| 4. STOCKHOLDERS' DEFICIT |
Common Stock
The Company has authorized 3,000,000,000 shares
of common stock with $0.001 par value, of which 11,764,629 were issued and outstanding as of March 31, 2020. As of December 31,
2019, there were 3,000,000,000 authorized shares of common stock, of which 3,319,469 were issued and outstanding.
For the three months ended March 31, 2020, the
Company issued 8,445,143 shares of common stock as listed below:
| Exchange of Debt for common stock shares and warrants |
|
|
6,957,013 |
|
| Shares issued for manufacturing agreements |
|
|
12,147 |
|
| Investments |
|
|
1,476,000 |
|
| Issued during the three months ended March 31, 2020 |
|
|
8,445,160 |
|
Summary table of common stock share transactions:
Investments
During January 2020, the Company received equity
investments in the amount of $103,000. These investors received a total of 206,000 common stock shares and 206,000 warrants issued
to purchase common stock shares at a strike price of $0.25, 206,000 warrants to purchase common stock shares at a strike price
of $0.75 and 103 Series D preferred stock (if the Investor elects to convert their Series D preferred stock, each Series D preferred
stock shares converts into 3,000 shares of the Company’s common stock shares). Of the amount invested $38,000 was from related
parties.
During December 2019, the Company received equity
investments in the amount of $635,000. The $635,000 of investments were recorded as a subscription liability in December 2019.
The common stock shares were issued in January 2020. These investors received a total of 1,270,000 common stock shares and 1,270,000
warrants to purchase common stock shares at a strike price of $0.25, 1,270,000 warrants issued to purchase common stock shares
at a strike price of $0.75 and 635 Series D preferred stock (each Series D preferred stock shares converts into 3,000 shares of
the Company’s common stock shares). Of the amount invested $350,000 was from related parties.
Debt Exchanges
On January 8, 2020, the Company exchanged $2,064,366
in debt for several equity instruments (noted below) that were determined to have a total fair value of $2,065,548, resulting in
a loss on extinguishment of debt of $1,183 which is recorded in other income (expense) on the accompanying consolidated statements
of operations. The Company also issued 6,957,013 warrants to purchase common stock shares; with exercise prices of $0.25, $0.75
and $0.20. In addition, one of the investors forgave approximately $29,000 of debt, which was recorded as a gain for extinguishment
of debt.
The following table summarizes the debt exchanges:
| |
|
Total Debt and Accrued Interest |
|
|
Total Debt |
|
|
Total Accrued Interest |
|
|
Common Stock Shares |
|
|
Warrants (Exercise $0.25) |
|
|
Warrants (Exercise $0.75) |
|
|
Warrants (Exercise $0.20) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Aquarius |
|
$ |
145,544 |
|
|
|
107,500 |
|
|
|
38,044 |
|
|
|
291,088 |
|
|
|
145,544 |
|
|
|
145,544 |
|
|
|
- |
|
| K2 Medical (Shenghuo) 3 |
|
|
803,654 |
|
|
|
771,927 |
|
|
|
31,727 |
|
|
|
1,905,270 |
|
|
|
704,334 |
|
|
|
704,334 |
|
|
|
496,602 |
|
| Mr. Blumberg |
|
|
305,320 |
|
|
|
292,290 |
|
|
|
13,030 |
|
|
|
1,167,630 |
|
|
|
119,656 |
|
|
|
119,656 |
|
|
|
928,318 |
|
| Mr. Case |
|
|
179,291 |
|
|
|
150,000 |
|
|
|
29,291 |
|
|
|
896,456 |
|
|
|
- |
|
|
|
- |
|
|
|
896,456 |
|
| Mr. Grimm |
|
|
51,050 |
|
|
|
50,000 |
|
|
|
1,050 |
|
|
|
255,548 |
|
|
|
- |
|
|
|
- |
|
|
|
255,548 |
|
| Mr. Gould |
|
|
111,227 |
|
|
|
100,000 |
|
|
|
11,227 |
|
|
|
556,136 |
|
|
|
- |
|
|
|
- |
|
|
|
556,136 |
|
| Mr. Mamula |
|
|
15,577 |
|
|
|
15,000 |
|
|
|
577 |
|
|
|
77,885 |
|
|
|
- |
|
|
|
- |
|
|
|
77,885 |
|
| Dr. Imhoff 2 |
