NOTE 10 – COMMON STOCK, PREFERRED STOCK AND WARRANTS

Common Stock

On July 22, 2015, the previous Board of Directors authorized that the Company effectuate a reverse split of its issued and outstanding Common Stock in the ratio of one (1) post-split share of Common Stock for every seven (7) shares of pre-split Common Stock, while retaining the current par value of $0.0001 per share, with appropriate adjustments being made in the additional paid-in capital and stated capital accounts of the Company, with all fractional shares that would otherwise result from such reverse split being rounded up to the nearest whole share. The reverse stock split has been retroactively adjusted throughout the financial statements.

To the extent that the common stock share issuances described below were issued before November 12, 2015, they take into account the Merger of Q2P with the Company and the Exchange Ratio received by the Q2P shareholders.

In January 2015, the Company closed a continuation round of its Series A funding, whereby it raised $362,360 with the issuance of 456,305 shares of common stock.

On March 20, 2015, our Board of Directors awarded 30,600 shares of restricted common stock totaling $24,300, as a bonus to the Company’s Chief Technology Officer.

On June 3, 2015, the Company closed a Rights Offering in which it received $1,065,763 for 18,117,971 shares of common stock. Such subscriptions were inclusive of $821,516 in cash, the cancellation of $93,158 and $103,251 of payables and accrued expenses incurred in 2014 for outside and employee services, respectively, and $47,838 of subscriptions receivable. Transaction costs associated with the Rights Offering totaled $10,000. As of December 31, 2015, the balance of subscriptions receivable was $3,787.  As of December 31, 2015, future wage deferrals related to the Rights Offering, classified as expenses prepaid with common stock with related parties, amounted to $16,154.

In June 2015, the Company’s CEO surrendered 125,800 shares of restricted common stock to satisfy a promissory note owed to Q2P in the amount of $99,900 created in connection with the 2014 exercise of his warrants, which were issued in 2010 related to his services previously rendered.  Additionally, the Company’s COO surrendered 6,296 shares of restricted common stock in satisfaction of a note receivable generated in 2014 in the amount of $5,000.  The total value surrendered in connection with these shares totaled $104,900 (see Note 10).

During the period ended December 31, 2015, the Company also issued 329,153 shares of restricted common stock valued at $261,386 for consulting services.  These share issuances, along with shares issued to consultants as of December 31, 2014, were being amortized (based on the term of service), and a total of $515,145 of expense associated with these common stock issuances was recorded for the period ended December 31, 2015.

In connection with the Merger, the Company assumed 1,835,312 shares owned by the listed shareholders of Anpath, resulting in an adjustment to common stock of $184, and additional paid in capital of ($719,023).  

In November and December 2015, the Company also issued 1,000,000 shares of unregistered common stock to an affiliated consultant in the Merger for services to be rendered in the amount of $260,000, and 225,000 shares of common stock to a former Director of the Company for the retirement of approximately $28,000 in debt.  

Subsequent to the Merger in November 2015 in connection with the sale of its former subsidiary ESI, the Company signed an agreement and received 470,560 shares of the Company’s common stock from the buying shareholders.

On September 25, 2014, the Company entered into a Stock Repurchase Agreement with Cyclone whereby the Company agreed to purchase 708,333 shares of its common stock at a purchase price of $0.24 per share, for total consideration of $500,000.  Of the purchase price, $350,000 was paid on September 30, 2014, at which time the Company retired 495,833 shares previously held by Cyclone.  The 212,500 shares associated with the second $150,000 portion of the purchase price were received by Q2P and were included in treasury stock. As of December 31, 2015, facts surrounding Cyclone’s performance under the Stock Repurchase Agreement and Q2P’s obligation to repurchase the 212,500 shares had arisen. As a result, as of December 31, 2015, the Company had reissued and was holding a stock certificate to Cyclone in the amount of 212,500 shares and classified the balance sheet line item as “Related Party Obligation – Cyclone.”  The balance of Related Party Obligation at December 31, 2015 and 2014 was $150,000 and $150,000, respectively. On April 8, 2016, the parties settled their dispute and terminated the Stock Purchase Agreement with no additional amounts paid by the Company, and Cyclone retaining their 212,500 shares.  A consultant received 100,000 shares of Company common stock in connection with the negotiation and signing of this settlement.

Convertible Redeemable Preferred Stock

On November 17, 2015, the Company issued $500,000 of Series A 6% Convertible Preferred Stock (the “Preferred Stock”).  The Preferred Stock is convertible at $0.26 per share of the Company’s common stock (the “Conversion Price”). The Preferred Stock bears a 6% dividend per annum, calculable and payable per quarter in cash or additional shares of common stock as determined in the Certificate of Designation. The Preferred Stock has no voting rights until converted to common stock, and has a liquidation preference equal to the Purchase Price.  On the second anniversary of the Original Issue Date (the “Two Year Redemption Date”), the Company is obligated to redeem all of the then outstanding Preferred Stock, for an amount in cash equal to the Two Year Redemption Amount (such redemption, the “Two Year Redemption”).  Each share of Preferred Stock receives warrants (the “Warrants”) equal to one-half of the Purchase Price to purchase common stock in the Company exercisable for five (5) years following closing at a price of $0.50 per share.  

The Preferred Stock has price protection provisions in the case that the Company issues any shares of stock not pursuant to an “Exempt Issuance” at a price below the Conversion Price. Exempt Issuances include: (i) shares of Common Stock or common stock equivalents issued pursuant to the Merger or any funding contemplated by the Merger; (ii) any common stock or convertible securities  outstanding as of the date of closing; (iii) common stock or common stock equivalents issued in connection with strategic acquisitions; (iv) shares of common stock or equivalents issued to employees, directors or consultants pursuant to a plan, subject to limitations in amount and price; and (v) other similar transactions. The Certificate of Designation contains restrictive covenants not to incur certain debt, repurchase shares of common stock, pay dividends or enter into certain transactions with affiliates without consent of holders of 67% of the Preferred Stock. The unconverted shares of Preferred Stock must be redeemed in two years from issuance.  

Management has determined that the Preferred Stock is more akin to a debt security than equity primarily because it contains a mandatory 2-year redemption at the option of the holder, which only occurs if the Preferred Stock is not converted to common stock. Therefore, management has presented the Preferred Stock outside of permanent equity as mezzanine equity, which does not factor in to the totals of either liabilities or equity.  The proceeds have been allocated between the three features of the stock offering: the embedded conversion feature in the Preferred Stock, the warrants, and the Preferred Stock itself.   The fair values of the embedded conversion feature and warrants were recorded as a discount against the stated value of the Preferred Stock on the date of issuance.  This discount is amortized to interest expense over the term of the redemption period (2 years) which will result in the accretion of the Preferred Stock to its full redemption value.  Unamortized discount as of December 31, 2015 was $184,764.  Interest expense for the year ended December 31, 2015 was $13,492.

The Preferred Stock also carries a 6% per annum dividend calculated on the stated value of the stock and is cumulative and payable quarterly beginning July 1, 2016.  These dividends are accrued at each reporting period.  They add to the redemption value of the stock; however, as the Company shows an accumulated deficit, the charge has been recognized in additional paid-in capital. 

Warrants

The following is a summary of all outstanding common stock warrants as of December 31, 2015: