of the Act:  None.

As of June 13, 2019, there were 9,915,064 shares of common stock, $0.001 par value per share, outstanding.

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The accompanying notes are an integral part of the condensed consolidated financial statements.

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The accompanying notes are an integral part of the condensed consolidated financial statements.

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The accompanying notes are an integral part of the condensed consolidated financial statements.

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1.               Description of Business, Reverse Merger and Liquidity

Business

AEON Global Health Corp. (“Aeon Global” or the “Company”) primarily provides an array of clinical testing services to health care professionals through its wholly-owned subsidiary, Peachstate Health Management, LLC d/b/a AEON Clinical Laboratories (“AEON”). The Company also continues to provide its legacy secure web-based revenue cycle management applications and telehealth products and services that enable healthcare organizations to increase revenues, improve productivity, reduce costs, coordinate care for patients and enhance related administrative and clinical workflows and compliance with regulatory requirements. Web-based services are delivered as Software as a Service (SaaS) to customers interfacing seamlessly with billing, information and records management systems.

Going Concern

As of the filing date of this Quarterly Report on Form 10-Q, and after giving effect to the note exchange described in the Notes to Condensed Consolidated Financial Statements, there is outstanding an aggregate principal amount of $3,113,618 of notes, consisting of (i) an aggregate principal amount of $1,698,169 of senior secured convertible notes with a maturity date of March 20, 2020 and (ii) a maximum principal amount of $2.0 million of senior secured grid notes with an aggregate outstanding principal amount of $1,415,449 with a maturity date of June 30, 2020.  In addition, there is an outstanding secured note subordinated to the interests of the existing senior lenders with a remaining principal amount of $12,700, which is currently due and payable.  We expect existing resources, revenues generated from operations, and proceeds received from other transactions we are considering which would satisfy working capital requirements for at least the next twelve months; however, no assurances can be given that we will be able to generate sufficient cash flow from operations or complete other transactions to satisfy our other obligations.  The accompanying condensed consolidated financial statements do not include any adjustments to the recoverability and classification of assets carrying amounts or the amounts and classification of liabilities that might result from the outcome of these uncertainties.  Accordingly, the Company needs to raise additional capital and is exploring potential transactions to improve our capital position.  Unless we can increase revenues substantially or generate additional capital from other transactions, our current cash resources will only satisfy our working capital needs for a limited period of time.

The Company’s capital requirements have been and will continue to be significant and it is expending significant amounts of capital to develop, promote and market its services. The Company’s available cash and cash equivalents as of March 31, 2019 totaled approximately $521,000 and the Company’s working capital deficit was $4,059,532. Nevertheless, our available cash and cash equivalents as of the filing date of this Quarterly Report on Form 10-Q is approximately $1,641,900 and our estimated monthly cash requirement is approximately $800,000.

The Company does not have a bank line of credit or other fixed source of capital reserves.  We are exploring potential transactions to improve our capital position to ensure we can meet our financing and working capital requirements.  We would expect to raise additional funds through obtaining a credit facility from an institutional lender or undertaking private debt financing.  Raising additional funds by issuing equity or convertible debt securities may cause our stockholders to experience substantial dilution in their ownership interests and new investors may have rights superior to the rights of our other stockholders.  Raising additional funds through debt financing or preferred stock, if available, may involve covenants that restrict our business activities and options and such additional securities may have powers, designations, preferences or rights senior to our currently outstanding securities.   We may also enter into financing transactions which involve the granting of liens on the Company’s assets or which grant preferences of payment from its revenue streams, all of which could adversely impact the Company’s ability to rely on revenue from operations to support ongoing operating costs.  Alternatively, we may seek to obtain new financing from existing security holders, which may include reducing the exercise or conversion prices of outstanding securities, or the issuance of additional equity securities.  Currently we do not have any definitive agreements with any third parties for such transactions and there can be no assurance that we will be successful in raising additional capital or securing financing when needed or on terms satisfactory to the Company.  If we are unable to raise additional capital when required, or on acceptable terms, we will need to reduce costs and operations substantially or potentially suspend operations, any of which would have a material adverse effect on the Company’s business, financial condition and results of operations.

Management has concluded that due to the conditions described above, there is substantial doubt about the Company’s ability to continue as a going concern. We have evaluated the significance of the conditions in relation to our ability to meet our obligations. In addition to our efforts to improve our capital position through commercial operations and/or product partnering opportunities, we are considering alternative ways to raise capital, including credit lines from external financial sources. We cannot assure you that financing will be available on acceptable terms. If we are not successful in generating or raising additional capital, we will risk defaulting under the terms of our existing loans. Additionally, if additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities would result in dilution to our existing stockholders. Furthermore, despite our optimism regarding the future of the Company, even if the Company is adequately funded, there is no guarantee that any of our services will perform as hoped or that such services can be successfully commercialized.

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2.                                       Summary of Significant Accounting Policies

The Company’s condensed consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”) and following the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting.  As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted.  These interim financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflects all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the Company’s financial information.  These interim results are not necessarily indicative of the results to be expected for the year ending June 30, 2019 or any other interim period or any other future year.  These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended June 30, 2018, included in the Company’s 2018 Annual Report on Form 10-K filed with the SEC.

The balance sheet as of June 30, 2018 has been derived from audited financial statements at that date but does not include all of the information required by GAAP for complete financial statements.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The most sensitive accounting estimates affecting the financial statements are revenue recognition, the allowance for doubtful accounts, depreciation of long-lived assets, income taxes and associated deferrals and valuation allowances, commitments and contingencies and measurement of derivative liabilities.

Accounts Receivable, Net

Accounts receivable represent customer obligations due under normal trade terms, net of allowance for doubtful accounts. The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience and other currently available evidence. The allowance for doubtful accounts was approximately $790,000 and $942,000 as of March 31, 2019 and June 30, 2018, respectively.

Fair Value Measurements

The Company follows Accounting Standards Codification (“ASC”) 820-10, “Fair Value Measurements and Disclosures,” of the FASB to measure the fair value of its financial statements and disclosures about fair value of its financial instruments. ASC 820-10 establishes a framework for measuring fair value in accounting principles generally accepted under GAAP and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820-10 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value hierarchy defined by ASC 820-10 are described below:

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lower priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. The Company’s warrant liabilities and certain conversion features underlying the convertible debt are categorized as Level 3.

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Concentrations of Credit Risk

The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to certain limits. At March 31, 2019 and June 30, 2018, the Company had approximately $271,000 and $473,000 in excess of FDIC-insured limits. The Company has not experienced any losses in such accounts.

At March 31, 2019, one customer had an accounts receivable balance of approximately $1,116,000. This customer’s accounts receivable balance comprises 33% of gross accounts receivable.

Income Taxes

The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.  In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in tax laws or rates.  The effect on deferred taxes and liabilities of a change in tax rates will be recognized as income or expense in the period that includes the enactment date.  A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

Management considers the likelihood of changes by taxing authorities in its filed income tax returns and recognizes a liability for or discloses potential changes that management believes are more likely than not to occur upon examination by tax authorities.  Management has not identified any uncertain tax positions that require recognition or disclosure in the accompanying condensed consolidated financial statements.

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, “ Revenue from Contracts with Customers ” (Topic 606).   This accounting standard outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers.  This standard supersedes existing revenue recognition requirements and eliminates most industry specific guidance from GAAP.  The core principal of this revenue recognition standard is to require an entity to recognize as revenue the amount that reflects the consideration to which it expects to be entitled in exchange for goods or services as it transfers control to its customers.  The Company has implemented this ASU using the modified retrospective method with immaterial impact.  This ASU requires significantly enhanced disclosures as shown in Note 3 of the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.  In compliance with this ASU, the Company records uncollectible accounts receivable amount against revenue instead of bad debt expense.  There were no material reductions in net revenue for the three months ended March 31, 2018.

In July 2017, the FASB issued ASU 2017-11, “ Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815); Part I. Accounting for Certain Financial Instruments with Down Round Features and Part II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception, ” which states that when determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to the company’s own stock.  As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature when it is triggered.  That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS.  The Company continues to evaluate the provisions of this ASU and plans to adopt this ASU effective July 1, 2019.

