The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Description of Business
Company Overview
Mitesco, Inc. (the “Company,” “we,” “us,” or “our”), previously known as Trunity Holdings, Inc., a Delaware corporation, and since 2016 known as True Nature Holding, Inc., became a publicly-traded company through a reverse triangular merger with Brain Tree International, Inc., a Utah corporation (“BTI”) in 2012. Trunity Holdings, Inc. was the parent company of our educational business, named Trunity, Inc., which was formed on July 28, 2009 through the acquisition of certain intellectual property from its three founders. On December 9, 2015 the Company made a decision to restructure Trunity Holdings, Inc., having acquired Newco4pharmacy, LLC, a development stage business aimed at a roll-up of compounding pharmacy businesses. As a part of such restructuring, we competed a “spin out” transaction of our educational business line to our shareholders as of December 31, 2015. On April 24, 2020 True Nature Holding, Inc., now known as Mitesco, Inc. (OTCQB:MITI) completed change of its corporate identity based on final approval from FINRA.
Mitesco Inc. is developing a portfolio of product offerings aimed at enhancing healthcare throughout the supply chain as well as to consumers. We have acquired assets and intend to acquire and implement technologies and services to improve the quality of care, reduce cost, and enhance consumer convenience. We believe the holding company structure facilitates profitable growth and should enable the acquired business to focus on scale. The goal of the Company’s evolving portfolio of companies is to apply leading-edge solutions that emphasize stakeholder value and leverages distinct sector trends. Sectors of interest include artificial intelligence (AI), population health management, data gathering solutions, electronic health records optimization, healthcare IT solutions, virtual care & care augmentation, and predictive analytics. The Company formed a holding company structure for both its acquired assets in the United States and Europe, designed to support efficiencies around taxation, legal, and economies of scale in administrative functions. We now have a wholly owned subsidiary in Dublin, Ireland, Acelerar Healthcare Holdings, Ltd., and intend to use that location as a base for European operations.
As a development stage company, we have two businesses in development. The first business is our product set “SimpleHIPAA” and “Simple HIPPA for Vets and Pets”. It is designed to transmit data generated at the time a prescription is written by a physician or veterinarian for the pharmacy. This information is embedded inside the application and made available to the healthcare provider and to the pharmacy. While providing a starting point for tracking healthcare information for the end user, it also establishes a communications method between the healthcare provider and the pharmacy. Currently, it is focused on e-prescribing between compounding pharmacies and their clients, the physician for humans and the veterinarian for pets. A large Florida based pharmacy is the development partner and distributor that is introducing it to the market place. They have installed the software at more than 100 client sites since January 2020. We are told it is working as designed.
Our second active business is MyCare LLC. This business is establishing primary care medical clinics operated by Independent Nurse Practitioners. MyCare provides the marketing, support services, systems, and clinical tools to allow an independent Nurse Practitioner to quickly open a clinic. The initial clinics are intended to be opened in Minneapolis, MN in the fourth quarter of 2020. These clinics are being designed to deliver primary care, spa, and dermatological services through in-person, over-the-phone, and telemedicine visits.
We are actively seeking acquisitions that fit our strategy. We seek to find businesses with proven scalable results and then make those technologies and services available to the those that can use them to improve their quality of life, their health, and cost of operation. Some of these businesses simply need marketing and distribution, others will benefit from combining with another technology to create a more complete solution. That is our mission: find the best, deliver efficiencies, make improvements if necessary, and then scale the business.
Note 2 – Summary of Significant Accounting Policies
Basis of Accounting – The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the instructions to interim financial reporting as prescribed by the Securities and Exchange Commission (the “SEC”). The results for the interim periods are not necessarily indicative of results for the entire year. These interim financial statements do not include all disclosures required by U.S. generally accepted accounting principles (“GAAP”), and should be read in conjunction with the consolidated financial statements and notes thereto filed with the SEC in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. In the opinion of management, the unaudited Condensed Consolidated Financial Statements contained in this report include all known accruals and adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods reported herein. Any such adjustments are of a normal recurring nature.
Use of Estimates - The preparation of these financial statements requires our management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and related notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment.
Comprehensive Loss – Comprehensive income (loss) as defined includes all changes in equity during a period from non-owner sources. Items included in the Company’s comprehensive loss consist of unrealized gains (losses) on securities.
Cash -All highly liquid investments with a maturity date of three months or less at the date of purchase are cash equivalents.
Revenue Recognition – On January 1, 2018, we adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (Topic 605). Results for reporting periods beginning after January 1, 2018 are presented under Topic 606. The impact of adopting the new revenue standard was not material to our financial statements and there was no adjustment to beginning retained earnings on January 1, 2018.
Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
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identification of the contract, or contracts, with a customer;
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identification of the performance obligations in the contract;
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determination of the transaction price;
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allocation of the transaction price to the performance obligations in the contract; and
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recognition of revenue when, or as, we satisfy a performance obligation.
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Stock-Based Compensation-We recognize the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation cost for stock options are estimated at the grant date based on each option’s fair-value as calculated by the Black-Scholes-Merton (“BSM”) option-pricing model. Share-based compensation arrangements may include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.
Equity instruments issued to those other than employees are recorded on the basis of the fair value of the instruments. In general, the measurement date is when either a (a) performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant.
Convertible Instruments-The Company reviews the terms of convertible debt and equity instruments to determine whether there are conversion features or embedded derivative instruments including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. In circumstances where the convertible instrument contains more than one embedded derivative instrument, including conversion options that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single compound instrument. Also, in connection with the sale of convertible debt and equity instruments, the Company may issue free standing warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity. When convertible debt or equity instruments contain embedded derivative instruments that are to be bifurcated and accounted for separately, the total proceeds allocated to the convertible host instruments are first allocated to the fair value of the bifurcated derivative instrument. The remaining proceeds, if any, are then allocated to the convertible instruments themselves, usually resulting in those instruments being recorded at a discount from their face amount. When the Company issues debt securities, which bear interest at rates that are lower than market rates, the Company recognizes a discount, which is offset against the carrying value of the debt. Such discount from the face value of the debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to income. In addition, certain conversion features are recognized as beneficial conversion features to the extent the conversion price as defined in the convertible note is less than the closing stock price on the issuance of the convertible notes.
Common Stock Purchase Warrants-The Company accounts for common stock purchase warrants in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815, Accounting for Derivative Instruments and Hedging Activities. As is consistent with its handling of stock compensation and embedded derivative instruments, the Company’s cost for stock warrants is estimated at the grant date based on each warrant’s fair-value as calculated by the BSM option-pricing model value method for valuing the impact of the expense associated with these warrants.
