INFORMATION STATEMENT
__________________________________________________________________________________________
WE ARE NOT ASKING YOU FOR A CONSENT OR PROXY AND
YOU ARE REQUESTED NOT TO SEND US A CONSENT OR PROXY
INTRODUCTION
This
Information Statement is being furnished by the Board of Directors
of Vivos, Inc., a Delaware corporation (the “
Company
,” “
we
,”
“
us
,” or
“
Vivos
”),
to the holders of our common
stock, par value $0.001 per share (“
Common Stock
”), and holders of
our Series A Convertible Preferred Stock (“
Series A Preferred
”), Series B
Convertible Preferred Stock (“
Series B Preferred
”) and Series C
Convertible Preferred Stock (“
Series C Preferred
,” and together
with the Series A Preferred and Series B Preferred, the
“
Preferred
”) as
of March 28, 2019 (the “
Record Date
”), to provide
information with respect to the following actions that were
approved and authorized by the written consent of the holders of a
majority of the outstanding voting securities (the
“
Majority
Shareholders
”) and the unanimous written consent of
the Company’s Board of Directors:
|
|
●
|
a shareholder resolution to authorize our Board of Directors, in
its sole and absolute discretion, without further action of the
shareholders, to amend our Certificate of Incorporation, as amended
(“
Charter
”),
to implement a reverse stock split of our issued and outstanding
shares of Common Stock at a ratio 1-for-8,
within one
year from March 28, 2019, the date the Majority Shareholders
approved of the action
(the “
Reverse
Split
”);
and
|
|
|
|
|
|
|
●
|
an amendment to our Charter, to be filed promptly after the Reverse
Split, to fix the number of shares of Common Stock authorized for
issuance thereunder at 950,000,000 shares (the
“
Change in
Authorized
”).
|
Our
Board of Directors’ authority to implement the Reverse Split
and to effect the Change in Authorized will not become effective
until 20 calendar days after this Information Statement is first
mailed or otherwise delivered to our shareholders of record as of
the close of business on the Record Date
.
AUTHORIZATION BY THE BOARD OF DIRECTORS AND THE MAJORITY
SHAREHOLDERS
Under
the Delaware General Corporation Law (the “
DGCL
”), our Charter and Bylaws,
any action that can be taken at an annual or special meeting of
shareholders may be taken without a meeting, without prior notice
and without a vote if the holders of outstanding stock having not
less than the minimum number of votes necessary to authorize or
take such action at a meeting at which all shares entitled to vote
thereon were present and consent to such action in writing.
Accordingly, approval of the Reverse Split and the Change in
Authorized (together, the “
Corporate Actions
”) required the
affirmative vote or approval by written consent of a majority of
our issued and outstanding voting securities, including our Common
Stock, Series A Preferred, Series B Preferred and Series C
Preferred. As of the Record Date for the determination of
shareholders entitled to receive notice of the approval of the
Corporate Actions and to receive a copy of this Information
Statement, we had 1,369,987,688 shares of Common Stock,
2,552,642 shares of Series A Preferred, 2,060,335 shares of Series
B Preferred and 821,292 shares of Series C Preferred issued and
outstanding. Each holder of Common Stock is entitled to one vote
per share of Common Stock held, each holder of Series A Preferred
is entitled to 50 votes for every share of Series A Preferred held,
each holder of Series B Preferred is entitled to 200 votes for
every share of Series B Preferred held, and each holder of Series C
Preferred is entitled to 3,200 votes for every share of Series C
Preferred held. As of the Record Date, outstanding shares
represented approximately 4,537,803,188 votes, consisting of
1,369,987,688 attributable to Common Stock, 127,632,100
attributable to Series A Preferred, 164,258,400 attributable to
Series B Preferred, and 2,633,344,000 attributable to Series C
Preferred.
Our
Board of Directors unanimously approved the Corporate Actions by
unanimous written consent, subject to shareholder approval, on
March 28, 2019, and on March 28, 2019 we received executed
written consents approving the Corporate Actions from holders of
our Common Stock and Preferred representing 2,788,868,233 voting
shares, or approximately 61.4% of our outstanding voting
class.
Accordingly, we
have obtained all corporate approvals necessary to approve and
authorize the Corporate Actions. We are not seeking written consent
from any other shareholder, and each of the Company’s
shareholders will not be given an opportunity to vote with respect
to the actions described in this Information Statement. This
Information Statement is furnished solely for the purposes of
advising our shareholders of the approval of the Corporate
Actions by written consent and giving shareholders notice of
the Corporate Actions as required by Section 228(e) of the DGCL and
Regulation 14C under the Securities Exchange Act of 1934, as
amended (the “
Exchange
Act
”).
DESCRIPTION OF OUR CAPITAL STOCK
General
Our
authorized capital stock currently consists of 2.0 billion shares
of Common Stock and 20.0 million shares of preferred stock, par
value $0.001 per share (the “
Preferred Stock
”), of which 5.0
million shares of Preferred Stock have been designated as Series A
Preferred, 5.0 million shares have been designated as Series B
Preferred, and 5.0 million shares have been designated as Series C
Preferred. Based on the number of shares of Common Stock and
Preferred outstanding as of the Record Date, there were: (i)
1,369,987,688 outstanding shares of Common Stock; (ii) 2,552,642
shares of Series A Preferred, convertible into approximately
25,552,642 shares of Common Stock; (iii) 2,060,335 shares of Series
B Preferred, convertible into approximately 206,033,500 shares of
Common Stock, and (iv) 821,292 shares of Series C Preferred,
convertible into approximately 82,129,200 shares of Common
Stock.
Common Stock
As of
the Record Date, there were 1,369,987,688 shares of our Common
Stock outstanding. Holders of our Common Stock are entitled to one
vote for each share held on all matters submitted to a vote of the
Company’s shareholders. Holders of Common Stock are entitled
to receive ratably any dividends that may be declared by our Board
out of legally available funds, subject to any preferential
dividend rights of any outstanding Preferred Stock. Upon the
Company’s liquidation, dissolution or winding up, the holders
of Common Stock are entitled to receive ratably the Company’s
net assets available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding
Preferred Stock. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights. The outstanding
shares of Common Stock are fully paid and nonassessable. The
rights, preferences and privileges of holders of Common Stock are
also subject to, and may be adversely affected by, the rights of
holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future without further
shareholder approval.
Preferred Stock
The
Board is currently authorized, without further shareholder
approval, to issue from time to time up to an aggregate of 20.0
million shares of Preferred Stock in one or more series and to fix
or alter the designations, preferences, rights, qualifications,
limitations or restrictions of the shares of each series, including
the dividend rights, dividend rates, conversion rights, voting
rights, term of redemption, including sinking fund provisions,
redemption price or prices, liquidation preferences and the number
of shares constituting any series or designations of such series
without further vote or action by the shareholders. The issuance of
Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of management without further action
by the shareholders and may adversely affect the voting and other
rights of the holders of Common Stock. The issuance of Preferred
Stock with voting and conversion rights may adversely affect the
voting power of the holders of Common Stock, including the loss of
voting control to others.
We currently have three series of
Preferred Stock designated, our Series A Preferred, Series B
Preferred and Series C Preferred. The following is a summary of the
rights and preferences of such series of Preferred
Stock, which summary is not meant to be a complete
description of those terms. For a complete description of the
rights and preferences attributable to our Series A Preferred,
Series B Preferred and Series C Preferred, please see the
Certificate of Designations, Preferences and Rights (the
“
Certificate of
Designation
”)
of each, each available as an exhibit to our filings with the
Securities and Exchange Commission.
Series A Convertible Preferred Stock
Liquidation
Preference
. The Series A
Preferred has a liquidation preference of $5.00 per
share.
Dividends
.
Shares of Series A Preferred do not have any separate dividend
rights.
Conversion
.
Subject to certain limitations set forth in the Series A Preferred
Certificate of Designation, each share of Series A Preferred is
convertible, at the option of the holder, into that number of
shares of Common Stock (the “
Series A Conversion
Shares
”) equal to the
liquidation preference thereof, divided by Conversion Price (as
such term is defined in the Series A Preferred Certificate of
Designation), currently $0.50.
In
the event the Company completes an equity or equity-based public
offering, registered with the SEC, resulting in gross proceeds to
the Company totaling at least $5.0 million, all issued and
outstanding shares of Series A Preferred at that time will
automatically convert into Series A Conversion
Shares.
Redemption
.
Subject to certain conditions set forth in the Series A Preferred
Certificate of Designation, in the event of a Change of Control
(defined in the Series A Preferred Certificate of Designation as
the time at which as a third party not affiliated with the Company
or any holders of the Series A Preferred shall have acquired, in
one or a series of related transactions, equity securities of the
Company representing more than fifty percent 50% of the outstanding
voting securities of the Company), the Company, at its option, will
have the right to redeem all or a portion of the outstanding Series
A Preferred in cash at a price per share of Series A Preferred
equal to 100% of the Liquidation Preference.
Voting
Rights
. Holders of Series A
Preferred are entitled to vote on all matters, together with the
holders of Common Stock, and have the equivalent of five (5) votes
for every Series A Conversion Share issuable upon conversion of
such holder’s outstanding shares of Series A Convertible
Preferred. However, the Series A Conversion Shares, when issued,
will have all the same voting rights as other issued and
outstanding Common Stock of the Company, and none of the rights of
the Series A Preferred.
Liquidation
.
