Quarterly report pursuant to Section 13 or 15(d)

Convertible Preferred Stock, Common Stock and Warrants

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Convertible Preferred Stock, Common Stock and Warrants
9 Months Ended
Sep. 30, 2018
Notes to Financial Statements  
Convertible Preferred Stock, Common Stock and Warrants

Dividends on Preferred Stock

 

We immediately recognize the changes in the redemption value on preferred stock as they occur and the carrying value of the security is adjusted to equal what the redemption amount would be as if redemption were to occur at the end of the reporting date based on the conditions that exist as of that date.

 

No dividends have ever been declared by the Board of Directors of the Company (the “Board of Directors”) since our inception on any series of convertible preferred stock.

 

Overview of Preferred Stock & Beneficial Ownership Blockers

 

All issued and outstanding shares of the Company’s preferred stock have a par value of $0.01 per share and rank prior to any class or series of the Company’s common stock as to the distribution of assets upon liquidation, dissolution or winding up of the Company or as to the payment of dividends. The Company must obtain the consent of a majority of the holders of each series of preferred stock before taking any action that materially and adversely affects the rights, preferences, or privileges of the applicable series of preferred stock. Also, the holders of each series of preferred stock are entitled to vote on any matter on which the holders of common stock are entitled to vote. Additionally, the Company must obtain the consent of the holders of the Series E Preferred Stock, Series J Preferred Stock, Series L Preferred Stock, and Series N Preferred Stock (as each of those terms are defined below) prior to increasing or decreasing (other than by conversion) the authorized number of the applicable series of preferred stock or issuing any additional shares of the applicable series of preferred stock.

 

Generally, the same investors participated in each of the Company’s preferred stock offerings such that the same investors own most of the shares of each series of the Company’s issued and outstanding preferred stock. Pursuant to terms negotiated in connection with the Company’s sales of preferred stock, the certificates of designation for the Company’s preferred stock each include a 4.99% and/or 9.99% beneficial ownership conversion blocker. These conversion blockers may be decreased or increased, at the option of each holder, to a percentage not to exceed 9.99% upon written notice to the Company, as further specified in the applicable certificate of designation. The certificate of designation for our Series N Preferred Stock includes a 19.99% blocker provision applicable until stockholders approve issuances of common stock in excess of such amount. The stated values, as applicable, and conversion prices of our preferred stock are subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions. The Company’s ability to administer the blockers according to their terms depends on group determinations and accurate reporting by outside investors with respect to their own beneficial ownership.

 

Series D Preferred Stock

 

As of September 30, 2018 and December 31, 2017, there were 44,104 shares of Series D Convertible Preferred Stock (“Series D Preferred Stock”) issued and outstanding, and convertible into an aggregate of 198,667 shares of common stock. As of September 30, 2018, each one share of Series D Preferred Stock is convertible into 4.5045 shares of Common Stock.

 

Series E Preferred Stock

 

As of September 30, 2018 and December 31, 2017, there were 33,333 shares of Series E Convertible Preferred Stock (“Series E Preferred Stock”) issued and outstanding, and convertible into 173,249 shares of common stock.

 

The shares of Series E Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to the stated value of such preferred share ($75 per share), plus all accrued and unpaid dividends, if any, on such share of Series E Preferred Stock, as of such date of determination, divided by the conversion price $14.43 per share.

 

Series I Preferred Stock

 

As of September 30, 2018 and December 31, 2017, there were 645,640 and 798,460 shares of our Series I Preferred Stock issued and outstanding, and convertible into 215,214 and 266,154 shares of our common stock, respectively. During the nine months ended September 30, 2018, 152,820 shares of Series I Preferred Stock were converted by Grander Holdings, Inc. 401K into 50,940 shares of common stock.

 

The Series I Preferred Stock has a stated value of $0.01 per share. Each one share of Series I Preferred Stock is convertible into one-third share of common stock.

 

Series J Preferred Stock

 

As of September 30, 2018 and December 31, 2017, there were 772.73 shares of our Series J Convertible Preferred Stock (“Series J Preferred Stock”) issued and outstanding and convertible into 386,365 shares of our common stock.

 

The shares of Series J Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to the stated value of the Series J Preferred Stock ($550), plus all accrued and unpaid dividends, if any, on such Series J Preferred Stock, as of such date of determination, divided by the conversion price ($1.10). If we issue or sell common stock, or common equivalent shares, for consideration per share that is less than the conversion price in effect immediately prior to the issuance, then the conversion price in effect immediately prior to such issuance will be adjusted to the lower issuance price, but not be less than $0.10.

 

Series K Preferred Stock

 

As of September 30, 2018 and December 31, 2017, there were 63,150 shares of our Series K convertible preferred stock (“Series K Preferred Stock”) issued and outstanding, and convertible into 2,105,000 of our common stock.

 

The shares of Series K Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to the stated value of the Series K Preferred Stock ($0.01) divided by the conversion price ($0.0003).