Stockholders’ Equity-Shares of common stock issued for other than cash have been assigned amounts equivalent to the fair value of the service or assets received in exchange. Common stock share and per share amounts in these financial statements have been adjusted for the effects of a one for 101 reverse stock split that occurred in January 2016.
Per Share Data-Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the year. Diluted loss per share is computed by dividing net loss by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to warrants, options and convertible instruments.
The Company has excluded all common equivalent shares outstanding for warrants, options and convertible instruments to purchase common stock from the calculation of diluted net loss per share because all such securities are antidilutive for the periods presented. As of March 31, 2020, there were 2,901,444 warrants outstanding and 8,567,879 options outstanding excluded from calculation of diluted net loss; as of December 31, 2019, there were 1,800,000 warrants outstanding and 67,879 options outstanding excluded from calculation of diluted net loss. The Company, at its discretion, may satisfy the accrued interest on its Series A and Series X Preferred Stock via the issuance of shares of common stock; at March 31, 2020 and December 31, 2019, there were 709,692 and 0 shares, respectively, potentially issuable in connection with such issuance.
Income Taxes- The Company accounts for income taxes under the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s condensed consolidated financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than possible enactments of changes in the tax laws or rates.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has determined that a valuation allowance is needed due to recent taxable net operating losses, the sale of profitable divisions and the limited taxable income in the carry back periods. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and certain tax loss carryforwards, less any valuation allowance.
The Company accounts for uncertain tax positions as required in that a position taken or expected to be taken in a tax return is recognized in the condensed consolidated financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The Company does not have any material unrecognized tax benefits. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as components of interest expense and other expense, respectively, in arriving at pretax income or loss. The Company does not have any interest and penalties accrued. The Company is generally no longer subject to U.S. federal, state, and local income tax examinations for the years before 2012.
Business Combinations- The Company accounts for business combinations by recognizing the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair values on the acquisition date. The purchase price allocation process requires management to make significant estimates and assumptions, especially with respect to intangible assets, estimated contingent consideration payments and pre-acquisition contingencies. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:
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future expected cash flows from product sales, support agreements, consulting contracts, other customer contracts, and acquired developed technologies and patents; and
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discount rates utilized in valuation estimates.
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Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. Additionally, any change in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date, including changes from events after the acquisition date, such as changes in our estimates of relevant revenue or other targets, will be recognized in earnings in the period of the estimated fair value change. A change in fair value of the acquisition-related contingent consideration or the occurrence of events that cause results to differ from our estimates or assumptions could have a material effect on the condensed consolidated financial position, statements of operations or cash flows in the period of the change in the estimate.
Impairment of Long-Lived Assets-Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed would be separately presented in the condensed consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and, are no longer depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the condensed consolidated balance sheet, if material.
Financial Instruments and Fair Values-The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time, based upon relevant market information about the financial instrument. In determining fair value, we use various valuation methodologies and prioritize the use of observable inputs. We assess the inputs used to measure fair value using a three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable in the market:
Level 1 – inputs include exchange quoted prices for identical instruments and are the most observable.
Level 2 – inputs include brokered and/or quoted prices for similar assets and observable inputs such as interest rates.
Level 3 – inputs include data not observable in the market and reflect management judgment about the assumptions market participants would use in pricing the asset or liability.
The use of observable and unobservable inputs and their significant in measuring fair value are reflected in our hierarchy assessment. The carrying amount of cash, prepaid assets, accounts payable and accrued liabilities approximates fair value due to the short-term maturities of these instruments. Because cash and cash equivalents are readily liquidated, management classifies these values as Level 1. The fair value of the debentures, approximate their book value as the instruments are short-term in nature and contain market rates of interest. Because there is no ready market or observable transactions, management classifies the debentures as Level 3.
Recently Issued Accounting Standards-There are various other updates recently issued, most of which represent technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s condensed consolidated financial position, results of operations or cash flows.
Note 3 – Financial Condition and Going Concern
As of March 31, 2020, the Company had cash of $10,870, current liabilities of $2,160,528, and has incurred a loss from operations. Mitesco’s principal operation is the development and deployment of software and systems for the healthcare marketplace. The Company solutions in a) healthcare records, b) the sale of applications in the health and wellness area from 3rd parties in addition to its own developed products. The Company is also performing consulting services to certain entities in the pharmacy, medical and veterinary services area. The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding to execute its business plan.
As a result of these factors, there is substantial doubt about the ability of the Company to continue as a going concern. The Company’s continuance is dependent on raising capital and generating revenues sufficient to sustain operations. The Company believes that the necessary capital will be raised and has entered into discussions to do so with certain individuals and companies. However, as of the date of these condensed consolidated financial statements, no formal agreement exists.
The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts classified as liabilities that might be necessary should the Company be forced to take any such actions.
We have had some impact on our operations as a result of the effect of the pandemic, primarily with accessibility to staffing, consultants and in the capital markets, and we are adjusting as needed within our available resources. The Company will continue to assess the effect of the pandemic on its operations. The extent to which the COVID-19 pandemic will impact the Company’s business and operations will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, the duration and effect of possible business disruptions and the short-term effects and ultimate effectiveness of the travel restrictions, quarantines, social distancing requirements and business closures in the United States and other countries to contain and treat the disease. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing the Company’s ability to access capital, which could in the future negatively affect the Company’s liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect the Company’s business and the value of its common stock.
Note 4 – Related Party Transactions
Three months ended March 31, 2020:
On February 27, 2020, the Company issued 1,000,000 ten-year options to its two non-management directors (a total of 2,000,000 options). These options have a fair value at issuance of $39,162 per director (a total of $78,324), an exercise price of $0.05 per share, and vest over a three-year period. The Company valued these options using the Black-Scholes valuation model. During the three months ended March 31, 2020, the amount of $1,088 was charged to operations in connection with each 1,000,000 option grant (a total of $2,176 for all 2,000,000 options).
On March 2, 2020, the Company issued 1,500,000 ten-year options to each of its Chief Executive Officer, its President, and a consultant (a total of 4,500,000 options). These options have a fair value at issuance of $58,743 per individual (a total of $176,229), an exercise price of $0.05 per share, and vest over a three-year period. The Company valued these options using the Black-Scholes valuation model. During the three months ended March 31, 2020, the amount of $1,632 was charged to operations in connection with each 1,500,000 option grant (a total of $4,896 for all 4,500,000 options).
The Company charged the amount of $33,676 to operations in connection with the vesting of restricted common stock as follows: $7,962 for shares issued to management; $21,638 for shares issued to board members; and $4,076 related to shares issued to an employee.