Upon any liquidation, dissolution, or winding-up of the Company,
whether voluntary or involuntary (a “
Liquidation
”), the holders of Series A Preferred shall
be entitled to receive out of the assets, whether capital or
surplus, of the Company an amount equal to the liquidation
preference of the Series A Preferred before any distribution or
payment shall be made to the holders of any junior securities, and
if the assets of the Company are insufficient to pay such amounts
in full, then the entire assets to be distributed to the holders of
the Series A Preferred shall be ratably distributed among the
holders in accordance with the respective amounts that would be
payable on such shares if all amounts payable thereon were paid in
full.
Certain Price and
Share Adjustments
.
a)
Stock Dividends and Stock
Splits
. If the Company (i) pays
a stock dividend or otherwise makes a distribution or distributions
payable in shares of Common Stock on shares of Common Stock or any
other Common Stock equivalents; (ii) subdivides outstanding shares
of Common Stock into a larger number of shares; (iii) combines
(including by way of a reverse stock split) outstanding shares of
Common Stock into a smaller number of shares; or (iv) issues, in
the event of a reclassification of shares of the Common Stock, any
shares of capital stock of the Company, then the conversion price
shall be adjusted accordingly.
b)
Merger or
Reorganization
. If the Company
is involved in any reorganization, recapitalization,
reclassification, consolidation or merger in which the Common Stock
is converted into or exchanged for securities, cash or other
property than each share of Series A Preferred shall be convertible
into the kind and amount of securities, cash or other property that
a holder of the number of shares of Common Stock issuable upon
conversion of one share of Series A Preferred prior to any such
merger or reorganization would have been entitled to receive
pursuant to such transaction.
Series B Convertible Preferred Stock
I
n
October 2018, the Series B Preferred Certificate of Designation was
filed with the Delaware Secretary of State to designate 5.0 million
shares of our Preferred Stock as Series B Preferred. The following
summarizes the current rights and preferences of the Series B
Preferred:
Liquidation
Preference
. The Series B
Preferred has a liquidation preference of $1.00 per
share.
Dividends
.
Shares of Series B Preferred do not have any separate dividend
rights.
Conversion
.
Subject to certain limitations set forth in the Series B Preferred
Certificate of Designation, each share of Series B Preferred is
convertible, at the option of the holder, into that number of
shares of Common Stock (the “
Series B Conversion
Shares
”) equal to the
liquidation preference thereof, divided by Conversion Price (as
such term is defined in the Series B Preferred Certificate of
Designation), currently $0.01.
Redemption
.
Subject to certain conditions set forth in the Series B Preferred
Certificate of Designation, in the event of a Change of Control
(defined in the Series B Preferred Certificate of Designation as
the time at which as a third party not affiliated with the Company
or any holders of the Series B Preferred shall have acquired, in
one or a series of related transactions, equity securities of the
Company representing more than fifty percent 50% of the outstanding
voting securities of the Company), the Company, at its option, will
have the right to redeem all or a portion of the outstanding Series
B Preferred in cash at a price per share of Series B Preferred
equal to 100% of the Liquidation Preference.
Voting
Rights
. Holders of Series B
Preferred are entitled to vote on all matters, together with the
holders of Common Stock, and have the equivalent of two (2) votes
for every Series B Conversion Share issuable upon conversion of
such holder’s outstanding shares of Series B Preferred.
However, the Series B Conversion Shares, when issued, will have all
the same voting rights as other issued and outstanding Common Stock
of the Company, and none of the rights of the Series B
Preferred.
Liquidation
.
Upon any liquidation, dissolution, or winding-up of the Company,
whether voluntary or involuntary (a “
Liquidation
”), the holders of Series B Preferred shall
be entitled to receive out of the assets, whether capital or
surplus, of the Company an amount equal to the liquidation
preference of the Series B Preferred before any distribution or
payment shall be made to the holders of any junior securities, and
if the assets of the Company are insufficient to pay in full such
amounts, then the entire assets to be distributed to the holders of
the Series B Preferred shall be ratably distributed among the
holders in accordance with the respective amounts that would be
payable on such shares if all amounts payable thereon were paid in
full.
Certain Price and
Share Adjustments
.
a)
Stock Dividends and Stock
Splits
. If the Company (i) pays
a stock dividend or otherwise makes a distribution or distributions
payable in shares of Common Stock on shares of Common Stock or any
other Common Stock equivalents; (ii) subdivides outstanding shares
of Common Stock into a larger number of shares; (iii) combines
(including by way of a reverse stock split) outstanding shares of
Common Stock into a smaller number of shares; or (iv) issues, in
the event of a reclassification of shares of the Common Stock, any
shares of capital stock of the Company, then the conversion price
shall be adjusted accordingly.
b)
Merger or
Reorganization
. If the Company
is involved in any reorganization, recapitalization,
reclassification, consolidation or merger in which the Common Stock
is converted into or exchanged for securities, cash or other
property than each share of Series B Preferred shall be convertible
into the kind and amount of securities, cash or other property that
a holder of the number of shares of Common Stock issuable upon
conversion of one share of Series B Preferred prior to any such
merger or reorganization would have been entitled to receive
pursuant to such transaction.