|
|
400,417 |
|
|
|
363,480 |
|
|
|
36,937 |
|
|
|
1,699,255 |
|
|
|
100,944 |
|
|
|
100,944 |
|
|
|
1,497,367 |
|
| Ms. Rosenstock 1 |
|
|
50,000 |
|
|
|
50,000 |
|
|
|
- |
|
|
|
100,000 |
|
|
|
50,000 |
|
|
|
50,000 |
|
|
|
- |
|
| Mr. James 2 |
|
|
2,286 |
|
|
|
2,000 |
|
|
|
286 |
|
|
|
7,745 |
|
|
|
1,227 |
|
|
|
1,227 |
|
|
|
5,291 |
|
| |
|
$ |
2,064,366 |
|
|
$ |
1,902,197 |
|
|
$ |
162,169 |
|
|
|
6,957,013 |
|
|
|
1,121,705 |
|
|
|
1,121,705 |
|
|
|
4,713,603 |
|
| 1 |
Ms. Rosenstock also forgave $28,986 in debt to the Company. |
| 2 |
Mr. Imhoff and Mr. James are members of the board of directors and therefore related parties. |
| 3 |
The Company’s COO and director, Mark Faupel, is a shareholder of Shenghuo, and a former director, Richard Blumberg, is a managing member of Shenghuo. |
Preferred Stock
The Company has authorized 5,000,000 shares
of preferred stock with a $.001 par value. The board of directors has the authority to issue these shares and to set dividends,
voting and conversion rights, redemption provisions, liquidation preferences, and other rights and restrictions. The board of directors
designated 525,000 shares of preferred stock redeemable convertible preferred stock, none of which remain outstanding, 33,000 shares
of preferred stock as Series B Preferred Stock, none of which remain outstanding, 9,000 shares of preferred stock as Series C Convertible
Preferred Stock, (the “Series C Preferred Stock”), of which 286 were issued and outstanding at March 31, 2020 and December
31, 2019, respectively and 20,250 shares of preferred stock as Series C1 Preferred Stock, of which 1,050 shares were issued and
outstanding at March 31, 2020 and December 31, 2019. In addition, some holders separately agreed to exchange each share of the
Series C1 Preferred Stock held for one (1) share of the Company’s newly created Series C2 Preferred Stock. In total, for
3,262.25 shares of Series C1 Preferred Stock to be surrendered, the Company issued 3,262.25 shares of Series C2 Preferred Stock.
At March 31, 2020, shares of Series C2 had a conversion price of $0.50 per share, such that each share of Series C preferred stock
would convert into approximately 2,000 shares of the Company’s common stock.
The Company issued Series D Preferred Stock
in 2020. The Company had authorized 6,000 Series D Preferred Stock. At the end of 2019 and beginning of 2020, the Company had investments
of $738,000, of which $635,000 was received in December 2019 and $103,000 was received in January 2020. that would provide each
investor one Series D Preferred Stock share for each $1,000 invested. And each Series D preferred stock converts into 3,000 shares
of the Company’s common stock shares.
Series C Convertible Preferred Stock
Pursuant to the Series C certificate of designations,
shares of Series C preferred stock are convertible into common stock by their holder at any time and may be mandatorily convertible
upon the achievement of specified average trading prices for the Company’s common stock. At December 31, 2019, there were
286 shares outstanding with a conversion price of $0.50 per share, such that each share of Series C preferred stock would convert
into approximately 2,000 shares of the Company’s common stock, subject to customary adjustments, including for any accrued
but unpaid dividends and pursuant to certain anti-dilution provisions, as set forth in the Series C certificate of designations.
The conversion price will automatically adjust downward to 80% of the then-current market price of the Company’s common stock
15 trading days after any reverse stock split of the Company’s common stock, and 5 trading days after any conversions of
the Company’s outstanding convertible debt.