At March 31, 2020, the Company accrued dividends on its Series X Preferred stock in the total amount of $16,392. Of this amount, a total of $3,250 was payable to officers and directors, and $7,814 was payable to a related party shareholder.
At March 31, 2020, the Company has the following amounts due to related parties:
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Due to a board member for accrued compensation: $2,000
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Three months ended March 31, 2019:
On March 11, 2019, the Company issued 100,000 shares of common stock to its President as compensation, and charged the fair value in the amount of $8,740 to operations.
On March 11, 2019, the Company issued 100,000 shares of common stock to a board member as compensation, and charged the fair value in the amount of $8,740 to operations.
During the three months ended March 31, 2019, the Company accrued the amount of $2,875 in connection with the vested portion of a common stock award granted to its President.
At March 31, 2019, the Company has the following amounts due to related parties:
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Due to shareholders for accounts payable paid on behalf of the Company and accrued interest: $61,037
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Note payable in the amount of $75,000 related to reclassification of accounts payable (see note 5, “July 2017 Note”)
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Note payable in the amount of $65,000 related to consulting services provided (see note 5, “Consulting Services Note”)
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Note payable in the amount of $58,000 related to accounts payable paid on behalf of the Company (see note 5, “Trade Payables Note”)
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Note 5 – Debt
August 2014 Series C Convertible Debenture
As part of the restructuring, all debentures issued by Trunity Holdings, Inc., to fund the former, educational business, were eligible to participate in a debt conversion; however, one debenture holder that was issued a Series C Convertible Debenture (the “Series C Debenture”) in August 2014 with an aggregate face value of $100,000 in exchange for the cancellation of Series B Convertible Debentures with a carrying value of $110,833 did not convert such debenture. The Series C Convertible Debenture accrues interest at an annual rate of 10%, matured November 2015, and is convertible into our common stock at a conversion rate of $20.20 per share. The holders of the Series C Debenture also received five-year warrants to acquire up to 4,950 shares post-split of common stock for an exercise price of $20.20 per share. The former educational business allocated the face value of the Series C Debenture to the warrants and the debentures based on its relative fair values, and allocated to the warrants, which was recorded as a discount against the Series C Debenture, with an offsetting entry to additional paid-in capital. The discount was fully expensed upon execution of the new debentures as debt extinguishment costs within discontinued operations. The Series C Debenture is currently in default. Details of activity for the three months ended March 31, 2020 are presented in Notes Payable Table 1, below.
November 2014 Series D Convertible Debenture
As part of the restructuring all debentures issued by Trunity Holdings, Inc., to fund the former, educational business were eligible to participate in a debt conversion; however, one debenture holder that was issued a Series D Convertible Debenture (the “Series D Debenture”) in November 2014 with an aggregate face value of $10,000 in exchange for the cancellation of Series B Convertible Debenture with a carrying value of $11,333 did not participate in the debt conversion restructuring. The Series D Debenture accrues interest at an annual rate of 12%, matured November 2015, and is convertible into our common stock at a conversion rate of $16.67 per share. The holders of the Series D Debenture also received five-year warrants to acquire up to 495 shares of common stock for an exercise price of $20.20 per share on a post-split basis. The former educational business allocated the face value of the Series D Debenture to the warrants and the debentures based on their relative fair values, and allocated to the warrants, which was recorded as a discount against the Series D Debenture, with an offsetting entry to additional paid-in capital. The discount was fully expensed upon execution of the new debentures as debt extinguishment costs within discontinued operations. The Series D Debenture is currently in default. Details of activity for the three months ended March 31, 2020 are presented in Notes Payable Table 1, below.
March 2016 Convertible Note A
On March 18, 2016, the Company issued a 12% Convertible Promissory Note (the “Convertible Note A”) in the principal amount of $60,000 to a lender. Pursuant to the terms of the Convertible Note A, the Company is obligated to pay monthly installments of not less than $1,000 the first of each month commencing the month following the execution of the Convertible Note A until its maturity on September 16, 2016 at which time the Company was obligated to repay the full principal amount of the Convertible Note A. The Convertible Note A is convertible by the holder at any time into shares of the Company’s common stock at price of $1.00 per share, and throughout the duration of the note, the holder has the right to participate in any financing the Company may engage in upon the same terms and conditions as all other investors. The Company allocated the face value of the Convertible Note A to the shares and the note based on relative fair values, and the amount allocated to the shares of $18,750 was recorded as a discount against the note. The beneficial conversion feature of $9,375 was recorded as a debt discount with an offsetting entry to additional paid-in capital decreasing the note payable and increasing debt discount. The debt discount was amortized to interest expense during the year ended December 31, 2016.
Upon issuance of the Convertible Note A, the lender was awarded 15,000 restricted common stock as an origination fee which includes piggy-back registration rights. On September 19, 2016, the Company issued the lender an additional 15,000 restricted common stock at a price of $0.30 per share to extend the term of the loan agreement indefinitely. The cost to the Company was $4,050 in interest expense. On August 10, 2017, the Company issued 25,000 shares of common stock with a fair value of $3,750 for accrued interest through August 1, 2017 in the amount of $7,860. In April 2018, the Company issued 75,000 shares of common stock with a value of $7,500 as consideration for an extension of the term of the loan to July 1, 2018, and on August 13, 2018, the Company issued an additional 75,000 shares of common stock with a value of $6,750 for an extension of the term of the loan to October 31, 2018. During the year ended December 31, 2019, the lender converted principal in the amount of $15,000 into 120,000 shares of common stock. The Company recorded a loss in the amount of $13,867 on this conversion. Also, during the year ended December 31, 2019, the Company made a principal payment in the amount of $4,000 on this note. Details of activity for the three months ended March 31, 2020 are presented in Notes Payable Table 1, below.
Power Up Note 11
On September 12, 2019, the Company entered into a Securities Purchase Agreement with Power Up pursuant to which Power Up agreed to purchase a convertible promissory note (the “Power Up Note 11”) in the aggregate principal amount of $45,000. The Power Up Note 11 entitles the holder to 12% interest per annum and matures on July 15, 2020. Under the Power Up Note 11, Power Up may convert all or a portion of the outstanding principal of the Power Up Note 11 into shares of Common Stock beginning on the date which is 180 days from the issuance date of the Power Up Note 11, at a price equal to the higher of the variable conversion price or $0.00006 per share. The variable conversion price shall mean 55% of lowest trading price during the 25 trading day period ending on the last complete trading date prior to the date of conversion, provided, however, that Power Up may not convert the Power Up Note 11 to the extent that such conversion would result in beneficial ownership by Power Up and its affiliates of more than 4.99% of the Company’s issued and outstanding Common Stock. If the Company prepays the Power Up Note 11 within 30 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 115%; if such prepayment is made between the 31st day and the 60th day after the issuance of the Power Up Note 11, then such redemption premium is 120%; if such prepayment is made from the sixty first 61st to the 90th day after issuance, then such redemption premium is 125%; and if such prepayment is made from the 91st to the 120th day after issuance, then such redemption premium is 130%; and if such prepayment is made from the 121st to the 150th day after issuance, then such redemption premium is 135%; and if such prepayment is made from the 151st to the 180th day after issuance, then such redemption premium is 140%. After the 180th day following the issuance of the Power Up Note 11, there shall be no further right of prepayment. The Company recorded an original issue discount in the amount of $3,000 in connection with the Power Up Note 11; $3,000 was amortized to interest expense during the year ended December 31, 2019. The Company accrued interest in the amount of $1,642 on the Power Up Note 11 during the year ended December 31, 2019. During the year ended December 31, 2019, the Company determined that a derivative liability in the amount of $47,187 existed in connection with the variable rate conversion feature of the Power Up Note 11. $45,000 of this amount was charged to discount on the Power Up Note 11, and $2,187 was charged to interest expense.
During the three months ended March 31, 2020, the Company made a cash payment in the amount of $74,195 on the Power Up Note 11 which fully satisfied this obligation. This amount consisted of $45,000 of principal, $2,680 of accrued interest, and $23,815 of prepayment penalty. The Company revalued the derivative liability associated with the Power Up Note 11 at the time of payment, and recorded a gain on revaluation in the amount of $35,420. The Company credited the fair value of the derivative liability at the time of payment in the amount of $21,266 to additional paid-in capital. Details of additional activity for the three months ended March 31, 2020 are presented in Notes Payable Table 1, below.
Power Up Note 12
On October 7, 2019, the Company entered into a Securities Purchase Agreement with Power Up pursuant to which Power Up agreed to purchase a convertible promissory note (the “Power Up Note 12”) in the aggregate principal amount of $53,000 and an original issue discount of $3,000. The Power Up Note 12 entitles the holder to 12% interest per annum and matures on August 15, 2020. Under the Power Up Note 12, Power Up may convert all or a portion of the outstanding principal of the Power Up Note 12 into shares of Common Stock beginning on the date which is 180 days from the issuance date of the Power Up Note 12, at a price equal to the higher of the variable conversion price or $0.00006 per share. The variable conversion price shall mean 55% of lowest trading price during the 25 trading day period ending on the last complete trading date prior to the date of conversion, provided, however, that Power Up may not convert the Power Up Note 12 to the extent that such conversion would result in beneficial ownership by Power Up and its affiliates of more than 4.99% of the Company’s issued and outstanding Common Stock. If the Company prepays the Power Up Note 12 within 30 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 115%; if such prepayment is made between the 31st day and the 60th day after the issuance of the Power Up Note 12, then such redemption premium is 120%; if such prepayment is made from the sixty first 61st to the 90th day after issuance, then such redemption premium is 125%; and if such prepayment is made from the 91st to the 120th day after issuance, then such redemption premium is 130%; and if such prepayment is made from the 121st to the 150th day after issuance, then such redemption premium is 135%; and if such prepayment is made from the 151st to the 180th day after issuance, then such redemption premium is 140%. After the 180th day following the issuance of the Power Up Note 12, there shall be no further right of prepayment. The Company accrued interest in the amount of $1,499 on the Power Up Note 12 during the year ended December 31, 2019. During the year ended December 31, 2019, the Company determined that a derivative liability in the amount of $54,969 existed in connection with the variable rate conversion feature of the Power Up Note 12. $53,000 of this amount was charged to discount on the Power Up Note 12, and $2,187 was charged to interest expense. $6,502 of the discount was charged to operations during the year ended December 31, 2019. Details of activity for the three months ended March 31, 2020 are presented in Notes Payable Table 1, below. This note was fully paid in cash subsequent to March 31, 2020 and no further amounts are due.
Power Up Note 13
On November 11, 2019, the Company entered into a Securities Purchase Agreement with Power Up pursuant to which Power Up agreed to purchase a convertible promissory note (the “Power Up Note 13”) in the aggregate principal amount of $73,000 and an original issue discount of $3,000. The Power Up Note 13 entitles the holder to 12% interest per annum and matures on August 30, 2020. Under the Power Up Note 13, Power Up may convert all or a portion of the outstanding principal of the Power Up Note 13 into shares of Common Stock beginning on the date which is 180 days from the issuance date of the Power Up Note 12, at a price equal to the higher of the variable conversion price or $0.00006 per share. The variable conversion price shall mean 55% of lowest trading price during the 25 trading day period ending on the last complete trading date prior to the date of conversion, provided, however, that Power Up may not convert the Power Up Note 13 to the extent that such conversion would result in beneficial ownership by Power Up and its affiliates of more than 4.99% of the Company’s issued and outstanding Common Stock. If the Company prepays the Power Up Note 13 within 30 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 115%; if such prepayment is made between the 31st day and the 60th day after the issuance of the Power Up Note 13, then such redemption premium is 120%; if such prepayment is made from the sixty first 61st to the 90th day after issuance, then such redemption premium is 125%; and if such prepayment is made from the 91st to the 120th day after issuance, then such redemption premium is 130%; and if such prepayment is made from the 121st to the 150th day after issuance, then such redemption premium is 135%; and if such prepayment is made from the 151st to the 180th day after issuance, then such redemption premium is 140%. After the 180th day following the issuance of the Power Up Note 13, there shall be no further right of prepayment. The Company accrued interest in the amount of $1,414 on the Power Up Note 13 during the year ended December 31, 2019. During the year ended December 31, 2019, the Company determined that a derivative liability in the amount of $73,529 existed in connection with the variable rate conversion feature of the Power Up Note 13. $73,000 of this amount was charged to discount on the Power Up Note 13, and $529 was charged to interest expense. $6,091 of the discount was charged to operations during the year ended December 31, 2019. Details of activity for the three months ended March 31, 2020 are presented in Notes Payable Table 1, below. This note was fully paid in cash subsequent to March 31, 2020 and no further amounts are due.
Eagle Equities Note 1
On November 22, 2019, the Company entered into a Securities Purchase Agreement with Eagle Equities, LLC (“Eagle Equities”) pursuant to which Eagle Equities agreed to purchase a convertible promissory note (the “Eagle Equities Note 1”) in the aggregate principal amount of $256,000 and an original issue discount of $6,000. The Eagle Equities Note 1 entitles the holder to 12% interest per annum and matures on November 22, 2020. Under the Eagle Equities Note 1, Eagle Equities may convert all or a portion of the outstanding principal of the Eagle Equities Note 1 into shares of Common Stock beginning on the date which is 180 days from the issuance date of the Eagle Equities Note 1, at a price equal to 60% of lowest traded price during the 20 day trading period ending on the day the conversion notice is received by the Company, provided, however, that Eagle Equities may not convert the Eagle Equities Note 1 to the extent that such conversion would result in beneficial ownership by Eagle Equities and its affiliates of more than 4.99% of the Company’s issued and outstanding Common Stock. If the Company prepays the Eagle Equities Note 1 during the 30 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 110%; if such prepayment is made between the 31st day and the 60th day after the issuance of the Eagle Equities Note 1, then such redemption premium is 116%; if such prepayment is made from the sixty first 61st to the 90th day after issuance, then such redemption premium is 122%; and if such prepayment is made from the 91st to the 120th day after issuance, then such redemption premium is 128%; and if such prepayment is made from the 121st to the 150th day after issuance, then such redemption premium is 134%; and if such prepayment is made from the 151st to the 180th day after issuance, then such redemption premium is 140%. After the 180th day following the issuance of the Eagle Equities Note 1, there shall be no further right of prepayment. The Company accrued interest in the amount of $3,367 on the Eagle Equities Note 1 during the year ended December 31, 2019. During the year ended December 31, 2019, the Company determined that a derivative liability in the amount of $271,694 existed in connection with the variable rate conversion feature of the Eagle Equities Note 1. $256,000 of this amount was charged to discount on the Eagle Equities Note 1, and $15,694 was charged to interest expense. $7,784 of the discount was charged to operations during the year ended December 31, 2019. Details of activity for the three months ended March 31, 2020 are presented in Notes Payable Table 1, below.
Eagle Equities Note 2
On December 19, 2019, the Company entered into a Securities Purchase Agreement with Eagle Equities pursuant to which Eagle Equities agreed to purchase a convertible promissory note (the “Eagle Equities Note 2”) in the aggregate principal amount of $256,000 and an original issue discount of $6,000. The Eagle Equities Note 2 entitles the holder to 12% interest per annum and matures on December 19, 2020. Under the Eagle Equities Note 2, Eagle Equities may convert all or a portion of the outstanding principal of the Eagle Equities Note 2 into shares of Common Stock beginning on the date which is 180 days from the issuance date of the Eagle Equities Note 2, at a price equal to 60% of lowest traded price during the 20 day trading period ending on the day the conversion notice is received by the Company, provided, however, that Eagle Equities may not convert the Eagle Equities Note 2 to the extent that such conversion would result in beneficial ownership by Eagle Equities and its affiliates of more than 4.99% of the Company’s issued and outstanding Common Stock. If the Company prepays the Eagle Equities Note 2 during the 30 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 110%; if such prepayment is made between the 31st day and the 60th day after the issuance of the Eagle Equities Note 2, then such redemption premium is 116%; if such prepayment is made from the sixty first 61st to the 90th day after issuance, then such redemption premium is 122%; and if such prepayment is made from the 91st to the 120th day after issuance, then such redemption premium is 128%; and if such prepayment is made from the 121st to the 150th day after issuance, then such redemption premium is 134%; and if such prepayment is made from the 151st to the 180th day after issuance, then such redemption premium is 140%. After the 180th day following the issuance of the Eagle Equities Note 2, there shall be no further right of prepayment. The Company accrued interest in the amount of $1,094 on the Eagle Equities Note 2 during the year ended December 31, 2019. During the year ended December 31, 2019, the Company determined that a derivative liability in the amount of $277,476 existed in connection with the variable rate conversion feature of the Eagle Equities Note 2. $256,000 of this amount was charged to discount on the Eagle Equities Note 2, and $21,476 was charged to interest expense. $8,393 of the discount was charged to operations during the year ended December 31, 2019. Details of activity for the three months ended March 31, 2020 are presented in Notes Payable Table 1, below.
Eagle Equities Note 3
On January 24, 2020, the Company entered into a Securities Purchase Agreement with Eagle Equities pursuant to which Eagle Equities agreed to purchase a convertible promissory note (the “Eagle Equities Note 3”) in the aggregate principal amount of $256,000 and an original issue discount of $6,000. The Eagle Equities Note 3 entitles the holder to 12% interest per annum and matures on January 24, 2021. Under the Eagle Equities Note 3, Eagle Equities may convert all or a portion of the outstanding principal of the Eagle Equities Note 3 into shares of Common Stock beginning on the date which is 180 days from the issuance date of the Eagle Equities Note 3, at a price equal to 60% of lowest traded price during the 20 day trading period ending on the day the conversion notice is received by the Company, provided, however, that Eagle Equities may not convert the Eagle Equities Note 3 to the extent that such conversion would result in beneficial ownership by Eagle Equities and its affiliates of more than 4.99% of the Company’s issued and outstanding Common Stock. If the Company prepays the Eagle Equities Note 2 during the 30 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 110%; if such prepayment is made between the 31st day and the 60th day after the issuance of the Eagle Equities Note 2, then such redemption premium is 116%; if such prepayment is made from the sixty first 61st to the 90th day after issuance, then such redemption premium is 122%; and if such prepayment is made from the 91st to the 120th day after issuance, then such redemption premium is 128%; and if such prepayment is made from the 121st to the 150th day after issuance, then such redemption premium is 134%; and if such prepayment is made from the 151st to the 180th day after issuance, then such redemption premium is 140%. After the 180th day following the issuance of the Eagle Equities Note 2, there shall be no further right of prepayment. During the three months ended March 31, 2020, the Company determined that a derivative liability in the amount of $272,412 existed in connection with the variable rate conversion feature of the Eagle Equities Note 3. $250,000 of this amount was charged to discount on the Eagle Equities Note 3, and $22,412 was charged to interest expense. Details of additional activity for the three months ended March 31, 2020 are presented in Notes Payable Table 1, below.