In February 2016, the FASB issued ASU 2016-02, “Leases,” which will require recognition on the balance sheet for the rights and obligations created by leases with terms greater than twelve months. The new standard is effective for fiscal years and interim periods within those years beginning after December 15, 2018, with early adoption permitted. The Company plans to adopt this guidance at the beginning of its first quarter of fiscal 2020 and plans to utilize the available practical expedients. While the Company continues to evaluate this standard and the effect on related disclosure the primary effect of adoption will be recording right-of-use assets and corresponding lease obligations for current operations leases. The adoption is expected to result in the recognition of a right of use asset and liability on the consolidated balance sheet, and require enhanced disclosure requirements.

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3.                                    Revenue Recognition

The Company commenced recognizing revenue in accordance with the provisions of ASC 606, “ Revenue from Contracts with Customers” starting July 1, 2018 using the modified retrospective method.  Net revenues in the Company’s AEON lab test business accounted for approximately 87% and 94% for the nine months ended March 31, 2019 and March 31, 2018 and are primarily comprised of a high volume of relatively low-dollar transactions.  The AEON business, which provides clinical testing services and other services, satisfies its performance obligation and recognizes revenues upon completion of the testing process or when services have been rendered.  The Company estimates the amount of consideration it expects to be entitled to receive from customer groups, determined using the portfolio approach, in exchange for providing services.  The portfolios determined using the portfolio approach consist of the following groups of customers:  healthcare insurers, governmental payers, client payers and patients.  In determining the amount to accrue for a delivered test, the Company considers factors such as payment history, payer coverage, whether there is a reimbursement contract between the payer and the Company, payment as a percentage of agreed upon rate (if applicable), amount paid per test and any current developments of changes that could impact reimbursement.  These estimates require significant judgement by management.  Contracts with customers in the AEON business do not contain significant financing components based on the typical period of time between performance of services and collection of consideration.

The following are descriptions of the AEON business’ portfolios:

Healthcare Insurers

Reimbursements from healthcare insurers are based on negotiated fee-for-service schedules.  Revenues consist of amounts billed net of contractual allowances for differences between amounts billed and the estimated consideration the Company expects to receive from such payers, which considers historical denial and collection experience and the terms of the Company’s contractual arrangements.  Adjustments to the allowances, based on actual receipts from the commercial payers, are recorded upon settlement.

Collection of consideration the Company expects to receive is normally a function of providing complete and correct billing information to the healthcare insurers within the various filing deadlines and typically occurs within 30 to 60 days of billing.

Government Payers

Reimbursements from government payers are based on fee-for-services schedules set by government authorities, including traditional Medicare and Medicaid.  Revenues consist of amounts billed net of contractual allowances for differences between amounts billed and the estimated consideration the Company expects to receive from such payers, which considers historical denial and collection experience and other factors.  Adjustments to the allowances, based on accrual receipts from the government payers, are recorded upon settlement.

Client Payers

Client payers include physicians, hospitals, accountable care organizations, integrated delivery networks, employers and other commercial laboratories and institutions for which services are performed on a wholesale basis and are billed based on negotiated fee schedules.  Collection of consideration the Company expects to receive typically occurs within 60 to 90 days of billing.

Patients

Uninsured patients are billed based on established patient fee schedules or fees negotiated with physicians on behalf of their patients.  Insured patients (includes coinsurance and deductible responsibilities) are billed based on fees negotiated with healthcare insurers.  Collection of billings from patients is subject to credit risk and ability of the patients to pay.  Revenues consist of amounts billed net of discounts provided to uninsured patients.  Implicit price concessions represent differences between amounts billed and the estimated consideration the Company expects to receive from patients, which considers historical collection experience and other factors including current market conditions.  Adjustments to the estimated allowances, based on actual receipts from the patients, are recorded upon settlement.

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Telehealth

The Company enters into contracts with customers that may include software license agreements and/or hosting services.  The clear majority of revenue derived from these contracts are recognized ratably over the life of the contract.  A minority of such contracts contain a price per transaction, in which case the revenue is recognized in the period when the transaction occurs.

The approximate percentage of net revenue by type of customer was as follows:

4.                                    Inventory

On March 31, 2019 and March 31, 2018 Inventory consists of Laboratory testing supplies.

