Shareholders' Deficit | Note 7 - Shareholders’ Deficit Preferred Stock The Company has authorized 5,000,000 shares of preferred stock which have been designated as follows: Number of Shares Number of Shares Outstanding Par Liquidation Authorized at June 30, 2020 Value Value Series AA 1,000,000 25,000 $ 0.0010 $ - Preferred Series B 50,000 600 $ 0.0001 $ 100 Preferred Series C 8,000 719 $ 0.0001 $ 1,000 Preferred Series D 20,000 305 $ 0.0001 $ 1,000 Undesignated 3,922,000 - - - Series AA Preferred Shares On February 22, 2013, the Board of Directors of the Company authorized an amendment to the Company’s Articles of Incorporation, as amended (the “Articles of Incorporation”), in the form of a Certificate of Designation that authorized the issuance of up to one million (1,000,000) shares of a new series of preferred stock, par value $0.001 per share, designated “Series AA Super Voting Preferred Stock,” for which the board of directors established the rights, preferences and limitations thereof. Each holder of outstanding shares of Series AA Super Voting Preferred Stock shall be entitled to one hundred thousand (100,000) votes for each share of Series AA Super Voting Preferred Stock held on the record date for the determination of stockholders entitled to vote at each meeting of stockholders of the Company. The Series AA Super Voting Preferred Stockholders will receive no dividends nor any value on liquidation. As of June 30, 2020, there were 25,000 shares of Series AA Preferred stock outstanding. Series B Convertible Preferred Stock On February 7, 2017, the Company filed a certificate of designation for 50,000 shares of Series B Convertible Preferred Stock designated as Series B (“Series B”) which are authorized and convertible, at the option of the holder, commencing six months from the date of issuance into common shares and warrants. For each share of Series B, the holder, on conversion, shall receive the stated value divided by 75% of the market price on the date of purchase of Series B and a three-year warrant exercisable into up to a like amount of common shares with an exercise price of 150% of the market price as defined in the Certificate of Designation. Dividends shall be paid only if dividends on the Company’s issued and outstanding Common Stock are paid and the amount paid to the Series B holder will be as though the conversion shares had been issued. The Series B holders have no voting rights. Upon liquidation, the holder of Series B, shall be entitled to receive an amount equal to the stated value, $100 per share, plus any accrued and unpaid dividends thereon before any distribution is made to Series C Secured Redeemable Preferred Stock or common stockholders. As of June 30, 2020, 600 shares of Series B are outstanding. Series C Convertible Redeemable Preferred Stock On December 22, 2017, the Company filed a certificate of designation for 8,000 shares of Series C Secured Redeemable Preferred Stock (“Series C”). Each share of the C Preferred is entitled to receive a $20.00 quarterly dividend commencing March 31, 2018 and each quarter thereafter and is to be redeemed for the stated value, $1,000 per share, plus accrued dividends in cash (i) at the Company’s option, commencing one year from issuance and (ii) mandatorily as of December 31, 2019. Management determined that the Series C should be classified as liability per the guidance in ASC 480 Distinguishing Liabilities from Equity as of December 31, 2019. On January 29, 2020, the Company filed the amended and restated certificate of designation fort its Series C Secured Redeemable Preferred Stock. The amendment changed the rights of the Series C by (a) removing the requirement to redeem the Series C, (b) removing the obligation to pay dividends on the Series C, (c) Allowing the holders of shares of Series C to convert the stated value of their shares into common stock of the Company at 75% of the closing price of such common stock on the day prior to the conversion. The C Preferred does not have any rights to vote with the common stock. Upon liquidation, the holder of Series C, shall be entitled to receive an amount equal to the stated value, $1,000 per share, plus any accrued and unpaid dividends thereon before any distribution is made to common stockholders but after distributions are made to holders of Series B. Management reviewed the guidance in ASC 470-60 Troubled Debt Restructurings and ASC 470-50 Debt-Modifications and Extinguishments Management determined the fair value of the new instrument based on the guidance in ASC 820 Fair Value Measurement. Management concluded that the preferred stock should not be classified as a liability per the guidance in ASC 480 Distinguishing Liabilities from Equity even though the conversion would require the