v3.19.2
Stockholders' Deficit
 6 Months Ended
Jun. 30, 2019
Equity [Abstract]  
STOCKHOLDERS' DEFICIT

NOTE 10 – STOCKHOLDERS' DEFICIT

 

Common Stock

 

In May 2019, the Company's former vice president of research and development (also a shareholder) held a convertible note and elected to convert such note, together with all then-accrued interest, totaling $55,237 into 7,890,958 shares of common stock. See Note 6.

 

COMMON STOCK WARRANTS

 

The Company did not issue common stock warrants for the six months ended June 30, 2019 and 2018 and no common stock warrants were exercised. As of June 30, 2019, there were no common stock warrants outstanding.

 

PreFERRED Stock

 

In June, 2019, pursuant to certain securities exchange agreements and securities purchase agreements between the Company and various private investors, and in exchange for an aggregate $1,826,180 in debt owed to such parties, inclusive of accrued interest, (a portion of which debt had been convertible into Company common stock in accordance with its stated terms and the remainder of which had not), the Company issued to such private investors a total of 1,418,615 shares of Company Series RX-1 Preferred Stock. The following table summarizes the Series RX-1 Preferred Stock Transactions:

 

Series RX-1 Preferred Stock Debt Holder  Aggregate Principal and Interest Consideration Exchanged/Paid  Total Number of Series RX-1 Preferred Shares Issued  Total Number of Common Shares Into Which Shares are Convertible (Before Any Potential Adjustment)
Related party investor (also a shareholder)  $69,041    52,325    5,232,500 
Related party investor (also a shareholder)  458,729    324,262    32,426,200 
Company's outside director (also a shareholder)  73,560    65,396    6,539,600 
Company's outside director (also a shareholder)  36,583    32,367    3,236,700 
Company's outside director (also a shareholder)  22,510    20,351    4,070,200 
Related party investor (also a shareholder)  22,580    20,483    2,048,300 
Company's general counsel (also a shareholder)  37,251    33,873    3,387,300 
Related party investor (also a shareholder)  1,070,974    822,639    82,263,900 
Non-related party investor  34,952    26,568    2,656,800 
Combined Total  $1,826,180    1,418,615    141,861,500 

 

The Company used the Option Pricing Method to determine the fair value of the issued and outstanding shares of RX-1 Preferred Stock as this series of preferred stock has a liquidation preference over the Company's other classes of stock. Based on the calculations within the Option Pricing Method, the fair value of the outstanding 1,418,615 shares of RX-1 Preferred Stock is $674,103. Of those individuals who were issued shares of the Company's RX-1 Preferred Stock, all were deemed related parties except for one individual. For the related party individuals, the difference between the fair value of the RX-1 Preferred Stock and the aggregate principal and interest of the debt liabilities then owed totaling $1,789,836 was recognized as additional paid in capital. For the non-related party individual, the difference between the fair value of the RX-1 Preferred Stock and the aggregate principal and interest of the debt liability then owed was recognized as a gain. As a result, the Company recognized a gain on debt settlement of $34,925 on our Condensed Consolidated Statement of Operations for the six months ended June 30, 2019. See Note 8.

 

PREFERRED STOCK WARRANTS

 

 Series RX-2 Warrants

 

In June 2019, pursuant to certain securities exchange agreements and securities purchase agreements between the Company and certain of its directors and current and former employees, and in exchange for an aggregate $490,658 in debt owed to such parties, inclusive of accrued interest, (a portion of which debt had been convertible into Company common stock in accordance with its stated terms and the remainder of which had not), the Company issued to such individuals warrants to purchase a total of 981,316 shares of Company Series RX-2 Preferred Stock at a price per share of $0.50 (collectively, the "Series RX-2 Warrants"). The Series RX-2 Warrants are exercisable at any time prior to the earlier of (i) the effectiveness of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or other similar occurrence involving the Company, or (ii) December 31, 2021. If all Series RX-2 warrants are exercised to purchase a total of 981,316 shares of Series RX-2 Preferred Stock at $0.50 per share, the amount of cash realizable by the Company is $490,658. The following table summarizes the transactions for the Series RX-2 Warrants:

 

Series RX-2 Preferred Stock Warrant Debt Holder  Aggregate Principal and Interest Consideration Exchanged/Paid  Total Number of RX- 2 Shares For Which Warrants Issued Are Exercisable  Total Number of Common Shares Into Which Shares are Convertible (Before Any Potential Adjustment) 
Related party employee (also a shareholder)  $29,003    58,006    5,800,600  
Company's outside director (also a shareholder)  149,021    298,042    29,804,200  
Company's outside director (also a shareholder)  51,924    103,848    10,384,800  
Related party consultant (also a shareholder)  87,009    174,018    17,401,800  
Related party consultant (also a shareholder)  81,651    163,302    16,330,200  
Related party consultant (also a shareholder)  92,050    184,100    18,410,000  
Combined Total  $490,658    981,316    98,131,600  

 

The Company used the Black Scholes Method to determine the fair value of the outstanding Series RX-2 Warrants as the underlying preferred stock does not grant its holders any additional economic value over common stock holders, there is no liquidation preference and no one holder would control the Company upon exercise. Based on the calculations within the Black Scholes Method, the fair value of the outstanding Series RX-2 Warrants to purchase a total of 981,316 shares of RX-2 Preferred Stock is $308,133. All individuals who were issued Series RX-2 Warrants were deemed related parties and all amounts then owned, aggregate of principal and interest, were for services performed on behalf of the Company and those services were previously recognized as an expense (such as directors fees or contractor fees) to the Company. As a result, the Company recognized a gain on restructuring of service-related obligations of $182,523 (part of total $1,580,167) on our Condensed Consolidated Statement of Operations for the six months ended June 30, 2019. See Note 9.

  

Series RX-3 Warrants

 

In June 2019, pursuant to certain securities exchange agreements and securities purchase agreements between the Company and certain of its outside professional consultants and employees, and in exchange for an aggregate $1,397,647 in debt owed to such parties, inclusive of accrued interest, (a portion of which debt had at one point in time been convertible into Company common stock in accordance with its stated terms and the remainder of which had not), the Company issued to such individuals warrants to purchase a total of 481,212 shares of Company Series RX-3 Preferred Stock at a price per share of $5.00 (collectively, the "Series RX-3 Warrants"). Except in the event that certain intervening corporate events trigger acceleration, the rights of the recipients of Series RX-3 Warrants shall only vest and become exercisable as follows:

 

  ▪ until such time following the date of any Series RX-3 Warrant, if at all, that the gross profit of the Company as reported in the Company's consolidated and audited financial statements contained within its Annual Report on Form 10-K (the "Form 10-K") filed with the U.S. Securities and Exchange Commission (the "SEC") for any then preceding fiscal year during which such Series RX-3 Warrant is outstanding ("Reported Annual Gross Profit"), equals or exceeds $1,000,000, such Series RX-3 Warrants shall not be exercisable for any shares of Series RX-3 Preferred Stock;
  ▪ upon achievement for the first time following the date of any Series RX-3 Warrant, if at all, of a Reported Annual Gross Profit equal to or exceeding $1,000,000, then such Series RX-3 Warrant shall become exercisable for twenty-five percent (25%) of the number of shares of Series RX-3 Preferred Stock for which it is stated to be exercisable in the aggregate as of the date of the filing of the Form 10-K in which the corresponding financial statements have been included;
  ▪ upon achievement for the first time following the date of any Series RX-3 Warrant, if at all, of a Reported Annual Gross Profit equal to or exceeding $2,000,000, then such Series RX-3 Warrant shall become exercisable for twenty-five percent (25%) of the number of shares of Series RX-3 Preferred Stock for which it is stated to be exercisable in the aggregate as of the date of the filing of the Form 10-K in which the corresponding financial statements have been included; provided, however, that, if the achievement of the Reported Annual Gross Profit hurdle set forth in subsection (ii) above shall occur concurrently with the achievement of the Reported Annual Gross Profit hurdle set forth in this subsection (iii), then and in such event, the vesting of the exercise rights relative to shares of Series RX-3 Preferred Stock under such Series RX-3 warrant shall be cumulative (i.e. fifty percent [50%]);
  ▪ upon achievement for the first time following the date of any Series RX-3 Warrant, if at all, of a Reported Annual Gross Profit equal to or exceeding $4,000,000, then such Series RX-3 Warrant shall become exercisable for twenty-five percent (25%) of the number of shares of Series RX-3 Preferred Stock for which it is stated to be exercisable in the aggregate as of the date of the filing of the Form 10-K in which the corresponding financial statements have been included; provided, however, that, if the achievement of the Reported Annual Gross Profit hurdle set forth in subsection (ii) and/or (iii) above shall occur concurrently with the achievement of the Reported Annual Gross Profit hurdle set forth in subsection (iv), then and in such event, the vesting of the exercise rights relative to shares of Series RX-3 Preferred Stock under such Series RX-3 Warrant shall be cumulative (i.e. either fifty percent [50%] or seventy-five percent [75%], as applicable);
  ▪ upon achievement for the first time following the date of any Series RX-3 Warrant, if at all, of a Reported Annual Gross Profit equal to or exceeding $8,000,000, then such Series RX-3 Warrant shall become exercisable for twenty-five percent (25%) of the number of shares of Series RX-3 Preferred Stock for which it is stated to be exercisable in the aggregate as of the date of the filing of the Form 10-K in which the corresponding financial statements have been included; provided, however, that, if the achievement of the Reported Annual Gross Profit hurdle set forth in subsection (ii), (iii), and/or (iv) above shall occur concurrently with the achievement of the Reported Annual Gross Profit hurdle set forth in this subsection (v), then and in such event, the vesting of the exercise rights relative to shares of Series RX-3 Preferred Stock under such Series RX-3 Warrant shall be cumulative (i.e. either fifty percent [50%], seventy-five percent [75%], or one hundred percent [100%], as applicable).

 

Once vested pursuant to the foregoing schedule, the Series RX-3 Warrants are exercisable in accordance with their terms at any time prior to the earlier of (i) the effectiveness of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or other similar occurrence involving the Company, or (ii) December 31, 2029. If all Series RX-3 warrants are exercised to purchase a total of 481,212 shares of Series RX-3 Preferred Stock at $5.00 per share, the amount of cash realizable by the Company is $2,406,060. The following table summarizes the transactions for the Series RX-3 Warrants:

 

Series RX-3 Preferred Stock Warrant Debt Holder  Aggregate Principal and Interest Consideration Exchanged/Paid  Total Number of RX- 3 Shares For Which Warrants Issued Are Exercisable  Total Number of Common Shares Into Which Shares are Convertible (Before Any Potential Adjustment) 
Company's controller (also a shareholder)  $235,775    81,806    81,806,000  
Company's president and chief executive officer (also a shareholder)  609,716    211,733    211,733,000  
Company's general counsel (also a shareholder)  552,156    187,673    187,673,000  
Combined Total  $1,397,647    481,212    481,212,000  

 

The Company used the Black Scholes Method to determine the fair value of the outstanding Series RX-3 Warrants as the underlying preferred stock does not grant its holders any additional economic value over common stock holders, there is no liquidation preference and no one holder would control the Company upon exercise. Based on the calculations within the Black Scholes Method, the fair value of the outstanding Series RX-3 Warrants to purchase a total of 481,212 shares of RX-3 Preferred Stock is $1,737,175. All individuals who were issued Series RX-3 Warrants were deemed related parties and all amounts then owned, aggregate of principal and interest, were for services performed on behalf of the Company and those services were previously recognized as an expense (such as salaries and wages or contractor fees) to the Company. Although the initial fair value of the RX-3 Warrants is greater than the amounts then owed, and because the RX-3 Warrants carry milestones as described above to be met before any of the warrants shall vest and become exercisable, no expense is to be recognized until if and when the vesting of the RX-3 Warrants becomes probable. No vesting has occurred as of June 30, 2019 and it is not probable as of the date. As a result, the Company recognized a gain on restructuring of service-related obligations of $1,397,644 (part of total $1,580,167) on our Condensed Consolidated Statement of Operations for the six months ended June 30, 2019. See Note 9.

 

For the six months ended June 30, 2019, no Series RX-2 Warrants nor Series RX-3 Warrants were exercised.