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5.                  Related Party Notes Payable

The principal amount listed above is principal only and does not include accrued interest.

Fiscal 2018 Exchange Transaction

On March 27, 2018, the Company entered into an agreement with the holders of outstanding senior secured convertible notes (the “Senior Notes”) to amend certain terms of such notes as described below (“Note Amendment Transaction”). Contemporaneously with the Note Amendment Transaction, the Company entered into an agreement with its Chief Executive Officer (“CEO”), who held a separate promissory note in the aggregate principal amount of $500,000, to exchange such note for an additional new senior note (the “Additional Senior Note”) on terms substantially the same as the senior secured convertible notes in the Note Amendment Transaction (the “Note Exchange Transaction”).

Note Amendment Transaction

In the Note Amendment Transaction, the holders (the “Senior Holders”) of the outstanding principal amount of $2,545,199 of Senior Notes entered into a consent and amendment agreement with the Company (the “Consent Agreement”), pursuant to which the Senior Notes were amended to extend the maturity date for a period of twelve months, to March 20, 2019 and in consideration thereof, the conversion rate of the Senior Notes was reduced to $1.20 per share. As described below, in July 2018, the maturity date of the Senior Notes was further extended. Based on the adjusted conversion price, the principal amount of the Senior Notes was convertible into up to 2,120,999 shares of common stock. The other material terms and conditions of the Senior Notes were not amended. Certain holders of the Senior Notes are affiliated with the Company as follows: (1) an aggregate principal amount of $255,417 of Senior Notes are held by Hanif A. Roshan, the CEO of the Company and (ii) an aggregate principal amount of $591,613 of Senior Notes are held by Optimum Ventures, LLC, a party affiliated by ownership with the former owners of Peachstate Health Management, LLC, our subsidiary. Due to the adjustment of the conversion price of the Senior Notes, the exercise price of outstanding warrants to purchase an aggregate of 825,144 shares of common stock has been adjusted from $2.07 to $1.22 per share. Unpaid interest on the Senior Notes as of March 31, 2019 was approximately $237,600, which is not incorporated into the principal balance. Accrued interest on the Senior Note is due on March 20, 2019 or any earlier payment of the Senior Notes. Refer to Note Restructuring below.

Note Exchange Transaction

In connection with the Note Amendment Transaction, on March 27, 2018, the Company entered into a note exchange agreement (the “Note Exchange Agreement”) with its CEO, who also held a promissory note in the aggregate principal amount of $500,000, pursuant to which the Company agreed to issue to him, in consideration of the cancellation of such note, the Additional Senior Note in the aggregate principal amount of $504,452, which is equal to the sum of the aggregate principal amount of the original note plus the accrued but unpaid interest thereon. The closing of the Note Exchange Transaction occurred on March 27, 2018.

The Additional Senior Note is the same, in all material respects, as the Senior Notes described above in the Note Amendment Transaction and was convertible into shares of the Company’s Common Stock at an initial conversion price of $1.20. Based on the initial conversion price, the Additional Senior Note was convertible into up to 420,376 shares of common stock. As the Additional Senior Note is the same in all material respects as the Senior Notes, the conversion price of the Additional Senior Note may be adjusted upon the occurrence of the same events which would result in an adjustment to the conversion price of the Senior Notes, as described above, including the issuance of securities at a price per share less than the current conversion price. Similarly, the maturity date, interest rate, events of default, redemption and other terms of the Additional Senior Note are the same as for the Senior Notes. The Additional Senior Note is on parity with the Senior Notes and, subject to certain exceptions, is

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senior to other existing and future indebtedness of the Company and, together with the Senior Notes, is secured by a first priority lien on all of the Company’s assets to the extent and as provided in the Security Agreement as amended.

In accordance with ASC 470-50, “Debt - Modifications and Extinguishments,” the Company’s note exchange agreement was tested to determine whether a debt modification or debt extinguishment had occurred. Based on management’s review, debt extinguishment accounting applied. As a result of the debt exchange, the Company recorded $247,539 of non-cash expense resulting from the conversion feature of the convertible debt. The loss consisted of the resulting derivative liability from the embedded conversion options in the new notes.

Fiscal 2019 Note Restructuring Transaction

Note Restructuring Transaction

On July 19, 2018, the Company entered into the Settlement and Restructuring Agreement (the “Settlement Agreement”) with Peachstate Health management, LLC (“AEON”), its wholly-owned subsidiary, and the former members of AEON included in the Agreement (the “Former Members”), including its Chief Executive Officer, Hanif A. Roshan. Pursuant to the Agreement, the parties agreed to among other things, resolve certain disagreements among themselves relating to the interpretation of certain provisions of the Merger Agreement.

As a condition to the effectiveness of the Settlement Agreement, the parties agreed to restructure the loans previously made to the Company by Mr. Roshan and Optimum Ventures, LLC, (together the “Lenders”) and to exchange the existing Senior Notes held by them for a new senior credit instrument pursuant to which they will provide up to $2.0 million of credit to the Company (the “Note Restructuring Transaction”). In the Note Restructuring Transaction, the Company entered into a note exchange agreement dated July 19, 2018 (the “July Exchange Agreement”), with the Lenders, who collectively held senior secured convertible notes in the aggregate principal amount of $1,351,482 (the “Original Notes”).

Pursuant to the July Exchange Agreement, the Company agreed to issue the Lenders senior secured grid notes in the aggregate principal amount for a maximum of $2.0 million (the “Grid Notes”) in consideration of the cancellation of their Original Notes. The Grid Notes are structured to provide the Company with a credit facility pursuant to which it can borrow, pay, and reborrow any portion of the maximum principal amount of credit available under these instruments. The Grid Notes are senior, secured obligations and are not convertible into any equity securities of the Company. The Grid Notes bear interest at the rate of 7.5% per annum with interest payable upon maturity or sooner in accordance with the prepayment mechanism of the Grid Notes. The maturity date of the Grid Notes is June 30, 2020.

The Grid Notes are on parity with an outstanding principal amount of $1,698,169 of other Senior Notes (hereinafter, the “Senior Convertible Notes”) and, subject to certain exceptions, are senior to other existing and future indebtedness of the Company and, together with the Senior Convertible Notes, will be secured by a first priority lien on all of the Company’s assets to the extent and as provided in a Security Agreement entered into between the Company, the Lenders and the holders of the Senior Convertible Notes (the “Convertible Note Holders”). The Grid Notes contain customary covenants against incurring additional indebtedness and granting additional liens and contains customary events of default, which terms are substantially the same as the corresponding provisions of the Original Notes. Upon the occurrence of an event of default under the Grid Notes, the Lenders may require the Company to repay all or a portion of the note in cash, at a price equal to 110% of the principal, plus accrued and unpaid interest.

The Grid Notes were issued in consideration of the exchange of (i) an aggregate principal amount of $759,869 of Original Notes held by Mr. Roshan and (ii) an aggregate principal amount of $591,613 of Original Notes held by Optimum Ventures, LLC. The maximum principal amount under the Grid Note issued to Mr. Roshan is $1,100,000 and the maximum principal amount under the Grid Note issued to Optimum is $900,000. Each Grid Note issued also reflects an outstanding principal amount equal to the sum of the aggregate principal amount of the Original Notes held by each Lender, plus the accrued but unpaid interest thereon. The aggregate principal amount of the Grid Notes outstanding as of the closing date of the Note Restructuring Transaction and March 31, 2019 was $1,415,449. The closing of the Note Restructuring Transaction occurred on July 19, 2018.

In accordance with ASC 470-50, “Debt - Modifications and Extinguishments,” the Company’s note exchange agreement was tested to determine whether a debt modification or debt extinguishment had occurred. Based on management’s review, debt extinguishment accounting applied. As a result of the debt exchange, the Company recorded zero of non-cash expense resulting from the conversion feature of the convertible debt. These notes were deemed to be a related party capital transaction and were included in additional paid-in capital at March 31, 2019.

In connection with the Note Restructuring Transaction, the Company entered into a consent and amendment agreement with the Convertible Notes Holders to obtain their consent to the issuance of the Grid Notes. In consideration thereof, the Company and Convertible Note Holders also agree to extend the maturity date of the Senior Convertible Notes for a period of one year to March 20, 2020 and to modify the redemption mechanism of such instruments by increasing the duration of the redemption notice period defined in the Senior Convertible Notes. In addition, the parties entered into an amendment to the Amended and Restated Security Agreement

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entered into as of March 20, 2017, as previously amended (the “Security Agreement”), to provide that the Grid Notes shall be secured by the collateral defined in such earlier Security Agreement.