issuance of variable number of shares since such obligation is not unconditional. Management classified the Series C in permanent equity as of June 30, 2020. During the six months ended June 30, 2020, the Company converted 1,041 shares of Series C into 2,621,488 shares of common stock. As of June 30, 2020, there are 719 shares of Series C outstanding. Series D Convertible Preferred Stock On November 11, 2019, the Company filed a certificate of designation for 20,000 shares of Series D Convertible Preferred Stock designated as Series D (“Series D”), which are authorized and convertible, at the option of the holder, at any time from the date of issuance, into shares of common shares. On or prior to August 1, 2020, for each share of Series D, the holder, on conversion, shall receive a number of common shares equal to 0.01% of the Company’s issued and outstanding shares on conversion date and for conversion on or after August 2, 2020, the holder shall receive conversion shares as though the conversion date was August 1, 2020, with no further adjustments for issuances by the Company of common stock after August 1, 2020, except for stock split or reverse stock splits of the common stock. Management classified the Series D in permanent equity as of June 30, 2020. The Series D holders have no voting rights. Upon liquidation, the holder of Series D, shall be entitled to receive an amount equal to the stated value, $1,000 per share, plus any accrued and unpaid dividends thereon before any distribution is made to common stockholders. During the six months ended June 30, 2020, 50 shares of Series D have been issued. As of June 30, 2020, there are 305 shares of Series D outstanding. Common Stock On December 31, 2018, we entered into a non-transferrable investment agreement whereby the investor committed to purchase up to $10,000,000 of our common stock, over the course of 36 months. The aggregate number of shares issuable by us and purchasable by the investor under the investment agreement is 81,250. A registration statement for the sale of our common stock related to the investment agreement went effective on February 11, 2019. On June 2, 2020, in accordance with its undertakings we removed from registration by means of a post-effective amendment all of the securities being registered which remain unsold as the offering has been terminated. The shares removed from registration include all remaining shares under the Equity Purchase Agreement. As adjusted for a subsequent 1,000 for 1 reverse stock split, 15,390 shares were sold under the Registration Statement and 65,860 shares remain unsold. The issuer is withdrawing the 65,860 shares from registration because the issuer does not intend to sell any further shares under the Registration Statement. SEC Notice of Effectiveness was received on June 8, 2020. On May 18, 2020, the Company and Cavalry Fund I LP (the “investor”) entered into an Equity Line Purchase Agreement (“ELPA”) pursuant to which the investor committed to purchase, subject to certain restrictions and conditions, up to $10,000,000 (the “Commitment”) worth of the Company’s common stock, over a period of 24 months from the effectiveness of the registration statement registering the resale of shares purchased by the investor pursuant to the ELPA. The Company agreed to issue shares of its common stock (the “commitment shares”) to the investor having a market value of 5% of the commitment ($500,000 and 3,859,630 shares) based on the market price of the shares at the execution of the ELPA to be delivered in three tranches of 385,963 shares on: (i) the execution of the ELPA; (ii) thirty days after the effectiveness of the registration statement to be filed under the RRA (the “registration right agreement” or the “registration statement”), and (iii) 90 trading days after the effectiveness of the registration statement with the balance of the commitment shares to be issued pro-rata over the first $3,000,000 of puts in accordance with a formula set forth in the ELPA. The ELPA provides that at any time after the effective date of the registration statement and provided the closing sale price of the common shares on the OTCQB is not below $0.01, from time to time on any business day selected by the Company (the “Purchase Date”), the Company shall have the right, but not the obligation, to direct the investor to buy up to 300,000 shares of the common stock (the “regular purchase amount”) at a purchase price equal to the lower of: (i) the lowest applicable sales price on the date of the put and (ii) 85% of the arithmetic average of the 3 lowest closing prices for the common stock during the 10 consecutive trading days ending on the trading day immediately preceding such put date. The regular purchase amount may be increased as follows: to up to 400,000 shares of common stock if the closing price of the common shares is not below $0.25 per share and up to 500,000 shares if the closing price is not below $0.40 per share. Under the ELPA the Company has the right to submit a regular purchase notice to the investor as often as every business day. The payment for the shares covered by each put notice will generally occur on the day following the put notice. The ELPA contains provisions which allow for the Company to make additional puts beyond the regular purchase amount at greater discounts to the market price of the common stock as forth in the ELPA. The ELPA requires the Company to apply at least 50% of the proceeds of puts to the payment of certain variable rate convertible notes issued by the Company. During the six months ended June 30, 2020, pursuant to the execution of the ELPA, the Company issued 385,963 shares of common stock with a value of $55,540. During the six months ended June 30, 2020, the Company issued 7,741,335 shares of common stock for the conversion of notes and accrued interest in the amount of $1,311,240. During the six months ended June 30, 2020, the Company issued 2,621,488 shares of common stock with a value of $1,387,600, related to the conversion of Series C. During the six months ended June 30, 2020, the Company issued 58,428 shares of common stock to Series C with a value of $8,152 to induce the holders to convert into shares of common stock. During the six months ended June 30, 2020, the Company issued 25,000 shares of common stock with a value of $3,500 related to services. During the six months ended June 30, 2020, the Company issued 409,000 shares with a value of $58,855 to one investor to exchange one variable convertible note with remaining principal of $283,000 past maturity for a fixed rate convertible note with principal of $525,000 and maturing one year from issuance. The Company recorded a loss on debt extinguishment of $151,496 for the fair value of the shares issued in accordance with guidance in ASC 470-50 Debt-Modifications and Extinguishments The Variable Debentures issued by the Company each have a provision requiring the Company to reserve a variable amount of shares of common stock for when the holder of the Variable Debenture converts. During the six months ended June 30, 2019, we issued 4,400 shares of common stock in exchange for $61,106 cash pursuant to the Investment Agreement. During the six months ended June 30, 2019, the Company issued 286,404 shares of common stock for the conversion of notes and accrued interest in the amount of $2,387,841. During the six months ended June 30, 2019, the Company issued 443 shares of common stock valued at $8,333 related to the extension of outstanding notes. During the six months ended June 30, 2019, the Company issued 7,157 shares of common stock with a value of $129,897 related to services. During the six months ended June 30, 2019, the Company issued 1,091,000 shares of common stock with a value of $26,545 as additional consideration for the issuance of two promissory notes totaling $336,000. Stock Options The balance of all stock options outstanding as of June 30, 2020 is as follows: Weighted Weighted Average Average Remaining Aggregate Exercise Price Contractual Intrinsic Options Per Share Term (years) Value Outstanding at January 1, 2020 99,833 $ 27.81 2.02 - Granted - $ - - - Cancelled (3,300 ) $ 11.60 3.25 - Exercised - $ - - - Outstanding at June 30, 2020 96,533 $ 28.36 1.46 $ - Exercisable at June 30, 2020 96,533 $ 28.36 1.46 $ - On June 11, 2020, the Board of Directors approved the issuance of 74,668,000 non-incentive stock options to officers, directors, and key consultants. The key terms and conditions of the award have not been mutually understood and agreed upon, and as a result, the Company has not recognized stock compensation for such award for the six months ended June 30, 2020. Warrants A summary of the status of the warrants granted under these agreements at June 30, 2020, and changes during the six months then ended is presented below: Outstanding Warrants Weighted Weighted Average Average Remaining Exercise Price Contractual Shares Per Share Term (years) Outstanding at January 1, 2020 73,486 $ 306.28 1.37 Granted - $ - - Cancelled (2,408 ) $ 37.89 - Exercised - $ - Outstanding at June 30, 2020 71,078 $ 315.38 0.91 Exercisable at June 30, 2020 71,078 $ 315.38 0.91 The Company measures the fair value of stock options and warrants issued using the Black Scholes option pricing model using the following assumptions: Six months ended June 30, 2020 2019 Expected term - 2 years Exercise price - $14.50-$27.90 Expected volatility - 199%-242% Expected dividends - None Risk-free interest rate - 2.28% to 2.60% Forfeitures - None |