Series C Convertible Preferred Stock
In
March 2019, the Series C Preferred Certificate of Designation was
filed with the Delaware Secretary of State to designate 5.0 million
shares of our preferred stock as Series C Preferred. The following
summarizes the current rights and preferences of the Series C
Preferred:
Liquidation
Preference
. The Series C
Preferred has a liquidation preference of $1.00 per
share.
Dividends
.
Shares of Series C Preferred do not have any separate dividend
rights.
Conversion
.
Subject to certain limitations set forth in the Series C Preferred
Certificate of Designation, each share of Series C Preferred is
convertible, at the option of the holder, into that number of
shares of Common Stock (the “
Series C Conversion
Shares
”) equal to the
liquidation preference thereof, divided by Conversion Price (as
such term is defined in the Series C Preferred Certificate of
Designation), currently $0.01.
Redemption
.
Subject to certain conditions set forth in the Series C Preferred
Certificate of Designation, in the event of a Change of Control
(defined in the Series C Preferred Certificate of Designation as
the time at which as a third party not affiliated with the Company
or any holders of the Series C Preferred shall have acquired, in
one or a series of related transactions, equity securities of the
Company representing more than fifty percent 50% of the outstanding
voting securities of the Company), the Company, at its option, will
have the right to redeem all or a portion of the outstanding Series
C Preferred in cash at a price per share of Series C Preferred
equal to 100% of the Liquidation Preference.
Voting
Rights
. Holders of Series C
Preferred are entitled to vote on all matters, together with the
holders of Common Stock, and have the equivalent of thirty-two (32)
votes for every Series C Conversion Share issuable upon conversion
of such holder’s outstanding shares of Series C Preferred.
However, the Series C Conversion Shares, when issued, will have all
the same voting rights as other issued and outstanding Common Stock
of the Company, and none of the rights of the Series C
Preferred.
Liquidation
.
Upon any liquidation, dissolution, or winding-up of the Company,
whether voluntary or involuntary (a “
Liquidation
”), the holders of Series C Preferred shall
be entitled to receive out of the assets, whether capital or
surplus, of the Company an amount equal to the liquidation
preference of the Series C Preferred before any distribution or
payment shall be made to the holders of any junior securities, and
if the assets of the Company are insufficient to pay in full such
amounts, then the entire assets to be distributed to the holders of
the Series C Convertible Preferred shall be ratably distributed
among the holders in accordance with the respective amounts that
would be payable on such shares if all amounts payable thereon were
paid in full.
Certain Price and
Share Adjustments
.
a)
Stock Dividends and Stock
Splits
. If the Company (i) pays
a stock dividend or otherwise makes a distribution or distributions
payable in shares of Common Stock on shares of Common Stock or any
other Common Stock equivalents; (ii) subdivides outstanding shares
of Common Stock into a larger number of shares; (iii) combines
(including by way of a reverse stock split) outstanding shares of
Common Stock into a smaller number of shares; or (iv) issues, in
the event of a reclassification of shares of the Common Stock, any
shares of capital stock of the Company, then the conversion price
shall be adjusted accordingly.
b)
Merger or
Reorganization
. If the Company
is involved in any reorganization, recapitalization,
reclassification, consolidation or merger in which the Common Stock
is converted into or exchanged for securities, cash or other
property than each share of Series C Preferred shall be convertible
into the kind and amount of securities, cash or other property that
a holder of the number of shares of Common Stock issuable upon
conversion of one share of Series C Preferred prior to any such
merger or reorganization would have been entitled to receive
pursuant to such transaction.
DESCRIPTION OF CORPORATE ACTIONS
AUTHORIZATION OF AMENDMENT TO OUR CHARTER
TO IMPLEMENT THE REVERSE SPLIT
General
Effective as of
March 28, 2019 (the “
Approval Date
”), our Board of
Directors and the Majority Shareholders approved a resolution
that
authorizes our
Board of Directors, in its sole and absolute discretion, without
further action of the shareholders, to amend our Charter to
implement a reverse stock split of our issued and outstanding
Common Stock, at a ratio of 1-for-8 (the “
Approved
Ratio
”),
within one year
from the Approval Date.
If implemented, the Reverse Split will have the
effect of decreasing the number of shares of our Common Stock
issued and outstanding, but will not decrease the number of shares
of Common Stock authorized for issuance under our
Charter.
