Annual report pursuant to Section 13 and 15(d)

SERIES C 9% CONVERTIBLE PREFERRED STOCK

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SERIES C 9% CONVERTIBLE PREFERRED STOCK
12 Months Ended
Dec. 31, 2019
Disclosure Text Block Supplement [Abstract]  
Preferred Stock [Text Block]

NOTE 7 – SERIES C 9% CONVERTIBLE PREFERRED STOCK


Series C 9% Convertible Preferred Stock


On January 9, 2013, the Board of Directors authorized the issuance of up to 4,200 shares of 9% Series C Convertible Preferred Stock (the “Series C Preferred Stock”).


The Series C Preferred Stock is entitled to preference over holders of junior stock upon liquidation in the amount of $1,000 plus any accrued and unpaid dividends; entitled to dividends as a preference to holders of junior stock at a rate of 9% per annum of the stated value of $1,000 per share, payable quarterly beginning on September 30, 2013 and are cumulative.  The holders of the Series C Preferred Stock vote together with the holders of our common stock on an as-converted basis but may not vote the Series C Preferred Stock in excess of the beneficial ownership limitation of the Series C Preferred Stock.  The beneficial ownership limitation is 4.99% of our then outstanding shares of common stock following such conversion or exercise, which may be increased to up to 9.99% of our then outstanding shares of common stock following such conversion or exercise upon the request of an individual holder.  The beneficial ownership limitation is determined on an individual holder basis, such that the as-converted number of shares of one holder is not included in the shares outstanding when calculating the limitation for a different holder.


In connection with the sale of the Series C preferred stock, the Company issued an aggregate of 532,251 warrants to purchase the Company’s common stock at $6.53 per share expiring five years from the initial exercise date.  The warrants contained full ratchet anti-dilution price protection upon the issuance of equity or equity-linked securities at an effective common stock purchase price of less than $6.53 per share as well as other customary anti-dilution protection. The warrants were exercisable for cash; or if at any time after six months from the issuance date, there was no effective registration statement registering the resale, or no current prospectus available for the resale, of the shares of common stock underlying the warrants, the warrants could be exercised by means of a “cashless exercise”. 


As a result of an amendment to the conversion price of our Series C Preferred Stock, pursuant to the full-ratchet anti-dilution protection provision of the warrants, the exercise price of the warrants was decreased from $6.53 per share to $3.75 per share and the aggregate number of shares issuable under the warrants was increased to 926,121. As of December 31, 2019, all issued warrants in connection with the Series C preferred stock have expired or have been exercised.


Issuances:


During the month of February 2013, the holders of previously issued convertible bridge notes converted into 600 shares of the Company’s Series C Preferred Stock.


During the months of February, March, May, and July 2013, the Company sold an aggregate of 2,181 shares of the Company’s Series C Preferred Stock for net proceeds of $1,814,910.


On May 11, 2015, the Company sold an aggregate of 450 shares of its Series C Preferred Stock for net proceeds of $450,000.  


2019 and 2018 conversions: 


In February 2018, the Company issued 3,968 shares of its common stock in exchange for 10 shares of the Company’s Series C Preferred Stock and accrued dividends.


In March 2018, the Company issued 4,004 shares of its common stock in exchange for 10 shares of the Company’s Series C Preferred Stock and accrued dividends.


In April 2018, the Company issued 140,408 shares of its common stock in exchange for 370 shares of the Company’s Series C Preferred Stock and accrued dividends.


In May 2018, the Company issued 7,587 shares of its common stock in exchange for 20 shares of the Company’s Series C Preferred Stock and accrued dividends.


In July 2018, the Company issued 36,035 shares of its common stock in exchange for 100 shares of the Company’s Series C Preferred Stock and accrued dividends.


In April 2019, the Company issued 3,507 shares of its common stock in exchange for 10 shares of the Company’s Series C Preferred Stock and accrued dividends.


In May 2019, the Company issued 17,138 shares of its common stock in exchange for 50 shares of the Company’s Series C Preferred Stock and accrued dividends.


In June 2019, the Company issued 70,069 shares of its common stock in exchange for 200 shares of the Company’s Series C Preferred Stock and accrued dividends.


In summary, the Company issued an aggregate of 90,714 shares of its common stock in exchange for 260 shares of the Company’s Series C Preferred stock (stated value of $260,000) and $139,592 accrued dividends for the year ended December 31, 2019 and an aggregate of 192,002 shares of its common stock in exchange for 510 shares of the Company’s Series C Preferred stock (stated value of $510,000) and $234,459 accrued dividends for the year ended December 31, 2018.


Series C Preferred Stock issued and outstanding totaled 215 and 475 as of December 31, 2019 and 2018, respectively.  As of December 31, 2019, and 2018, the Company has accrued $128,478 and $242,908 dividends payable on the Series C Preferred Stock.


Registration Rights Agreement


In connection with the Company’s private placement of Series C Preferred Stock and warrants, the Company entered into a registration rights agreement with the purchasers pursuant to which the Company agreed to provide certain registration rights with respect to the common stock issuable upon conversion of Series C Preferred Stock and exercise of the warrants issued to holders of Series C Preferred Stock. Specifically, the Company agreed to file a registration statement with the Securities and Exchange Commission covering the resale of the common stock issuable upon conversion of the Series C Preferred Stock and exercise of the warrants on or before July 22, 2013 and to cause such registration statement to be declared effective by the Securities and Exchange Commission, in the event that the registration statement is not reviewed by the Securities and Exchange Commission, within five trading days after the Company is notified that registration statement is not being reviewed by the Securities and Exchange Commission, and by November 22, 2013 in the event that the registration statement is reviewed by the Securities and Exchange Commission and the Securities and Exchange Commission issues comments.


If (i) the registration statement is not filed by July 22, 2013, (ii) the registration statement is not declared effective by the Securities and Exchange Commission within five trading days after the Company is notified that the registration statement is not being reviewed by the Securities and Exchange Commission, in the case of a no review, (iii) the registration statement is not declared effective by the Securities and Exchange Commission by November 22, 2013 in the case of a review by the Securities and Exchange Commission pursuant to which the Securities and Exchange Commission issues comments or (iv) the registration statement ceases to remain continuously effective for more than 20 consecutive calendar days or more than an aggregate of 45 calendar days during any 12-month period after its first effective date, then the Company is subject to liquidated damage payments to the holders of the shares sold in the private placement in an amount equal to 0.25% of the aggregate purchase price paid by such purchasers per month of delinquency.


Notwithstanding the foregoing, (i) the maximum aggregate liquidated damages due under the registration rights agreement shall be 3% of the aggregate purchase price paid by the purchasers, and (ii) if any partial amount of liquidated damages remains unpaid for more than seven days, the Company shall pay interest of 18% per annum, accruing daily, on such unpaid amount.


Pursuant to the registration rights agreement, the Company must maintain the effectiveness of the registration statement from the effective date until the date on which all securities registered under the registration statement have been sold, or are otherwise able to be sold pursuant to Rule 144 without volume or manner-of-sale restrictions, subject to the right to suspend or defer the use of the registration statement in certain events.


The Company filed a registration statement on July 22, 2013, which was originally declared effective on June 23, 2014.  At December 31, 2019 and 2018, the Company estimated the liability at $-0-.