6.               Equity

Preferred Stock

As of March 31, 2019, there were 25,000 shares of Series E Convertible Preferred Stock outstanding. The shares of Series E Preferred Stock are initially convertible into an aggregate of 187,500 shares of common stock at the initial conversion rate of $4.00 per share. The conversion price of the Series E Preferred Stock will be subject to adjustment solely in the event of stock dividends, combinations, splits, recapitalizations, and similar corporate events and does not provide for general price-based anti-dilution adjustments. Each share of Series E Preferred Stock has a stated value of $30.00 per share and has the following rights and preferences: (i) each holder of the Series E Preferred Stock has the right, at any time, to convert the shares of Series E Preferred Stock into shares of common stock, (ii) the Series E Preferred Stock is redeemable at the Company’s option commencing one year after the original issuance date, provided that the Company’s common stock is listed on a national securities exchange at such time, and (iii) the Series E Preferred Stock will pay dividends at the rate of 5% per annum in cash. The shares of Series E Preferred Stock were issued in a transaction with the holder of the Company’s previously outstanding shares of Series B Preferred Stock to exchange the shares of Series B Preferred Stock for the shares of Series E Preferred Stock. Pursuant to the exchange agreement for the preferred stock, the holder of the shares of Series B Preferred Stock agreed to waive all unpaid dividends that had accrued on the shares of Series B Preferred Stock. At March 31, 2019, the Company had accrued dividends of approximately $28,400 on the Series E Preferred Stock.

As of March 31, 2019, there are 605,000 shares of Series D Convertible Preferred Stock outstanding. The Series D Preferred Stock can be converted by the holders into an aggregate of 619,154 shares of common stock at an initial conversion rate of $9.77139 per share. The holders of such shares have the right to convert the preferred shares at any time, although the shares received upon conversion may not be offered or sold except pursuant to an effective registration statement or an applicable exemption from the registration requirements of the Securities Act and applicable state securities laws. The Company has the right to repurchase the outstanding Series D Preferred Stock at a redemption price equal to $10.00 per share, plus accrued and unpaid dividends, and to require holders to convert their Series D Preferred Stock beginning in June 2016. Dividends on the Series D Preferred Stock accrue at a rate of 5% per annum and are payable semi-annually in cash or stock at the Company’s option. At March 31, 2019, the Company had accrued dividends in the amount of approximately $228,700 on the Series D Preferred Stock.

On December 19, 2018, the Board of directors of the Company declared a dividend on its outstanding shares of Series D Convertible Preferred Stock in the aggregate amount of $152,494 and a dividend on the outstanding shares of its Series E Convertible Preferred Stock in the aggregate amount of $18,904. The dividends were payable as of December 31, 2018. The Board determined to pay the dividends through the issuance of additional shares of Common Stock. The shares of Common Stock to the preferred stock holders will be issued pursuant to the exemption from registration under Section 4(a)(2) of the Securities Act of 1993, as amended. The Common Stock certificates were issued in January 2019.

The Company’s preferred stock takes precedence over Common Stock but ranks below debt in the event of liquidation. In addition, the Series D Convertible Preferred Stock ranks above the Series E Convertible Preferred Stock.

Earnings per Share

FASB ASC Topic 260, Earnings per Share, requires the presentation of basic and diluted earnings per share. Basic earnings per share is calculated based on the weighted-average number of ordinary shares outstanding during the period, while diluted earnings per share is calculated to include any dilutive effects to ordinary shares. For the three and nine months ended March 31, 2019, our ordinary share equivalents consisted of convertible debt.

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Due to the adjustment of the conversion price of the New Senior Notes, the exercise price of outstanding warrants to purchase an aggregate of 825,144 shares of common stock has been adjusted from $2.07 to $1.22 per share.

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7.                    Share Based Compensation

Stock option activity under the Company’s stock option plans for employees and non-executive directors for the nine months ended March 31, 2019 is as follows: