UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 


 

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

 

For the quarterly period ended June 30, 2020

 

OR

 

☐          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 000-53601

 

MITESCO, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

87-0496850

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

7535 East Hampden Avenue, Ste. 400

Denver, Colorado

 

80231

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (844) 383-8689

 

                                                               N/A                                                                 

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

N/A

 

N/A

 

N/A

 

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  ☑   No  ☐

 

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  ☑   No  ☐

 

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.

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer  

 

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

 

 

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. ☐

 

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

 

As of August 6, 2020, 107,734,693 shares of the registrant’s common stock, $0.01 par value, were outstanding. 

 

 

 

 

Table of Contents

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

 

1

 

 

 

 

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

25

 

 

 

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

30

 

 

 

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES.

 

30

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

 

ITEM 1.

LEGAL PROCEEDINGS.

 

31

 

 

 

 

 

 

ITEM 1A.

RISK FACTORS.

 

31

 

 

 

 

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

32

 

 

 

 

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

 

32

 

 

 

 

 

 

ITEM 4.

MINE SAFETY DISCLOSURES.

 

32

 

 

 

 

 

 

ITEM 5.

OTHER INFORMATION.

 

32

 

 

 

 

 

 

ITEM 6.

EXHIBITS.

 

33

 

 

 

 

 

 

SIGNATURES

 

34

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. 

FINANCIAL STATEMENTS.

 

MITESCO, INC.

Condensed Consolidated Balance Sheets

 

   

(unaudited)

June 30,

   

December 31,

 

ASSETS

 

2020

   

2019

 

Current assets

               

Cash and cash equivalents

  $ 17,542     $ 83,245  

Prepaid expenses

    -       9,721  

Total current assets

    17,542       92,966  
                 

Fixed assets, net of accumulated depreciation of $786 and $0

    7,068       7,854  
                 

Total Assets

  $ 24,610     $ 100,820  
                 

LIABILITIES AND (DEFICIENCY IN) STOCKHOLDERS' EQUITY

               

Current liabilities

               

Accounts payable and accrued liabilities

  $ 433,534     $ 648,714  

Accrued interest

    128,581       82,870  

Derivative liabilities

    981,697       1,488,423  

Convertible notes payable, net of discount of $749,713 and $646,888

    172,287       77,112  

SBA Loan Payable

    460,406       -  

Convertible note payable, in default

    122,166       122,166  

Other current liabilities

    93,573       -  

Preferred stock dividends payable

    36,751       -  

Total current liabilities

    2,428,995       2,419,285  
                 

Total Liabilities

    2,428,995       2,419,285  
                 

Commitments and contingencies

    -       -  
                 

Stockholders' equity (deficit)

               

Preferred stock, $0.01 par value, 100,000,000 shares authorized; 500,000 shares designated Series A; 400,000 shares designated Series X: 

               

Preferred stock, Series A, $0.01 par value, 4,800 and 0 shares issued and outstanding as of June 30, 2020 and December 31, 2019

    48       -  

Preferred stock, Series X, $0.01 par value, 26,227 shares issued and outstanding as of June 30, 2020 and December 31, 2019

    262       262  

Common stock, $0.01 par value, 500,000,000 shares authorized, 98,796,144 and 81,268,443 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

    987,962       812,684  

Additional paid-in capital

    9,058,332       8,407,977  

Stock payable

    37,186       37,186  

Accumulated deficit

    (12,488,175

)

    (11,576,574

)

Total (deficiency in) stockholders' equity

    (2,404,385

)

    (2,318,465

)

                 

Total liabilities and stockholders' equity

  $ 24,610     $ 100,820  

 

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

 

 

MITESCO, INC.

Unaudited Condensed Consolidated Statements of Operations  

 

   

For the Three

   

For the Three

   

For the Six

   

For the Six

 
   

Months Ended

   

Months Ended

   

Months Ended

   

Months Ended

 
   

June 30,

   

June 30,

   

June 30,

   

June 30,

 
   

2020

   

2019

   

2020

   

2019

 
                                 

Revenue

  $ -     $ -     $ -     $ -  
                                 

Operating expenses:

                               

General and administrative

    625,838       226,250       1,122,332       447,501  
                                 

Total operating expenses

    625,838       226,250       1,122,332       447,501  
                                 

Net Operating Loss

    (625,838

)

    (226,250

)

    (1,122,332

)

    (447,501

)

                                 

Other income (expense):

                               

Grant income

    3,000       -       3,000       -  

Interest expense

    (396,907

)

    (164,504

)

    (587,035

)

    (324,901

)

Gain on settlement of accounts payable

    306,319       -       348,611       -  

(Loss) Gain on derivative liabilities

    (50,214

)

    -       446,155       -  

Loss on legal settlement

    -       (26,924

)

            (26,924

)

Loss on conversion of notes

    -       (58,935

)

    -       (158,659

)

Total other expense

    (137,802

)

    (250,363

)

    210,731       (510,484

)

                                 
                                 
                                 

Net loss

  $ (763,640

)

  $ (476,613

)

  $ (911,601

)

  $ (957,985

)

                                 

Preferred stock dividend

    (19,392

)

    -       (36,751

)

    -  
                                 

Net loss available to common shareholders

  $ (783,032

)

  $ (476,613

)

  $ (948,352

)

  $ (957,985

)

                                 

Net loss per share - basic and diluted

  $ (0.01

)

  $ (0.01

)

  $ (0.01

)

  $ (0.03

)

                                 

Weighted average shares outstanding - basic and diluted

    88,833,282       33,986,267       86,408,229       33,188,078  

 

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

 

 

MITESCO, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

 

   

FOR THE THREE MONTHS ENDED JUNE 30

 
                                                                                 
   

Preferred Stock Series A

   

Preferred Stock Series X

   

Common Stock

   

Additional

Paid-in

   

Stock

   

Accumulated

         
   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

   

capital

   

Payable

   

Deficit

   

Total

 

Balance, March 31, 2019

    -       -       -       -       33,316,861       333,168       5,993,643       37,186       (8,172,684

)

    (1,808,687

)

Stock issued to employees subject to vesting

    -       -       -       -       1,000,000       10,000       (10,000

)

    -       -       -  

Stock issued for conversion of notes payable

    -       -       -       -       3,359,444       33,594       131,831       -       -       165,425  

Shares issued for legal settlement

    -       -       -       -       1,401,224       14,012       87,016       -       -       101,028  

Discount on notes payable due to conversion feature

    -       -       -       -       -       -       143,555       -       -       143,555  

Vesting of shares issued to employees

    -       -       -       -       -       -       22,218       -       -       22,218  

Imputed interest

    -       -       -       -       -       -       2,250       -       -       2,250  

Net loss for the period

    -       -       -       -       -       -       -       -       (476,613

)

    (476,613

)

Balance, June 30, 2019 (unaudited)

    -       -       -       -       39,077,529     $ 390,774     $ 6,370,513     $ 37,186     $ (8,649,297

)

  $ (1,850,824

)

                                                                                 

Balance, March 31, 2020

    4,800     $ 48       26,227     $ 262       86,566,999     $ 865,670     $ 8,688,893     $ 37,186     $ (11,724,535

)

  $ (2,132,476

)

Vesting of common stock issued to employees

    -       -       -       -       -       -       19,374       -       -       19,374  

Vesting of stock options issued to employees

    -       -       -       -       -       -       20,508       -       -       20,508  

Settlement of derivative liabilities

    -       -       -       -       -       -       297,672       -       -       297,672  

Common stock issued in warrant settlement agreement

    -       -       -       -       2,901,440       29,014       51,277       -       -       80,291  

Common stock issued for conversion of notes payable and accrued interest

    -       -       -       -       9,327,705       93,278       -       -       -       93,278  

Preferred stock dividends

    -       -       -       -       -       -       (19,392

)

    -       -       (19,392

)

Loss for the period ended June 30, 2020

    -       -       -       -       -       -       -       -       (763,640

)

    (763,640

)

Balance, June 30, 2020 (unaudited)

    4,800     $ 48       26,227     $ 262       98,796,144     $ 987,962     $ 9,058,332     $ 37,186     $ (12,488,175

)

  $ (2,404,385

)

 

   

FOR THE SIX MONTHS ENDED JUNE 30

 
                                                                                 
   

Preferred Stock Series A

   

Preferred Stock Series X

   

Common Stock

   

Additional

Paid-in

   

Stock

   

Accumulated

         
   

Shares

   

Amount

   

Shares

   

Amount

   

Shares

   

Amount

   

capital

   

Payable

   

Deficit

   

Total

 

Balance, December 31, 2018

    -       -       -       -       31,598,236     $ 315,982     $ 5,684,208     $ 37,186     $ (7,691,312

)

  $ (1,653,936

)

Stock issued for services

    -       -       -       -       200,000       2,000       15,480       -       -       17,480  

Stock issued to employees subject to vesting

    -       -       -       -       1,000,000       10,000       (10,000

)

    -       -       -  

Stock issued for conversion of notes payable

    -       -       -       -       5,278,069       52,780       302,629       -       -       355,409  

Stock issued for legal settlement

    -       -       -       -       1,401,224       14,012       87,016       -       -       101,028  

Discount on notes payable due to conversion feature

    -       -       -       -       -       -       223,087       -       -       223,087  

Discount on notes payable due to warrants

    -       -       -       -       -       -       34,500       -       -       34,500  

Cancellation of shares

    -       -       -       -       (400,000

)

    (4,000

)

    4,000       -       -       -  

Vesting of shares issued to employees

    -       -       -       -       -       -       25,093       -       -       25,093  

Imputed interest

    -       -       -       -       -       -       4,500       -       -       4,500  

Net loss for the period

    -       -       -       -       -       -       -       -       (957,985

)

    (957,985

)

Balance, June 30, 2019 (unaudited)

    -       -       -       -       39,077,529     $ 390,774     $ 6,370,513     $ 37,186     $ (8,649,297

)

  $ (1,850,824

)

                                                                                 

Balance, December 31, 2019

    -     $ -       26,227     $ 262       81,268,443     $ 812,684     $ 8,407,977     $ 37,186     $ (11,576,574

)

  $ (2,318,465

)

Vesting of common stock issued to employees

    -       -       -       -       -       -       53,050       -       -       53,050  

Vesting of stock options issued to employees

    -       -       -       -       -       -       27,580       -       -       27,580  

Common stock issued for services

    -       -       -       -       200,000       2,000       5,680       -       -       7,680  

Settlement of derivative liabilities

    -       -       -       -       -       -       528,995       -       -       528,995  

Common stock issued in warrant settlement agreement

    -       -       -       -       7,999,996       80,000       291       -       -       80,291  

Common stock issued for conversion of notes payable and accrued interest

    -       -       -       -       9,327,705       93,278       -       -       -       93,278  

Issuance of Preferred A stock to consultants

    4,800       48       -       -       -       -       71,510       -       -       71,558  

Preferred stock dividends, $3.62 per share (10% of stated value per year)

    -       -       -       -       -       -       (36,751

)

    -       -       (36,751

)

Loss for the period ended June 30, 2020

    -       -       -       -       -       -       -       -       (911,601

)

    (911,601

)

Balance, June 30, 2020 (unaudited)

    4,800     $ 48       26,227     $ 262       98,796,144     $ 987,962     $ 9,058,332     $ 37,186     $ (12,488,175

)

  $ (2,404,385

)

 

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

 

MITESCO, INC.

Unaudited Condensed Consolidated Statement of Cash Flows

 

   

For the Six

   

For the Six

 
   

Months Ended

   

Months Ended

 
   

June 30,

   

June 30,

 
   

2020

   

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES

               

Net loss

  $ (911,601

)

  $ (957,985

)

Adjustments to reconcile net loss to net cash used in operating activities:

               

Depreciation

    786       -  

Loss on conversion of notes payable to common stock

    -       158,659  

Loss on legal settlement

    -       26,924  

Gain on settlement of accounts payable

    (348,611

)

    -  

Gain on derivative liabilities

    (446,155

)

    -  

Derivative expense

    43,009       -  

Amortization of discount on notes payable

    386,175       261,035  

Share-based compensation

    159,868       42,573  

Imputed interest

            4,500  
                 

Changes in assets and liabilities:

               

Prepaid expenses

    9,721       2,500  

Accounts payable and accrued liabilities

    226,199       83,793  

Due to related parties

    -       36,151  

Other current liabilities

    805       -  

Accrued interest

    53,695       37,508  
                 

Net cash used in operating activities

    (826,109

)

    (304,342

)

                 
                 

CASH FLOWS FROM FINANCING ACTIVITIES

               

Proceeds from notes payable, net of discount

    931,406       313,558  

Principal payments on notes payable

    (171,000

)

    (10,236

)

                 

Net cash provided by financing activities

    760,406       303,322  
                 

Net increase (decrease) in cash and cash equivalents

    (65,703

)

    (1,020

)

                 

Cash and cash equivalents at beginning of period

    83,245       1,304  
                 

Cash and cash equivalents at end of period

  $ 17,542     $ 284  
                 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

               

Interest paid

  $ 2,680     $ 2,236  

Income taxes paid

  $ -     $ -  
                 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

               

Par value of shares returned for cancellation

  $ -     $ 4,000  

Shares issued for debt conversion

  $ -     $ 196,750  

Stock issued for legal settlement

  $ -     $ 101,028  

Discount due to warrants

  $ -     $ 34,500  

Beneficial conversion feature

  $ 506,726     $ 223,087  

Settlement of derivative liabilities

  $ 664,684     $ -  

Issuance of Series A Preferred Stock to consultants

  $ 71,558     $ -  

Preferred stock dividends payable

  $ 36,751     $ -  

Exercise of cashless warrants

  $ 50,986     $ -  

Derivative discounts

  $ 485,000     $ -  

 

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

 

 

MITESCO, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 1 – Description of Business

 

Company Overview

 

Mitesco, Inc. (the “Company,” “we,” “us,” or “our”), previously known as Trunity Holdings, Inc., a Delaware corporation, and since 2016 known as True Nature Holding, Inc., became a publicly-traded company through a reverse triangular merger with Brain Tree International, Inc., a Utah corporation (“BTI”) in 2012. Trunity Holdings, Inc. was the parent company of our educational business, named Trunity, Inc., which was formed on July 28, 2009 through the acquisition of certain intellectual property from its three founders. On December 9, 2015, the Company made a decision to restructure Trunity Holdings, Inc., having acquired Newco4pharmacy, LLC, a development stage business aimed at a roll-up of compounding pharmacy businesses. As a part of such restructuring, we completed a “spin out” transaction of our educational business line to our shareholders as of December 31, 2015. On April 24, 2020 True Nature Holding, Inc., now known as Mitesco, Inc. (OTCQB:MITI) completed the change of its corporate identity based on final approval from FINRA.

 

The Company is developing a portfolio of product offerings aimed at enhancing healthcare throughout the supply chain as well as to consumers. We have acquired assets and intend to acquire and implement technologies and services to improve the quality of care, reduce cost, and enhance consumer convenience. We believe the holding company structure facilitates growth and should enable the acquired business to focus on scale. The goal of the Company’s evolving portfolio of companies is to apply leading-edge solutions that emphasize stakeholder value and leverages distinct sector trends. Sectors of interest include artificial intelligence (AI), population health management, data gathering solutions, electronic health records optimization, healthcare IT solutions, virtual care & care augmentation, and predictive analytics. The Company formed a holding company structure for both its acquired assets in the United States and Europe, designed to support efficiencies around taxation, legal, and economies of scale in administrative functions. We now have a wholly owned subsidiary in Dublin, Ireland, Acelerar Healthcare Holdings, Ltd., and intend to use that location as a base for European operations.

 

As a development stage company, we have two businesses in development. The first business is our product set “SimpleHIPAA” and “Simple HIPPA for Vets and Pets”. It is designed to transmit data generated at the time a prescription is written by a physician or veterinarian for the pharmacy. This information is embedded inside the application and made available to the healthcare provider and to the pharmacy. While providing a starting point for tracking healthcare information for the end user, it also establishes a communications method between the healthcare provider and the pharmacy.  Currently, it is focused on e-prescribing between compounding pharmacies and their clients, the physician for humans and the veterinarian for pets. A large Florida based pharmacy is the development partner and distributor that is introducing it to the marketplace. They have installed the software at more than 100 client sites since January 2020. We are told it is working as designed.

 

Our second active business is The Good Clinic, LLC. This business is establishing primary care medical clinics operated by Independent Nurse Practitioners. The Good Clinic provides the marketing, support services, systems, and clinical tools to allow an independent Nurse Practitioner to quickly open a clinic. The initial clinic is intended to be opened in Minneapolis, MN in the fourth quarter of 2020. These clinics are being designed to deliver primary care, spa, and dermatological services through in-person, over-the-phone, and telemedicine visits.

 

We are actively seeking acquisitions that fit our strategy. We seek to find businesses with proven scalable results and then make those technologies and services available to the those that can use them to improve their quality of life, their health, and cost of operation. Some of these businesses simply need marketing and distribution, others will benefit from combining with another technology to create a more complete solution. That is our mission: find the best, deliver efficiencies, make improvements if necessary, and then scale the business.

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Accounting – The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the instructions to interim financial reporting as prescribed by the Securities and Exchange Commission (the “SEC”). The results for the interim periods are not necessarily indicative of results for the entire year. These interim financial statements do not include all disclosures required by U.S. generally accepted accounting principles (“GAAP”), and should be read in conjunction with the consolidated financial statements and notes thereto filed with the SEC in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. In the opinion of management, the unaudited Condensed Consolidated Financial Statements contained in this report include all known accruals and adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods reported herein. Any such adjustments are of a normal recurring nature.

 

 

Use of Estimates - The preparation of these unaudited condensed financial statements requires our management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and related notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment.

 

Other Comprehensive Loss - The Company does not have any items of other comprehensive loss and therefore its other comprehensive loss is the same as its net loss in its condensed consolidated statements of operations.

 

Cash -All highly liquid investments with a maturity date of three months or less at the date of purchase are cash equivalents.

 

Revenue Recognition – On January 1, 2018, we adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (Topic 605). Results for reporting periods beginning after January 1, 2018 are presented under Topic 606. The impact of adopting the new revenue standard was not material to our financial statements and there was no adjustment to beginning retained earnings on January 1, 2018.

 

Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

 

We determine revenue recognition through the following steps:

 

identification of the contract, or contracts, with a customer;

identification of the performance obligations in the contract;

determination of the transaction price;

allocation of the transaction price to the performance obligations in the contract; and

recognition of revenue when, or as, we satisfy a performance obligation.

 

Stock-Based Compensation-We recognize the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation cost for stock options are estimated at the grant date based on each option’s fair-value as calculated by the Black-Scholes-Merton (“BSM”) option-pricing model. Share-based compensation arrangements may include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.

 

Equity instruments issued to those other than employees are recognized pursuant to FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This ASU relates to the accounting for non-employee share-based payments. The amendment in this update expands the scope of Topic 718 to include all share-based payment transactions in which a grantor acquired goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The ASU excludes share-based payment awards that relate to: (1) financing to the issuer; or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts from Customers. The share-based payments are to be measured at grant-date fair value of the equity instruments that the entity is obligated to issue when the goods or service has been delivered or rendered and all other conditions necessary to earn the right to benefit from the equity instruments have been satisfied. This standard will be effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. We adopted the provisions of this ASU on January 1, 2019. The adoption had no impact on our results of operations, cash flows, or financial condition. 

 

Convertible Instruments-The Company reviews the terms of convertible debt and equity instruments to determine whether there are conversion features or embedded derivative instruments including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. In circumstances where the convertible instrument contains more than one embedded derivative instrument, including conversion options that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single compound instrument. Also, in connection with the sale of convertible debt and equity instruments, the Company may issue free standing warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity. When convertible debt or equity instruments contain embedded derivative instruments that are to be bifurcated and accounted for separately, the total proceeds allocated to the convertible host instruments are first allocated to the fair value of the bifurcated derivative instrument. The remaining proceeds, if any, are then allocated to the convertible instruments themselves, usually resulting in those instruments being recorded at a discount from their face amount. When the Company issues debt securities, which bear interest at rates that are lower than market rates, the Company recognizes a discount, which is offset against the carrying value of the debt. Such discount from the face value of the debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to income. In addition, certain conversion features are recognized as beneficial conversion features to the extent the conversion price as defined in the convertible note is less than the closing stock price on the issuance of the convertible notes.

 

 

The following assumptions were used for the valuation of the derivative liability related to the convertible notes that contain a derivative component during the three months ended June 30, 2020:

 

 

-

The stock prices of $0.0239 to $0.0425 in these periods would fluctuate with the Company projected volatility;

 

 

-

The projected volatility curve from an annualized analysis for each valuation period was based on the historical volatility of the Company and the term remaining for each note or warrant ranged from 156.5% through 219.6% at derivative treatment, issuance, conversion, exercise, and quarters ends. The Company continues to trade with high volatility;

 

 

-

The Holder would automatically convert the note at the maximum of 2 times the conversion price if the company were not in default.

 

 

-

The Holder would automatically convert the note before maturity if the registration were effective and the company was not in default. The Holder would automatically convert the note early based on ownership or trading volume limitations and the Company would redeem the unconverted balances at maturity.

 

 

-

A change of control and fundamental transaction would occur initially 0% of the time and increase monthly by 0% to a maximum of 0% – based on management being in control and no desire to sell the Company.

 

 

-

A reset event would adjust the Notes conversion price triggered by either a capital raise, stock issuance, settlement, or conversion/exercise. (A reset occurred on November 7, 2019 – Auctus Conversion triggered a reset to $0.00858). The reset events are projected to occur annually starting 3 months following the date of valuation of June 30, 2020.

 

 

-

For the variable rate Notes (39% or 45% discount), the Holder would convert with effective discount rates of 51.58% to 55.74% (based on the lookback terms).

 

 

-

The Company would redeem the notes at maturity if the conversion value were less than the payment with penalties. During the period redemption is projected 0% of the time, increasing 0% per month to a maximum of 0%.

 

 

-

The cash flows are discounted to net present values using risk free rates. Discount rates were based on risk free rates in effect based on the remaining term.

 

 

-

An event of default would occur 10% of the time, increasing 0% per month to a maximum of 10%.

 

 

-

The Crown Bridge warrants were amended on March 9, 2020. These remaining Crown Bridge warrants exercised on a cashless basis during the period.

 

Common Stock Purchase Warrants-The Company accounts for common stock purchase warrants in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815, Accounting for Derivative Instruments and Hedging Activities. As is consistent with its handling of stock compensation and embedded derivative instruments, the Company’s cost for stock warrants is estimated at the grant date based on each warrant’s fair-value as calculated by the BSM option-pricing model value method for valuing the impact of the expense associated with these warrants.

 

Stockholders’ Equity-Shares of common stock issued for other than cash have been assigned amounts equivalent to the fair value of the service or assets received in exchange. Common stock share and per share amounts in these financial statements have been adjusted for the effects of a one for 101 reverse stock split that occurred in January 2016.

 

Per Share Data-Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the year. Diluted loss per share is computed by dividing net loss by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to warrants, options and convertible instruments.

 

The Company has excluded all common equivalent shares outstanding for warrants, options and convertible instruments to purchase common stock from the calculation of diluted net loss per share because all such securities are antidilutive for the periods presented. As of June 30, 2020, there were 7,317,879 options outstanding excluded from calculation of diluted net loss; as of June 30, 2019, the Company had outstanding 1,425,000 warrants and 67,879 options excluded from the calculation of diluted net loss. The Company, at its discretion, may satisfy the accrued interest on its Series A and Series X Preferred Stock via the issuance of shares of common stock; at June 30, 2020 and December 31, 2019, there were 1,192,563 and 0 shares, respectively, potentially issuable in connection with such issuance.

 

 

Income Taxes- The Company accounts for income taxes under the asset and liability method which 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 condensed consolidated financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than possible enactments of changes in the tax laws or rates.

 

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized. The Company has determined that a valuation allowance is needed due to recent taxable net operating losses, the sale of profitable divisions and the limited taxable income in the carry back periods. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and certain tax loss carryforwards, less any valuation allowance.

 

The Company accounts for uncertain tax positions as required in that a position taken or expected to be taken in a tax return is recognized in the condensed consolidated financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The Company does not have any material unrecognized tax benefits. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as components of interest expense and other expense, respectively, in arriving at pretax income or loss. The Company does not have any interest and penalties accrued. The Company is generally no longer subject to U.S. federal, state, and local income tax examinations for the years before 2012.

 

Business Combinations- The Company accounts for business combinations by recognizing the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair values on the acquisition date. The purchase price allocation process requires management to make significant estimates and assumptions, especially with respect to intangible assets, estimated contingent consideration payments and pre-acquisition contingencies. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:

 

future expected cash flows from product sales, support agreements, consulting contracts, other customer contracts, and acquired developed technologies and patents; and

discount rates utilized in valuation estimates.

 

Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. Additionally, any change in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date, including changes from events after the acquisition date, such as changes in our estimates of relevant revenue or other targets, will be recognized in earnings in the period of the estimated fair value change. A change in fair value of the acquisition-related contingent consideration or the occurrence of events that cause results to differ from our estimates or assumptions could have a material effect on the condensed consolidated financial position, statements of operations or cash flows in the period of the change in the estimate.

 

Impairment of Long-Lived Assets-Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed would be separately presented in the condensed consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the condensed consolidated balance sheet, if material.

 

Financial Instruments and Fair Values-The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time, based upon relevant market information about the financial instrument. In determining fair value, we use various valuation methodologies and prioritize the use of observable inputs. We assess the inputs used to measure fair value using a three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable in the market:

 

Level 1 – inputs include exchange quoted prices for identical instruments and are the most observable.

 

 

Level 2 – inputs include brokered and/or quoted prices for similar assets and observable inputs such as interest rates.

 

Level 3 – inputs include data not observable in the market and reflect management judgment about the assumptions market participants would use in pricing the asset or liability.

 

The use of observable and unobservable inputs and their significance in measuring fair value are reflected in our hierarchy assessment. The carrying amount of cash, prepaid assets, accounts payable and accrued liabilities approximates fair value due to the short-term maturities of these instruments. Because cash and cash equivalents are readily liquidated, management classifies these values as Level 1. The fair value of the debentures approximate their book value as the instruments are short-term in nature and contain market rates of interest. Because there is no ready market or observable transactions, management classifies the debentures as Level 3.

 

Recently Issued Accounting Standards-There are various other updates recently issued, most of which represent technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s condensed consolidated financial position, results of operations or cash flows.

 

Note 3 – Financial Condition and Going Concern

 

As of June 30, 2020, the Company had cash of $17,542, current liabilities of $2,428,995, and has incurred a loss from operations. The Company’s principal operation is the development and deployment of software and systems for the healthcare marketplace. The Company intends to develop solutions in a) healthcare records, b) the sale of applications in the health and wellness area from third parties in addition to its own developed products. The Company is also performing consulting services to certain entities in the pharmacy, medical and veterinary services area. The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding to execute its business plan.

 

As a result of these factors, there is substantial doubt about the ability of the Company to continue as a going concern. The Company’s continuance is dependent on raising capital and generating revenues sufficient to sustain operations. The Company believes that the necessary capital will be raised and has entered discussions to do so with certain individuals and companies. However, as of the date of these condensed consolidated financial statements, no formal agreement exists.

 

The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts classified as liabilities that might be necessary should the Company be forced to take any such actions. 

 

During March 2020, in response to the COVID-19 crisis, the federal government announced plans to offer loans to small businesses in various forms, including the Payroll Protection Program, or "PPP", established as part of the Corona Virus Aid, Relief and Economic Security Act (“CARES Act”) and administered by the U.S. Small Business Administration. On April 18, 2020, the President and COO completed and submitted an application on behalf of the Company to Bank of America, NA (“Bank of America”) for a PPP loan, which was subsequently approved.  On April 25, 2020 the Company entered into an unsecured Promissory Note (the “Note”) with Bank of America for a loan in the original principal amount of $460,406, and the Company received the full amount of the loan proceeds on May 4, 2020.

 

On July 21, 2020, Bank of America notified the Company in writing that it should not have received $440,000 of the loan proceeds disbursed under the Note representing an amount for the refinancing of an Economic Injury Disaster Loan, which the Company did not receive.  Bank of America has required that the Company remit such funds back to Bank of America. The Company is currently working with Bank of America on a repayment plan.

 

During management's review of the loan application after the loan had been disbursed to the Company, it was determined that the information provided by its President and COO in the application was not representative of the Company’s situation. After consulting with legal counsel and conferring with the Board of Directors, the Board of Directors, in executive session, voted to remove the Company’s President and Chief Operating Officer (“COO”)  from its Board of Directors, and all operating roles due to the inaccuracy of the loan application. Subsequent to that decision, the President & COO submitted a resignation from all positions with the Company, which was accepted by the Board and management.

 

The former President and COO has retained counsel and has indicated the individual’s intent to file an administrative charge of discrimination in Colorado under certain provisions of the anti-discrimination laws of that state. Although no administrative charge has been filed as of this date, if an administrative charge is filed, the company will vigorously defend itself.

 

 

We have had some impact on our operations as a result of the effect of the pandemic, primarily with accessibility to staffing, consultants and in the capital markets, and we are adjusting as needed within our available resources. The Company will continue to assess the effect of the pandemic on its operations. The extent to which the COVID-19 pandemic will impact the Company’s business and operations will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, the duration and effect of possible business disruptions and the short-term effects and ultimate effectiveness of the travel restrictions, quarantines, social distancing requirements and business closures in the United States and other countries to contain and treat the disease. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing the Company’s ability to access capital, which could in the future negatively affect the Company’s liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect the Company’s business and the value of its common stock.  

 

Note 4 – Related Party Transactions

 

Related party transactions for the six months ended June 30, 2020 were as follows:

 

On February 27, 2020, the Company agreed to issue 1,000,000 ten-year options to its two non-management directors (a total of 2,000,000 options). These options have a fair value at issuance of $39,162 per director (a total of $78,324), an exercise price of $0.05 per share, and vest over a three-year period. The Company valued these options using the Black-Scholes valuation model.  During the three- months ended June 30, 2020, the amount of $3,264 was charged to operations in connection with each 1,000,000-option grant (a total of $6,528 for all 2,000,000 options).

 

On March 2, 2020, the Company agreed to issue 1,500,000 ten-year options to each of its Chief Executive Officer, its President, and a  consultant (a total of 4,500,000 options). These options have a fair value at issuance of $58,743 per individual (a total of $176,229), an exercise price of $0.05 per share, and vest over a three-year period. The Company valued these options using the Black-Scholes valuation model. Julie Smith, the Company’s President, Chief Operating Officer, and a Board member resigned effective June 30, 2020; the 1,500,000 options that the Company agreed to issue to Ms. Smith were cancelled, and no vesting of these options was recorded during the three months ended June 30, 2020. During the three months ended June 30, 2020, the amount of $4,896 was charged to operations in connection with each of the remaining 1,500,000 option grants (a total of $9,792 for all 3,000,000 remaining options).

 

During the three months ended June 30, 2020, the Company charged the amount of $19,374 to operations in connection with the vesting of restricted common stock as follows: $6,205 for shares issued to management; $10,110  for shares issued to board members; and $3,059 related to shares issued to an employee. Julie Smith, the Company’s President, Chief Operating Officer, and a Board member, resigned effective June 30, 2020; at the time of her resignation, a total of 1,000,000 shares of the Company’s common stock issued to Ms. Smith for compensation as a board member were vested, and remain outstanding; an additional 250,000 shares of common stock issued to Ms. Smith for compensation as an officer were vested, and also remain outstanding; 750,000 shares of common stock to be issued to Ms. Smith for compensation as an officer had not vested, and these shares were cancelled.

 

At June 30, 2020, the Company accrued dividends on its Series X Preferred stock in the total amount of $32,784. Of this amount, a total of $6,500 was payable to officers and directors,$15,629 was payable to a related party shareholder, and $10,655 was payable to non-related parties.

 

Related party transactions for the six months ended June 30, 2019 were as follows:

 

On March 11, 2019, the Company issued 100,000 shares of common stock to its President as compensation, and charged the fair value in the amount of $8,740 to operations.

 

On March 11, 2019, the Company issued 100,000 shares of common stock to a board member as compensation, and charged the fair value in the amount of $8,740 to operations.

 

During the three months ended June 30, 2019, the Company accrued the amount of $2,875 in connection with the vested portion of a common stock award granted to its President.

 

At June 30, 2019, the Company had the following amounts due to related parties:

 

 

Due to shareholders for accounts payable paid on behalf of the Company and accrued interest: $61,037

 

Note payable in the amount of $75,000 related to reclassification of accounts payable

 

Note payable in the amount of $65,000 related to consulting services provided

 

Note payable in the amount of $58,000 related to accounts payable paid on behalf of the Company

 

 

Note 5 – Debt

 

August 2014 Series C Convertible Debenture

 

As part of the restructuring, all debentures issued by Trunity Holdings, Inc., to fund the former, educational business, were eligible to participate in a debt conversion; however, one debenture holder that was issued a Series C Convertible Debenture (the “Series C Debenture”) in August 2014 with an aggregate face value of $100,000 in exchange for the cancellation of Series B Convertible Debentures with a carrying value of $110,833 did not convert such debenture. The Series C Convertible Debenture accrues interest at an annual rate of 10%, matured November 2015, and is convertible into our common stock at a conversion rate of $20.20 per share. The holders of the Series C Debenture also received five-year warrants to acquire up to 4,950 shares post-split of common stock for an exercise price of $20.20 per share. The former educational business allocated the face value of the Series C Debenture to the warrants and the debentures based on its relative fair values, and allocated to the warrants, which was recorded as a discount against the Series C Debenture, with an offsetting entry to additional paid-in capital. The discount was fully expensed upon execution of the new debentures as debt extinguishment costs within discontinued operations.  The Series C Debenture is currently in default. Details of activity for the three months ended June 30, 2020 are presented in Notes Payable Table 1, below.

 

November 2014 Series D Convertible Debenture

 

As part of the restructuring all debentures issued by Trunity Holdings, Inc., to fund the former, educational business were eligible to participate in a debt conversion; however, one debenture holder that was issued a Series D Convertible Debenture (the “Series D Debenture”) in November 2014 with an aggregate face value of $10,000 in exchange for the cancellation of Series B Convertible Debenture with a carrying value of $11,333 did not participate in the debt conversion restructuring. The Series D Debenture accrues interest at an annual rate of 12%, matured November 2015, and is convertible into our common stock at a conversion rate of $16.67 per share. The holders of the Series D Debenture also received five-year warrants to acquire up to 495 shares of common stock for an exercise price of $20.20 per share on a post-split basis. The former educational business allocated the face value of the Series D Debenture to the warrants and the debentures based on their relative fair values, and allocated to the warrants, which was recorded as a discount against the Series D Debenture, with an offsetting entry to additional paid-in capital. The discount was fully expensed upon execution of the new debentures as debt extinguishment costs within discontinued operations. The Series D Debenture is currently in default. Details of activity for the three months ended June 30, 2020 are presented in Notes Payable Table 1, below.

 

March 2016 Convertible Note A

 

On March 18, 2016, the Company issued a 12% Convertible Promissory Note (the “Convertible Note A”) in the principal amount of $60,000 to a lender. Pursuant to the terms of the Convertible Note A, the Company is obligated to pay monthly installments of not less than $1,000 the first of each month commencing the month following the execution of the Convertible Note A until its maturity on September 16, 2016 at which time the Company was obligated to repay the full principal amount of the Convertible Note A. The Convertible Note A is convertible by the holder at any time into shares of the Company’s common stock at price of $1.00 per share, and throughout the duration of the note, the holder has the right to participate in any financing the Company may engage in upon the same terms and conditions as all other investors. The Company allocated the face value of the Convertible Note A to the shares and the note based on relative fair values, and the amount allocated to the shares of $18,750 was recorded as a discount against the note. The beneficial conversion feature of $9,375 was recorded as a debt discount with an offsetting entry to additional paid-in capital decreasing the note payable and increasing debt discount. The debt discount was amortized to interest expense during the year ended December 31, 2016. 

 

Upon issuance of the Convertible Note A, the lender was awarded 15,000 restricted common stock as an origination fee which includes piggy-back registration rights. On September 19, 2016, the Company issued the lender an additional 15,000 restricted common stock at a price of $0.30 per share to extend the term of the loan agreement indefinitely. The cost to the Company was $4,050 in interest expense.  On August 10, 2017, the Company issued 25,000 shares of common stock with a fair value of $3,750 for accrued interest through August 1, 2017 in the amount of $7,860.  In April 2018, the Company issued 75,000 shares of common stock with a value of $7,500 as consideration for an extension of the term of the loan to July 1, 2018, and on August 13, 2018, the Company issued an additional 75,000 shares of common stock with a value of $6,750 for an extension of the term of the loan to October 31, 2018. During the year ended December 31, 2019, the lender converted principal in the amount of $15,000 into 120,000 shares of common stock. The Company recorded a loss in the amount of $13,867 on this conversion. Also, during the year ended December 31, 2019, the Company made a principal payment in the amount of $4,000 on this note. Details of activity for the three months ended June 30, 2020 are presented in Notes Payable Table 1, below.

 

 

Power Up Note 11

 

On September 12, 2019, the Company entered into a Securities Purchase Agreement with Power Up pursuant to which Power Up agreed to purchase a convertible promissory note (the “Power Up Note 11”) in the aggregate principal amount of $45,000. The Power Up Note 11 entitles the holder to 12% interest per annum and matures on July 15, 2020.  Under the Power Up Note 11, Power Up may convert all or a portion of the outstanding principal of the Power Up Note 11 into shares of Common Stock beginning on the date which is 180 days from the issuance date of the Power Up Note 11, at a price equal to the higher of the variable conversion price or $0.00006 per share.  The variable conversion price  shall mean 55% of lowest trading price during the 25 trading day period ending on the last complete trading date prior to the date of conversion, provided, however, that Power Up may not convert the Power Up Note 11 to the extent that such conversion would result in beneficial ownership by Power Up and its affiliates of more than 4.99% of the Company’s issued and outstanding Common Stock. If the Company prepays the Power Up Note 11 within 30 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 115%; if such prepayment is made between the 31st day and the 60th day after the issuance of the Power Up Note 11, then such redemption premium is 120%; if such prepayment is made from the sixty first 61st to the 90th day after issuance, then such redemption premium is 125%; and if such prepayment is made from the 91st to the 120th day after issuance, then such redemption premium is 130%; and if such prepayment is made from the 121st to the 150th day after issuance, then such redemption premium is 135%; and if such prepayment is made from the 151st to the 180th day after issuance, then such redemption premium is 140%. After the 180th day following the issuance of the Power Up Note 11, there shall be no further right of prepayment. The Company recorded an original issue discount in the amount of $3,000 in connection with the Power Up Note 11; $3,000 was amortized to interest expense during the year ended December 31, 2019. The Company accrued interest in the amount of $1,642 on the Power Up Note 11 during the year ended December 31, 2019. During the year ended December 31, 2019, the Company determined that a derivative liability in the amount of $47,187 existed in connection with the variable rate conversion feature of the Power Up Note 11. $45,000 of this amount was charged to discount on the Power Up Note 11, and $2,187 was charged to interest expense.

 

During the six months ended June 30, 2020, the Company made a cash payment in the amount of $74,195 on the Power Up Note 11 which fully satisfied this obligation. This amount consisted of $45,000 of principal, $2,680 of accrued interest, and $23,815 of prepayment penalty. The Company revalued the derivative liability associated with the Power Up Note 11 at the time of payment, and recorded a gain on revaluation in the amount of $35,420. The Company credited the fair value of the derivative liability at the time of payment in the amount of $21,266 to additional paid-in capital. Details of additional activity for the three months ended June 30, 2020 are presented in Notes Payable Table 1, below.

 

Power Up Note 12

 

On October 7, 2019, the Company entered into a Securities Purchase Agreement with Power Up pursuant to which Power Up agreed to purchase a convertible promissory note (the “Power Up Note 12”) in the aggregate principal amount of $53,000 and an original issue discount of $3,000. The Power Up Note 12 entitles the holder to 12% interest per annum and matures on August 15, 2020.  Under the Power Up Note 12, Power Up may convert all or a portion of the outstanding principal of the Power Up Note 12 into shares of Common Stock beginning on the date which is 180 days from the issuance date of the Power Up Note 12, at a price equal to the higher of the variable conversion price or $0.00006 per share.  The variable conversion price  shall mean 55% of lowest trading price during the 25 trading day period ending on the last complete trading date prior to the date of conversion, provided, however, that Power Up may not convert the Power Up Note 12 to the extent that such conversion would result in beneficial ownership by Power Up and its affiliates of more than 4.99% of the Company’s issued and outstanding Common Stock. If the Company prepays the Power Up Note 12 within 30 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 115%; if such prepayment is made between the 31st day and the 60th day after the issuance of the Power Up Note 12, then such redemption premium is 120%; if such prepayment is made from the sixty first 61st to the 90th day after issuance, then such redemption premium is 125%; and if such prepayment is made from the 91st to the 120th day after issuance, then such redemption premium is 130%; and if such prepayment is made from the 121st to the 150th day after issuance, then such redemption premium is 135%; and if such prepayment is made from the 151st to the 180th day after issuance, then such redemption premium is 140%. After the 180th day following the issuance of the Power Up Note 12, there shall be no further right of prepayment. The Company accrued interest in the amount of $1,499 on the Power Up Note 12 during the year ended December 31, 2019. During the year ended December 31, 2019, the Company determined that a derivative liability in the amount of $54,969 existed in connection with the variable rate conversion feature of the Power Up Note 12. $53,000 of this amount was charged to discount on the Power Up Note 12, and $2,187 was charged to interest expense. $6,502 of the discount was charged to operations during the year ended December 31, 2019.

 

During the three months ended June 30, 2020, the Company made a cash payment in the amount of $84,231 on the Power Up Note 12 which fully satisfied this obligation. This amount consisted of $53,000 of principal, $3,312 of accrued interest, and $27,919 of prepayment penalty. The Company revalued the derivative liability associated with the Power Up Note 12 at the time of payment, and recorded a gain on revaluation in the amount of $4,247. The Company credited the fair value of the derivative liability at the time of payment in the amount of $62,569 to additional paid-in capital. Details of additional activity for the three months ended June 30, 2020 are presented in Notes Payable Table 1, below.

 

 

Power Up Note 13

 

On November 11, 2019, the Company entered into a Securities Purchase Agreement with Power Up pursuant to which Power Up agreed to purchase a convertible promissory note (the “Power Up Note 13”) in the aggregate principal amount of $73,000 and an original issue discount of $3,000. The Power Up Note 13 entitles the holder to 12% interest per annum and matures on August 30, 2020.  Under the Power Up Note 13, Power Up may convert all or a portion of the outstanding principal of the Power Up Note 13 into shares of Common Stock beginning on the date which is 180 days from the issuance date of the Power Up Note 12, at a price equal to the higher of the variable conversion price or $0.00006 per share.  The variable conversion price  shall mean 55% of lowest trading price during the 25 trading day period ending on the last complete trading date prior to the date of conversion, provided, however, that Power Up may not convert the Power Up Note 13 to the extent that such conversion would result in beneficial ownership by Power Up and its affiliates of more than 4.99% of the Company’s issued and outstanding Common Stock. If the Company prepays the Power Up Note 13 within 30 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 115%; if such prepayment is made between the 31st day and the 60th day after the issuance of the Power Up Note 13, then such redemption premium is 120%; if such prepayment is made from the sixty first 61st to the 90th day after issuance, then such redemption premium is 125%; and if such prepayment is made from the 91st to the 120th day after issuance, then such redemption premium is 130%; and if such prepayment is made from the 121st to the 150th day after issuance, then such redemption premium is 135%; and if such prepayment is made from the 151st to the 180th day after issuance, then such redemption premium is 140%. After the 180th day following the issuance of the Power Up Note 13, there shall be no further right of prepayment. The Company accrued interest in the amount of $1,414 on the Power Up Note 13 during the year ended December 31, 2019. During the year ended December 31, 2019, the Company determined that a derivative liability in the amount of $73,529 existed in connection with the variable rate conversion feature of the Power Up Note 13. $73,000 of this amount was charged to discount on the Power Up Note 13, and $529 was charged to interest expense. $6,091 of the discount was charged to operations during the year ended December 31, 2019.

 

During the three months ended June 30, 2020, the Company made a cash payment in the amount of $115,980 on the Power Up Note 13 which fully satisfied this obligation. This amount consisted of $73,000 of principal, $4,728 of accrued interest, and $38,252 of prepayment penalty. The Company revalued the derivative liability associated with the Power Up Note 13 at the time of payment, and recorded a gain on revaluation in the amount of $4,882. The Company credited the fair value of the derivative liability at the time of payment in the amount of $86,380 to additional paid-in capital. Details of additional activity for the three months ended June 30, 2020 are presented in Notes Payable Table 1, below.

 

Eagle Equities Note 1

 

On November 22, 2019, the Company entered into a Securities Purchase Agreement with Eagle Equities, LLC (“Eagle Equities”) pursuant to which Eagle Equities agreed to purchase a convertible promissory note (the “Eagle Equities Note 1”) in the aggregate principal amount of $256,000 and an original issue discount of $6,000. The Eagle Equities Note 1 entitles the holder to 12% interest per annum and matures on November 22, 2020.  Under the Eagle Equities Note 1, Eagle Equities may convert all or a portion of the outstanding principal of the Eagle Equities Note 1 into shares of Common Stock beginning on the date which is 180 days from the issuance date of the Eagle Equities Note 1, at a price equal to 60% of lowest traded price during the 20 day trading period ending on the day the conversion notice is received by the Company, provided, however, that Eagle Equities may not convert the Eagle Equities Note 1 to the extent that such conversion would result in beneficial ownership by Eagle Equities and its affiliates of more than 4.99% of the Company’s issued and outstanding Common Stock. If the Company prepays the Eagle Equities Note 1 during the 30 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 110%; if such prepayment is made between the 31st day and the 60th day after the issuance of the Eagle Equities Note 1, then such redemption premium is 116%; if such prepayment is made from the sixty first 61st to the 90th day after issuance, then such redemption premium is 122%; and if such prepayment is made from the 91st to the 120th day after issuance, then such redemption premium is 128%; and if such prepayment is made from the 121st to the 150th day after issuance, then such redemption premium is 134%; and if such prepayment is made from the 151st to the 180th day after issuance, then such redemption premium is 140%. After the 180th day following the issuance of the Eagle Equities Note 1, there shall be no further right of prepayment. The Company accrued interest in the amount of $3,367 on the Eagle Equities Note 1 during the year ended December 31, 2019. During the year ended December 31, 2019, the Company determined that a derivative liability in the amount of $271,694 existed in connection with the variable rate conversion feature of the Eagle Equities Note 1. $256,000 of this amount was charged to discount on the Eagle Equities Note 1, and $15,694 was charged to interest expense. $7,784 of the discount was charged to operations during the year ended December 31, 2019.

 

 

During the three months ended June 30, 2020, the holder of the Eagle Equities Note 1 converted the following amounts of principal and accrued interest to common stock: On June 5, 2020, principal of $25,000 and accrued interest of $1,608 were converted at a price of $0.0132 per share into 2,015,783 shares of common stock; On June 17, 2020, principal of $25,000 and accrued interest of $1,708 were converted at a price of $0.0132 per share into 2,023,358 shares of common stock; On June 23, 2020, principal of $40,000 and accrued interest of $2,813 were converted at a price of $0.0132 per share into 3,243,434 shares of common stock; and on June 26, 2020, principal of $26,000 and accrued interest of $1,855 were converted at a price of $0.01362 per share into 2,045,130 shares of common stock. There were no gains or losses recorded, as these conversions were made pursuant to the terms of the agreement. Details of activity for the three months ended June 30, 2020 are presented in Notes Payable Table 1, below. 

 

Eagle Equities Note 2

 

On December 19, 2019, the Company entered into a Securities Purchase Agreement with Eagle Equities pursuant to which Eagle Equities agreed to purchase a convertible promissory note (the “Eagle Equities Note 2”) in the aggregate principal amount of $256,000 and an original issue discount of $6,000. The Eagle Equities Note 2 entitles the holder to 12% interest per annum and matures on December 19, 2020.  Under the Eagle Equities Note 2, Eagle Equities may convert all or a portion of the outstanding principal of the Eagle Equities Note 2 into shares of Common Stock beginning on the date which is 180 days from the issuance date of the Eagle Equities Note 2, at a price equal to 60% of lowest traded price during the 20 day trading period ending on the day the conversion notice is received by the Company, provided, however, that Eagle Equities may not convert the Eagle Equities Note 2 to the extent that such conversion would result in beneficial ownership by Eagle Equities and its affiliates of more than 4.99% of the Company’s issued and outstanding Common Stock. If the Company prepays the Eagle Equities Note 2 during the 30 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 110%; if such prepayment is made between the 31st day and the 60th day after the issuance of the Eagle Equities Note 2, then such redemption premium is 116%; if such prepayment is made from the sixty first 61st to the 90th day after issuance, then such redemption premium is 122%; and if such prepayment is made from the 91st to the 120th day after issuance, then such redemption premium is 128%; and if such prepayment is made from the 121st to the 150th day after issuance, then such redemption premium is 134%; and if such prepayment is made from the 151st to the 180th day after issuance, then such redemption premium is 140%. After the 180th day following the issuance of the Eagle Equities Note 2, there shall be no further right of prepayment. The Company accrued interest in the amount of $1,094 on the Eagle Equities Note 2 during the year ended December 31, 2019. During the year ended December 31, 2019, the Company determined that a derivative liability in the amount of $277,476 existed in connection with the variable rate conversion feature of the Eagle Equities Note 2. $256,000 of this amount was charged to discount on the Eagle Equities Note 2, and $21,476 was charged to interest expense. $8,393 of the discount was charged to operations during the year ended December 31, 2019. Details of activity for the three months ended June 30, 2020 are presented in Notes Payable Table 1, below.

 

Eagle Equities Note 3

 

On January 24, 2020, the Company entered into a Securities Purchase Agreement with Eagle Equities pursuant to which Eagle Equities agreed to purchase a convertible promissory note (the “Eagle Equities Note 3”) in the aggregate principal amount of $256,000 and an original issue discount of $6,000. The Eagle Equities Note 3 entitles the holder to 12% interest per annum and matures on January 24, 2021.  Under the Eagle Equities Note 3, Eagle Equities may convert all or a portion of the outstanding principal of the Eagle Equities Note 3 into shares of Common Stock beginning on the date which is 180 days from the issuance date of the Eagle Equities Note 3, at a price equal to 60% of lowest traded price during the 20 day trading period ending on the day the conversion notice is received by the Company, provided, however, that Eagle Equities may not convert the Eagle Equities Note 3 to the extent that such conversion would result in beneficial ownership by Eagle Equities and its affiliates of more than 4.99% of the Company’s issued and outstanding Common Stock. If the Company prepays the Eagle Equities Note 3 during the 30 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 110%; if such prepayment is made between the 31st day and the 60th day after the issuance of the Eagle Equities Note 3, then such redemption premium is 116%; if such prepayment is made from the sixty first 61st to the 90th day after issuance, then such redemption premium is 122%; and if such prepayment is made from the 91st to the 120th day after issuance, then such redemption premium is 128%; and if such prepayment is made from the 121st to the 150th day after issuance, then such redemption premium is 134%; and if such prepayment is made from the 151st to the 180th day after issuance, then such redemption premium is 140%. After the 180th day following the issuance of the Eagle Equities Note 3, there shall be no further right of prepayment. During the three months ended March 31, 2020, the Company determined that a derivative liability in the amount of $272,412 existed in connection with the variable rate conversion feature of the Eagle Equities Note 3. $250,000 of this amount was charged to discount on the Eagle Equities Note 3, and $22,412 was charged to interest expense. Details of additional activity for the three months ended June 30, 2020 are presented in Notes Payable Table 1, below.

 

 

Eagle Equities Note 4

 

On March 10, 2020, the Company entered into a Securities Purchase Agreement with Eagle Equities pursuant to which Eagle Equities agreed to purchase a convertible promissory note (the “Eagle Equities Note 4”) in the aggregate principal amount of $129,000 and an original issue discount of $4,000. The Eagle Equities Note 4 entitles the holder to 12% interest per annum and matures on March 10, 2021.  Under the Eagle Equities Note 4, Eagle Equities may convert all or a portion of the outstanding principal of the Eagle Equities Note 4 into shares of Common Stock beginning on the date which is 180 days from the issuance date of the Eagle Equities Note 4, at a price equal to 60% of lowest traded price during the 20 day trading period ending on the day the conversion notice is received by the Company, provided, however, that Eagle Equities may not convert the Eagle Equities Note 4 to the extent that such conversion would result in beneficial ownership by Eagle Equities and its affiliates of more than 4.99% of the Company’s issued and outstanding Common Stock. If the Company prepays the Eagle Equities Note 4 during the 30 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 110%; if such prepayment is made between the 31st day and the 60th day after the issuance of the Eagle Equities Note 4, then such redemption premium is 116%; if such prepayment is made from the sixty first 61st to the 90th day after issuance, then such redemption premium is 122%; and if such prepayment is made from the 91st to the 120th day after issuance, then such redemption premium is 128%; and if such prepayment is made from the 121st to the 150th day after issuance, then such redemption premium is 134%; and if such prepayment is made from the 151st to the 180th day after issuance, then such redemption premium is 140%. After the 180th day following the issuance of the Eagle Equities Note 4, there shall be no further right of prepayment. During the three months ended March 31, 2020, the Company determined that a derivative liability in the amount of $139,021 existed in connection with the variable rate conversion feature of the Eagle Equities Note 4. $125,000 of this amount was charged to discount on the Eagle Equities Note 4, and $14,021 was charged to interest expense. Details of additional activity for the three months ended June 30, 2020 are presented in Notes Payable Table 1, below.

 

Eagle Equities Note 5

 

On April 8, 2020, the Company entered into a Securities Purchase Agreement with Eagle Equities pursuant to which Eagle Equities agreed to purchase a convertible promissory note (the “Eagle Equities Note 5”) in the aggregate principal amount of $100,000 and an original issue discount of $4,000. The Eagle Equities Note 4 entitles the holder to 12% interest per annum and matures on April 8, 2021.  Under the Eagle Equities Note 5, Eagle Equities may convert all or a portion of the outstanding principal of the Eagle Equities Note 5 into shares of Common Stock beginning on the date which is 180 days from the issuance date of the Eagle Equities Note 5, at a price equal to 60% of lowest traded price during the 20 day trading period ending on the day the conversion notice is received by the Company, provided, however, that Eagle Equities may not convert the Eagle Equities Note 5 to the extent that such conversion would result in beneficial ownership by Eagle Equities and its affiliates of more than 4.99% of the Company’s issued and outstanding Common Stock. If the Company prepays the Eagle Equities Note 5 during the 30 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 110%; if such prepayment is made between the 31st day and the 60th day after the issuance of the Eagle Equities Note 5, then such redemption premium is 116%; if such prepayment is made from the sixty first 61st to the 90th day after issuance, then such redemption premium is 122%; and if such prepayment is made from the 91st to the 120th day after issuance, then such redemption premium is 128%; and if such prepayment is made from the 121st to the 150th day after issuance, then such redemption premium is 134%; and if such prepayment is made from the 151st to the 180th day after issuance, then such redemption premium is 140%. After the 180th day following the issuance of the Eagle Equities Note 5, there shall be no further right of prepayment. During the three months ended June 30, 2020, the Company determined that a derivative liability in the amount of $106,576 existed in connection with the variable rate conversion feature of the Eagle Equities Note 5. $100,000 of this amount was charged to discount on the Eagle Equities Note 5, and $6,576 was charged to interest expense. Details of additional activity for the three months ended June 30, 2020 are presented in Notes Payable Table 1, below.

 

PPP Loan

 

On May 4, 2020, the Company received loan proceeds from Bank of America in the amount of $460,406 under the Paycheck Protection Program (the “PPP Loan”). The PPP loan was obtained pursuant to the CARES Act, which provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business plus Economic Injury Disaster Loan amounts. The loans and accrued interest are forgivable after sixty days providing the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the sixty-day period. According to its terms, the PPP Loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. Subsequent to June 30, 2020, the Company determined that errors had been made in the application submitted to obtain this loan.  On July 21, 2020, Bank of America notified the Company in writing that it should not have received $440,000 of the loan proceeds, representing an amount for the refinancing of an Economic Injury Disaster Loan which the Company did not receive.  Bank of America has required that the Company remit such funds back to Bank of America.  The Company is currently in discussions with Bank of America to arrange terms for a repayment plan.  The PPP Loan has been classified as a current liability on the Company’s balance sheet at June 30, 2020. See Note 9.

 

 

Details of additional activity for the three months ended June 30, 2020 are presented in Notes Payable Table 1, below.

 

Notes Payable Table 1:

 

                                   

Interest

   

Amortization

   

Interest

   

Amortization

         
                                   

Expense

   

of Discount

   

Expense

   

of Discount

         
                                   

3 months

   

3 months

   

6 months

   

6 months

   

Discount

 
   

Principal Balance

   

Accrued Interest

   

ended

   

ended

   

ended

   

ended

   

Balance

 
   

6/30/2020

   

12/31/2019

   

6/30/2020

   

12/31/2019

   

6/30/2020

   

6/30/2020

   

6/30/2020 

   

6/30/2020 

   

6/30/2020

 

Series C Convertible Debenture

  $ 110,833     $ 110,833     $ 63,235     $ 57,709     $ 2,763     $ -     $ 5,526     $ -     $ -  
                                                                         

Series D Convertible Debenture

    11,333       11,333       7,704       7,026       339       -       678       -       -  
                                                                         

Convertible Note A

    41,000       41,000       9,555       7,101       1,227       -       2,454       -       -  
                                                                         

Power Up Note 11

    -       45,000       -       1,805       -       -       875       38,498       -  
                                                                         

Power Up Note 12

    -       53,000       -       1,499       227       37,313       1,813       46,014       -  
                                                                         

Power Up Note 13

    -       73,000       -       1,488       1,056       57,005       3,240       66,554       -  
                                                                         

Eagle Equity Note 1**

    140,000       256,000       10,261       3,367       7,220       126,403       14,879       139,197       109,019  
                                                                         

Eagle Equity Note 2

    256,000       256,000       16,329       1,010       7,659       28,461       15,318       40,279       207,328  
                                                                         

Eagle Equity Note 3

    256,000       -       13,298       -       7,659       16,406       13,298       25,903       230,097  
                                                                         

Eagle Equity Note 4

    129,000       -       4,750       -       3,859       8,378       4,750       15,800       113,200  
                                                                         

Eagle Equity Note 5

    100,000       -       2,729       -       2,729       13,931       2,729       13,931       90,069  
                                                                         

PPP Loan

    460,406       -       719       -       719       -       719       -       -  
                                                                         

Other

    -       -       -       1,865       -       -       -       -       -  
                                                                         

Total

  $ 1,504,572     $ 846,166     $ 128,580     $ 82,870     $ 35,457     $ 287,8979     $ 67,865     $ 386,175     $ 749,713  

 

** Subsequent to June 30, 2020, $140,000 of principal and $11,042 of accrued interest of this note were converted to a total of 8,938,549 shares of the Company’s common stock.

 

 

The total amount of notes payable at June 30, 2020 and December 31, 2019 is presented in Notes Payable Table 2 below:

 

Notes Payable Table 2:

 

   

June 30,

2020

   

December 31,

2019

 

Total notes payable

  $ 1,504,572     $ 846,166  

Less: Discount

    (749,713

)

    (646,888

)

Notes payable - net of discount

  $ 754,859     $ 199,278  
                 

Current Portion, net of discount

  $ 754,859     $ 199,278  

Long-term portion, net of discount

  $ -     $ -  

 

Note 6 – Derivative Liabilities

 

Certain of the Company’s convertible notes and warrants contain features that create derivative liabilities. The pricing model the Company uses for determining fair value of its derivatives is the Lattice Model. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management’s judgment and may impact net income.  The derivative components of these notes are valued at issuance, at conversion, at restructure, and at each period end. 

 

Derivative liability activity for the year ended December 31, 2019 and the six months ended June 30, 2020 is summarized in the table below:

 

December 31, 2018

  $ -  

Conversion features issued

    1,472,320  

Warrants issued

    187,968  

Settled upon conversion or exercise

    (689,469

)

Settled upon payment of note

    (191,827

)

Loss on revaluation

    709,431  

December 31, 2019

  $ 1,488,423  

 

Conversion features issued

    518,009  

Settled upon conversion or exercise

    (664,684

)

Settled upon payment of note

    (148,949

)

Gain on revaluation

    (211,102

)

June 30, 2020

  $ 981,697  

 

Note 7 – Stockholders’ Deficit

 

Common Stock

 

The Company has authorized 500,000,000 shares of common stock, par value $0.01; 98,796,144 and 81,268,443 shares were issued and outstanding at June 30, 2020 and December 31, 2019, respectively.

 

Common Stock Transactions During the Six Months Ended June 30, 2020

 

During the six months ended June 30, 2020, the Company issued 2,901,440 shares of common stock for the cashless exercise of warrants. These warrants were issued pursuant to a settlement agreement with a note holder regarding the effective price of warrants issued with regard to a variable conversion price feature which resulted in the issuance of 1,011,967 more shares than would have been issued prior to the settlement agreement. The Company recorded a loss in the amount of $24,894 on this transaction based upon the additional shares issued at the market price of the Company’s common stock.

 

 

 

Also, during the six months ended June 30, 2020, the holder of the Eagle Equities Note 1 converted the following amounts of principal and accrued interest to common stock: On June 5, 2020, principal of $25,000 and accrued interest of $1,608 were converted at a price of $0.0132 per share into 2,015,783 shares of common stock; On June 17, 2020, principal of $25,000 and accrued interest of $1,708 were converted at a price of $0.0132 per share into 2,023,358 shares of common stock; On June 23, 2020, principal of $40,000 and accrued interest of $2,813 were converted at a price of $0.0132 per share into 3,243,434 shares of common stock; and on June 26, 2020, principal of $26,000 and accrued interest of $1,855 were converted at a price of $0.01362 per share into 2,045,130 shares of common stock. There were no gains or losses recorded, as these conversions were made pursuant to the terms of the agreement.

 

Also, during the six months ending June 30, 2020, the Company issued 200,000 restricted shares of the Company’s common stock at valued $7,680 in exchange for services conducted on behalf of the Company. The value of these shares was based on the closing market price on the respective date of grant. 

 

Also, during the six months ended June 30, 2020, the Company charged the amount of $53,050 to operations in connection with the vesting of stock granted to its officers and board members; the Company also charged the amount of $27,580 to operations in connection with the vesting of options granted to officers and board members.

 

Also, during the six months ended June 30, 2020, the Company entered into agreements to issue 500,000 options to each of four consultants (a total of 2,000,000 options).  The options have a fair value of $20,930 per consultant (a total of $83,720).  These agreements will become effective April 6, 2020, at which time the Company will begin to charge the value of these options to operations. The Company valued these options using the Black-Scholes valuation model.

 

Also, during the six months ended June 30, 2020, the Company entered into agreements with two note holders regarding the exercise price of warrants held by the note holders. These agreements resulted in the following: (i) the Company issued 1,000,000 shares of common stock, and the note holders  agreed to cancel 2,769,482 warrants; the Company recorded a gain in the amount of $77,652 on this transaction; (ii) the Company issued 4,098,556 shares of common stock for the exercise of 4,480,938 warrants in a cashless transaction; the Company recorded a gain in the amount of $259,947 on this transaction, which is included in gain on derivative liabilities.

 

Common Stock Transactions During the Six Months Ended June 30, 2019

 

During the six months ending June 30, 2019, the Company issued 200,000 restricted shares of the Company’s common stock at valued $17,480 in exchange for services conducted on behalf of the Company. The value of these shares was based on the closing market price on the respective date of grant. 

 

Also, during the six months ended June 30, 2019, the Company charged the amount of $2,875 to additional paid-in capital in connection with the vesting of stock granted to its President.

 

Also during the six months ended June 30, 2019, the Company issued, in seven transactions, a total of 1,918,625 shares in connection with the conversion of notes payable principal and accrued interest in the aggregate amount of $86,000 and $4,260, respectively; a loss in the aggregate amount of $99,724 was recognized on these transactions.

 

Also, during the six months ended June 30, 2019, the Company cancelled 400,000 shares of common stock issued to a former executive officer.

 

Preferred Stock

 

The Company has authorized 100,000,000 shares of Preferred Stock. At June 30, 2020,  designations have been filed for the issuance of up to 400,000 shares of its Series X preferred stock, and for the issuance of up to 500,000 shares of its Series A Preferred stock.

 

 

Series A Preferred Stock

 

The Company has issued 4,800 and 0 shares of its 10% Series A Cumulative Redeemable Perpetual Preferred Stock (the “Series A Preferred Stock”) as of June 30, 2020 and December 31, 2019, respectively. The Series A Preferred Stock has a par value of $0.01 per share, no stated maturity, a liquidation preference of $25.00 per share, and will not be subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless the Company decides to redeem or otherwise repurchase the Series A Preferred Stock. The Series A Preferred Stock is not redeemable prior to March 3, 2023. The Series A Preferred Stock will rank senior to all classes of the Company’s common stock and will accrue dividends at the rate of 10% on $25.00 per share. The Company reserves the right to pay the dividends in shares of the Company’s common stock at a price equal to the average closing price over the five days prior to the date of the dividend declaration. The Series A Preferred Stock will have no voting rights. The Company valued the 4,800 shares of Series A Preferred Stock at $71,558 or approximately $14.91 per share based upon an analysis performed by an independent valuation consultant.

 

Series A Preferred Stock Transactions During the Six Months Ended June 30, 2020

 

On March 2, 2020, the Company issued 4,800 shares of its Series A Preferred Stock to four individuals with certain skills and know-how to assist the Company in the development of its newly-formed subsidiary The Good Clinic, LLC. The Company has valued these shares  at $71,558 or approximately $14.91 per share based upon an analysis performed by an independent valuation consultant. During the six months ended June 30, 2020, the Company accrued dividends in the amount of $3,967 on the Series A Preferred Stock. At June 30, 2020, dividend payable on the Series A Preferred Stock was $3,967. At June 30, 2020, if management determined to pay these dividends in shares of the Company’s common stock, this would result in the issuance of 98,780 shares of common stock based upon the average price of $0.0402 per share for the five day period ended June 30, 2020.

 

Series X Preferred Stock

 

The Company has issued 26,227 shares of its 10% Series X Cumulative Redeemable Perpetual Preferred Stock (the “Series X Preferred Stock”) as of June 30, 2020 and December 31, 2019 and 2018. The Series X Preferred Stock has a par value of $0.01 per share, no stated maturity, a liquidation preference of $25.00 per share, and will not be subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless the Company decides to redeem or otherwise repurchase the Series X Preferred Stock; the Series X Preferred Stock is not redeemable prior to November 4, 2020. The Series X Preferred Stock will rank senior to all classes of the Company’s common stock and will accrue dividends at the rate of 10% on $25.00 per share. The Company reserves the right to pay the dividends in shares of the Company’s common stock at a price equal to the average closing price over the five days prior to the date of the dividend declaration. The Series X Preferred Stock will have “super” voting rights such that each share of Series X Preferred Stock will be entitled to 20,000 votes. The Series X Preferred Stock has a fair value of $34.73 as determined by the Company’s independent valuation consultant.

 

Series X Preferred Stock Transactions During the Six Months Ended June 30, 2020

 

During the six months ended June 30, 2020, the Company accrued dividends in the amount of $32,784 on the Series X Preferred Stock. At June 30, 2020, dividend payable on the Series X Preferred Stock was $32,784. At June 30, 2020, if management determined to pay these dividends in shares of the Company’s common stock, this would result in the issuance of 816,335 shares of common stock based upon the average price of $0.0402 per share for the five day period ended June 30, 2020.

 

 

Stock Options

 

The following table summarizes the options outstanding at June 30, 2020 and the related prices for the options to purchase shares of the Company’s common stock:

 

                       

Weighted

           

Weighted

 
               

Weighted

   

average

           

average

 
               

average

   

exercise

           

exercise

 

Range of

   

Number of

   

remaining

   

price of

   

Number of

   

price of

 

exercise

   

options

   

contractual

   

outstanding

   

options

   

exercisable

 

prices

   

outstanding

   

life (years)

   

options

   

exercisable

   

options

 
$ 0.03       250,000       9.93     $ 0.03       -     $ -  
$ 0.05       7,000,000       9.70     $ 0.05       -     $ -  
$ 21.40       67,879       2.67     $ 21.40       67,879     $ 21.40  
          7,317,879       9.70     $ 0.25       67,879     $ 21.40  

 

Transactions involving stock options are summarized as follows:

 

   

Shares

   

Weighted- Average

Exercise Price ($)

 

Outstanding at December 31, 2018

    67,879     $ 21.40  

Granted

    -       -  

Cancelled

    -       -  
                 

Outstanding at December 31, 2019

    67,879     $ 21.40  
                 

Granted

    8,750,000     $ 0.05  

Cancelled

    (1,500,000 )     -  

Outstanding at June 30, 2020

    7,317,879     $ 0.25  
                 

Exercisable at June 30, 2020

    67,879     $ 21.40  

 

At June 30, 2020, the total stock-based compensation cost related to unvested awards not yet recognized was $253,582. 

 

Warrants

 

The following table summarizes the warrants outstanding at June 30, 2020 and the related prices for the warrants to purchase shares of the Company’s common stock:

 

   

Shares

   

Weighted- Average

Exercise Price ($)

 
                 

Outstanding at December 31, 2018

    1,167,653     $ 2.18  
                 

Granted

    400,000     $ 0.00858  

Additional warrants due to trigger of ratchet feature

    6,659,382     $ 0.00858  

Exercised – cashless conversion

    (3,514,900

)

  $ 0.00858  

Forfeited