Jerrick Media Holdings, Inc. (“we,”
“us,” the “Company,” or “Jerrick Media” or “Jerrick”) (formerly Great Plains Holdings,
Inc. or “GTPH”) was incorporated under the laws of the state of Nevada on December 30, 1999 under the name LILM, Inc.
The Company changed its name on December 3, 2013 to Great Plains Holdings, Inc. as part of its plan to diversify its business
through the acquisition and operation of commercial real estate, including, but not limited to, self-storage facilities, apartment
buildings, 55+ senior manufactured home communities, and other income producing properties. Historically, the Company has principally
engaged in the manufacture and marketing of the LiL Marc, a plastic boys’ toilet-training device, which we discontinued
as of December 31, 2014.
On February 5, 2016 (the “Closing
Date”), GTPH, GPH Merger Sub, Inc., a Nevada corporation and wholly-owned subsidiary of GTPH (“Merger Sub”),
and Jerrick Ventures, Inc., a privately-held Nevada corporation headquartered in New Jersey (“Jerrick”), entered into
an Agreement and Plan of Merger (the “Agreement”) pursuant to which the Merger Sub was merged with and into Jerrick,
with Jerrick surviving as a wholly-owned subsidiary of GTPH (the “Merger”). GTPH acquired, through a reverse triangular
merger, all of the outstanding capital stock of Jerrick in exchange for issuing Jerrick’s shareholders (the “Jerrick
Shareholders”), pro-rata, a total of 28,500,000 shares of GTPH’s common stock. GTPH assumed 33,415 shares of Jerrick’s
Series A Convertible Preferred Stock (the “Jerrick Series A Preferred”) and 8,064 shares of Series B Convertible Preferred
Stock (the “Jerrick Series B Preferred”).
In connection with the Merger, on the
Closing Date, GTPH and Kent Campbell entered into a Spin-Off Agreement (the “Spin-Off Agreement”), pursuant to which
Mr. Campbell purchased from GTPH (i) all of GTPH’s interest in Ashland Holdings, LLC, a Florida limited liability company,
and (ii) all of GTPH’s interest in Lil Marc, Inc., a Utah corporation, in exchange for the cancellation of 781,818 shares
of GTPH’s Common Stock held by Mr. Campbell. In addition, Mr. Campbell assumed all debts, obligations and liabilities of
GTPH, including any existing prior to the Merger, pursuant to the terms and conditions of the Spin-Off Agreement.
Upon closing of the Merger on February
5, 2016, the Company changed its business plan to that of Jerrick Media.
Effective February 28, 2016, GTPH entered
into an Agreement and Plan of Merger (the “Statutory Merger Agreement”) with Jerrick, pursuant to which GTPH became
the parent company of Jerrick Ventures, LLC, a wholly-owned operating subsidiary of Jerrick (the “Statutory Merger”)
and GTPH changed its name to Jerrick Media Holdings, Inc. to better reflect its new business strategy.
Jerrick Media is a technology company
focused on the development of digital communities, marketing branded digital content, and e-commerce opportunities. Jerrick’s
content distribution platform, Vocal, delivers a robust long-form, digital publishing platform organized into highly engaged niche-communities
capable of hosting all forms of rich media content. Through Jerrick’s proprietary algorithm dynamics, Vocal enhances the
visibility of content and maximizes viewership, providing advertisers access to target markets that most closely match their interests.
Management of the Company is responsible
for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application.
Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial
condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the
need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical
accounting policies and practices are disclosed below as required by generally accepted accounting principles.
The Company’s consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US
GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”).
The preparation of financial statements
in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts
of revenues and expenses during the reporting periods.
Critical accounting estimates are estimates
for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly
uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or
operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements
were:
These significant accounting estimates
or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions,
and certain estimates or assumptions are difficult to measure or value.
Management bases its estimates on historical
experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources.
Management regularly evaluates the key
factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances,
historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted
accordingly.
The Company consolidates all majority-owned
subsidiaries, if any, in which the parent’s power to control exists.
As of December 31, 2018, the Company’s
consolidated subsidiaries and/or entities are as follows:
The Company follows paragraph 825-10-50-10
of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37
of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial
instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about
fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph
820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value
into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets
for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy
defined by Paragraph 820-10-35-37 are described below:
Financial assets are considered Level
3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at
least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest
priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable
inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the
categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amount of the Company’s
financial assets and liabilities, such as cash, prepaid expenses, accounts payable and accrued liabilities and accrued liquidating
damages approximate their fair value because of the short maturity of those instruments. Transactions involving related parties
cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings
may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions
were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can
be substantiated.
The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash equivalents.
The Company minimizes its credit risk
associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times
may exceed federally insured limits.
Property and equipment are recorded at
cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred.
Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over
the estimated useful lives of the respective assets as follows:
Upon sale or retirement of property and
equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the
consolidated statements of operations.
In accordance with sub-topic 323-10 of
the FASB ASC (“Sub-topic 323-10”), the Company accounts for investments in common stock of an investee for which the
Company has significant influence in the operating or financial policies even though the Company holds 50% or less of the common
stock or in-substance common stock.
The Company follows subtopic 450-20 of
the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date
the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when
one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company
or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings
or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates
that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated
liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potential
material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature
of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
The Company evaluates its debt and equity
issuances to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted
for in accordance with paragraph 815-10-05-4 and Section 815-40-25 of the FASB Accounting Standards Codification. The result of
this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded
as either an asset or a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded
in the consolidated statement of operations as other income or expense. Upon conversion, exercise or cancellation of a derivative
instrument, the instrument is marked to fair value at the date of conversion, exercise or cancellation and then the related fair
value is reclassified to equity.
In circumstances where the embedded conversion
option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the
convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single,
compound derivative instrument.
The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting
period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to
liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified
in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected
within 12 months of the balance sheet date.
The Company adopted Section 815-40-15
of the FASB Accounting Standards Codification (“Section 815-40-15”) to determine whether an instrument (or an embedded
feature) is indexed to the Company’s own stock. Section 815-40-15 provides that an entity should use a two-step approach
to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating
the instrument’s contingent exercise and settlement provisions. The Company changed its method of accounting for the debt
and warrants through the early adoption of ASU 2017-11 during the year ended December 31, 2017 on a retrospective basis.
The Company utilizes an option pricing
model to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet
date. The Company records the change in the fair value of the derivative as other income or expense in the condensed consolidated
statements of operations.
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), using
the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018. Results
for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts have not been
adjusted and continue to be reported in accordance with our historic accounting under Topic 605. The impact of adopting the
new revenue standard was not material to our condensed consolidated 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.
Revenue disaggregated by revenue source for
the years ended December 31, 2018 and 2017 consists of the following:
Branded content represents the revenue
recognized from the Company’s obligation to create and publish branded articles for the Client on the Vocal platform and
promote said stories, tracking engagement for the Client. The performance obligation is satisfied when the Company successfully
publishes the articles on its platform and meets any required promotional milestones as per the contract. The revenue is recognized
over time as the services are performed.
Below are the significant components of
a typical agreement pertaining to branded content revenue:
Affiliate sales represents the commission
the Company receives when a purchase is made through affiliate links placed within content hosted on the Vocal platform. Affiliate
revenue is earned on a “click through” basis, upon referring visitors, via said links, to an affiliate’s site and having
them complete a specific outcome, most commonly a product purchase. The Company uses multiple affiliate platforms, such as Skimlinks,
to form and maintain thousands of vendor relationships. Each vendor establishes their own commission percentage, which typically
range from 2-20%. The revenue is recognized upon receipt as reliable estimates could not be made.
Deferred revenue consists of billings
and payments from clients in advance of revenue recognition. As of December 31, 2018, the Company had deferred revenue of
$9,005. The Company will typically record this as revenue within the next three months as the performance obligations are met.
Accounts receivable are recorded and carried
when the Company uploads the articles and reaches the required number of views on the platform. We make estimates for the allowance
for doubtful accounts and allowance for unbilled receivables based upon our assessment of various factors, including historical
experience, the age of the accounts receivable balances, credit quality of our customers, current economic conditions, and other
factors that may affect our ability to collect from customers. The Company did not record an allowance during the years ended
December 31, 2018 and 2017.
The Company recognizes compensation expense
for all equity–based payments granted to employees in accordance with ASC 718 “Compensation – Stock
Compensation”. Under fair value recognition provisions, the Company recognizes equity–based compensation
net of an estimated forfeiture rate and recognizes compensation cost only for those shares expected to vest over the requisite
service period of the award.
Restricted stock awards are granted at
the discretion of the Company. These awards are restricted as to the transfer of ownership and generally vest over the requisite
service periods, typically over a five-year period (vesting on a straight–line basis). The fair value of a stock award is
equal to the fair market value of a share of Company stock on the grant date.
The fair value of an option award is estimated
on the date of grant using the Black–Scholes option valuation model. The Black–Scholes option valuation model requires
the development of assumptions that are inputs into the model. These assumptions are the value of the underlying share, the expected
stock volatility, the risk–free interest rate, the expected life of the option, the dividend yield on the underlying stock
and the expected forfeiture rate. Expected volatility is benchmarked against similar companies in a similar industry over the
expected option life and other appropriate factors. Risk–free interest rates are calculated based on continuously compounded
risk–free rates for the appropriate term. The dividend yield is assumed to be zero as the Company has never paid or declared
any cash dividends on its Common stock and does not intend to pay dividends on its Common stock in the foreseeable future. The
expected forfeiture rate is estimated based on management’s best estimate.
Determining the appropriate fair value
model and calculating the fair value of equity–based payment awards requires the input of the subjective assumptions described
above. The assumptions used in calculating the fair value of equity–based payment awards represent management’s best
estimates, which involve inherent uncertainties and the application of management’s judgment. As a result, if factors change
and the Company uses different assumptions, our equity–based compensation could be materially different in the future. In
addition, the Company is required to estimate the expected forfeiture rate and recognize expense only for those shares expected
to vest. If the Company’s actual forfeiture rate is materially different from its estimate, the equity–based compensation
could be significantly different from what the Company has recorded in the current period.
The Company accounts for share–based
payments granted to non–employees in accordance with ASC 505-40, “Equity Based Payments to Non–Employees”.
The Company determines the fair value of the stock–based payment as either the fair value of the consideration received
or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity
instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either
(1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date
at which the counterparty’s performance is complete. The fair value of the equity instruments is re-measured each reporting
period over the requisite service period.
Income taxes are provided in accordance
with ASC No. 740, “Accounting for Income Taxes”. A deferred tax asset or liability is recorded for all temporary
differences between financial and tax reporting and net operating loss carryforwards. Deferred tax expense (benefit) results from
the net change during the period of deferred tax assets and liabilities.
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 of the deferred tax assets will
not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date
of enactment.
Management makes judgments as to the interpretation
of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition,
the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s
opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies
from estimates, additional allowances or reversals of reserves may be necessary.
Basic net loss per common share is computed
by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the
period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during
the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, which is the case
for the year ended December 31, 2018 and 2017 presented in these consolidated financial statements, the weighted-average number
of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.
The Company had the following common stock
equivalents at December 31, 2018 and 2017:
Certain prior year amounts in the consolidated
financial statements and the notes thereto have been reclassified where necessary to conform to the current year presentation.
These reclassifications did not affect the prior period total assets, total liabilities, stockholders’ deficit, net loss
or net cash used in operating activities.
In April 2016, the FASB issued ASU No.
2016-09, “Compensation – Stock Compensation” (topic 718). The FASB issued this update to improve the accounting
for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several
aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b)
classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The updated guidance
is effective for annual periods beginning after December 15, 2016, including interim periods within those fiscal years. Early
adoption of the update is permitted. The adoption of ASU 2016-09 did not have a material effect on its financial position or results
of operations or cash flows.
In April 2016, the FASB issued ASU No.
2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing” (topic 606). In
March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations
(Reporting Revenue Gross versus Net)” (topic 606). These amendments provide additional clarification and implementation
guidance on the previously issued ASU 2014-09, “Revenue from Contracts with Customers”. The amendments in ASU 2016-10
provide clarifying guidance on materiality of performance obligations; evaluating distinct performance obligations; treatment
of shipping and handling costs; and determining whether an entity’s promise to grant a license provides a customer with
either a right to use an entity’s intellectual property or a right to access an entity’s intellectual property. The
amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal versus agent evaluation
and how it should apply the control principle to certain types of arrangements. The adoption of ASU 2016-10 and ASU 2016-08 is
to coincide with an entity’s adoption of ASU 2014-09, which we adopted for interim and annual reporting periods beginning
after December 15, 2017. The adoption of ASU 2016-10 did not have a material effect on its financial position or results of operations
or cash flows.