Holders of the Series C preferred stock are
entitled to quarterly cumulative dividends at an annual rate of 12.0% until 42 months after the original issuance date (the “Dividend
End Date”), payable in cash or, subject to certain conditions, the Company’s common stock. In addition, upon conversion
of the Series C preferred stock prior to the Dividend End Date, the Company will also pay to the converting holder a “make-whole
payment” equal to the number of unpaid dividends through the Dividend End Date on the converted shares. At December 31, 2019,
the “make-whole payment” for a converted share of Series C preferred stock would convert to 200 shares of the Company’s
common stock. The Series C preferred stock generally has no voting rights except as required by Delaware law. Upon the Company’s
liquidation or sale to or merger with another corporation, each share will be entitled to a liquidation preference of $1,000, plus
any accrued but unpaid dividends. In addition, the purchasers of the Series C preferred stock received, on a pro rata basis, warrants
exercisable to purchase an aggregate of approximately 1 share of Company’s common stock. The warrants contain anti-dilution
adjustments in the event that the Company issues shares of common stock, or securities exercisable or convertible into shares of
common stock, at prices below the exercise price of such warrants. As a result of the anti-dilution protection, the Company is
required to account for the warrants as a liability recorded at fair value each reporting period. At March 31, 2020, the exercise
price per share was $512,000.
On May 23, 2016, an investor canceled certain
of these warrants, exercisable into 903 shares of common stock. The same investor also transferred certain of these warrants, exercisable
for 150 shares of common stock, to two investors who also had participated in the 2015 Series C financing.
Series C1 Convertible Preferred Stock
Between April 27, 2016 and May 3, 2016, the
Company entered into various agreements with certain holders of Series C preferred stock, including directors John Imhoff and Mark
Faupel, pursuant to which those holders separately agreed to exchange each share of Series C preferred stock held for 2.25 shares
of the Company’s newly created Series C1 Preferred Stock and 12 (9,600 pre-split) shares of the Company’s common stock
(the “Series C Exchanges”). In connection with the Series C Exchanges, each holder also agreed to roll over the $1,000
stated value per share of the holder’s shares of Series C1 Preferred Stock into the next qualifying financing undertaken
by the Company on a dollar-for-dollar basis and, except in the event of an additional $50,000 cash investment in the Company by
the holder, to execute a customary “lockup” agreement in connection with the financing. In total, for 1,916 shares
of Series C preferred stock surrendered, the Company issued 4,312 shares of Series C1 Preferred Stock and 29 shares of common stock.
At March 31, 2020, there were 1,050 shares outstanding
with a conversion price of $0.50 per share, such that each share of Series C preferred stock would convert into approximately 381,098
shares of the Company’s common stock.
On August 31, 2018, 3,262.25 shares of Series
C1 Preferred Stock were surrendered, and the Company issued 3,262.25 shares of Series C2 Preferred Stock.
The Series C1 preferred stock has terms that
are substantially the same as the Series C preferred stock, except that the Series C1 preferred stock does not pay dividends (unless
and to the extent declared on the common stock) or at-the-market “make-whole payments” and, while it has the same anti-dilution
protections afforded the Series C preferred stock, it does not automatically reset in connection with a reverse stock split or
conversion of our outstanding convertible debt.
Series C2 Convertible Preferred Stock
On August 31, 2018, the Company entered into
agreements with certain holders of the Company’s Series C1 Preferred Stock, including the chairman of the Company’s
board of directors, and the Chief Operating Officer and a director of the Company pursuant to which those holders separately agreed
to exchange each share of the Series C1 Preferred Stock held for one (1) share of the Company’s newly created Series C2 Preferred
Stock. In total, for 3,262.25 shares of Series C1 Preferred Stock to be surrendered, the Company issued 3,262.25 shares of Series
C2 Preferred Stock. At March 31, 2020, shares of Series C2 had a conversion price of $0.50 per share, such that each share of Series
C preferred stock would convert into approximately 2,000 shares of the Company’s common stock.
The terms of the Series C2 Preferred Stock are
substantially the same as the Series C1 Preferred Stock, except that (i) shares of Series C1 Preferred Stock may not be convertible
into the Company’s common stock by their holder for a period of 180 days following the date of the filing of the Certificate
of Designation (the “Lock-Up Period”); (ii) the Series C2 Preferred Stock has the right to vote as a single class with
the Company’s common stock on an as-converted basis, notwithstanding the Lock-Up Period; and (iii) the Series C2 Preferred
Stock will automatically convert into that number of securities sold in the next Qualified Financing (as defined in the Exchange
Agreement) determined by dividing the stated value ($1,000 per share) of such share of Series C2 Preferred Stock by the purchase
price of the securities sold in the Qualified Financing.
Series D Convertible Preferred Stock
On January 8, 2020, the Company entered into
a Security Agreement with the Series D Investors (the “Series D Security Agreement”) pursuant to which all obligations
under the Series D Certificate of Designation are secured by all of the Company’s assets and personal properties, with certain
accredited investors, including the Chief Executive Officer, Chief Operating Officer and a director of the Company. In total, for
$738,000 the Company issued 738 shares of Series D Preferred Stock, 1,476,000 common stock shares, 1,476,000 common stock warrants,
exercisable at $0.25, and 1,476,000 common stock warrants, exercisable $0.75. Each Series D Preferred Stock is convertible into
3,000 common stock shares. The Series D Preferred Stock will have cumulative dividends at the rate per share of 10% per annum.
The stated value and liquidation preference on the Series D Preferred Stock is $750.
Each share of Series D Preferred is convertible,
at any time for a period of 5 years after issuance, into that number of shares of Common Stock, determined by dividing the Stated
Value by $0.25, subject to certain adjustments set forth in the Series D Certificate of Designation (the “Series D Conversion
Price”). The conversion of Series D Preferred is subject to a 4.99% beneficial ownership limitation, which may be increased
to 9.99% at the election of the holder of the Series D Preferred. If the average of the VWAPs (as defined in the Series D Certificate
of Designation) for any consecutive 5 trading day period (“Measurement Period”) exceeds 200% of the then Series D Conversion
Price and the average daily trading volume of the Common Stock on the primary trading market exceeds 1,000 shares per trading day
during the Measurement Period (subject to adjustments), the Company may redeem the then outstanding Series D Preferred, for cash
in an amount equal to aggregate Stated Value then outstanding plus accrued but unpaid dividends .
The Series D Warrants may be exercised cashlessly
if there is no effective registration statement covering the Common Stock issuable upon exercise of the Series D Warrants. The
Series D Warrants contain a 4.99% beneficial ownership blocker which may be increased to 9.99% at the holder’s election.
On January 8, 2020, the Company also entered
into a Registration Rights Agreement (the “Series D Registration Rights Agreement “) with the Series D Investors pursuant
to which the Company agreed to file with the SEC, a registration statement on a Form S-3 (or on other appropriate form if a Form
S-3 is not available) covering the Common Stock issuable upon conversion of the Series D Warrants within 90 days of the date of
the Registration Rights Agreement and cause such registration statement to be declared effective within 120 days of the date of
the Registration Rights Agreement. All reasonable expenses related to such registration shall be borne by the Company.
Warrants
The following table summarizes transactions
involving the Company’s outstanding warrants to purchase common stock for the three months ended March 31, 2020:
| |
|
Warrants
(Underlying Shares) |
|
| Outstanding, January 1, 2020 |
|
|
46,016,840 |
|
| Issuances |
|
|
10,159,013 |
|
| Cancelled / Expired |
|
|
(70 |
) |
| Exchanged in debt restructuring |
|
|
(28,962,508 |
) |
| Exercised |
|
|
- |
|
| Outstanding, March 31, 2020 |
|
|
27,213,275 |
|
The Company had the following shares reserved for the warrants as
of March 31, 2020:
| Warrants(Underlying Shares) |
|
Exercise Price |
Expiration Date |
| 4,262 |
(1) |
$1.824 per share |
March 19, 2021 |
| 7,185,000 |
(2) |
$0.20 per share |
February 12, 2023 |
| 1,725,000 |
(3) |
$0.04 per share |
February 21, 2021 |
| 325,000 |
(4) |
$0.18 per share |
April 4, 2022 |
| 215,000 |
(5) |
$0.25 per share |
July 1, 2022 |
| 100,000 |
(6) |
$0.25 per share |
September 1, 2022 |
| 7,500,000 |
(7) |
$0.20 per share |
December 17, 2024 |
| 250,000 |
(8) |
$0.16 per share |
March 31, 2025 |
| 2,597,705 |
(9) |
$0.25 per share |
December 30, 2022 |
| 2,597,705 |
(10) |
$0.75 per share |
December 30, 2022 |
| 4,713,603 |
(11) |
$0.20 per share |
December 30, 2022 |
| 27,213,275* |
|
|
|
* However, please refer to Footnote
10 - CONVERTIBLE DEBT in the paragraph: Debt Restructuring for more information regarding our warrants.
| (1) |
Issued to investors for a loan in March 2018. |
| (2) |
Exchanged in January 2020 from amount issued as part of a February 2016 private placement with senior secured debt holder |
| (3) |
Issued to a placement agent in conjunction with a February 2016 private placement with senior secured debt holder |
| (4) |
Issued to investors for a loan in April 2019 |
| (5) |
Issued to investors for a loan in July 2019 |
| (6) |
Issued to investors for a loan in September 2019 |
| (7) |
Issued to investors for a loan in December 2019 |
| (8) |
Issued to investors for a loan in January 2020 |
| (9) |
Issued to investors as part of Series D Preferred Stock Capital raise in December 2020 |
| (10) |
Issued to investors as part of Series D Preferred Stock Capital raise in December 2020 |
| (11) |
Issued to investors as part of Series D Preferred Stock Capital raise in December 2020 |
Footnote (2) - On January 16, 2020, the Company
entered into an exchange agreement with GPB. This exchange agreement canceled the existing outstanding warrants, which were subject
to anti-dilution and ratchet provisions, to purchase 35,937,500 shares of common stock at an exercise price of $0.04 per share
and resulted in the issuance of new warrants to purchase 7,185,000 share of common stock at a price of $0.20 per share. The new
warrants have fixed exercise prices of $0.20; subject to the Company meeting the agreed upon terms of the exchange agreement.
Warrant to purchase 70 shares of common stock
were not recorded as their exercise price after considering reverse stock splits, were greater than $60,000 and deemed to be immaterial
for disclosure
On January 6, 2020, the Company entered into
a finder’s fee agreement. The finder will receive 5% cash and 5% warrants on all funds it raises including bridge loans.
The three-year common stock share warrants will have an exercise price of $0.25. During 2019 and 2020, the finder helped the Company
raise $300,000, therefore a fee of $15,000 was paid and 60,000 warrants will be issued.
On January 22, 2020, the Company entered into
a promotional agreement with a consultant. The consultant will provide the Company investor and public relations services. As compensation
for these services, the Company will issue a total of 5,000,000 common stock warrants at a $0.25 strike price and expiring in three
years, if the following conditions occur: 1,250,000 common stock warrants, 6 months after the close of the Series D Preferred Stock
units, if the minimum common stock share price is a at least $0.50 based on a 30-day VWAP, with a two year term; 1,250,000 common
stock warrants, 12 months after the close of the Series D Preferred Stock units, if the minimum common stock share price is at
least $0.75 based on a 30-day VWAP, with a one and half year term; 1,250,000 common stock warrants, 18 months after the close of
the Series D Preferred Stock units, if the minimum common stock share price is a minimum of $1.00 based on a 30-day VWAP, with
a one year term; and 1,250,000 common stock warrants, 24 months after the close of the Series D Preferred Stock units, if the minimum
common stock share price is a minimum of $1.25 based on a 30-day VWAP, with a one year term. The consultant agrees to a 10.0% blocker
at any single point in time it cannot own 10.0% of the total common stock shares outstanding.
|