 

Series L Preferred Stock

 

As of September 30, 2018, and December 31, 2017, there were 45,500 and 58,000 shares of our Series L Preferred Stock issued and outstanding, and convertible into 2,527,778 and 3,222,223 shares of our common stock, respectively. During the nine months ended September 30, 2018, 12,500 shares of Series L Preferred Stock were converted into 694,445 shares of common stock by GRQ Consultants, Inc. Roth 401K FBO Renee Honig Trustee, and HS Contrarian Investments, LLC.

 

The shares of Series L Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to the stated value of the Series L Preferred Stock ($100), plus all accrued and unpaid dividends, if any, on such Series L Preferred Stock, as of such date of determination, divided by the conversion price ($1.80).

 

Series M Preferred Stock

 

As of September 30, 2018 and December 31, 2017, there were 5,000 and no shares of our Series M Preferred Stock issued and outstanding, and convertible into 666,667 and no shares of our common stock, respectively.

 

The shares of Series M Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to the stated value of the Series M Preferred Stock ($300), plus all accrued and unpaid dividends, if any, on such Series M Preferred Stock, as of such date of determination, divided by the conversion price ($2.25).

 

Series N Preferred Stock

 

As of September 30, 2018, and December 31, 2017, there were 5,363.64 and no shares of our Series N Preferred Stock issued and outstanding, and convertible into 536,364 and no shares of our common stock, respectively.

 

The shares of Series N Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to the stated value of the Series N Preferred Stock ($110), plus all accrued and unpaid dividends, if any, on such Series N Preferred Stock, as of such date of determination, divided by the conversion price ($1.10). If we issue or sell common stock, or common equivalent shares, for consideration per share that is less than the conversion price in effect immediately prior to the issuance, then the conversion price in effect immediately prior to such issuance will be adjusted to the lower issuance price, but not be less than $0.10.

 

Series O Preferred Stock

 

As of September 30, 2018, and December 31, 2017, there were 10,605.56 and no shares of our Series O Preferred Stock issued and outstanding, and convertible into 1,060,556 and no shares of our common stock, respectively.

 

The shares of Series O Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to the stated value of the Series O Preferred Stock ($0.01), plus all accrued and unpaid dividends, if any, on such Series O Preferred Stock, as of such date of determination, divided by the conversion price ($0.0001). We are not permitted to issue any shares of common stock upon conversion of the Series O Preferred Stock until our stockholders approve, in accordance with the rules of the Nasdaq Stock Market LLC, the conversion of Series N Preferred Stock authorized on April 26, 2018, or the conversion of Series O Preferred Stock.

 

Warrants Issued in Connection with February 2018 Private Placements

 

 The warrants issued in the February 2018 Private Placements (the “February 2018 Warrants”) are exercisable, at any time on or after the sixth month anniversary of the closing date, at a price of $2.70 per share, subject to adjustment, and expire three years from the initial exercise date. The holders of the February 2018 Warrants may, subject to certain limitations, exercise the February 2018 Warrants on a cashless basis if the shares of common stock issuable upon exercise of the February 2018 Warrants are not registered for resale under the Securities Act within four (4) months of issuance, or between June 2 and June 10, 2018. The Company is prohibited from effecting an exercise of any February 2018 Warrants to the extent that, as a result of any such exercise, the holder would beneficially own more than 9.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon exercise of such February 2018 Warrants. The February 2018 Warrants are not listed or quoted on any securities exchange or other trading market.

 

Warrants Issued in Connection with October 2015 Public Offering

 

As of September 30, 2018, and December 31, 2017, warrants to purchase 56,306 shares of common stock previously issued in connection with our public offering closing on October 5, 2015 (the “October 2015 Warrants”) were outstanding. The October 2015 Warrants, which had an exercise price of $29.31 per share, expired on September 30, 2018.

 

Consultant Grants 

 

On February 10, 2017, the Company entered into a consulting agreement with MDM Worldwide, pursuant to which MDM Worldwide agreed to provide investor relations services to the Company in consideration for an immediate grant of 6,667 shares of the Company’s common stock and a monthly cash retainer of $10,000 a month for ongoing services for a period of one year. The shares granted were fully vested upon grant and the Company recognized the grant date fair value of the shares of $56,600 as investor relations expense upon grant during the first quarter of 2017. The services with MDM Worldwide, which the Company was required to purchase by some investors in connection with prior financings of the Company, were terminated effective June 1, 2018.

 

On March 7, 2017, the Company entered into a consulting agreement with Jenene Thomas Communications, pursuant to which Jenene Thomas Communications agreed to provide investor relations services to the Company. In consideration for these services, which began on April 1, 2017, we paid a monthly cash retainer of $12,500. Additionally, we issued 6,667 restricted shares of common stock on April 1, 2017, to be vested at 1,667 per quarter over the four quarters of services under the agreement beginning April 1, 2017. The shares granted were vested over a one-year period over which the services were performed and, as such, were amortized over the same period beginning in April 1, 2017. The services with Jenene Thomas Communications terminated effective June 1, 2018.