In May 2016, the FASB issued ASU No. 2016-12,
“Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”, which narrowly
amended the revenue recognition guidance regarding collectability, noncash consideration, presentation of sales tax and transition
and is effective during the same period as ASU 2014-09. The adoption of ASU 2016-12 did not have a material effect on its financial
position or results of operations or cash flows.
In August 2016, the FASB issued ASU 2016-15,
“Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”).
ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement
of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption
on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively
as of the earliest date practicable. The adoption of ASU 2016-15 did not have a material effect on its financial position or results
of operations or cash flows.
In November 2016, the FASB issued ASU
2016-18, “Statement of Cash Flows (Topic 230)”, requiring that the statement of cash flows explain the change in the
total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This guidance
is effective for fiscal years, and interim reporting periods therein, beginning after December 15, 2017 with early adoption permitted.
The provisions of this guidance are to be applied using a retrospective approach which requires application of the guidance for
all periods presented. The adoption of ASU 2016-18 did not have a material effect on its financial position or results of operations
or cash flows.
In July 2017, the FASB issued ASU 2017-11,
“Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815):
I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily
Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with
a Scope Exception”. Part I of this update addresses the complexity of accounting for certain financial instruments with
down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result
in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates
cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round
features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the
difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content
in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements
about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling
interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years,
and interim periods within those years, beginning after December 15, 2018. The Company early adopted the ASU 2017-11 in the year
ending December 31, 2017.
In May 2017, the FASB issued ASU 2017-09,
“Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,” which provides guidance about
which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in
Topic 718. The adoption of ASU 2017-09 did not have a material effect on its financial position or results of operations or cash
flows.
In February 2016, the FASB issued ASU
2016-02, “Leases (Topic 842).” Under ASU 2016-02, lessees will, among other things, require lessees to recognize a
lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis;
and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified
asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however,
certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue
from Contracts with Customers.” ASU 2016-02 will be effective for us on January 1, 2019 and initially required transition
using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative
period presented in the financial statements. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) - Targeted
Improvements,” which, among other things, provides an additional transition method that would allow entities to not apply
the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect
adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issued ASU 2018-20,
“Leases (Topic 842) - Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes
lessor accounting for sales and similar taxes and certain lessor costs. As of January 1, 2019, the Company adopted ASU 2016-02
and has recorded a right-of-use asset and lease liability on the balance sheet for its operating leases. We elected to apply certain
practical expedients provided under ASU 2016-02 whereby we will not reassess(i) whether any expired or existing contracts are
or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing
leases. We also do not expect to apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related
accounting guidance). We expect to account for lease and non-lease components separately because such amounts are readily determinable
under our lease contracts and because we expect this election will result in a lower impact on our balance sheet.
In October 2016, the FASB issued ASU 2016-16,
“Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”, which eliminates the exception
that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory
until the asset has been sold to an outside party. The updated guidance is effective for annual periods beginning after December
15, 2019, including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is currently
evaluating the impact of the new standard.
Management does not believe that any recently
issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying consolidated
financial statements.
The Company’s consolidated financial
statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations,
realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the consolidated financial
statements, the Company had an accumulated deficit at December 31, 2018, a net loss and net cash used in operating activities
for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a
going concern for a period of one year from the issuance of these financial statements, or April 1, 2020.
The Company is attempting to further implement
its business plan and generate sufficient revenues; however, its cash position may not be sufficient to support its daily operations.
While the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenues
and in its ability to raise additional funds by way of a public or private offering of its debt or equity securities, there can
be no assurance to that effect. The ability of the Company to continue as a going concern is dependent upon its ability to further
implement its business plan and generate sufficient revenues and its ability to raise additional funds by way of a public or private
offering.
The consolidated financial statements
do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
Depreciation
expense was $42,218 and $38,435 for the year ended December 31, 2018 and 2017, respectively.
Note 5 – Line of Credit
Line of credit as of December 31, 2018
and 2017 is as follows:
|
|
Outstanding
Balances as of
|
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Revolving Note
|
|
|
-
|
|
|
|
44,996
|
|
|
|
$
|
-
|
|
|
$
|
44,996
|
|
On March 19, 2009, Astoria Surgical Supplies
North LLC signed a revolving note (the “Revolving Note”) at PNC Bank (the “Bank”). The outstanding balance
of this Revolving Note is limited to $200,000 and expired March 19, 2010. The outstanding balance accrues interest at a variable
rate. The interest rate is subject to change based on changes in an independent index which is the highest Prime Rate as published
in the “Money Rates” section of the Wall Street Journal. The Company had been in payment default since March 19, 2010;
however, on May 3, 2017, the Company agreed to pay back the line of credit by December 1, 2017. On March 23, 2018 the Company
sent the final payment for the Revolving Note and the Revolving Note was fully satisfied.
The balance outstanding on the Revolving
Note at December 31, 2018 and 2017 was $0 and $44,996, respectively.
Note 6 – Notes Payable
Notes payable as of December 31, 2018
and 2017 is as follows:
|
|
Outstanding
Principal as of
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
Interest
Rate
|
|
|
Maturity Date
|
|
Quantity
|
|
|
Exercise
Price
|
|
The February 2017 Offering
|
|
$
|
-
|
|
|
$
|
400,000
|
|
|
|
12
|
%
|
|
September 1, 2017
|
|
|
122,500
|
|
|
$
|
4.00
|
|
The June 2017 Loan Agreement
|
|
|
-
|
|
|
|
50,000
|
|
|
|
12
|
%
|
|
September 1, 2017
|
|
|
1,750
|
|
|
|
4.00
|
|
The First November 2017 Loan Agreement
|
|
|
-
|
|
|
|
100,000
|
|
|
|
15
|
%
|
|
January 12, 2018
|
|
|
-
|
|
|
|
-
|
|
The Second November 2017 Loan Agreement
|
|
|
-
|
|
|
|
50,000
|
|
|
|
15
|
%
|
|
January 13, 2018
|
|
|
-
|
|
|
|
-
|
|
The Third November 2017 Loan Agreement
|
|
|
-
|
|
|
|
100,000
|
|
|
|
15
|
%
|
|
January 13, 2018
|
|
|
-
|
|
|
|
-
|
|
July 2018 Loan Agreement
|
|
|
50,000
|
|
|
|
-
|
|
|
|
6
|
%
|
|
August 2018
|
|
|
15,000
|
|
|
|
4.00
|
|
|
|
|
50,000
|
|
|
|
700,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Debt Discount
|
|
|
-
|
|
|
|
(10,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Debt Issuance
Costs
|
|
|
(74
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,926
|
|
|
$
|
689,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Placement Offerings:
The February 2017 Offering
From February 24, 2017 through March 17,
2017, the Company conducted multiple closings of a private placement offering (the “February 2017 Offering”)
of the Company’s securities by entering into subscription agreements (the “Subscription Agreements”) with accredited
investors (the “Accredited Investors”) for aggregate gross proceeds of $916,585 for which the Accredited Investors
received $975,511 in principal value of secured promissory notes with an original issue discount of six percent (6%) (the “February
2017 Offering Notes”) and warrants to purchase the Company’s common stock (the “February 2017 Offering Warrants”).
The February 2017 Offering Notes are convertible
into shares of the Company’s common stock at the time of Company’s next round of financing (the “Subsequent
Offering”) at a price equal to eighty-five percent (85%) of the price per share offered in the Subsequent Offering (the
“Conversion Price”). The February 2017 Offering Warrants have a five-year term. Investors received the February
2017 Offering Warrants in the following amounts: (i) Investors purchasing $150,000 or more of the Offering received a February
2017 Offering Warrant equal to one hundred thirty percent (130%) of the dollar amount invested in the Offering; (ii) investors
purchasing at least $100,000 but less than $150,000 of the February 2017 Offering received a February 2017 Offering Warrant equal
to one hundred percent (100%) of the dollar amount invested in the Offering; and (iii) investors purchasing less than $100,000
of the Offering received to a February 2017 Offering Warrant equal to seventy percent (70%) of the dollar amount invested in the
Offering. The February 2017 Offering Warrants entitle the holder to purchase shares of the Company’s common stock at $4.00
per share (the “Exercise Price”).
The Conversion Price and the Exercise
Price are subject to adjustments for issuances of (i) the Company’s common stock, (ii) any equity linked instruments or
(iii) securities convertible into the Company’s common stock, at a purchase price of less than the prevailing Conversion
Price or Exercise Price. Such adjustments shall result in the Conversion Price or Exercise Price being reduced to such lower purchase
price, as described in the February 2017 Offering Notes and the February 2017 Offering Warrants.
Pursuant to the Subscription Agreements,
the February 2017 Offering Notes matured on September 1, 2017 (the “February 2017 Offering Maturity Date”). Prior
to the February 2017 Offering Maturity Date, investors representing $575,511 in principal value converted their February 2017
Offering Notes into two year, 15% secured convertible promissory notes offered by the Company (the “August 2017 Convertible
Note Offering”). The remaining investors representing an aggregate $400,000 in principal of the February 2017 Offering Notes
agreed to forbear their right to declare an event of default until December 15, 2017 during which time they retain the right to
convert their principal and any accrued but unpaid interest into the August 2017 Convertible Note Offering. In consideration of
the forbearance for which the investors will receive a warrant to purchase up to fifteen percent (15%) of the shares of common
stock underlying the warrant acquired with the purchase of the February 2017 Offering Notes at a purchase price of $0.20 per share,
and the interest on their note would be increased to eighteen percent (18%) from September 1, 2017 through December 15, 2017 or
the conversion date, whichever is sooner.
During the year ended December 31, 2018, the Company entered into three forbearance agreement whereby
the Company issued the remaining investors of The February 2017 Offering five-year warrants to purchase 25,000 shares of the Company’s
common stock at a purchase price of $4.00 per share. These warrants had a fair value of $70,219 which was recorded to loss on extinguishment
of debt. The new maturity date of the February 2017 Loan Agreements were from July to September of 2018.
During the year ended December 31, 2018 the Company has repaid $131,606 of principal and $45,931 of unpaid
interest. In addition, during the year ended December 31, 2018, the Company converted $268,394 of principal and $21,620 of unpaid
interest into 72,243 shares of common stock. Upon conversion of the notes, the Company also issued 36,122 warrants with a grant
date fair value of $104,124 which is recorded in Other income (expense) on the accompanying consolidated statement of operations.
The June 2017 Loan Agreement
On June 12, 2017, the Company entered into a loan agreement (the “June 2017 Loan Agreement”)
with an individual (the “June 2017 Lender”) whereby the June 2017 Lender issued the Company a promissory note of $50,000
(the “June 2017 Note”). Pursuant to the June 2017 Loan Agreement, the June 2017 Note bears interest at a rate of 10%
per annum. As additional consideration for entering in the June 2017 Loan Agreement, the Company issued the June 2017 Lender a
five-year warrant to purchase 1,750 shares of the Company’s common stock with an exercise price of $0.20 per share. The maturity
date of the June 2017 Note was September 1, 2017 (the “June 2017 Maturity Date”) at which time all outstanding principal,
accrued and unpaid interest and other amounts due under the June 2017 Note were due.
During the year ended December 31, 2018
the Company repaid $50,000 principal and the debtor forgave the interest of $4,424, which was recorded as a gain on forgiveness
of debt on the accompanying consolidated statement of operations.
The July 2017 Loan Agreement
On July 21, 2017, the Company entered into a loan agreement (the “July 2017 Loan Agreement”)
with an individual (the “July 2017 Lender”), the July 2017 Lender issued the Company a promissory note of $100,000
(the “July 2017 Note”). Pursuant to the July 2017 Loan Agreement, the July 2017 Note bears interest at a rate of 10%
per annum. As additional consideration for entering in the July 2017 Loan Agreement, the Company issued the July 2017 Lender a
five-year warrant to purchase 5,000 shares of the Company’s common stock with an exercise price of $4.00 per share. The maturity
date of the July 2017 Note was April 21, 2017 (the “July 2017 Maturity Date”) at which time all outstanding principal,
accrued and unpaid interest and other amounts due under the July 2017 Note were due. On September 28, 2017, the July 2017 Note
and accrued but unpaid interest was converted into the Company’s August 2017 Convertible Note Offering.
The First November 2017 Loan Agreement
On November 28, 2017, the Company entered into a loan agreement (the “First November 2017 Loan Agreement”)
with an individual (the “First November 2017 Lender”), the First November 2017 Lender issued the Company a promissory
note of $100,000 (the “First November 2017 Note”). Pursuant to the First November 2017 Loan Agreement, the First November
2017 Note has interest of fifteen percent (15%), (i) five percent (5%) (i.e. $5,000) shall be payable in cash or convertible into
shares of the Company’s restricted common stock at a rate of $4.00 per share, at the option of the Lender, at the Maturity
Date; (ii) ten percent (10%) (i.e. $10,000) shall be paid in the form of the Company’s restricted common stock at a rate
of $4.00 per share (equivalent to 2,500 shares of the Company’s common stock ). The maturity date of the First November 2017
Note was January 12, 2018 (the “First November 2017 Maturity Date”). On January 12, 2018, the First November 2017 Note
and accrued but unpaid interest was converted into the Company’s August 2017 Convertible Note Offering.
The Second November 2017 Loan Agreement
On November 29, 2017, the Company entered into a loan agreement (the “Second November 2017 Loan
Agreement”) with an individual (the “Second November 2017 Lender”), the Second November 2017 Lender issued the
Company a promissory note of $50,000 (the “Second November 2017 Note”). Pursuant to the Second November 2017 Loan Agreement,
the Second November 2017 Note has interest of fifteen percent (15%), (i) five percent (5%) (i.e. $2,500) shall be payable in cash
or convertible into shares of the Company’s restricted common stock at a rate of $4.00 per share, at the option of the Lender,
at the Maturity Date; (ii) ten percent (10%) (i.e. $5,000) shall be paid in the form of the Company’s restricted common stock
at a rate of $4.00 per share (equivalent to 1,250 shares of the Company’s common stock ). The maturity date of the Second
November 2017 Note was January 13, 2018 (the “Second November 2017 Maturity Date”). On January 12, 2018, the Second
November 2017 Note and accrued but unpaid interest was converted into the Company’s August 2017 Convertible Note Offering.
The Third November 2017 Loan Agreement
On November 29, 2017, the Company entered into a loan agreement (the “Third November 2017 Loan Agreement”)
with an individual (the “Third November 2017 Lender”), the Third November 2017 Lender issued the Company a promissory
note of $100,000 (the “Third November 2017 Note”). Pursuant to the Third November 2017 Loan Agreement, the Third November
2017 Note has interest of fifteen percent (15%), (i) five percent (5%) (i.e. $5,000) shall be payable in cash or convertible into
shares of the Company’s restricted common stock at a rate of $4.00 per share, at the option of the Lender, at the Maturity
Date; (ii) ten percent (10%) (i.e. $10,000) shall be paid in the form of the Company’s restricted common stock at a rate
of $4.00 per share (equivalent to 2,500 shares of the Company’s common stock). The maturity date of the Third November 2017
Note was January 13, 2018 (the “Third November 2017 Maturity Date”) at which time all outstanding principal, accrued
and unpaid interest and other amounts due under the Third November 2017 Note are due. On January 12, 2018, the Third November
2017 Note and accrued but unpaid interest was converted into the Company’s August 2017 Convertible Note Offering.
On March 14, 2018, the Company entered
into a loan agreement (the “March 2018 Loan Agreement”) with an individual (the “March 2018 Lender”),
the March 2018 Lender issued the Company a promissory note of $50,000 (the “March 2018 Note”). Pursuant to the March
2018 Loan Agreement, the March 2018 Note bears interest at a rate of 12% per annum. As additional consideration for entering in
the March 2018 Loan Agreement, the Company issued the March 2018 Lender a five-year warrant to purchase 5,000 shares of the Company’s
common stock with an exercise price of $4.00 per share. The maturity date of the March 2018 Note was March 29, 2018 (the “March
2018 Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under the
March 2018 Note were due. On March 29, 2018, the March 2018 Note and accrued but unpaid interest was exchanged for a convertible
note under the Company’s March 2018 Convertible Note Offering.
The May 2018 Offering
During the months of May and June 2018,
the Company conducted multiple closings with accredited investors (the “May 2018 Offering”) of units of the Company’s
securities by entering into subscription agreements with “accredited investors” (the “May 2018 Investors”)
for aggregate gross proceeds of $608,500.
The May 2018 Offering consisted of a maximum of $1,200,000 of units of the Company’s securities
(each, a “May 2018 Unit” and collectively, the “May 2018 Units”), with each May 2018 Unit consisting of
(i) a 13% promissory note (each, a “May 2018 Offering Note” and, together, the “May 2018 Offering Notes”),
and (ii) a four-year warrant (“May 2018 Offering Warrant”) to purchase the number of shares of the Company’s
common stock equal to three times the principal amount in dollars invested by such investor in each May 2018 Offering Note (the
“May 2018 Warrant Shares”) at an exercise price of $4.00 per share (the “May Offering Warrant Exercise Price”),
subject to adjustment upon the terms thereof. The May 2018 Offering Notes mature on the nine-month anniversary of their issuance
dates.
The Company recorded a $215,032 debt discount relating to 91,275 May 2018 Offering Warrants issued to
investors based on the relative fair value of each equity instrument on the dates of issuance. The debt discount is being accreted
over the life of the note to accretion of debt discount and issuance cost. During August 2018, the Company converted all outstanding
principal unpaid interest into the August 2018 equity raise.
The May Offering Warrant Exercise Price
of the May 2018 Offering Warrants are subject to adjustment for issuances of the Company’s common stock or any equity linked
instruments or securities convertible into the Company’s common stock at a purchase price of less than the prevailing May
2018 Offering Warrant Exercise Price. Such adjustment shall result in the May 2018 Offering Warrant Exercise Price being reduced
to such lower purchase price, subject to carve-outs as described therein.
During the nine months ended December
31, 2018, the Company converted $608,500 of principal and $723,780 of unpaid interest into the August 2018 equity raise (as defined
below).
July 2018 Loan Agreements
In July 2018, the Company received gross proceeds of $100,000 from the issuance of notes payable. As additional
consideration for entering into the debentures, the Company issued the investor a 4-year warrant to purchase 15,000 shares of the
Company’s common stock at a purchase price of $4.00 per share. The Company recorded a $34,569 debt discount relating to these
warrants issued to these investors based on the relative fair value of each equity instrument on the dates of issuance. The debt
discount is being accreted over the life of this note to accretion of debt discount and issuance cost.
On November 8, 2018 the Company executed upon agreements that extended the maturity dates of these loans
to March 7, 2019. As part of the extension agreements, the Company issued 10,203 warrants to purchase common stock of the Company
at an exercise price of $6.00.
During the year ended December 31, 2018
the Company has repaid $50,000 of principal and $1,700 of unpaid interest.
August 2018 Loan Agreements
On August 30, 2018, the Company received gross proceeds of $33,333 from the issuance of a note payable.
As additional consideration for entering into the debenture, the Company issued the investor a 4-year warrant to purchase 1,667
shares of the Company’s common stock at a purchase price of $4.00 per share. The Company recorded a $4,178 debt discount
relating to these warrants issued to this investor based on the relative fair value of each equity instrument on the dates of issuance.
The debt discount was fully accreted during the nine months ended December 31, 2018. On September 7, 2018 the Company has repaid
$33,333 in principal.
Note 7 – Convertible Note Payable
Convertible notes payable as of December
31, 2018 and 2017 is as follows:
|
|
Outstanding
Principal as of
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
Interest
Rate
|
|
|
Conversion
Price
|
|
|
|
Maturity Date
|
|
Quantity
|
|
|
Exercise
Price
|
|
The November 2016 Convertible
Note Offering
|
|
$
|
-
|
|
|
$
|
25,000
|
|
|
|
10
|
%
|
|
|
6.00
|
|
|
|
November 1, 2017
|
|
|
20,000
|
|
|
$
|
6.00
|
|
The June 2017 Convertible Note Offering
|
|
|
-
|
|
|
|
71,500
|
|
|
|
12
|
%
|
|
|
Not Applicable
|
|
|
|
September 1, 2017
|
|
|
5,735
|
|
|
|
4.00
|
|
The August 2017 Convertible Note Offering
|
|
|
-
|
|
|
|
2,943,884
|
|
|
|
15
|
%
|
|
|
4.00
|
(*)
|
|
|
August – November 2019
|
|
|
735,821
|
|
|
|
4.00
|
|
The First December 2017 Note
|
|
|
-
|
|
|
|
100,000
|
|
|
|
15
|
%
|
|
|
4.00
|
(*)
|
|
|
December 21, 2019
|
|
|
25,000
|
|
|
|
4.00
|
|
The February 2018 Convertible Note Offering
|
|
|
75,000
|
|
|
|
-
|
|
|
|
15
|
%
|
|
|
4.00
|
(*)
|
|
|
January – February 2020
|
|
|
253,919
|
|
|
|
4.00
|
|
The January 2018
Note
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
4.00
|
(*)
|
|
|
January 12, 2020
|
|
|
17,190
|
|
|
|
4.00
|
|
The February 2018 Note
|
|
|
-
|
|
|
|
-
|
|
|
|
18
|
%
|
|
|
4.00
|
(*)
|
|
|
February 8, 2020
|
|
|
4,075
|
|
|
|
4.00
|
|
The March 2018
Convertible Note Offering
|
|
|
75,000
|
|
|
|
-
|
|
|
|
14
|
%
|
|
|
4.00
|
(*)
|
|
|
March – April 2020
|
|
|
240,342
|
|
|
|
4.00
|
|
|
|
|
150,000
|
|
|
|
3,140,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Debt Discount
|
|
|
(17,280
|
)
|
|
|
(452,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Debt Issuance
Costs
|
|
|
(9,239
|
)
|
|
|
(79,569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123,481
|
|
|
|
2,608,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Current Debt
|
|
|
-
|
|
|
|
(96,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-Term Debt
|
|
$
|
123,481
|
|
|
$
|
2,512,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*)
|
As subject to adjustment
as further outlined in the notes
|
The November 2016 Convertible Note
Offering
During the months of November and December 2016, the Company issued convertible notes to third party lenders
totaling $400,000 (the “November 2016 Convertible Note Offering”). These notes accrued interest at a rate of 10% per
annum and matured with interest and principal both due between November 1, 2017 through December 29, 2017. The notes and accrued
interest are convertible at a conversion price as defined therein. In addition, in connection with these notes the Company issued
five-year warrants to purchase an aggregate of 20,000 shares of Company common stock at a purchase price of $4.00 per share. These
investors converted $375,000 of principal and $30,719 of interest into the August 2017 Convertible Note Offering.
During the year December 2018, the Company
converted $25,000 of principal and $4,417 of unpaid interest into the August 2018 Equity Raise (as defined below).
The June 2017 Convertible Note Offering
During the month of June 2017 the Company issued convertible notes to third party lenders totaling $71,500.
These notes accrued interest at 12% per annum and matured with interest and principal both due on September 1, 2017. These notes
and accrued interest may be converted into a subsequent offering at a 15% discount to the offering price are convertible at a conversion
price as defined therein. In addition, the Company issued warrants to purchase 3,378 shares of Company common stock. These warrants
entitle the holders to purchase the Company’s common stock at a purchase price of $4.00 per share for a period of five years
from the issue date. As of December 31, 2017, the Company was currently in default on $71,500 in principal due on these notes.
On February 8, 2018, the Company paid these notes and is no longer in default.
The July 2017 Convertible Offering
During the month of July 2017, the Company entered into Securities Purchase Agreements and conducted closings
of a private placement offering (the “July 2017 Convertible Note Offering”) of the Company’s securities for aggregate
gross proceeds of $445,000. In aggregate, the Company entered into Securities Purchase Agreements with three accredited investors
for (i) the issuance and sale of 8.5% Convertible Redeemable Debentures, containing a ten percent (10%) original issuance discount,
due April 18, 2018 (the “Debentures”) and (ii) the issuance and sale of five-year Common Stock Purchase
Warrants to purchase up to 38,938 shares of the Company’s common stock, par value $0.001 per share. The Warrants were
immediately exercisable upon issuance at an exercise price of $4.00 per share, subject to adjustment, and expire five years from
the date of issuance. The accredited investors also received a total of 12,250 shares of the Company’s common stock as inducement
for participating in the July 2017 Convertible Note Offering (the “Consideration Shares”).
During September 8, 2017 through September
13, 2017, the Company redeemed the 8.5% Convertible Redeemable Debentures by paying the three accredited investors an aggregate
$606,812 representing 117.5% of the principal along with interest. Pursuant to such redemption, the Debentures are no longer in
full force and effect.
The Company also repurchased 11,000 consideration shares of one of the accredited investors for $19,007,
cancelling the accredited investor’s Consideration Shares.
Due to the fact that these convertible
notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The Company has applied
ASC 815, due to the potential for settlement in a variable quantity of shares. The conversion feature has been measured at fair
value using a Black Scholes model at the issuance date and the period end. The conversion feature of The July 2017 Convertible
Offering issued during the year ended December 31, 2017, gave rise to a derivative liability of $332,942 which was recorded as
a debt discount. The debt discount is charged to accretion of debt discount and issuance cost ratably over the term of the convertible
note.
The Company recorded an $78,823 debt discount relating to 38,938 warrants issued to investors based on
the relative fair value of each equity instrument on the dates of issuance. The debt discount is being accreted over the life of
the note to accretion of debt discount and issuance cost.