Accordingly, our
Board of Directors currently has the authority, but not the
obligation, in its sole and absolute discretion, and without
further action on the part of the shareholders, to affect the
Reverse Split by filing a Certificate of Amendment to our
Charter with the Delaware Secretary of State on or before
March 28, 2020, subject to the requirements of Regulation 14C under
the Exchange Act. If the Amendment has not been filed with the
Delaware Secretary of State before March 28, 2020, the Board will
abandon the Reverse Split.
Purpose of the Reverse Split
Our
primary objective in proposing the Reverse Split is to attempt to
raise the per share trading price of our Common Stock.
Our
Board believes that by effectively increasing the number of shares
of Common Stock available for issuance, the Reverse Split will
provide the Company with additional flexibility to issue Company
securities in connection with future financings and strategic
acquisitions, debt restructurings or resolutions, equity
compensation and incentives to employees and officers and for other
corporate purposes, and will help avoid the delay and expense
associated with obtaining special stockholder approval each time an
opportunity requiring the issuance of shares of Common Stock arises
in the future. Other than specified above, and as permitted or
required under outstanding options, warrants and other securities
convertible into shares of our Common Stock, we currently have no
present agreements for the use of the additional shares that will
be available for issuance upon the filing of the amendment to
effect the Reverse Split.
In
addition, we may consider applying for listing our Common Stock on
the OTCQB Marketplace in future, although no assurances can be
given. One of the requirements for listing of shares on the OTCQB
Marketplace is that the shares of stock have a minimum bid price of
$0.01 per share. As of April 25, 2019, the closing bid price of our
Common Stock on the OTC Pink Marketplace was $0.0032 per
share.
We anticipate that the Reverse Split will increase
the per share bid price per share of our Common Stock above $0.01.
However, we cannot be certain that the Reverse Split will,
initially or in the future, have the intended effect of raising the
bid price of our Common Stock above $0.01 per share, or that
a listing of our Common Stock on OTCQB
Marketplace
will be achieved in a timely manner,
if at all.
Further,
the Board believes that the current market price of our Common
Stock may impair our marketability and acceptance by institutional
investors and other members of the investing public. Theoretically,
decreasing the number of shares of Common Stock outstanding should
not, by itself, affect the marketability of the shares, the type of
investor who would be interested in acquiring them, or our
reputation in the financial community. In practice, however, many
investors and market makers consider low-priced stocks as unduly
speculative in nature and, as a matter of policy, avoid investment
and trading in such stocks. The presence of these negative
perceptions may adversely affect not only the pricing of our Common
Stock, but also the trading liquidity. In addition, these
perceptions may affect our commercial business and our ability to
raise additional capital through equity and debt
financings.
We
expect that the decrease in the number of issued and outstanding
shares of our Common Stock after the Reverse Split, along with the
anticipated increase in the per share trading price, will encourage
greater interest in our Common Stock among members of the financial
community and the investing public, and possibly create a more
liquid market for our stockholders. However, the possibility exists
that stockholder liquidity may be adversely affected by the reduced
number of shares outstanding if the Reverse Split is affected,
particularly if the price per share of our Common Stock begins a
declining trend after the Reverse Split takes effect.
Certain Risk Factors Associated with the Reverse Split
Reduced Market Capitalization.
As
noted above, one of the purposes of the Reverse Split, if
implemented, is to raise the price of our Common Stock in order to
encourage greater interest in our Common Stock. We cannot assure
you, however, that the Reverse Split will accomplish this
objective. While we expect that the reduction in our outstanding
shares of Common Stock will increase the market price of our Common
Stock, we cannot assure you that the Reverse Split will increase
the market price of our Common Stock by a multiple equal to the
number of pre-Reverse Split shares in the Reverse Split ratio, or
result in any permanent increase in the market price, which can be
dependent upon many factors, including our business and financial
performance and prospects. Should the market price decline after
implementation of the Reverse Split, the percentage decline may be
greater, due to the smaller number of shares outstanding, than it
would have been prior to the Reverse Split. In some cases, the
share price of companies that have implemented reverse stock splits
has subsequently declined back to pre-Reverse Split-levels.
Accordingly, we cannot assure you that the market price of our
Common Stock immediately after the Reverse Split takes effect will
be maintained for any period of time or that the ratio of post and
pre-split shares will remain the same after the Reverse Split is
effected, or that the Reverse Split will not have an adverse effect
on our stock price due to the reduced number of shares outstanding
after the Reverse Split. A reverse stock split is often viewed
negatively by the market and, consequently, can lead to a decrease
in our overall market capitalization. If the per share price does
not increase proportionately as a result of the Reverse Split, then
our overall market capitalization will be reduced.
Increase of Authorized Common Stock.
If implemented,
the Reverse Split will have the effect of reducing the number of
shares of Common Stock issued and outstanding without reducing the
total number of shares of Common Stock authorized for issuance
under out Charter. As a result, the Reverse Split will have the
effect of increasing the number of our authorized, but unissued
shares of Common Stock. The Company would therefore have the
ability to issue additional shares of Common Stock, or securities
convertible or exercisable into shares of Common Stock, without
shareholder approval. The Company currently does not have any plans
to issue additional shares of Common Stock, or shares convertible
or exercisable into shares of Common Stock, in the event the
Reverse Split is implemented.
Increased Transaction Costs.
The
number of shares held by each individual shareholder will be
reduced if the Reverse Split is implemented. This will increase the
number of shareholders who hold less than a “round
lot,” following consummation of the Reverse Split. Typically,
the transaction costs to shareholders selling “odd
lots” are higher on a per share basis. Consequently, the
Reverse Split could increase the transaction costs to existing
shareholders in the event they wish to sell all or a portion of
their position.
Liquidity.
Although our Board of Directors believes
that the decrease in the number of shares of our Common Stock
outstanding as a consequence of the Reverse Split and the
anticipated increase in the price of our Common Stock could
encourage interest in our Common Stock and possibly promote greater
liquidity for our shareholders, such liquidity could also be
adversely effected by the reduced number of shares outstanding
after the Reverse Split.
No Appraisal Rights
Under
the DGCL, shareholders are not entitled to dissenters’ rights
of appraisal with respect to the proposed amendment to our Charter
to implement a Reverse Split, and we will not independently provide
our shareholders with any such right.
Reservation of Right to Abandon the Reverse Split
We
reserve the right to abandon the Reverse Split without further
action by our shareholders at any time before filing an amendment
to our Charter to implement the Reverse Split.
Our Board of Directors has the authority to
determine not to proceed with, and abandon, the Reverse Split if it
should so decide.
Ratio for the Reverse Stock Split
If
implemented, the ratio of the Reverse Split will be 1-for-8. The
following table sets forth the approximate number of issued and
outstanding shares of Common Stock, and net income per share, as of
the Record Date, after a 1:8 Reverse Split:
|
|
|
After a 1:8 Reverse
Split
|
|
Common Stock
outstanding
|
1,369,987,688
|
171,248,461
|
|
Price per share,
based on the closing price of our Common Stock on March 28,
2019
|
$
0.003
|
$
0.024
|
We do not anticipate a substantial decrease in the number of
holders of record of our Common Stock in the event the Board of
Directors determines to implement the Reverse Split.
Effective Date; Exchange Act Registration Status
The
proposed Reverse Split of our Common Stock may be implemented by
our Board of Directors at any time prior to March 28, 2020, subject
to the requirements of Regulation 14C under the Exchange Act. The
Reverse Split will become effective as of 11:59 p.m., Eastern Time
(the “
Effective
Date
”), on the date of filing an amendment to our
Charter to effect the Reverse Split with the Delaware Secretary of
State. Except as explained below with respect to fractional shares,
on the Effective Date, shares of our Common Stock issued and
outstanding immediately prior thereto will be combined,
automatically and without any action on the part of the
shareholders, into one share of Common Stock in accordance with the
Reverse Split ratio, equal to 1-for-8. After the Effective Date,
the Common Stock will have a new committee on uniform securities
identification procedures (“
CUSIP
”) number, which is a number
used to identify our equity securities, and stock certificates with
the old CUSIP number must be exchanged for stock certificates with
the new CUSIP number by following the procedures described below.
After the Effective Date, we will continue to be subject to
periodic reporting and other requirements of the Exchange Act and
our Common Stock will continue to be traded on the OTC Pink
Marketplace.
Effects of the Proposed Reverse Split on Authorized Shares;
Possible Anti-Takeover Effects
The
Reverse Split will affect all of our shareholders uniformly and
will not change the proportionate equity interests of our
shareholders, nor will the respective voting rights and other
rights of shareholders be altered, except for possible changes due
to the treatment of fractional shares resulting from the Reverse
Split. As described below, shareholders holding fractional shares
after the Reverse Split will be entitled to cash payments in lieu
of such fractional shares. Common Stock issued and outstanding
pursuant to the Reverse Split will remain fully paid and
non-assessable. If implemented, the Reverse Split will have the
effect of increasing the amount of authorized, but unissued shares
of our Common Stock that could be issued in the future by our Board
of Directors without further shareholder approval. The proportion
of unissued authorized shares to issued shares could, under certain
circumstances, have an anti-takeover effect. For example, the
issuance of a large block of our Common Stock could dilute the
stock ownership of a person seeking to make a change in the
composition of the Board of Directors or contemplating a tender
offer or other transaction for the combination of the Company with
another company. However, the authorization for our Board of
Directors to implement the Reverse Split is not being proposed in
response to any effort, of which we are aware, to accumulate shares
of Common Stock or obtain control of the Company, nor is it part of
a plan by management to recommend to the Board and shareholders a
series of amendments to our Charter.
Payment for Fractional Shares; Exchange of Stock
Certificates
We will
appoint American Registrar and Transfer Company to act as exchange
agent for holders of our Common Stock in connection with the
Reverse Split. We will deposit with the exchange agent, as soon as
practicable after the Effective Date, cash in an amount equal to
the value of the estimated aggregate number of fractional shares
that will result from the Reverse Split. The funds required to
purchase the fractional share interests will be paid from our cash
reserves. A list of our shareholders shows that some of our
outstanding Common Stock is registered in the names of clearing
agencies and broker nominees. Because we do not know the numbers of
shares held by each beneficial owner for whom the clearing agencies
and broker nominees are record holders, we cannot predict with
certainty the number of fractional shares that will result from the
Reverse Split or the total amount we will be required to pay for
fractional share interests. However, we do not expect the
amount to be material.
As of
the Record Date, we have approximately 200 holders of record
of our Common Stock (although we have significantly more beneficial
holders). We do not expect the Reverse Split and the payment of
cash in lieu of fractional shares to result in a reduction in the
number of record holders.
On or after the Effective Date, we will mail a letter of
transmittal to each of our shareholders. Each shareholder will then
be able to obtain a certificate evidencing its post-Reverse Split
shares of Common Stock and, if applicable, cash in lieu of each
fractional share only by sending the exchange agent old stock
certificate(s), together with the properly executed and completed
letter of transmittal and such other evidence of ownership of the
shares as we may require. Our shareholders will not receive
certificates for post- Reverse Split shares unless and until their
old certificates are surrendered. Shareholders should not forward
their certificates to the exchange agent until they receive the
letter of transmittal, and they should only send in their
certificates with the letter of transmittal. The exchange agent
will send each shareholder’s new stock certificate and
payment in lieu of any fractional share(s) promptly after receipt
of that shareholder’s properly completed letter of
transmittal and old stock certificate(s).
Shareholders will
not be required to pay any service charges in connection with the
exchange of old certificates or the payment of cash in lieu of
fractional shares.
Effect on Registered and Beneficial Shareholders
Upon
the Effective Date of the Reverse Split, we intend to treat
shareholders holding shares of Common Stock in “street
name,” through a bank, broker or other nominee, in the same
manner as registered shareholders whose shares are registered in
their names. Banks, brokers or other nominees will be instructed to
affect the Reverse Split for their beneficial holders of Common
Stock in “street name.” However, these banks, brokers
or other nominees may apply their own specific procedures for
processing the Reverse Split. If you hold your shares with a bank,
broker or other nominee, and if you have any questions in this
regard, we encourage you to contact your
nominee.
Procedures for Implementing the Reverse Split
If our
Board of Directors decides to implement the Reverse Split, we will
promptly file an amendment to our Charter with the office of the
Secretary of State of Delaware. The Reverse Split will become
effective as set forth in the section captioned “
Effective Date; Exchange Act Registration
Status
” above. As of the Effective Date of the Reverse
Split, each certificate representing shares of our Common Stock
before the Reverse Split would be deemed, for all corporate
purposes, to evidence ownership of the reduced number of shares of
our Common Stock resulting from the Reverse
Split.
However, a holder of
any unexchanged certificates will not be entitled to receive any
dividends or other distributions payable by us after the Effective
Date until the old certificates are surrendered. Subject to the
various escheat laws, such dividends and distributions, if any,
would be accumulated, and at the time of surrender of the old
certificates, all such unpaid dividends or distributions will be
paid without interest.
All shares underlying options,
warrants, convertible notes and other securities will also be
automatically adjusted on the Effective Date. Our transfer agent,
American Registrar & Transfer Co., will act as the exchange
agent for purposes of implementing the exchange of stock
certificates. Shareholders of record will receive a letter of
transmittal requesting them to surrender their old stock
certificates for new stock certificates, bearing the new CUSIP
number and reflecting the adjusted number of shares as a result of
the Reverse Split. Persons who hold their shares in brokerage
accounts or “street name” will not be required to take
any further action to effect the exchange of their shares. No new
certificates will be issued to a shareholder until surrender of any
outstanding certificates together, with the properly completed and
executed letter of transmittal to the exchange agent. Until
surrender, each certificate representing pre-Reverse Split share
will continue to be valid and will represent the adjusted number of
shares based on the ratio of the Reverse Split.
Shareholders should not destroy any stock
certificate and should not submit any certificates until they
receive a letter of transmittal.
Accounting Matters
The
Reverse Split will not change total shareholders’ equity on
our balance sheet. However, because the par value of our Common
Stock will remain unchanged on the Effective Date, the components
that make up total shareholders’ equity will change by
offsetting amounts. Our stated capital component will be reduced to
an amount of one-eighth of its present amount, and our additional
paid-in capital component will be increased with the amount by
which the stated capital is reduced. The per share net income or
loss and net book value of our Common Stock will be increased
because there will be fewer shares of our Common Stock outstanding.
In addition, our historical amounts of net income or loss per share
of Common Stock previously reported by us, as well as all
references to Common Stock share amounts, will be restated to
reflect the Reverse Split as if it had been in effect as of the
earliest reported period.
Federal Income Tax Consequences of the Reverse Split
The
following summary of certain material United States federal income
tax consequences of the Reverse Split does not purport to be a
complete discussion of all of the possible federal income tax
consequences of the Reverse Split, and is included for general
information only. Furthermore, it does not address any state, local
or foreign income or other tax consequences. Also, it does not
address the tax consequences to holders that are subject to special
tax rules, such as banks, insurance companies, regulated investment
companies, personal holding companies, foreign entities,
nonresident alien individuals, broker-dealers and tax-exempt
entities. The discussion is based on the provisions of the United
States federal income tax law as of the date hereof, which is
subject to change retroactively as well as prospectively. This
summary also assumes that the pre-Reverse Split shares were, and
the post-Reverse Split shares will be, held as a “capital
asset,” as defined in the Internal Revenue Code
(i.e
.
generally,
property held for investment). The tax treatment of any shareholder
may vary depending upon the particular circumstances of such
shareholder. Each shareholder is urged to consult with such
shareholder’s own tax advisor with respect to the tax
consequences of the Reverse Split.
Tax Consequences to the Company
We do
not expect to recognize any gain or loss as a result of the
proposed Reverse Split.
Tax Consequences to Shareholders
Other
than the cash payments for fractional shares discussed above, no
gain or loss should be recognized by a shareholder upon such
shareholder’s exchange of pre-Reverse Split shares for
post-Reverse Split shares pursuant to the Reverse Split. The
aggregate tax basis of whole post-Reverse Split shares received
pursuant to the Reverse Split will be the same as the
shareholder’s aggregate tax basis in the pre-Reverse Split
shares, less the portion of the basis in the pre-Reverse Split
shares attributable to any fraction of a post-Reverse Split share
for which the shareholder received cash. In general, shareholders
who receive cash in exchange for their fractional share interests
in the post-Reverse Split shares as a result of the Reverse Split
will recognize gain or loss based on their adjusted basis in the
fractional share interests redeemed. The gain or loss will
constitute a capital gain or loss and will constitute long-term
capital gain or loss if the holder’s holding period is
greater than one year as of the Effective Date. The
shareholder’s holding period for the post-Reverse Split
shares will include the period during which the shareholder held
the pre-Reverse Split shares surrendered in the Reverse
Split.
THE
PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE SPLIT AND DOES NOT
PURPORT TO BE A COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL
TAX EFFECTS RELEVANT THERETO. YOU SHOULD CONSULT YOUR OWN TAX
ADVISORS AS TO THE PARTICULAR FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF THE REVERSE SPLIT IN LIGHT OF YOUR
SPECIFIC CIRCUMSTANCES.
AUTHORIZATION OF AMENDMENT TO OUR CHARTER
TO IMPLEMENT THE CHANGE IN AUTHORIZED
General
Effective as of
March 28, 2019, our Board of Directors and the Majority
Shareholders approved and authorized an amendment to our Charter,
to be filed promptly after effecting the Reverse Split, to fix the
number of shares of Common Stock authorized for issuance thereunder
at 950,000,000 shares. The Change in Authorized shall not be
completed unless or until our Board of Directors amends our Charter
to implement the Reverse Split.
Purpose of and Rationale for
the Change in Authorized
We
are currently authorized to issue a total of 2.0 billion shares of
Common Stock. Of this amount, 1,369,987,688 were issued and
outstanding as of the Record Date.
Our
Board of Directors believes that after effective the Reverse Split,
it is unnecessary to continue to have 2.0 billion shares of Common
Stock authorized for issuance under our Charter. Our Board of
Directors believes that 950,000,000 shares of authorize Common
Stock is sufficient to provide the Company with flexibility to
issue securities in connection with future financings, debt
restructuring or resolutions, equity compensation and incentives to
employees and officers and for other corporate purposes. In
addition, decreasing the number of shares of Common Stock
authorized for issuance under our Charter will result in a decrease
in the amount of taxes that we are required to pay each
year.
Effect on Outstanding Common Stock
The
Change in Authorized will not have an effect on the privileges and
rights of the shares of Common Stock currently authorized and
issued. Stockholders do not have preemptive rights under our
Charter and will not have such rights with respect to the Change in
Authorized. The Change in Authorized would not affect the terms or
rights of holders of existing shares of Common Stock. All
outstanding shares of Common Stock will continue to have one vote
per share on all matters to be voted on by our stockholders,
including the election of directors.
The
Change in Authorized will not otherwise alter or modify the rights,
preferences, privileges or restrictions of the Common
Stock.