| Stockholders' Deficiency | 7. Stockholders’ Deficiency Authorized Capital As of December 31, 2017, the Company was authorized
to issue 1,000,000,000 shares of common stock, $0.001 par value, and 25,000,000 shares of preferred stock, $0.001 par value. The
holders of the Company’s common stock are entitled to one vote per share. The preferred stock is designated as follows: 240,000
shares to Series B Convertible Preferred Stock and 24,760,000 shares undesignated. Series B Convertible Preferred Stock On August 25, 2016, the Company filed the Series
B Certificate of Designation with the Delaware Secretary of State. The Series B Certificate of Designation provides for the issuance
of the Series B Convertible Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”). In the event
of the Company’s liquidation, dissolution, or winding up, holders of Series B Preferred Stock will be entitled to receive
the amount of cash, securities or other property to which such holder would be entitled to receive with respect to such shares
of Series B Preferred Stock if such shares had been converted to common stock immediately prior to such event (without giving effect
for such purposes to any beneficial ownership limitation), subject to the preferential rights of holders of any class or series
of the Company’s capital stock specifically ranking by its terms senior to the Series B Preferred Stock as to distributions
of assets upon such event, whether voluntarily or involuntarily. The Series B Preferred Stock has no voting rights. The holders of Series B Preferred Stock will
be entitled to receive cumulative dividends at the rate per share of 8% per annum of the stated value per share, until the fifth
anniversary of the date of issuance of the Series B Preferred Stock. The dividends become payable, at the Company’s option
in either cash or in shares of common stock, (i) upon any conversion of the Series B Preferred Stock, (ii) on each such other date
as the Board may determine, subject to written consent of the holders of Series B Preferred Stock holding a majority of the then
issued and outstanding Series B Preferred Stock, (iii) upon the Company’s liquidation, dissolution or winding up, and (iv)
upon occurrence of a fundamental transaction, which includes any merger or consolidation, sale of all or substantially all of the
Company’s assets, exchange or conversion of all of the common stock by tender offer, exchange offer or reclassification;
provided, however, that if Series B Preferred Stock is converted into shares of common stock at any time prior to the fifth anniversary
of the date of issuance of the Series B Preferred Stock, the holder will receive a make-whole payment in an amount equal to all
of the dividends that, but for the early conversion, would have otherwise accrued on the applicable shares of Series B Preferred
Stock being converted for the period commencing on the conversion date and ending on the fifth anniversary of the date of issuance,
less the amount of all prior dividends paid on such converted Series B Preferred Stock before the date of conversion. Make-whole
payments are payable at the Company’s option in either cash or in shares of common stock. With respect to any dividend payments
and make-whole payments paid in shares of common stock, the number of shares of common stock to be issued to a holder of Series
B Preferred Stock will be an amount equal to the quotient of (i) the amount of the dividend payable to such holder divided by (ii)
the conversion price then in effect. Warrant Exchange Programs As of January 1, 2016, the Company had outstanding
warrants to purchase an aggregate of 59,861,601 shares of common stock, which were issued between January 6, 2011 and November
1, 2015 in transactions exempt from registration under the Securities Act (the “Existing Warrants”). Each Existing
Warrant had an exercise price of between $1.00 and $3.00 per share, and expiration dates between January 6, 2016 and November 1,
2020. On December 31, 2015, the Company offered pursuant to an Offer Letter/Prospectus 59,861,601 shares of its common stock for
issuance upon exercise of the Existing Warrants. The shares issued upon exercise of the Existing Warrants are unrestricted and
freely transferable. The offer was to temporarily modify the terms of the Existing Warrants so that each holder who tendered Existing
Warrants during the offer period for early exercise were able to do so at a discounted exercise price of $0.50 per share. Each
Existing Warrant holder who tendered Existing Warrants for early exercise during the offer period received, in addition to the
shares of common stock purchased upon exercise, an equal number of new warrants to purchase common stock, with an exercise price
of $0.85 per share, expiring June 19, 2020 (the “Replacement Warrants”). The modification of the exercise price of
the Existing Warrants and the Replacement Warrants are treated as an inducement to enter into the exchange offer and were accounted
for as of the closing date. The exchange offer expired at 4:00 p.m., Eastern Time, on March 28, 2016. The Company accepted for
purchase approximately 7,798,507 Existing Warrants properly tendered, resulting in the issuance of approximately 7,798,507 shares
of common stock upon exercise of Existing Warrants and the issuance of approximately 7,798,507 Replacement Warrants, resulting
in gross proceeds of $3,899,254 upon closing of the exchange offer. The placement agents received a total of $264,214 in placement
agent fees and 467,910 warrants with a cash exercise price of $0.85 per share which expire on June 19, 2020, unless sooner exercised.
In connection with the exchange offer, a warrant incentive expense totaling $2,718,407 was recorded during the year ended December
31, 2016. The value was determined using the Black-Scholes option-pricing model between the Existing Warrants exchanged and the
common stock and Replacement Warrants received. See Note 12. Other Common Stock Issuances During the year ended December 31, 2017, the
Company issued 372,500 shares of common stock as payment of trade payables, with a grant date fair value of $17,301. During the year ended December 31, 2016, the
Company issued 51,745 shares of common stock in payment of services rendered with a grant date fair value of $20,163. As the fair market of these services was not
readily determinable, these services were valued based on the fair market value of stock at grant date. August 2016 Public Offering On August 30, 2016, the Company closed a public
offering (the “August 2016 Offering”) of 240,000 shares of its Series B Preferred Stock (which were initially convertible
into an aggregate of 24,000,000 shares of the Company’s common stock) and warrants, which were initially exercisable to purchase
an aggregate of 24,000,000 shares of common stock at an exercise price of $0.275 per share of common stock (the “August 2016
Warrants”). The Series B Preferred Stock and August 2016 Warrants were sold together at a price of $25.00 for a combination
of one share of Series B Preferred Stock and 100 August 2016 Warrants to purchase one share of common stock each, resulting in
aggregate net proceeds of $5,288,530 (gross proceeds of $6,000,000 less issuance costs of $711,470) to the Company. The conversion feature embedded within the
Series B Preferred Stock was subject to anti-dilution price protection such that if the conversion price in effect on the 60th
trading day following the date of issuance of the Series B Preferred Stock (the “Price Reset Date”) exceeded 85% of
the average of the 45 lowest volume weighted average trading prices of the common stock during the period commencing on the date
of issuance of the Series B Preferred Stock and ending on the Price Reset Date (as adjusted for stock splits, stock dividends,
recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events during such period)
(the “Adjusted Conversion Price”), then the conversion price shall be reset to the Adjusted Conversion Price and shall
be further subject to adjustment as provided in the Series B Certificate of Designation. In either case, if a holder of Series
B Preferred Stock converted its shares of Series B Preferred Stock prior to any such price reset event, then such holder was entitled
to receive additional shares of common stock equal to the number of shares of common stock that would have been issued assuming
for such purposes the Adjusted Conversion Price were in effect at such time less the shares issued at the then Conversion Price
(subject to being held in abeyance based on beneficial ownership limitations). On the Price Reset Date, the Adjusted Conversion
Price was set at $0.0533 pursuant to the terms of the Series B Certificate of Designation. During the year ended December 31, 2016,
the Company issued to holders who converted their shares of Series B Preferred Stock an aggregate of 151,943,945 shares of common
stock, which included dividends paid in kind which is discussed below. The August 2016 Warrants expire on August 30,
2021. Pursuant to the terms of the August 2016 Warrants, because the exercise price in effect on the Price Reset Date exceeded
85% of the average of the 45 lowest volume weighted average trading prices of the common stock during the period commencing on
the date of issuance of the August 2016 Warrants and ending on the Price Reset Date (as adjusted for stock splits, stock dividends,
recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events during such period)
(the “Adjusted Exercise Price”), then (i) the exercise price was reset to the Adjusted Exercise Price (and without
giving effect to any prior conversions) and shall be further subject to adjustment as provided in the August 2016 Warrants, and
(ii) the number of shares of common stock issuable upon exercise of the August 2016 Warrants will be reset to equal the number
of shares of common stock issuable upon conversion of Series B Preferred Stock after giving effect to the Adjusted Exercise Price.
If a holder of August 2016 Warrants exercised its August 2016 Warrants prior to such repricing, then such holder was entitled to
receive shares of common stock equal to the difference between the exercise price and the Adjusted Exercise Price. The exercise
price of the August 2016 Warrants is further subject to appropriate adjustment in the event of certain stock dividends and distributions,
stock splits, stock combinations, reclassifications or similar events affecting the common stock. On the Price Reset Date, the
Adjusted Exercise Price was set at $0.0533 pursuant to the terms of the August 2016 Warrants. No holder of August 2016 Warrants
had exercised its August 2016 Warrants prior to the Price Reset Date, so no additional shares of common stock were due to holders
of August 2016 Warrants as of the Price Reset Date. Holders of August 2016 Warrants are entitled to exercise their August 2016
Warrants at the Adjusted Exercise Price and will receive an aggregate of 112,570,356 shares of common stock upon exercise of the
August 2016 Warrants. The Series B Preferred Stock does not contain
a redemption provision and an overall analysis of its features performed by the Company determined that it is more akin to equity
and therefore, has been classified within stockholders’ equity on the consolidated balance sheet. While the embedded conversion
option (“ECO”) is subject to an anti-dilution price adjustment, since the ECO is clearly and closely related to the
equity host, it is not required to be bifurcated and accounted for as a derivative liability under ASC 815. To analyze whether
the Series B Preferred Stock included a beneficial conversion feature (“BCF”), the Company allocated the $6,000,000
of the gross proceeds between the August 2016 Warrants and the Series B Preferred Stock. The Company allocated the commitment date
fair value of $3,678,989 to the August 2016 Warrants (which is allocated at fair value because the August 2016 Warrants were determined
to be derivative liabilities as discussed in Note 12) resulting in an amount allocated to the Series B Preferred Stock of $2,321,011.
Next, the Company computed the number of shares of common stock issuable at the commitment date to be 24,000,000 in order to arrive
at an effective conversion price of $0.097 per share. When compared to the market price of the Company’s common stock of
$0.127 per share as of the commitment date, it was determined that a BCF did exist and, as a result, the Company recorded a deemed
dividend in net loss available to common stockholders of $726,989. On November 23, 2016, the Series B Preferred Stock conversion
price became fixed and, as a result, the contingency was resolved. Accordingly, the Company analyzed for a BCF. The Company computed
the number of shares of common stock issuable by the Company at the commitment date to be 112,570,356 to arrive at an effective
conversion price of $0.021 per share. When compared to the market price of the Company’s common stock of $0.038 per share
as of the commitment date, it was determined that a BCF did exist and, as a result, the Company recognized a deemed dividend of
$1,318,801. The net carrying value of the Series B Preferred
Stock is $2,045,789 (gross proceeds of $6,000,000 less preferred stock discount associated with August 2016 Warrants of $3,678,989
less issuance costs allocated to Series B Preferred Stock of $275,222). Since the Series B Preferred Stock doesn’t contain
a redemption provision, it is not probable that the Series B Preferred Stock will become redeemable, therefore the preferred stock
discount is not amortized. The August 2016 Warrants were determined to
be derivative liabilities at issuance due to the presence of an anti-dilution feature whereby the Company may not have a sufficient
number of authorized and unissued shares, which resulted in the assumption of a cash settlement of the warrant. Utilizing a Monte
Carlo valuation method, the Company, with the assistance of a valuation specialist, determined that the August 2016 Warrants had
an issuance date value of $3,678,989. The derivative liability was marked-to-the-market on November 23, 2016, when the exercise
price became fixed, at which time the $3,160,114 value of the August 2016 Warrants was reclassified to equity because the August
2016 Warrants were no longer subject to the anti-dilution adjustment. As a result, the Company recognized a gain on change in fair
value of warrant liability of $518,875 during the year ended December 31, 2016. In connection with the closing of the August
2016 Offering, the Company incurred $711,470 of cash issuance costs. $436,248 of the issuance costs were allocated to the August
2016 Warrants (the August 2016 Warrants comprised $3,678,989, or 61%, of the aggregate gross proceeds of $6,000,000), which were
classified at issuance as a derivative liability and, as a result, were expensed immediately (and included within other expense
(non-operating) on the consolidated statement of operations) and $275,222 of the issuance costs were allocated to the Series B
Preferred Stock, which is classified as equity and, as a result, were charged against additional paid-in capital. During the year ended December 31, 2017, holders
converted 8,500 shares of Series B Preferred Stock into 3,986,676 shares of common stock such that they were entitled to dividends,
including a make-whole payment, of $14,107 that the Company elected to pay in shares of common stock. As a result, the Company
issued 1,594,670 shares of common stock related to the Series B Preferred Stock dividends during the year ended December 31, 2017.
The Company recorded aggregate dividends paid in kind of $14,107 during the year ended December 31, 2017. During the year ended December 31, 2016, holders
converted 231,400 shares of Series B Preferred Stock such that they were entitled to dividends, including a make-whole payment,
of $2,314,000 that the Company elected to pay in shares of common stock. As a result, the Company issued 9,477,412 shares of common
stock related to the Series B Preferred Stock dividends during the year ended December 31, 2016 and included the $2,314,000 of
dividends paid in kind in its computation of net loss applicable to common shareholders during the year ended December 31, 2016.
The Company accounted for the dividends on the Series B Preferred Stock by recording a debit and credit to additional paid-in
capital for $2,314,000. In addition, the Company included $72,453 as dividends paid in kind in its computation of net loss applicable
to common shareholders during the year ended December 31, 2016 for the 8% dividends related to the shares of Series B Preferred
Stock that were not converted as of December 31, 2016. |