The August 2017 Convertible Note
Offering
From August through November of 2017, the Company conducted multiple closings of a private placement offering
to accredited investors (the “August 2017 Convertible Note Offering”) of units of the Company’s securities by
entering into subscription agreements with “accredited investors” (the “August 2017 Investors”) for aggregate
gross proceeds of $1,585,000. In addition, $1,217,177 of the Company’s short-term debt along with accrued but unpaid interest
of $40,146 was converted into the August 2017 Convertible Note Offering. These conversions resulted in the issuance of 339,571
warrants with a fair value of $583,681 and an original issue discount of $101,561. These were recorded as a loss on extinguishment
of debt.
The August 2017 Convertible Note Offering consisted of a maximum of $6,000,000 of units of the Company’s
securities (each, a “August 2017 Unit” and collectively, the “August 2017 Units”), with each August 2017
Unit consisting of (a) a 15% Convertible Secured Promissory Note (each a “August 2017 Offering Note”, and together
the “August 2017 Offering Notes”), convertible into shares of the Company’s common stock (“August 2017
Offering Conversion Shares”) at a conversion price of $4.00 per share (the “August 2017 Note Conversion Price”),
and (b) a five-year warrant (each a “August 2017 Offering Warrant and together the “August 2017 Offering Warrants”)
to purchase common stock equal to one hundred percent (100%) of the shares into which the August 2017 Offering Notes can be converted
into (“August 2017 Offering Warrant Shares”) at an exercise price of $4.00 per share (“August 2017 Offering Warrant
Exercise Price”). The August 2017 Offering Notes mature on the second (2nd) anniversary of their issuance dates.
The August 2017 Note Conversion Price
and the August 2017 Offering Warrant Exercise Price are subject to adjustment for issuances of the Company’s common stock
or any equity linked instruments or securities convertible into the Company’s common stock at a purchase price of less than
the prevailing August 2017 Note Conversion Price or August 2017 Offering Warrant Exercise Price. Such adjustment shall result
in the August 2017 Note Conversion Price and August 2017 Offering Warrant Exercise Price being reduced to such lower purchase
price, subject to carve-outs as described therein.
The Company recorded a $472,675 debt discount relating to 396,250 August 2017 Offering Warrants issued
to investors based on the relative fair value of each equity instrument on the dates of issuance. The debt discount is being accreted
over the life of the note to accretion of debt discount and issuance cost.
In connection with the August 2017 Convertible
Note Offering, the Company paid a placement agent a cash fee of $90,508 to for services rendered in connection therewith on a
“best-efforts” basis, which was recorded as issuance cost and is being accreted over the life of the note to accretion
of debt discount and issuance cost.
During the year ended December 31, 2018,
the Company converted $2,830,764 of principal and $409,287 of unpaid interest into the August 2018 Equity Raise (as defined below).
During the year ended December 31, 2018
the Company has repaid $114,000 of principal and $18,410 of unpaid interest.
The First December 2017 Note
On December 27, 2017, the Company issued a convertible note to a third-party lender totaling $100,000
(the “First December 2017 Note”). The First December 2017 Note accrues interest at 15% per annum and matures with interest
and principal both due on December 27, 2019. In addition, the Company issued a warrant to purchase 25,000 shares of Company common
stock. The warrant entitles the holder to purchase the Company’s common stock at a purchase price of $4.00 per share for
a period of five years from the issue date. The Company recorded a $35,525 debt discount relating to the warrants issued to the
investor based on the relative fair value of each equity instrument on the dates of issuance. The debt discount is being accreted
over the life of the note The First December 2017 Note and accrued interest is convertible at a conversion price of $4.00 per share,
subject to adjustment. The First December 2017 Note is secured by a second priority lien on the assets of the Company.
During the year ended December 31, 2018,
the Company converted $100,000 of principal and $10,292 of unpaid interest into the August 2018 Equity Raise (as defined below).
The February 2018 Convertible Note
Offering
During the year ended December 31, 2018, the Company conducted multiple closings of a private placement
offering to accredited investors (the “February 2018 Convertible Note Offering”) of units of the Company’s securities
by entering into subscription agreements with “accredited investors” (the “February 2018 Investors”) for
aggregate gross proceeds of $725,000. In addition, $250,000 of the Company’s short-term debt along with accrued but unpaid
interest of $40,675 was exchanged for convertible debt in the February 2018 Offering. These conversions resulted in the issuance
of 72,669 warrants with a fair value of $181,139. These were recorded as a loss on extinguishment of debt.
The February 2018 Convertible Note Offering consisted of a maximum of $750,000 of units of the Company’s
securities (each, a “February 2018 Unit” and collectively, the “February 2018 Units”), with each February
2018 Unit consisting of (a) a 15% Convertible Secured Promissory Note (each a “February 2018 Convertible Note” and
together the “February 2018 Convertible Notes”), convertible into shares of the Company’s common stock, par value
$.001 per share (“February 2018 Conversion Shares”) at a conversion price of $4.00 per share (the “February 2018
Note Conversion Price”), and (b) a five-year warrant (each a “February 2018 Offering Warrant and together the “February
2018 Offering Warrants”) to purchase common stock equal to one hundred percent (100%) of the shares into which the February
2018 Convertible Notes can be converted into (“February 2018 Warrant Shares”) at an exercise price of $4.00 per share
(“February 2018 Warrant Exercise Price”). The February 2018 Offering Notes mature on the second (2nd) anniversary of
their issuance dates. The February 2018 Offering Notes are secured by a second priority security interest in the Company’s
assets up to $1,000,000.
The February 2018 Note Conversion Price
and the February 2018 Offering Warrant Exercise Price are subject to adjustment for issuances of the Company’s common stock
or any equity linked instruments or securities convertible into the Company’s common stock at a purchase price of less than
the prevailing Conversion Price or Exercise Price. Such adjustment shall result in the Conversion Price and Exercise Price being
reduced to such lower purchase price, subject to carve-outs as described therein.
The conversion feature of the February
2018 Convertible Note Offering provides for an effective conversion price that is below market value on the date of issuance.
Such feature is normally characterized as a beneficial conversion feature (“BCF”). When the Company records a BCF
the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument. The
Company recorded a BCF and related debt discount of $37,350, the discount is being accreted over the life of the first Debenture
to accretion of debt discount and issuance cost.
The Company recorded a $316,875 debt discount relating to 181,250 February 2018 Offering Warrants issued
to investors based on the relative fair value of each equity instrument on the dates of issuance. The debt discount is being accreted
over the life of these notes to accretion of debt discount and issuance cost.
In connection with the February 2018 Convertible Note Offering, the Company retained a placement agent
(the “Placement Agent”), to carry out the Offering on a “best-efforts” basis. For services in its capacity
as Placement Agent, the Company has paid the Placement Agent a cash fee of $94,250 and issued to the Placement Agent shares of
the Company’s common stock equal to ten percent (10%) of the Conversion Shares underlying the February 2018 Convertible Notes
or 18,125 shares that had a fair value of $74,881, which was recorded as issuance cost and is being accreted over the life of these
notes to accretion of debt discount and issuance cost.
During the year ended December 31, 2018,
the Company converted $940,675 of principal and $86,544 of unpaid interest into the August 2018 Equity Raise (as defined below).
The January 2018 Note
On January 12, 2018, the Company issued a convertible note to a third-party lender totaling $68,761 to
settle an outstanding vendor liability (the “January 2018 Note”). The January 2018 Note accrues interest at 15% per
annum and matures with interest and principal both due on January 12, 2020. The conversions resulted in the issuance of 17,190
warrants with a fair value of $42,850. These were recorded as a loss on extinguishment of debt. The warrant entitles the holder
to purchase the Company’s common stock at a purchase price of $4.00 per share for a period of five years from the issue date.
The January 2018 Note and accrued interest is convertible at a conversion price of $0.20 per share, subject to adjustment. The
January 2018 Note is secured by a second priority lien on the assets of the Company.
During the year ended December 31, 2018,
the Company exchanged $68,761 of principal and $7,212 of unpaid interest pursuant to the August 2018 Equity Raise (as defined
below).
The February 2018 Note
On February 8, 2018, the Company issued a convertible note to a third-party lender totaling $40,750 (the
“February 2018 Note”). The February 2018 Note accrues interest at 18% per annum and matures with interest and principal
both due on February 8, 2020. In addition, the Company issued a warrant to purchase 4,075 shares of Company common stock. The warrant
entitles the holder to purchase the Company’s common stock at a purchase price of $4.00 per share for a period of five years
from the issue date. The Company recorded a $7,963 debt discount relating to the warrants issued to the investor based on the relative
fair value of each equity instrument on the dates of issuance and an original issue discount of $5,298. The debt discount is being
accreted over the life of the note. The February 2018 Note and accrued interest is convertible at a conversion price of $0.20 per
share, subject to adjustment. The February 2018 Note is secured by a second priority lien on the assets of the Company.
During the year ended December 31, 2018
the Company has repaid $40,750 of principal and $3,548 of unpaid interest.
The March 2018 Convertible Note
Offering
During the year ended December 31, 2018, the Company conducted multiple closings of a private placement
offering to accredited investors (the “March 2018 Convertible Note Offering”) of units of the Company’s securities
by entering into subscription agreements with “accredited investors” (the “March 2018 Investors”) for aggregate
gross proceeds of $770,000. In addition, $50,000 of the Company’s short-term debt, $767 accrued but unpaid interest and $140,600
of the Company’s vendor liabilities was exchanged for convertible debt within the March 2018 Convertible Note Offering. These
conversions resulted in the issuance of 47,842 warrants with a fair value of $84,087. These were recorded as a loss on extinguishment
of debt.
The March 2018 Convertible Note Offering consisted of a maximum of $900,000, with an over-allotment option
of an additional $300,000 of units of the Company’s securities (each, a “March 2018 Unit” and collectively, the
“March 2018 Units”), with each March 2018 Unit consisting of (a) a 14% Convertible Secured Promissory Note (each a
“March 2018 Note” and together the “March 2018 Notes”), convertible into shares of the Company’s
common stock, par value $.001 per share (“Conversion Shares”) at a conversion price of $4.00 per share (the “Conversion
Price”), and (b) a four-year warrant (each a “Warrant and together the “Warrants”) to purchase common stock
equal to one hundred percent (100%) of the shares into which the Notes can be converted into (“Warrant Shares”) at
an exercise price of $4.00 per share (“Exercise Price”). The March 2018 Notes mature on the second (2nd) anniversary
of their issuance dates.
The Conversion Price of the March 2018
Note and the Exercise Price of the Warrants are subject to adjustment for issuances of the Company’s common stock or any
equity linked instruments or securities convertible into the Company’s common stock at a purchase price of less than the
prevailing Conversion Price or Exercise Price. Such adjustment shall result in the Conversion Price and Exercise Price being reduced
to such lower purchase price, subject to carve-outs as described therein.
The Company recorded a $254,788 debt discount relating to 240,342 warrants issued to investors based on
the relative fair value of each equity instrument on the dates of issuance. The debt discount is being accreted over the life of
the note to accretion of debt discount and issuance cost.
During the year ended December 31, 2018,
the Company converted $886,367 of principal and $51,293 of unpaid interest pursuant to the August 2018 Equity Raise (as defined
below).
Note 8 – Related Party Loans
Convertible notes
Convertible notes payable – related
party as of December 31, 2018 and 2017 is as follows:
|
|
Outstanding Principal as of
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
Interest
Rate
|
|
|
Maturity Date
|
|
Quantity
|
|
|
Exercise
Price
|
|
The August 2017 Convertible Note Offering
|
|
$
|
-
|
|
|
$
|
1,416,026
|
|
|
|
15
|
%
|
|
August – October 2019
|
|
|
229,473
|
|
|
$
|
4.00
|
|
The Second December 2017 Note
|
|
|
-
|
|
|
|
100,000
|
|
|
|
15
|
%
|
|
December 21,
2019
|
|
|
25,000
|
|
|
|
4.00
|
|
The February 2018 Convertible Note Offering
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
%
|
|
January – February 2020
|
|
|
6,250
|
|
|
|
4.00
|
|
The Second February 2018 Note
|
|
|
-
|
|
|
|
-
|
|
|
|
20
|
%
|
|
September 30,
2018
|
|
|
4,075
|
|
|
|
4.00
|
|
The March 2018 Convertible Note Offering
|
|
|
400
|
|
|
|
-
|
|
|
|
14
|
%
|
|
March 2020
|
|
|
59,850
|
|
|
|
4.00
|
|
|
|
|
400
|
|
|
|
1,516,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Debt Discount
|
|
|
(72
|
)
|
|
|
(170,780
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Debt Issuance Costs
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
328
|
|
|
|
1,345,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Current Debt
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-Term Debt
|
|
$
|
328
|
|
|
$
|
1,345,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The August 2017 Convertible Note
Offering
During the year ended December 31, 2017, the Company conducted multiple closings of a private placement
offering to accredited investors (the “The August 2017 Convertible Offering”) of units of the Company’s securities
by entering into subscription agreements with “accredited investors” (the “August 2017 Investors”) for
aggregate gross proceeds of $505,000. In addition, $645,000 of the Company’s short-term debt along with accrued but unpaid
interest of $206,026 was converted into the August 2017 Convertible Offering. These conversions resulted in the issuance of 227,756
warrants with a fair value of $440,157 and the increase of principal of $60,000. These resulted in a loss on extinguishment of
debt of $500,157.
The Company offered, through a placement agent, $6,000,000 of units of its securities (each, an “August
2017 Unit” and collectively, the “August 2017 Units”), with each August 2017 Unit consisting of (a) a 15% Convertible
Secured Promissory Note (each a “August 2017 Note” and together the “August 2017 Notes”), convertible into
shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) at a conversion price of
$4.00 per share (the “Conversion Price”), and (b) a five-year warrant (each a “Warrant and together the “Warrants”)
to purchase common stock equal to one hundred percent (100%) of the shares into which the Notes can be converted into (“Warrant
Shares”) at an exercise price of $4.00 per share (“Exercise Price”). The August 2017 Notes mature on the second
(2nd) anniversary of their issuance dates.
The Conversion Price of the August 2017
Note and the Exercise Price of the Warrants are subject to adjustment for issuances of the Company’s common stock or any
equity linked instruments or securities convertible into the Company’s common stock at a purchase price of less than the
prevailing Conversion Price or Exercise Price. Such adjustment shall result in the Conversion Price and Exercise Price being reduced
to such lower purchase price, subject to carve-outs as described therein.
The Company recorded a $160,700 debt discount
relating to 126,250 warrants issued to investors based on the relative fair value of each equity instrument on the dates of
issuance. The debt discount is being accreted over the life of these notes to accretion of debt discount and issuance cost.
During the year ended December 31, 2018,
the Company converted $1,416,026 of principal and $202,362 of unpaid interest pursuant to the August 2018 Equity Raise (as defined
below).
The Second December 2017 Note
On December 21, 2017, the Company issued
a convertible note to a third-party lender totaling $100,000 (the “Second December 2017 Note”). The Second December
2017 Note accrues interest at 15% per annum and matures with interest and principal both due on December 27, 2019. In addition,
the Company issued a warrant to purchase 25,000 shares of Company common stock. The warrant entitles the holder to purchase the
Company’s common stock at a purchase price of $4.00 per share for a period of five years from the issue date. The Company
recorded a $36,722 debt discount relating to the warrants issued to the investor based on the relative fair value of each equity
instrument on the dates of issuance. The debt discount is being accreted over the life of the note The Second December 2017 Note
and accrued interest is convertible at a conversion price of $4.00 per share, subject to adjustment. The Second December 2017 Note
is secured as a second priority lien on the assets of the Company.
During
the year ended December 31, 2018, the Company converted $100,000 of principal and $10,542 of unpaid interest pursuant to the August
2018 Equity Raise (as defined below) and the note is no longer outstanding.
The February 2018 Convertible Note
Offering
During the year ended December 31, 2018,
the Company conducted multiple closings of a private placement offering to accredited investors (the “February 2018 Convertible
Note Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited
investors” (the “Investors”) for aggregate gross proceeds of $25,000.
The February 2018 Convertible Note
Offering consisted of a maximum of $750,000 of units of the Company’s securities (each, a “February 2018
Unit” and collectively, the “February 2018 Units”), with each February 2018 Unit consisting of (a) a 15%
Convertible Secured Promissory Note (each a “February 2018 Note” and together the “February 2018
Notes”), convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion
Shares”) at a conversion price of $4.00 per share (the “Conversion Price”), and (b) a five-year warrant
(each a “Warrant and together the “Warrants”) to purchase common stock equal to one hundred percent (100%)
of the shares into which the February 2018 Notes can be converted into (“Warrant Shares”) at an exercise price of
$4.00 per share (“Exercise Price”). The February 2018 Notes mature on the second (2nd) anniversary of their
issuance dates. The February 2018 Notes are secured by a second priority security interest in the Company’s assets up
to $1,000,000.
The Conversion Price of the Note and the
Exercise Price of the Warrants are subject to adjustment for issuances of the Company’s common stock or any equity linked
instruments or securities convertible into the Company’s common stock at a purchase price of less than the prevailing Conversion
Price or Exercise Price. Such adjustment shall result in the Conversion Price and Exercise Price being reduced to such lower purchase
price, subject to carve-outs as described therein.
The conversion feature of the February
2018 Convertible Note Offering provides for an effective conversion price that is below market value on the date of issuance.
Such feature is normally characterized as a beneficial conversion feature (“BCF”). When the Company records a BCF
the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument. The
Company recorded a BCF and related debt discount of $1,063, the discount is being accreted over the life of the first Debenture
to accretion of debt discount and issuance cost.
The Company recorded a $11,054 debt discount
relating to 6,250 warrants issued to Investors based on the relative fair value of each equity instrument on the dates of issuance.
The debt discount is being accreted over the life of the note to accretion of debt discount and issuance cost.
In connection with the Offering, the Company
retained Network 1 Financial Securities, Inc. (the “Placement Agent”), to carry out the Offering on a “best-efforts”
basis. For services in its capacity as Placement Agent, the Company has paid the Placement Agent a cash fee of $3,250 and issued
to the Placement Agent shares of the Company’s common stock equal to ten percent (10%) of the Conversion Shares underlying
the Notes or 625 shares that had a fair value of $2,606, which was recorded as issuance cost and is being accreted over the life
of these notes to accretion of debt discount and issuance cost.
During the year ended December 31, 2018,
the Company converted $25,000 of principal and $2,219 of unpaid interest pursuant to the August 2018 Equity Raise (as defined
below).
The Second February 2018 Note
On February 8, 2018, the Company
issued a convertible note to a third-party lender totaling $40,750 (the “Second February 2018 Note”). The Second
February 2018 Note accrues interest at 18% per annum and matures with interest and principal both due on December 31, 2018.
In addition, the Company issued a warrant to purchase 4,075 shares of Company common stock. The warrant entitles the holder
to purchase the Company’s common stock at a purchase price of $4.00 per share for a period of five years from the issue
date. The Company recorded a $7,963 debt discount relating to the warrants issued to the investor based on the relative fair
value of each equity instrument on the dates of issuance and an original issue discount of $5,298. The debt discount is being
accreted over the life of the note The Second February 2018 Note and accrued interest is convertible at a conversion price of
$4.00 per share, subject to adjustment. The Second February 2018 Note is secured as a second priority lien on the assets of
the Company.
During the year ended December 31, 2018,
the Company has repaid $5,298 in principal. In addition, the Company converted $35,452 of principal and $4,116 of unpaid interest
into the August 2018 Equity Raise (as defined below).
The March 2018 Convertible Note
Offering
During the year ended December 31, 2018,
the Company conducted multiple closings of a private placement offering to accredited investors (the “March 2018 Convertible
Note Offering”) of units of the Company’s securities by entering into subscription agreements with “accredited
investors” (the “Investors”) for aggregate gross proceeds of $239,400.
The March 2018 Convertible Note Offering
consisted of a maximum of $900,000, with an over-allotment option of an additional $300,000, of units of the Company’s securities
(each, a “March 2018 Unit” and collectively, the “March 2018 Units”), with each March 2018 Unit consisting
of (a) a 14% Convertible Secured Promissory Note (each a “March 2018 Note” and together the “March 2018 Notes”),
convertible into shares of the Company’s common stock, par value $.001 per share (“Conversion Shares”) at a conversion
price of $4.00 per share (the “Conversion Price”), and (b) a four-year warrant (each a “Warrant and together
the “Warrants”) to purchase common stock equal to one hundred percent (100%) of the shares into which the Notes can
be converted into (“Warrant Shares”) at an exercise price of $4.00 per share (“Exercise Price”). The Notes
mature on the second (2nd) anniversary of their issuance dates.
The Conversion Price of the Note and the
Exercise Price of the Warrants are subject to adjustment for issuances of the Company’s common stock or any equity linked
instruments or securities convertible into the Company’s common stock at a purchase price of less than the prevailing Conversion
Price or Exercise Price. Such adjustment shall result in the Conversion Price and Exercise Price being reduced to such lower purchase
price, subject to carve-outs as described therein.
The Company recorded a $84,854 debt discount
relating to 59,850 warrants issued to investors based on the relative fair value of each equity instrument on the dates of
issuance. The debt discount is being accreted over the life of these notes to accretion of debt discount and issuance cost.
During the year ended December 31, 2018,
the Company converted $239,000 of principal and $15,401 of unpaid interest into the August 2018 Equity Raise (as defined below).
Notes payable
Notes payable – related party as
of December 31, 2018 and 2017 is as follows:
|
|
Outstanding Principal as of
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
Interest
Rate
|
|
|
Maturity Date
|
|
Quantity
|
|
|
Exercise
Price
|
|
The May 2016 Rosen Loan Agreement
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
|
|
13
|
%
|
|
November 26, 2017
|
|
|
50,000
|
|
|
$
|
6.00
|
|
The September 2017 Rosen Loan Agreement
|
|
|
-
|
|
|
|
224,000
|
|
|
|
18
|
%
|
|
September 24, 2017
|
|
|
6,250
|
|
|
|
4.00
|
|
The November 2017 Schiller Loan Agreement
|
|
|
-
|
|
|
|
25,000
|
|
|
|
15
|
%
|
|
December 31, 2017
|
|
|
-
|
|
|
|
-
|
|
The May 2018 Schiller Loan Agreements
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
%
|
|
February 2, 2019
|
|
|
15,000
|
|
|
|
4.00
|
|
The June 2018 Frommer Loan Agreement
|
|
|
10,000
|
|
|
|
-
|
|
|
|
6
|
%
|
|
August 17, 2018
|
|
|
1,500
|
|
|
|
4.00
|
|
The July 2018 Rosen Loan Agreement
|
|
|
56,695
|
|
|
|
-
|
|
|
|
6
|
%
|
|
August 17, 2018
|
|
|
1,500
|
|
|
|
4.00
|
|
The July 2018 Schiller Loan Agreements
|
|
|
40,000
|
|
|
|
-
|
|
|
|
6
|
%
|
|
August 17, 2018
|
|
|
7,500
|
|
|
|
4.00
|
|
The December 2018 Gravitas Loan Agreement
|
|
|
50,000
|
|
|
|
-
|
|
|
|
6
|
%
|
|
January 22, 2019
|
|
|
2,500
|
|
|
|
4.00
|
|
The December 2018 Rosen Loan Agreement
|
|
|
75,000
|
|
|
|
-
|
|
|
|
6
|
%
|
|
January 26, 2019
|
|
|
3,750
|
|
|
|
4.00
|
|
|
|
|
1,231,695
|
|
|
|
1,249,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Debt Discount
|
|
|
(8,125
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,223,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Current Debt
|
|
|
(1,223,570
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
1,249,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The May 2016 Rosen Loan Agreement
On May 26, 2016, the Company entered into
a loan agreement (the “May 2016 Rosen Loan Agreement”) with Arthur Rosen, an individual (“Rosen”), pursuant
to which on May 26, 2016 (the “Closing Date”), Rosen provided the Company a secured term loan in the principal amount
of $1,000,000 (the “May 2016 Rosen Loan”). In connection with the May 2016 Rosen Loan Agreement, on May 26, 2016,
the Company and Rosen entered into a security agreement (the “Rosen Security Agreement”), pursuant to which the Company
granted to Rosen a senior security interest in substantially all of the Company’s assets as security for repayment of the
May 2016 Rosen Loan. Pursuant to the May 2016 Rosen Loan Agreement, the May 2016 Rosen Loan bears interest at a rate of 12.5%
per annum, compounded annually and payable on the maturity date of May 26, 2017 (the “May 2016 Rosen Maturity Date”)
at which time all outstanding principal, accrued and unpaid interest and other amounts due under the May 2016 Rosen Loan are due.
The Company entered into an amendment to the May 2016 Rosen Loan extending the May 2016 Rosen Maturity Date to November 26, 2017.
As additional consideration for entering in the May 2016 Rosen Loan Agreement, the Company issued Rosen a five-year warrant to
purchase 1,000,000 shares of the Company’s common stock at a purchase price of $0.40 per share (the “May 2016 Rosen
Warrant”). The May 2016 Rosen Warrant contains anti-dilution provisions as further described therein. On September
7, 2017 (the “Conversion Date”), Rosen converted all accrued but unpaid interest on the May 2016 Rosen Loan from May
26, 2016 through September 6, 2017 in the amount of $124,306 (the “May 2016 Rosen Loan Interest”) into the Company’s
August Convertible Note Offering, after which May 2016 Rosen Loan Interest was deemed paid in full through the Conversion Date.
On March 29, 2019, the Company executed an agreement to further extend the maturity date of this loan to May 15, 2019.
The September 2017 Rosen Loan Agreement
On September 8, 2017, the Company entered
into a loan agreement (the “September 2017 Rosen Loan Agreement”) with Rosen, whereby the Company issued Rosen a promissory
note in the principal amount of $224,000 (the “September 2017 Rosen Note”). The September 2017 Rosen Note is secured
by an officer of the Company. As additional consideration for entering in the September 2017 Rosen Note Loan Agreement, the Company
issued Rosen a five-year warrant to purchase 1,250 shares of the Company’s common stock at a purchase price of $4.00 per
share. On November 13, 2017, in consideration for extending the September 2017 Rosen Note, Rosen was issued a warrant to purchase
5,000 shares of the Company’s common stock exercisable within five (5) years and with an exercise price of $4.00 per share.
On February 20, 2018, the Company entered
into a forbearance agreement whereby the Company issued Rosen a five-year warrant to purchase 22,400 shares of the Company’s
common stock at a purchase price of $4.00 per share. These warrants had a fair value of $65,378 which was recorded to Loss on extinguishment
of debt. The new maturity date of the September 2017 Rosen Loan Agreement is September 8, 2018.
During the year December 31, 2018, the
Company converted $224,000 of principal and $20,496 of unpaid interest pursuant to the August 2018 Equity Raise (as defined below)
and the loan is no longer outstanding.
The November 2017 Schiller Loan
Agreement
On November 20, 2017, the Company entered
into a loan agreement (the “November 2017 Schiller Loan Agreement”) with Mr. Len Schiller (“Schiller”),
a member of the Company’s Board of Directors, whereby the Company issued Schiller a promissory note in the principal amount
of $25,000 (the “November 2017 Schiller Note”). Pursuant to the November 2017 Schiller Loan Agreement, the November
2017 Schiller Note bears interest at a rate of 15% per annum. During the year ended December 31, 2018 the Company repaid $25,000
in principal and $637 in interest and the loan is no longer outstanding.
The January 2018 Rosen Loan Agreement
On January 16, 2018, the Company entered
into a loan agreement (the “January 2018 Rosen Loan Agreement”) with Rosen, whereby the Company issued Rosen a promissory
note in the principal amount of $60,000 (the “January 2018 Rosen Note”). The January 2018 Rosen Note is secured by
Jeremy Frommer, whereas upon default Mr. Frommer would owe his own personal default shares of the Company’s common stock
to Rosen equal to the amount of principal outstanding divided by 4.00. Pursuant to the January 2018 Rosen Loan Agreement, the
January 2018 Rosen Note bears interest at a rate of 6% per annum and was payable on the maturity date of January 31, 2018 (the
“January 2018 Rosen Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other
amounts due under the May 2016 Rosen Loan became due. During the year ended December 31, 2018, the Company repaid $60,000 in principal
and $200 in interest and the loan is no longer outstanding.
The January 2018 Gordon Loan Agreement
On January 16, 2018, the Company entered
into a loan agreement (the “January 2018 Gordon Loan Agreement”) with Mr. Christopher Gordon (“Gordon”),
whereby the Company issued Gordon a promissory note in the principal amount of $40,000 (the “January 2018 Gordon Note”).
The January 2018 Gordon Note is secured by Jeremy Frommer, whereas upon default Mr. Frommer would owe his own personal default
shares of the Company’s common stock to Gordon equal to the amount of principal outstanding divided by 4.00. Pursuant
to the January 2018 Gordon Loan Agreement, the January 2018 Gordon Note bears interest at a rate of 6% per annum and payable on
the maturity date of January 31, 2018 (the “January 2018 Gordon Maturity Date”) at which time all outstanding principal,
accrued and unpaid interest and other amounts due under the January 2018 Gordon Note became due. During the year ended December
31, 2018, the Company repaid $40,000 in principal and $105 in interest and the loan is non longer outstanding.
The First March 2018 Rosen Loan
Agreement
On March 4, 2018, the Company entered into
a loan agreement (the “First March 2018 Rosen Loan Agreement”) with Rosen, whereby the Company issued Rosen a promissory
note in the principal amount of $10,000 (the “First March 2018 Rosen Note”). As additional consideration for entering
in the First March 2018 Rosen Note Loan Agreement, the Company issued Rosen a five-year warrant to purchase 500 shares of the Company’s
common stock at a purchase price of $4.00 per share. Pursuant to the First March 2018 Rosen Loan Agreement, the First March 2018
Rosen Note bears interest at a rate of 12% per annum and is payable on the maturity date of March 19, 2018 (the “First March
2018 Rosen Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under
the First March 2018 Rosen Note was due. During the year ended December 31, 2018, the Company repaid $10,000 in principal and $260
in interest and the loan is no longer outstanding.
The Second March 2018 Rosen Loan
Agreement
On March 9, 2018, the Company entered into
a loan agreement (the “Second March 2018 Rosen Loan Agreement”) with Rosen, whereby the Company issued Rosen a promissory
note in the principal amount of $15,000 (the “Second March 2018 Rosen Note”). As additional consideration for entering
in the Second March 2018 Rosen Loan Agreement, the Company issued Rosen a five-year warrant to purchase 750 shares of the Company’s
common stock at a purchase price of $4.00 per share. Pursuant to the Second March 2018 Rosen Loan Agreement, the Second March 2018
Rosen Note bears interest at a rate of 12% per annum and is payable on the maturity date of March 24, 2018 (the “Second March
2018 Rosen Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and other amounts due under
the Second March 2018 Rosen Note was due. During the year ended December 31, 2018, the Company repaid $15,000 in principal and
$365 in interest and the loan is no longer outstanding.
The Third March 2018 Rosen Loan
Agreement
On March 13, 2018, the Company entered
into a loan agreement (the “Third March 2018 Rosen Loan Agreement”) with Rosen, whereby the Company issued Rosen a
promissory note in the principal amount of $10,000 (the “Third March 2018 Rosen Note”). As additional consideration
for entering in the Third March 2018 Rosen Loan Agreement, the Company issued Rosen a five-year warrant to purchase 500 shares
of the Company’s common stock at a purchase price of $4.00 per share. Pursuant to the Third March 2018 Rosen Loan Agreement,
the Third March 2018 Rosen Note bears interest at a rate of 12% per annum and is payable on the maturity date of March 28, 2018
(the “Third March 2018 Rosen Maturity Date”) at which time all outstanding principal, accrued and unpaid interest and
other amounts due under the Third March 2018 Rosen Note was due. During the year ended December 31, 2018, the Company repaid $10,000
in principal and $230 in interest and the loan is no longer outstanding.
The May 2018 Schiller Loan Agreement
On May 2, 2018, the Company entered into
a loan agreement (the “May 2018 Schiller Loan Agreement”) with Schiller, a member of the Board, whereby the Company
issued Schiller a promissory note in the principal amount of $100,000 (the “May 2018 Schiller Note”). As additional
consideration for entering in the May 2018 Schiller Loan Agreement, the Company issued Schiller a four-year warrant to purchase
15,000 shares of the Company’s common stock at a purchase price of $4.00 per share. Pursuant to the May 2018 Schiller Loan
Agreement, the May 2018 Schiller Note bears interest at a rate of 13% per annum and is payable on the maturity date of February
02, 2019 (the “May 2018 Schiller Maturity Date”).
During the year ended December 31, 2018,
the Company converted $100,000 of principal and $4,369 of unpaid interest pursuant to the August 2018 Equity Raise (as defined
below) and the loan is no longer outstanding.
The June 2018 Frommer Loan Agreement
On June 29, 2018, the Company entered into
a loan agreement (the “June 2018 Frommer Loan Agreement”) with Jeremy Frommer, an officer of the Company, whereby the
Company issued Frommer a promissory note in the principal amount of $10,000 (the “June 2018 Frommer Note”). As additional
consideration for entering in the June 2018 Frommer Note Loan Agreement, the Company issued Frommer a four-year warrant to purchase
1,500 shares of the Company’s common stock at a purchase price of $4.00 per share. Pursuant to the June 2018 Frommer Loan
Agreement, the June 2018 Frommer Note bears interest at a rate of 6% per annum and payable on the maturity date of August 17, 2018
(the “June 2018 Frommer Maturity Date”). On November 8, 2018 the Company executed upon an agreement that extended
the maturity date of the June 2018 Frommer Agreement to March 7, 2019. As part of the extension agreement, the Company issued Frommer
an additional 2,043 warrants to purchase common stock of the Company at an exercise price of $6.00. These warrants had a fair value
of $4,645 which was recorded to loss on extinguishment of debt. On March 29, 2019 the Company executed upon an agreement that
extended the maturity date of this loan to May 15, 2019.
The First July 2018 Schiller Loan
Agreement
On July 3, 2018, the Company entered into
a loan agreement (the “First July 2018 Schiller Loan Agreement”) with Schiller, a member of the Board, whereby the
Company issued Schiller a promissory note in the principal aggregate amount of $35,000 (the “First July 2018 Schiller Note”).
As additional consideration for entering in the First July 2018 Schiller Loan Agreement, the Company issued Schiller a four-year
warrant to purchase 3,750 shares of the Company’s common stock at a purchase price of $4.00 per share. Pursuant to the agreement,
the note bears interest at a rate of 6% per annum and payable on the maturity date of August 17, 2018. Subsequent to the
balance sheet date, on November 8, 2018 the Company executed upon an agreement that extended the maturity date of this loan to
March 7, 2019. As part of the extension agreement, the Company issued Schiller warrants to purchase 142,987 shares of common stock
of the Company at an exercise price of $6.00. On March 29, 2019 the Company executed upon an agreement that extended the maturity
date of this loan to May 15, 2019.
The Second July 2018 Schiller Loan
Agreement
On July 17, 2018, the Company entered into
a loan agreement (the “Second July 2018 Schiller Loan Agreement”) with Schiller, a member of the Board, whereby the
Company issued Schiller a promissory note in the principal aggregate amount of $25,000 (the “Second July 2018 Schiller Note”).
As additional consideration for entering in the Second July 2018 Schiller Loan Agreement, the Company issued Schiller a four-year
warrant to purchase 3,750 shares of the Company’s common stock at a purchase price of $4.00 per share. Pursuant to the Second
July 2018 Schiller Loan Agreement, the Second July 2018 Schiller Note bears interest at a rate of 6% per annum and payable on the
maturity date of August 17, 2018. Subsequent to the balance sheet date, on November 8, 2018 the Company executed upon an agreement
that extended the maturity date of this loan to March 7, 2019. As part of the extension agreement, the Company issued Schiller
warrants to purchase 5,095 shares of common stock of the Company at an exercise price of $6.00. On March 29, 2019 the Company executed
upon an agreement that extended the maturity date of this loan to May 15, 2019.
The First July 2018 Rosen Loan Agreements
On July 12, 2018, the Company entered into
a loan agreement (the “First July 2018 Rosen Loan Agreement”) with Rosen, an officer of the Company, whereby the Company
issued Rosen a promissory note in the principal aggregate amount of $10,000 (the “First July 2018 Rosen Note”). Pursuant
to the First July 2018 Rosen Loan Agreement, the note bears interest at a rate of 6% per annum and payable on the maturity date
of August 17, 2018. On November 8, 2018 the Company executed upon an agreement that extended the maturity date of this loan to
March 7, 2019. As part of the extension agreement, the Company issued Rosen warrants to purchase 1,377 shares of common stock of
the Company at an exercise price of $6.00. On March 29, 2019 the Company executed upon an agreement that extended the maturity
date of this loan to May 15, 2019.
The Second July 2018 Rosen Loan
Agreements
On July 18, 2018, the Company entered into
a loan agreement (the “Second July 2018 Rosen Loan Agreement”) with Rosen, whereby the Company issued Rosen a promissory
note in the principal aggregate amount of $50,000 (the “Second July 2018 Rosen Note”) resulting from the conversion
of a demand note (as described below). As additional consideration for entering into the Second July 2018 Rosen Loan Agreement,
the Company issued Rosen a four-year warrant to purchase 7,500 shares of the Company’s common stock at a purchase price of
$4.00 per share. Pursuant to the Second July 2018 Rosen Loan Agreement, the Second July 2018 Rosen Note bears interest at a rate
of 6% per annum and payable on the maturity date of August 17, 2018. On November 8, 2018 the Company executed upon an agreement
that extended the maturity date of this loan to March 7, 2019. As part of the extension agreement, the Company issued Rosen warrants
to purchase 10,198 shares of common stock of the Company at an exercise price of $6.00. On March 29, 2019 the Company executed
upon an agreement that extended the maturity date of this loan to May 15, 2019.
The November 2018 Rosen Loan Agreement
On November 29, 2018, the Company entered
into a loan agreement (the “November 2018 Rosen Loan Agreement”) with Rosen, whereby the Company issued Rosen a promissory
note in the principal amount of $25,000 (the “November 2018 Rosen Note”). As additional consideration for entering
in the November 2018 Rosen Note Loan Agreement, the Company issued Rosen a four-year warrant to purchase 1,250 shares of the Company’s
common stock at a purchase price of $6.00 per share. Pursuant to the November 2018 Rosen Loan Agreement, the November 2018 Rosen
Note bears interest at a rate of 6% per annum and payable on the maturity date of December 23, 2018 (the “November 2018 Rosen
Maturity Date”).
During the year ended December 31, 2018,
the Company repaid $25,000 of principal and $33 of unpaid interest and the loan is no longer outstanding.
The December 2018 Rosen Loan Agreement
On December 27, 2018, the Company entered
into a loan agreement (the “December 2018 Rosen Loan Agreement”) with Rosen, whereby the Company issued Rosen a promissory
note in the principal amount of $75,000 (the “December 2018 Rosen Note”). As additional consideration for entering
in the December 2018 Rosen Note Loan Agreement, the Company issued Rosen a four-year warrant to purchase 3,750 shares of the Company’s
common stock at a purchase price of $6.00 per share. Pursuant to the December 2018 Rosen Loan Agreement, the December 2018 Rosen
Note bears interest at a rate of 6% per annum and payable on the maturity date of January 26, 2019 (the “December 2018 Rosen
Maturity Date”). On March 29, 2019 the Company executed upon an agreement that extended the maturity date of this loan to
May 15, 2019.
The December 2018 Gravitas Capital
Loan Agreement
On December 27, 2018, the Company entered
into a loan agreement (the “December 2018 Gravitas Capital Loan Agreement”) with Gravitas Capital, whereby the Company
issued Gravitas Capital a promissory note in the principal amount of $50,000 (the “December 2018 Gravitas Capital Note”).
As additional consideration for entering in the December 2018 Gravitas Capital Note Loan Agreement, the Company issued Gravitas
Capital a four-year warrant to purchase 2,500 shares of the Company’s common stock at a purchase price of $6.00 per share.
Pursuant to the December 2018 Gravitas Capital Loan Agreement, the December 2018 Gravitas Capital Note bears interest at a rate
of 6% per annum and payable on the maturity date of January 27, 2019 (the “December 2018 Gravitas Capital Maturity
Date”). On March 29, 2019 the Company executed upon an agreement that extended the maturity date of this loan to May 15,
2019.
Line of credit – related party
On May 9, 2017, the Company entered into
a Revolving Line of Credit (the “Grawin LOC”) with Grawin, LLC, a limited liability company controlled by Rosen, a
related party. The Grawin LOC was established for a period of twelve months, with a maturity date of May 2018, in which the Company
can borrow principal up to $130,000. The Grawin LOC bears interest at a rate of 18%. On June 8, 2018 the Grawin LOC’s maturity
date was extended to June 1, 2019.
During the year ended December 31, 2018,
the Company exchanged $130,000 of principal and $30,626 of unpaid interest on the Grawin LOC into the August 2018 Equity Raise
(as defined below).
As of December 31, 2018 and 2017 the total
outstanding balance of line of credit - related party was $0 and $130,000, respectively.
Demand loan
On June 6, 2018, Rosen made non-interest
bearing loans of $50,000 to the Company in the form of cash. The loan is due on demand and unsecured. On July 12, 2018, this note
was converted into The Second July 2018 Rosen Loan Agreements.
Officer compensation
During the years ended December 31, 2018 and
2017 the Company paid $109,407 and $132,792, respectively for living expenses for officers of the Company.
Note 9 – Capital Leases Payable
Capital lease obligation consisted of
the following:
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
|
(i)
|
Capital lease obligation to a financing company for a
term of five (5) years, collateralized by equipment, with interest at 10.0% per annum, with principal and interest due and
payable in monthly installments of $383.10
|
|
$
|
4,732
|
|
|
$
|
4,732
|
|
|
|
|
|
|
|
|
|
|
|
|
Less current maturities
|
|
|
(4,732
|
)
|
|
|
(4,732
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligation, net of current maturities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital Lease Obligation
|
|
$
|
4,732
|
|
|
$
|
4,732
|
|
The capital
leases mature as follows:
Note 10 – Derivative Liabilities
The Company has identified derivative
instruments arising from embedded conversion features in the Company’s convertible notes payable at December 31, 2017. The
Company had no financial assets measured at fair value on a recurring basis as of December 31, 2018 and 2017.
The following summarizes the Black-Scholes
assumptions used to estimate the fair value of the derivative liability at the date of issuance and for the convertible notes
during the year ended December 31, 2017.
|
|
Low
|
|
|
High
|
|
Annual dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected life
|
|
|
0.58
|
|
|
|
0.75
|
|
Risk-free interest rate
|
|
|
1.11
|
%
|
|
|
1.16
|
%
|
Expected volatility
|
|
|
90.71
|
%
|
|
|
93.55
|
%
|
Risk-free interest rate: The Company uses
the risk-free interest rate of a U.S. Treasury Note with a similar term on the date of the grant.
Dividend yield: The Company uses a 0%
expected dividend yield as the Company has not paid dividends to date and does not anticipate declaring dividends in the near
future.
Volatility: The Company calculates the
expected volatility of the stock price based on the corresponding volatility of the Company’s peer group stock price for
a period consistent with the expected term.
Expected term: The Company’s remaining
term is based on the remaining contractual maturity of the convertible notes.
The
following are the changes in the derivative liabilities during the year ended December 31, 2017.
|
|
Year Ended
December 31,
2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative liabilities as January 1, 2017
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Addition
|
|
|
-
|
|
|
|
-
|
|
|
|
332,942
|
|
Conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Extinguishment Expense
|
|
|
|
|
|
|
|
|
|
|
(397,288
|
)
|
Gain on changes in fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
64,346
|
|
Derivative liabilities as December 31, 2017
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
There was no derivative liability activity
during the year ended December 31, 2018.
Note 11 - Stockholders’ Deficit
Reverse Stock Split
On July 25, 2019, following Board approval,
the Company filed a Certificate of Change to its Articles of Incorporation (the “Amendment”), with the Secretary of
State of the State of Nevada to effectuate a one-for-twenty (1:20) reverse stock split (the “Reverse Stock Split”)
of its common stock, par value $0.001 per share, without any change to its par value. The Amendment became effective on July 30,
2019. Pursuant to the Reverse Stock Split, the number of shares of authorized common stock was proportionately reduced, however
the number of authorized preferred stock was not affected. No fractional shares were issued in connection with the Reverse Stock
Split as all fractional shares were “rounded up” to the next whole share.
All share and per share amounts for the
common stock herein have been retroactively restated to give effect to the Reverse Stock Split.
Shares Authorized
Upon incorporation, the total number of
shares of all classes of stock which the Company is authorized to issue is Three Hundred Twenty Million (35,000,000) shares of
which Three Hundred Million (15,000,000) shares shall be Common Stock, par value $0.001 per share and Twenty Million (20,000,000)
shall be Preferred Stock, par value $0.001 per share. The designations, rights, and preferences of such preferred stock are to
be determined by the Board of Directors.
Preferred Stock
Series A Cumulative Convertible
Preferred Stock
On February 13, 2015, 100,000 shares of
preferred stock were designated as Series A Cumulative Convertible Preferred Stock (“Series A”). Each share of Series
A shall have a stated value equal to $100 (as adjusted for any stock dividends, combinations or splits with respect to such shares)
(the “Series A Stated Value”).
The holders of the Series A shall be entitled
to receive preferential dividends at the rate of 6% per share per annum on the Series A Stated Value, but before any dividend
or other distribution will be paid or declared and set apart for payment on any shares of any Junior Stock, as defined. Such dividends
shall compound annually and be fully cumulative, and shall accumulate from the date of original issuance of the Series A and shall
be payable quarterly, in arrears, commencing on the first day of the calendar quarter following the date on which the Series A
is issued. Upon the occurrence of an Event of Default (as defined below) and while such Event of Default is outstanding, such
dividend rate shall be increased to 15% per annum on the Series A Stated Value. At the Company’s option, such dividend
payments may be made in (i) cash (ii) additional shares of Series A valued at the Series A Stated Value thereof, in an amount
equal to 150% of the cash dividend otherwise payable or (iii) a combination of cash and additional shares of Series A, provided there
is not an existing current Event of Default on the date on which a dividend payment is payable, in which event the Holder entitled
to receive such dividend may elect to receive such dividends in cash or additional shares of Series A Preferred.
The dividends on the Series A shall be
cumulative whether or not declared so that, if at any time full cumulative dividends at the rate aforesaid on all shares of the
Series A then outstanding from the date from and after which dividends thereon are cumulative to the end of the annual dividend
period next preceding such time shall not have been paid or declared and set apart for payment, or if the full dividend on all
such outstanding Series A for the then current dividend period shall not have been paid or declared and set apart for payment,
the amount of the deficiency shall be paid or declared and set apart for payment before any sum shall be set apart for or applied
by the Corporation or a subsidiary of the Corporation to the purchase, redemption or other acquisition of the Series A or any
shares of any other class of stock ranking on a parity with the Series A and before any dividend or other distribution shall be
paid or declared and set apart for payment on any Junior Stock and before any sum shall be set aside for or applied to the purchase,
redemption or other acquisition of any Junior Stock.
Holder of Series A shall have the right
at any time after the issuance, to convert such shares, accrued but unpaid declared dividends on the Series A and any other sum
owed by the Corporation arising from the Series A into fully paid and non-assessable shares of Common Stock (the “Conversion
Shares”) of the Corporation determined in accordance with the applicable conversion price (the “Conversion Price”).
The number of Conversion Shares issuable
upon conversion shall equal (i) the sum of (A) the Series A Stated Value being converted and/or (B) at the Holder’s election,
accrued and unpaid dividends or any other component of the Conversion Amount, divided by (ii) the Conversion Price. The Conversion
Price of the Series A shall be $5.00, subject to adjustment.
During the year ended December 31, 2016
the conversion price was adjusted to $3.28
The Corporation and the Holder may not
convert that amount of the Conversion Amount on a Conversion Date in amounts that would result in the Holder having a beneficial
ownership of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by
the Holder and its Affiliates on such Conversion Date, and (ii) the number of Conversion Shares issuable upon the conversion of
the Conversion Amount with respect to which the determination of this provision is being made on such Conversion Date, which would
result in the aggregate beneficial ownership by the Holder and its Affiliates of more than 4.99% of the outstanding shares of
Common Stock of the Corporation. For the purposes of the proviso to the immediately preceding sentence, beneficial ownership shall
be determined in accordance with Section 13(d) of the 1934 Act and Regulation 13d-3 thereunder. Subject to the foregoing, the
Holder shall not be limited to successive exercises which would result in the aggregate issuance of more than 4.99%. The Holder
may allocate which of the equity of the Corporation deemed beneficially owned by the Holder shall be included in the 4.99% amount
described above and which shall be allocated to the excess above 4.99%. The Holder may waive the conversion limitation described
in this Section in whole or in part, upon and effective after sixty-one (61) days’ prior written notice to the Corporation.
The holders of our Series A do vote together
with the holders of our Common Stock on an as converted basis on each matter submitted to a vote of holders of Common Stock. The
number of votes that may be cast by a holder of Series A shall be equal to the number of shares of Common Stock issuable upon
conversion of such Holder’s Series A on the record date for determining those stockholders entitled to vote on the matter.
In addition, the affirmative vote of the holders of a majority of our outstanding Series A is required to for the following actions:
(a) amending the Corporation’s
certificate of incorporation or by-laws if such amendment would adversely affect the Series A
(b) purchasing any of
the Corporation’s securities other than required redemptions of Series A and repurchase under restricted stock and option
agreements authorizing the Corporation’s employees;
(c) effecting a Liquidation
Event;
(d) declaring or paying
any dividends other than in respect of the Series A; and
(e) issuing any additional
securities having rights senior to or on parity with the Series A.
During the years ended December 31, 2018
and 2017, the Company accrued $0 for liquidating damages on the Series A and $0 on the warrants associated with the Series A.
During the year ended December 31, 2018 the Company converted the remaining Series
A into the August 2018 Equity Raise. See below.
Series B Cumulative Convertible
Preferred Stock
On December 21, 2015, 20,000 shares of
preferred stock were designated as Series B Cumulative Convertible Preferred Stock (“Series B”). Each share of Series
B shall have a stated value equal to $100.00 (as adjusted for any stock dividends, combinations or splits with respect to such
shares) (the “Series B Stated Value”).
The holders of outstanding shares of Series
B shall be entitled to receive preferential dividends at the rate of 6% per share per annum on the Series B Stated Value, but
before any dividend or other distribution will be paid or declared and set apart for payment on any shares of any Junior Stock
as defined. Such dividends shall compound annually and be fully cumulative and shall accumulate from the date of original issuance
of the Series B, and shall be payable quarterly, in arrears, commencing on the first day of the calendar quarter following the
date on which the Series B is issued. Upon the occurrence of an Event of Default as defined below and while such Event of Default
is outstanding, such dividend rate shall be increased to 15% per annum on the Series B Stated Value. At the Corporation’s
option, such dividend payments may be made in (i) cash (ii) additional shares of Series B valued at the Series B Stated Value
thereof, in an amount equal to 100% of the cash dividend otherwise payable or (iii) a combination of cash and additional shares
of Series B, provided there is not an existing current Event of Default on the date on which a dividend payment is payable,
in which event the Holder entitled to receive such dividend may elect to receive such dividends in cash or additional shares of
Series B Preferred.
The dividends on the Series B shall be
cumulative whether or not declared so that, if at any time full cumulative dividends at the rate aforesaid on all shares of the
Series B then outstanding from the date from and after which dividends thereon are cumulative to the end of the annual dividend
period next preceding such time shall not have been paid or declared and set apart for payment, or if the full dividend on all
such outstanding Series B for the then current dividend period shall not have been paid or declared and set apart for payment,
the amount of the deficiency shall be paid or declared and set apart for payment before any sum shall be set apart for or applied
by the Corporation or a subsidiary of the Corporation to the purchase, redemption or other acquisition of the Series B or any
shares of any other class of stock ranking on a parity with the Series B and before any dividend or other distribution shall be
paid or declared and set apart for payment on any Junior Stock and before any sum shall be set aside for or applied to the purchase,
redemption or other acquisition of any Junior Stock.
Holders of shares of Series B shall have
the right at any time commencing after the issuance to convert such shares, accrued but unpaid declared dividends on the Series
B into fully paid and non-assessable shares of Common Stock (the “Conversion Shares”) of the Corporation determined
in accordance with the applicable conversion price (the “Conversion Price”). All declared or accrued but
unpaid dividends may be converted at the election of the Holder together with or independent of the conversion of the Series B
Stated Value of the Series B.
The number of Conversion Shares issuable
upon conversion of the Conversion Amount shall equal (i) the sum of (A) the Series B Stated Value being converted and/or (B) at
the Holder’s election, accrued and unpaid dividends or any other component of the Conversion Amount, divided by (ii) the
Conversion Price. The Conversion Price of the Series B shall be $6.00, subject to adjustment.
During the year ended December 31, 2016
the conversion price was adjusted to $3.94.
The Corporation and the Holder may not
convert that amount of the Conversion Amount on a Conversion Date in amounts that would result in the Holder having a beneficial
ownership of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by
the Holder and its Affiliates on such Conversion Date, and (ii) the number of Conversion Shares issuable upon the conversion of
the Conversion Amount with respect to which the determination of this proviso is being made on such Conversion Date, which would
result in the aggregate beneficial ownership by the Holder and its Affiliates of more than 4.99% of the outstanding shares of
Common Stock of the Corporation. For the purposes of the proviso to the immediately preceding sentence, beneficial ownership shall
be determined in accordance with Section 13(d) of the 1934 Act and Regulation 13d-3 thereunder. Subject to the foregoing, the
Holder shall not be limited to successive exercises which would result in the aggregate issuance of more than 4.99%. The Holder
may allocate which of the equity of the Corporation deemed beneficially owned by the Holder shall be included in the 4.99% amount
described above and which shall be allocated to the excess above 4.99%. The Holder may waive the conversion limitation described
in this Section in whole or in part, upon and effective after sixty-one (61) days’ prior written notice to the Corporation.
The holders of our Series B do vote together
with the holders of our Common Stock on an as converted basis on each matter submitted to a vote of holders of Common Stock. The
number of votes that may be cast by a holder of Series B shall be equal to the number of shares of Common Stock issuable upon
conversion of such Holder’s Series B on the record date for determining those stockholders entitled to vote on the matter.
In addition, the affirmative vote of the holders of a majority of our outstanding Series B is required to for the following actions:
(a) amending the Corporation’s
certificate of incorporation or by-laws if such amendment would adversely affect the Series B
(b) purchasing any of
the Corporation’s securities other than required redemptions of Series B and repurchase under restricted stock and option
agreements authorizing the Corporation’s employees;
(c) effecting a Liquidation
Event;
(d) declaring or paying
any dividends other than in respect of the Company’s Series A or Series B; and
(e) issuing any additional
securities having rights senior to the Series B.
During the years ended December 31, 2018
and 2017, the Company accrued $0 for liquidating damages on the Series B and $0 on the warrants associated with the Series B.
During the years ended December 31, 2018
and 2017, the Company issued 0 shares of Series B upon conversion of interest totaling $0.
During the year ended December 31, 2018
the Company converted the remaining Series B into the August 2018 Equity Raise. See below.
Series D Convertible Preferred Stock
On January 29, 2016, 2,100,000 shares
of preferred stock were designated as Series D Convertible Preferred Stock (“Series D”). Each share of Series A shall
have a stated value equal to $100.00 (as adjusted for any stock dividends, combinations or splits with respect to such shares)
(the “Series D Stated Value”).
Holders of shares of Series D shall have
the right at any time commencing after the issuance to convert such shares into fully paid and non-assessable shares of Common
Stock (the “Conversion Shares”) of the Corporation determined in accordance with the applicable conversion price (the
“Conversion Price”).
The number of Conversion Shares issuable
upon conversion of the Conversion Amount shall equal (i) the sum of (A) the Series D Stated Value being converted and/or (B) at
the Holder’s election, accrued and unpaid dividends or any other component of the Conversion Amount, divided by (ii) the
Conversion Price. The Conversion Price of the Series D is $5.00, subject to adjustment.
The Company and the Holder may not convert
that amount of the Conversion Amount on a Conversion Date in amounts that would result in the Holder having a beneficial ownership
of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by the Holder
and its Affiliates on such Conversion Date, and (ii) the number of Conversion Shares issuable upon the conversion of the Conversion
Amount with respect to which the determination of this proviso is being made on such Conversion Date, which would result in the
aggregate beneficial ownership by the Holder and its Affiliates of more than 4.99% of the outstanding shares of Common Stock of
the Corporation. For the purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined
in accordance with Section 13(d) of the 1934 Act and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder shall not
be limited to successive exercises which would result in the aggregate issuance of more than 4.99%. The Holder may allocate which
of the equity of the Corporation deemed beneficially owned by the Holder shall be included in the 4.99% amount described above
and which shall be allocated to the excess above 4.99%. The Holder may waive the conversion limitation described in this Section
in whole or in part, upon and effective after sixty one (61) days’ prior written notice to the Corporation.
The holders of Series D Preferred shall
not be entitled to a vote on matters submitted to a vote of the stockholders of the Company. Also, as long as any shares of Series
D Preferred are outstanding, the Company shall not, without the affirmative vote of all of the Holders of the then outstanding
shares of the Series D Preferred,
(a) alter or change
adversely the powers, preferences or rights given to the Series D Preferred or alter or amend this Certificate of Designation,
(b) amend its articles
of incorporation or other charter documents in any manner that adversely affects any rights of the Holders,
(c) increase the number
of authorized shares of Series D Preferred, or
(d) enter into any agreement with respect
to any of the foregoing.
During the year ended December 31, 2017,
the Company converted 914 shares of Series D into 13,316 shares of common stock.
Common Stock
On January 30, 2017, the Company issued
47,372 shares of its restricted common stock to settle outstanding vendor liabilities of $353,732. In connection with this transaction
the company also recorded a gain on settlement of vendor liabilities of $167,905.
On February 7, 2017, the Company issued
88,382 shares of its restricted common stock to consultants in exchange for services at a fair value of $293,427.
On February 1, 2017, the Company issued
40,000 shares of its restricted common stock to its placement agent. Such shares were issued pursuant to a Placement Agent Agreement
with the Company and services rendered in connection with a private placement of the Company’s securities.
On February 13, 2017, the Company issued
6,667 shares of its restricted common stock to its placement agent. Such shares were issued pursuant to a Placement Agent Agreement
with the Company and services rendered in connection with a private placement of the Company’s securities.
On January 31, 2018, the Company issued
938 shares of its restricted common stock to settle outstanding vendor liabilities of $3,750. In connection with this transaction
the Company also recorded a gain on settlement of vendor liabilities of $375.
During the year ended December 31, 2018,
the Company issued 30,500 shares of its restricted common stock to consultants in exchange for services at a fair value of $116,300.
These shares were recorded as common stock issued for prepaid services and will be expensed over the life of the consulting contract
to share based payments. During the year ended December 31, 2018 the Company recorded $72,835 to share based payments.
August 2018 Equity Raise
Effective August 31, 2018 (the “Effective
Date”), the Company consummated the initial closing (the “Initial Closing”) of a private placement offering
of its securities of up to $5,000,000 (the “August 2018 Equity Raise”). In connection with the August 2018 Equity Raise,
the Company entered into definitive securities purchase agreements (the “Purchase Agreements”) for aggregate gross
proceeds of $2,787,462. Pursuant to the Purchase Agreement, the Purchasers purchased an aggregate of 557,492 shares of common stock
at $5.00 per share and received warrants to purchase 557,492 shares of common stock at an exercise price of $6.00 per share (the
“Purchaser Warrants”, collectively, the “Securities”).
The Purchaser Warrants are exercisable
for a term of five years from the Initial Exercise Date (as defined in the Purchaser Warrants).
In connection with the August 2018 Equity
Raise, the Company will issue 110,000 shares of Common Stock, will pay fees of $161,406 and will grant warrants to purchase 6,999
shares of common stock at an exercise price of $6.00 per share for services rendered as the Company’s placement agent in
the Private Offering. The Company has recorded $536,342 to stock issuances costs, and is part of Additional Paid-in
Capital.
Letter Agreements for the Conversion of Debt and Preferred
Stock
In connection with the August 2018 Equity
Raise, the Company entered into those certain letter agreements (the “Debt Conversion Agreements”) with certain holders
of its debt securities (the “Debt Holders”), for the conversion of an aggregate amount of $7,997,939 of principal and
$1,028,890 of accrued but unpaid interest of the Company’s debt obligations into 2,256,448 shares of Common Stock at a conversion
price equal to $4.00 per share. Additionally, as inducement to enter into the Debt Conversion Agreement, the Debt Holders were
issued warrants to purchase 1,128,225 shares of Common Stock at an exercise price equal to $6.00 per share, expiring five years
from the date of issuance (the “Incentive Debt Warrants”). The Company recorded a Loss on extinguishment of debt of
$2,913,934 in connection with of the debt conversions. See Notes 6, 7 and 8.
Concurrently with its entrance in the Debt
Conversion Agreements, the Company entered into those letter agreements (the “Preferred Stock Conversion Agreements”)
with certain holders (the “Preferred Holders”) of its Series A Cumulative Convertible Preferred Stock and Series B
Cumulative Convertible Preferred Stock (the “collectively, the Preferred Stock”) whereby the Preferred Holders converted
38,512 shares of the Preferred Stock into an aggregate of 1,343,329 shares of Common Stock at conversion prices equal to $3.94per
share for Series A and $3.28per share for Series B. As in an inducement to enter into the Preferred Stock Conversion Agreements,
the Preferred Holders were issued warrants to purchase 13,433,305 shares of Common Stock at an exercise price equal to $6.00 per
share, expiring five years from the date of issuance (the “Incentive Preferred Warrants”, and together with the Incentive
Debt Warrants, the “Incentive Warrants”). The Company recorded an inducement of $2,016,634 in connection with of the
Preferred conversions and is recorded as an adjustment to net loss attributable to common shareholders, on the statements
of operations.
Stock Options
The Company applied fair value accounting
for all share-based payments awards. The fair value of each option granted is estimated on the date of grant using the Black-Scholes
option-pricing model.
The assumptions used for options granted
during the year ended December 31, 2018 and 2017 are as follows:
|
|
December 31,
2018
|
|
December 31,
2017
|
|
Exercise price
|
|
6.00-15
|
|
3.2-15
|
|
Expected dividends
|
|
0%
|
|
0%
|
|
Expected volatility
|
|
93.64%-116.27%
|
|
86.62% - 92.14%
|
|
Risk free interest rate
|
|
2.2%-2.56
|
|
1.74% - 2.10%
|
|
Expected life of option
|
|
3.6 - 4.3 years
|
|
5 years
|
|
The following is a summary of the Company’s
stock option activity: