(11) Stockholders' deficit
Restated Articles of Incorporation
On January 22, 2008, the Company changed
its authorized capital stock to 120,000,000 shares of capital stock, of which 20,000,000 shares are shares of preferred stock,
par value $0.001 per share, and 100,000,000 shares are shares of common stock, par value $0.001 per share. The restated articles
of incorporation authorizes the board of directors of the Company to issue one or more series of preferred stock and to designate
the rights, preferences, privileges and limitation of the holders of such preferred stock. The board of directors has authorized
the issuance of two series of preferred stock, Series A Convertible Preferred Stock ("Series A Preferred Stock") and
Series B Convertible Preferred Stock ("Series B Preferred Stock").
Issuance of Common Stock
The Company has total outstanding shares
of common stock of 27,502,346 and 27,262,346 as of September 30, 2019 and December 31, 2018, respectively.
(a) Stock Issuances For Compensation
On February 20, 2019, the Company issued an
aggregate of 200,000 shares of common stock to four directors as compensation for services provided in 2018. The issuance of these
shares was recorded at grant date fair market value at $0.03 per share.
On February 20, 2019, the Company issued
40,000 shares of common stock to the CFO. The issuance of these shares was recorded at grant date fair market value of $0.03.
(b) Shares Held in Escrow
In a private placement that closed on December
22, 2009 and January 13, 2010, the Company sold an aggregate of 2,480,500 shares of Series B Preferred Stock and five-year warrants
to purchase 992,000 shares of common stock at an exercise price of $1.30 per share, for an aggregate purchase price of $2,976,600.
The Company also paid the private placement agent an aggregate of $298,000 and issued five-year warrants to purchase 124,025 shares
of common stock at an exercise price of $1.32 per share. In connection with the private placement and pursuant to the transaction
agreements, the Company deposited into escrow an aggregate of 1,240,250 shares of common stock, which are to be held in escrow
to be returned to the Company or delivered to the investors, depending on whether the Company meets certain financial performance
targets for the years ending December 31, 2010 and 2011.
The Company did not meet the financial
targets. The number of Escrow Shares payable to each Investor shall be equal to a fraction of the total number of Escrow Shares
potentially issuable pursuant to the terms hereof, the numerator of which shall be the amount by which (i) the number of Conversion
Shares issued or issuable upon Preferred Shares which was initially issued to the Investor exceeds (ii) the sum of (x) the number
of Conversion Shares sold or otherwise transferred by the Investor plus (y) the number of shares of Conversion Shares issued or
issuable sold or otherwise transferred by the Investor, and the denominator of which is the number of Conversion Shares issued
or issuable by the Company in the Offering. Any Escrow Shares for either Fiscal Year 2011 or Fiscal Year 2010 which are not transferred
to the Investors pursuant to this paragraph shall be returned to the Company for cancellation. As of September 30, 2019, no Escrow
Shares have been transferred to investors or returned to the Company.
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