Eagle Equities Note 4
On March 10, 2020, the Company entered into a Securities Purchase Agreement with Eagle Equities pursuant to which Eagle Equities agreed to purchase a convertible promissory note (the “Eagle Equities Note 4”) in the aggregate principal amount of $129,000 and an original issue discount of $4,000. The Eagle Equities Note 4 entitles the holder to 12% interest per annum and matures on March 10, 2021. Under the Eagle Equities Note 4, Eagle Equities may convert all or a portion of the outstanding principal of the Eagle Equities Note 3 into shares of Common Stock beginning on the date which is 180 days from the issuance date of the Eagle Equities Note 3, at a price equal to 60% of lowest traded price during the 20 day trading period ending on the day the conversion notice is received by the Company, provided, however, that Eagle Equities may not convert the Eagle Equities Note 3 to the extent that such conversion would result in beneficial ownership by Eagle Equities and its affiliates of more than 4.99% of the Company’s issued and outstanding Common Stock. If the Company prepays the Eagle Equities Note 2 during the 30 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 110%; if such prepayment is made between the 31st day and the 60th day after the issuance of the Eagle Equities Note 2, then such redemption premium is 116%; if such prepayment is made from the sixty first 61st to the 90th day after issuance, then such redemption premium is 122%; and if such prepayment is made from the 91st to the 120th day after issuance, then such redemption premium is 128%; and if such prepayment is made from the 121st to the 150th day after issuance, then such redemption premium is 134%; and if such prepayment is made from the 151st to the 180th day after issuance, then such redemption premium is 140%. After the 180th day following the issuance of the Eagle Equities Note 2, there shall be no further right of prepayment. During the three months ended March 31, 2020, the Company determined that a derivative liability in the amount of $139,021 existed in connection with the variable rate conversion feature of the Eagle Equities Note 4. $125,000 of this amount was charged to discount on the Eagle Equities Note 4, and $14,021 was charged to interest expense. Details of additional activity for the three months ended March 31, 2020 are presented in Notes Payable Table 1, below.
Notes Payable Table 1:
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Interest
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Amortization
|
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|
|
|
|
|
|
|
|
|
|
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|
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|
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Expense
|
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|
of Discount
|
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|
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|
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|
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3 months
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|
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3 months
|
|
|
Discount
|
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|
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Principal Balance
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Accrued Interest
|
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|
ended
|
|
|
ended
|
|
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Balance
|
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|
3/31/2020
|
|
|
12/31/2019
|
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|
3/31/2020
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|
12/31/2019
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|
3/31/2020
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|
|
3/31/2020
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|
|
3/31/2020
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|
Series C Convertible Debenture
|
|
$
|
110,833
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|
|
$
|
110,833
|
|
|
$
|
60,472
|
|
|
$
|
57,709
|
|
|
$
|
2,763
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D Convertible Debenture
|
|
|
11,333
|
|
|
|
11,333
|
|
|
|
7,365
|
|
|
|
7,026
|
|
|
|
339
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Note A
|
|
|
41,000
|
|
|
|
41,000
|
|
|
|
8,328
|
|
|
|
7,101
|
|
|
|
1,227
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power Up Note 11
|
|
|
-
|
|
|
|
45,000
|
|
|
|
-
|
|
|
|
1,805
|
|
|
|
875
|
|
|
|
38,498
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power Up Note 12**
|
|
|
53,000
|
|
|
|
53,000
|
|
|
|
3,085
|
|
|
|
1,499
|
|
|
|
1,586
|
|
|
|
8,701
|
|
|
|
37,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power Up Note 13**
|
|
|
73,000
|
|
|
|
73,000
|
|
|
|
3,672
|
|
|
|
1,488
|
|
|
|
2,184
|
|
|
|
9,549
|
|
|
|
57,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eagle Equity Note 1
|
|
|
256,000
|
|
|
|
256,000
|
|
|
|
11,027
|
|
|
|
3,367
|
|
|
|
7,659
|
|
|
|
12,793
|
|
|
|
235,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eagle Equity Note 2
|
|
|
256,000
|
|
|
|
256,000
|
|
|
|
8,669
|
|
|
|
1,010
|
|
|
|
7,659
|
|
|
|
11,818
|
|
|
|
235,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eagle Equity Note 3
|
|
|
256,000
|
|
|
|
-
|
|
|
|
5,639
|
|
|
|
-
|
|
|
|
5,639
|
|
|
|
9,497
|
|
|
|
246,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eagle Equity Note 4
|
|
|
129,000
|
|
|
|
-
|
|
|
|
891
|
|
|
|
-
|
|
|
|
891
|
|
|
|
7,422
|
|
|
|
121,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,865
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,186,166
|
|
|
$
|
846,166
|
|
|
$
|
109,148
|
|
|
$
|
82,870
|
|
|
$
|
30,822
|
|
|
$
|
98,278
|
|
|
$
|
933,610
|
|
** Subsequent to March 31, 2020, these notes were fully satisfied by cash payments.
The total amount of notes payable at March 31, 2020 and December 31, 2019 is presented in Notes Payable Table 2 below:
Notes Payable Table 2:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Total notes payable
|
|
$
|
1,186,166
|
|
|
$
|
846,166
|
|
Less: Discount
|
|
|
(933,610
|
)
|
|
|
(646,888
|
)
|
Notes payable - net of discount
|
|
$
|
252,556
|
|
|
$
|
199,278
|
|
|
|
|
|
|
|
|
|
|
Current Portion, net of discount
|
|
$
|
252,556
|
|
|
$
|
199,278
|
|
Long-term portion, net of discount
|
|
$
|
-
|
|
|
$
|
-
|
|
Note 6 – Derivative Liabilities
Certain of the Company’s convertible notes and warrants contain features that create derivative liabilities. The pricing model the Company uses for determining fair value of its derivatives is the Lattice Model. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management’s judgment and may impact net income. The derivative components of these notes are valued at issuance, at conversion, at restructure, and at each period end.
Derivative liability activity for the year ended December 31, 2019 and the three months ended March 31, 2020 is summarized in the table below:
December 31, 2018
|
|
$
|
-
|
|
Conversion features issued
|
|
|
1,472,320
|
|
Warrants issued
|
|
|
187,968
|
|
Settled upon conversion or exercise
|
|
|
(689,469
|
)
|
Settled upon payment of note
|
|
|
(191,827
|
)
|
Loss on revaluation
|
|
|
709,431
|
|
December 31, 2019
|
|
$
|
1,488,423
|
|
Conversion features issued
|
|
|
411,433
|
|
Warrants issued
|
|
|
-
|
|
Settled upon payment of note
|
|
|
(231,323
|
)
|
Gain on revaluation
|
|
|
(496,369
|
)
|
March 31, 2020
|
|
$
|
1,172,164
|
|
Note 7 – Stockholders’ Deficit
Common Stock
The Company has authorized 500,000,000 shares of common stock, par value $0.01; 86,566,999 and 81,268,443 shares were issued and outstanding at March 31, 2020 and December 31, 2019, respectively.
Common Stock Transactions During the Three Months Ended March 31, 2020
During the three months ending March 31, 2020, the Company issued 200,000 restricted shares of the Company’s common stock at valued $7,680 in exchange for services conducted on behalf of the Company. The value of these shares was based on the closing market price on the respective date of grant.
Also during the three months ended March 31, 2020, the Company charged the amount of $33,676 to operations in connection with the vesting of stock granted to its officers and board members; the Company also charged the amount of $7,072 to operations in connection with the vesting of options granted to officers and board members.
Also during the three months ended March 31, 2020, the Company entered into agreements to issue 500,000 options to each of four consultants (a total of 2,000,000 options). The options have a fair value of $20,930 per consultant (a total of $83,720). These agreements will become effective April 6, 2020, at which time the Company will begin to charge the value of these options to operations. The Company valued these options using the Black-Scholes valuation model.
Also, during the three months ended March 31, 2020, the Company entered into agreements with two note holders regarding the exercise price of warrants held by the note holders. These agreements resulted in the following: (i) the Company issued 1,000,000 shares of common stock, and the note holders agreed to cancel 2,769,482 warrants; the Company recorded a gain in the amount of $77,652 on this transaction; (ii) the Company issued 4,098,556 shares of common stock for the exercise of 4,480,938 warrants in a cashless transaction; the Company recorded a gain in the amount of $259,947 on this transaction, which is included in gain on derivative liabilities.
Common Stock Transactions During the Three Months Ended March 31, 2019
During the three months ending March 31, 2019, the Company issued 200,000 restricted shares of the Company’s common stock at valued $17,480 in exchange for services conducted on behalf of the Company. The value of these shares was based on the closing market price on the respective date of grant.
Also during the three months ended March 31, 2019, the Company charged the amount of $2,875 to additional paid-in capital in connection with the vesting of stock granted to its President.
Also during the three months ended March 31, 2019, the Company issued, in seven transactions, a total of 1,918,625 shares in connection with the conversion of notes payable principal and accrued interest in the aggregate amount of $86,000 and $4,260, respectively; a loss in the aggregate amount of $99,724 was recognized on these transactions.
Also during the three months ended March 31, 2019, the Company cancelled 400,000 shares of common stock issued to a former executive officer.
Preferred Stock
The Company has authorized 100,000,000 shares of Preferred Stock. At March 31, 2020, designations have been filed for the issuance of up to 400,000 shares of its Series X preferred stock, and for the issuance of up to 500,000 shares of its Series A Preferred stock.
Series A Preferred Stock
The Company has issued 4,800 and 0 shares of its 10% Series A Cumulative Redeemable Perpetual Preferred Stock (the “Series A Preferred Stock”) as of March 31, 2020 and December 31, 2019, respectively. The Series A Preferred Stock has a par value of $0.01 per share, no stated maturity, a liquidation preference of $25.00 per share, and will not be subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless the Company decides to redeem or otherwise repurchase the Series A Preferred Stock. The Series A Preferred Stock is not redeemable prior to November 4, 2020. The Series A Preferred Stock will rank senior to all classes of the Company’s common stock and will accrue dividends at the rate of 10% on $25.00 per share. The Company reserves the right to pay the dividends in shares of the Company’s common stock at a price equal to the average closing price over the five days prior to the date of the dividend declaration. The Series A Preferred Stock will have no voting rights. The Company valued the 4,800 shares of Series A Preferred Stock at $71,558 or approximately $14.91 per share based upon an analysis performed by an independent valuation consultant.
Series A Preferred Stock Transactions During the Three Months Ended March 31, 2020
On March 2, 2020, the Company issued 4,800 shares of its Series A Preferred Stock to four individuals with certain skills and know-how to assist the Company in the development of its newly-formed subsidiary My Care, LLC. The Company has valued these shares at $71,558 or approximately $14.91 per share based upon an analysis performed by an independent valuation consultant. During the three months ended March 31, 2020, the Company accrued dividends in the amount of $967 on the Series A Preferred Stock. At March 31, 2020, dividend payable on the Series A Preferred Stock was $967. At March 31, 2020, if management determined to pay these dividends in shares of the Company’s common stock, this would result in the issuance of 39,534 shares of common stock based upon the average price of $0.02446 per share for the five day period ended March 31, 2020.
Series X Preferred Stock
The Company has issued 26,227 shares of its 10% Series X Cumulative Redeemable Perpetual Preferred Stock (the “Series X Preferred Stock”) as of March 31, 2020 and December 31, 2019 and 2018. The Series X Preferred Stock has a par value of $0.01 per share, no stated maturity, a liquidation preference of $25.00 per share, and will not be subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless the Company decides to redeem or otherwise repurchase the Series X Preferred Stock; the Series X Preferred Stock is not redeemable prior to November 4, 2020. The Series X Preferred Stock will rank senior to all classes of the Company’s common stock and will accrue dividends at the rate of 10% on $25.00 per share. The Company reserves the right to pay the dividends in shares of the Company’s common stock at a price equal to the average closing price over the five days prior to the date of the dividend declaration. The Series X Preferred Stock will have “super” voting rights such that each share of Series X Preferred Stock will be entitled to 20,000 votes. The Series X Preferred Stock has a fair value of $34.73 as determined by the Company’s independent valuation consultant.
Series X Preferred Stock Transactions During the Three Months Ended March 31, 2020
During the three months ended March 31, 2020, the Company accrued dividends in the amount of $16,392 on the Series X Preferred Stock. At March 31, 2020, dividend payable on the Series X Preferred Stock was $16,392. At March 31, 2020, if management determined to pay these dividends in shares of the Company’s common stock, this would result in the issuance of 670,158 shares of common stock based upon the average price of $0.02446 per share for the five day period ended March 31, 2020.
Stock Options
A summary of options issued, exercised and cancelled are as follows:
|
|
Shares
|
|
|
Weighted- Average
Exercise Price ($)
|
|
|
Weighted- Average
Remaining
Contractual Term
|
|
|
Aggregate Intrinsic
Value ($)
|
|
Outstanding at December 31, 2018
|
|
|
67,879
|
|
|
$
|
21.40
|
|
|
|
4.17
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
|
67,879
|
|
|
$
|
21.40
|
|
|
|
3.17
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
8,500,000
|
|
|
$
|
0.05
|
|
|
|
9.93
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at March 31, 2020
|
|
|
8,567,879
|
|
|
$
|
0.22
|
|
|
|
9.86
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2020
|
|
|
67,879
|
|
|
$
|
21.40
|
|
|
|
2.92
|
|
|
$
|
-
|
|
At March 31, 2020, the total stock-based compensation cost related to unvested awards not yet recognized was $331,201.
Stock Warrants
Subsequent to the restructuring of the Company and the spin-out, the Company had warrants to purchase common stock outstanding that were not terminated and have continued as part of the operations as detailed below. The warrants were adjusted for a one for 101 stock split due to the spin-out and restructuring plan as authorized. All warrants outstanding as of March 31, 2019 are scheduled to expire at various dates through 2019. A summary of warrants issued, exercised and expired are as follows:
|
|
Shares
|
|
|
Weighted- Average
Exercise Price ($)
|
|
|
Weighted- Average
Remaining
Contractual Term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
1,167,653
|
|
|
$
|
2.18
|
|
|
|
4.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
400,000
|
|
|
$
|
0.00858
|
|
|
|
4.18
|
|
Additional warrants due to trigger of ratchet feature
|
|
|
6,659,382
|
|
|
$
|
0.00858
|
|
|
|
3.91
|
|
Exercised – cashless conversion
|
|
|
(3,514,900
|
)
|
|
$
|
0.00858
|
|
|
|
3.91
|
|
Forfeited
|
|
|
(2,769,482
|
)
|
|
$
|
0.00858
|
|
|
|
3.91
|
|
Expired
|
|
|
(142,653
|
)
|
|
|
17.42
|
|
|
|
-
|
|
Outstanding at December 31, 2019
|
|
|
1,800,000
|
|
|
$
|
0.00858
|
|
|
|
3.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
6,582,382
|
|
|
$
|
0.00858
|
|
|
|
3.70
|
|
Exercised
|
|
|
(5,480,938
|
)
|
|
$
|
0.00858
|
|
|
|
3.71
|
|
Outstanding at March 31, 2020
|
|
|
2,901,444
|
|
|
$
|
0.00858
|
|
|
|
3.93
|
|
Note 8 – Commitments and Contingencies
Legal
National Council for Science and the Environment, Inc. v. Trunity Holdings, Inc., Case No. 2015 CA 009726 B, Superior Court for the District of Columbia, Civil Division.
This action was filed on December 16, 2015 by the National Council for Science and the Environment, Inc. (“NCSE”) in the state court in the District of Columbia against Trunity Holdings, Inc. (“Trunity”) and alleges claims for breach of contract. Acknowledgement of indebtedness and settlement agreement and quantum merit arising out of an agreement entered into between NCSE and Trunity in 2014. The complaint seeks damages in the amount of $177,270, inclusive of attorney’s fees, costs and accrued interest, continuing interest in the amount of 12% per annum and attorney’s fees and costs of collection relating to the case. The Company, in its answer dated January 27, 2016, denied the material allegations made by NCSE, asserted a number of affirmative defenses and filed a counterclaim alleging claims for fraud, negligent misrepresentation, breach of fiduciary duty, breach of contract and unjust enrichment. In its counterclaim, the Company sought actual and compensatory damages against NCSE that it believes exceed the amount sought by NCSE on its claims, pre-judgment interest, punitive damages and all costs and expenses, including attorney’s fees, incurred by the Company in bringing its claims against NCSE.
On September 23, 2016, the Company settled this obligation with an agreement to pay $48,500 to NCSE if paid by November 4, 2016, and $75,000 if paid later. At March 31, 2020 the Company had not paid these amounts and has recorded the obligation at $75,000 at March 31, 2020.
On May 15, 2020 the Company entered into a further settlement agreement with NCSE whereby the Company paid $5,000 in cash for full settlement and release of all obligations. As such the Company has no further obligation to NCSE; this settlement will be recorded during the three months ending June 30, 2020. See note 9.
Carlton Fields Jorden Burt, P.A.
This action was filed on May 18, 2017 by a law firm that represented the Company prior to the spin-out of the educational software business in 2016 with the intent of collection past due invoices in the aggregate amount of $241,828. The Company believes it has defenses against any such action. The Company has recorded a liability in the amount of $266,319 on its balance sheet at March 31, 2020.
On May 15, 2020 the Company entered into a settlement agreement with Carlton Fields whereby the Company paid $30,000 in cash for full settlement and release of all obligations. As such the Company has no further obligation to Carlton Fields; this settlement will be recorded during the three months ending June 30, 2020. See note 9.
Note 9 – Subsequent Events
On April 8, 2020, the Company entered into a convertible redeemable note agreement with Eagle Equities, LLC in the amount of $100,000 (the “Eagle Equities Note 5). The Eagle Equities Note 5 bears interest at the rate of 12% per annum, is convertible into the Company’s common stock at any time after 180 days from the date of the note, and is due April 8, 2021.
On April 13, 2020, the Company paid the amount of $84,231 in full settlement of the Power Up Note 12 in the principal amount of $53,000.
On April 23, 2020, the Company received approval from FINRA for a previously disclosed change in our corporate identity, and a new stock symbol. The new name of the Company is “Mitesco, Inc.”, and the new stock symbol “MITI” will replace the previous stock symbol “TNTY” on the OTC-QB Market. The new CUSIP number will be 60672T107, superseding the previous CUSIP 89786C106.
On May 4, 2020, the Company received loan proceeds in the amount of approximately $460,000 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business plus Economic Injury Disaster Loan amounts. The loans and accrued interest are forgivable after sixty days as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the sixty-day period.
The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. The Company intends to use the proceeds for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, we cannot assure you that we will not take actions that could cause the Company to be ineligible for forgiveness of the loan, in whole or in part.
On May 13, 2020, the Company paid in full the Power Up Note 13 with a payment in the amount of $115,980, including principal of $73,000 and all accrued interest. There are no further notes outstanding with Power Up Lending, LTD. The Company has plans in place to eliminate all discounted convertible notes.
On May 15, 2020 the Company entered into a settlement agreement with NCSE, who had a judgment in their favor in the amount of $75,000. Pursuant to the settlement agreement, the Company paid $5,000 in cash for full settlement and release of all obligations. As such the Company has no further obligation to NCSE; this settlement will be recorded during the three months ending June 30, 2020.
On May 15, 2020 the Company entered into a settlement agreement with Carlton Fields, who had a judgment in their favor and whose liability was recorded on the Company’s balance sheet in the amount of $266,319. Pursuant to the settlement agreement, the Company paid $30,000 in cash for full settlement and release of all obligations. As such the Company has no further obligation to Carlton Fields; this settlement will be recorded during the three months ending June 30, 2020.
In May 2020, the Company amended the MyCare APA to add the following consideration: 6,000 3-year warrants at an exercise price of $0.15, and 6,000 3-year warrants at an exercise price of $0.30. The fair value of these warrants was approximately $227.