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STOCKHOLDERS' DEFICIT AND STOCK OPTIONS

9 Months Ended

Sep. 30, 2019

NOTE 8 - STOCKHOLDERS’ DEFICIT

Preferred Stock

Series A Preferred Shares

Effective March 23, 2018, the Company amended the articles of incorporation and authorized 10,000,000 shares of preferred stock with a par value of $0.001 per share; of which 1,000,000 shares were designated as Series A Convertible Preferred Stock as of September 30, 2019. The preferred stock may be issued from time to time by the board of directors as shares of one or more classes or series.

On December 1, 2018, the Company’s Board of Director authorized an offering for 1,000,000 Preferred Series “A” stock at $0.10 per share and with 100%, regular or cashless exercise at $0.10 per share of common stock warrant coverage. At December 31, 2018, the Company received $60,000 of subscriptions for the issuance of 600,000 shares of Preferred Series “A” stock to three accredited investors who are related parties. The Company was unable to issue the subscriber the preferred shares until the Company filed a Certificate of Designation and the Preferred Series “A” stock has been duly validly authorized. See Note 7 for liabilities related to the Company’s commitment to issue shares of Series A stock upon the designation.

On April 12, 2019, the Company filed a Certificate of Designation with the Nevada Secretary of State designating 1,000,000 shares of its authorized preferred stock as Series A Convertible Preferred Stock. The principal terms of the Series A Preferred Shares are as follows:

Issue Price

The stated price for the Series A Preferred shall be $0.10 per share.

Redemption

This Company may at any time following the first anniversary date of issuance (the “Redemption Date”), at the option of the Board of Directors, redeem in whole or in part the Shares by paying in cash in exchange for the Shares to be redeemed a price equal to the Original Series A Issue Price ($0.10) (the “Redemption Price”). Any redemption affected pursuant to this provision shall be made on a pro rata basis among the holders of the Shares in proportion to the number of Shares then held by them.

Dividends

None.

Preference of Liquidation

In the event of any liquidation, dissolution or winding up of the Company, the holders of Shares shall be entitled to receive, prior and in preference to any distribution of any of the assets of this Company to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the sum of (i) $0.10 for each outstanding Share (the “Original Series A Issue Price”) and (ii) an amount equal to 6% of the Original Series A Issue Price for each 12 months that has passed since the date of issuance of any Shares (such amount being referred to herein as the “Premium”).

For purposes of this provision, a liquidation, dissolution or winding up of this Company shall be deemed to be occasioned by, or to include, (A) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation but, excluding any merger effected exclusively for the purpose of changing the domicile of the Company); or (B) a sale of all or substantially all of the assets of the Company; unless the Company’s stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Company’s acquisition or sale or otherwise) hold at least 50% of the voting power of the surviving or acquiring entity.

If upon the occurrence of such liquidation, dissolution or winding up event, the assets and funds thus distributed among the holders of the Shares shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of series of preferred stock that may from time to time come into existence, the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Shares in proportion to the preferential amount each such holder is otherwise entitled to receive.

In any of such liquidation, dissolution or winding up event, if the consideration received by the Company is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows:

Securities not subject to investment letter or other similar restrictions on free marketability (covered by (B) below):

If traded on a securities exchange (NASDAQ, AMEX, NYSE, etc.), the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty day period ending three (3) days prior to the closing;

If traded on a quotation system, such as the OTC:QX, OTC:QB or OTC Pink Sheets, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty day period ending three (3) days prior to the closing; and

If there is no active public market, the value shall be the fair market value thereof, as mutually determined by the Company and the holders of at least a majority of the voting power of all then outstanding shares of Preferred Stock.

The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder’s status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as mutually determined by the Company and the holders of at least a majority of the voting power of all then outstanding shares of such Preferred Stock.

Voting

The holder of each Share shall not have any voting rights, except in the case of voting on a change in the preferences of Shares.

Conversion

Each Share shall be convertible into shares of the Company’s Common Stock at a price per share of $0.10 (1 Share converts into 1 share of Common Stock), at the option of the holder thereof, at any time following the date of issuance of such Share and on or prior to the fifth day prior to the Redemption Date, if any, as may have been fixed in any Redemption Notice with respect to the Shares, at the office of this Company or any transfer agent for such stock. Each Share shall automatically be converted into shares of Common Stock on the first day of the thirty-sixth (36th) month following the original issue date of the Shares, at the Conversion Price per share.

The Company was unable to issue the subscribers the preferred shares until the Company filed a Certificate of Designation and the Preferred Series “A” stock had been duly validly authorized. As the Company had not filed the Certificate of Designation, and as the Company could not issue the preferred shares to settle the proceeds received, it was determined the subscriptions were settleable in cash. As a result, the Company classified the subscriptions received as a liability in accordance with ASC 480 Distinguishing Liabilities from Equity. The filing of the Certificate of Designation and issuance of the preferred shares resulted in the reclassification of the Series A Preferred Shares from a liability to temporary equity or “mezzanine” because the preferred shares include the liquidation preferences described above. The fair value of the preferred series A stock on April 12, 2019 was $60,398 and was valued by using the Binomial Model based on various assumptions.

As of September 30, 2019, there were 500,000 shares of Series A Convertible Preferred Stock issued or outstanding.

Series B Preferred Shares

Effective August 13, 2019, the Company filed a Certificate of Designation with the Nevada Secretary of State thereby designating 1,000,000 shares of its authorized preferred stock as Series B –Preferred Stock. The principal terms of the Series B Preferred Shares are as follows:

Voting Rights

Holders of the Series B Preferred Stock shall be entitled to cast five hundred (500) votes for each share held of the Series B Preferred Stock on all matters presented to the stockholders of the Corporation for stockholder vote which shall vote along with holders of the Corporation’s Common Stock on such matters.

Redemption Rights

The Series B Preferred Stock shall be redeemed by the Corporation upon the successful receipt by the Corporation of at least $1,000,000 in equity capital following the issuance of the Series B Preferred Stock.

Conversion Rights

The Series B Preferred Stock is not convertible into shares of Common Stock of the Corporation.

Protective Provisions

So long as any shares of Series B Preferred Stock are outstanding, this Corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the Holders of the Series B Preferred Stock which is entitled, other than solely by law, to vote with respect to the matter, and which Preferred Stock represents at least a majority of the voting power of the then outstanding shares of such Series B Preferred Stock:

a) sell, convey, or otherwise dispose of or encumber all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly-owned subsidiary corporation) or effect any transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Corporation is disposed of;

b) alter or change the rights, preferences or privileges of the shares of Series B Preferred Stock so as to affect adversely the shares;

c) increase or decrease (other than by redemption or conversion) the total number of authorized shares of preferred stock;

d) authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security (i) having a preference over, or being on a parity with, the Series B Preferred Stock with respect to dividends or upon liquidation, or (ii) having rights similar to any of the rights of the Series B Preferred Stock; or

e) amend the Corporation’s Articles of Incorporation or bylaws

Dividends

None.

Preference of Liquidation

None.

Upon designation, the Company issued 500,000 shares of the Series B preferred stock to each of its CEO and President (1,000,000 shares in total) pursuant to their employment agreements. As the Series B Preferred Shares represent share-based payments that are not classified as liabilities but that could require the employer to redeem the equity instruments for cash or other assets the Company classified the initial redemption amount of the shares of $155,000 as temporary equity or “mezzanine”.

As of September 30, 2019, there were 1,000,000 shares of Series B Preferred Stock issued or outstanding.

Series C Preferred Shares

Pursuant to the September 18, 2019 majority consent of stockholders in lieu of an annual meeting (including the consent of the Series A Convertible Preferred Stockholders), the Registrant filed a Certificate of Designation with the Nevada Secretary of State designating 5,500,000 shares of its authorized preferred stock as Series C Convertible Preferred Stock. The Registrant is awaiting the file stamped Certificate of Designation from the Nevada Secretary of State. The rights and preferences of such preferred stock are as follows:

The number of shares constituting the Series C Convertible Preferred Stock shall be 5,500,000. Such number of shares may be increased or decreased by resolution of the Board; provided, that no decrease shall reduce the number of shares of Series C Convertible Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Series C Convertible Preferred Stock.

Conversion Rights

Each Share shall be convertible into shares of the Company’s Common Stock at a price per share of $0.01 (1 Share converts into 100 shares of Common Stock) (the “Conversion Price”), at the option of the holder thereof, at any time following the date of issuance of such Share and on or prior to the fifth (5th) day prior to a redemption Date, if any, as may have been fixed in any redemption notice with respect to the Shares, at the office of this Company or any transfer agent for such stock.

Voting Rights

The holder of each Share shall not have any voting rights, except in the case of voting on a change in the preferences of Shares.

Protective Provisions

So long as any Shares are outstanding, this Company shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of Shares which is entitled, other than solely by law, to vote with respect to the matter, and which Shares represents at least a majority of the voting power of the then outstanding Shares:

sell, convey, or otherwise dispose of or encumber all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly-owned subsidiary corporation) or effect any transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of;

alter or change the rights, preferences or privileges of the Shares so as to affect adversely the Shares;

increase or decrease (other than by redemption or conversion) the total number of authorized shares of preferred stock;

authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security (i) having a preference over, or being on a parity with, the Shares with respect to upon liquidation, or (ii) having rights similar to any of the rights of the Preferred Stock; or

amend the Company’s Articles of Incorporation or bylaws.

Other Rights

There are no other rights, privileges, or preferences attendant or relating to in any way the Shares, including by way of illustration but not limitation, those concerning dividend, ranking, other conversion, other redemption, participation, or anti-dilution rights or preferences.

At September 30, 2019, there were no Series C Preferred Shares outstanding.

Common Stock

Effective March 23, 2018, the Company amended the articles of incorporation and increased the authorized shares of common stock with a par value of $0.001 per share from 100,000,000 to 300,000,000 shares. Effective October 4, 2019, the Company amended the articles of incorporation and increased the authorized shares of common stock with a par value of $0.001 per share from 300,000,000 to 1,000,000,000 shares. The number of shares outstanding of the registrant’s common stock as of September 30, 2019 was 262,360,042.

On January 1, 2019, the Company entered into a four-year employment agreement with F. Jody Read in his role as Chief Executive Officer. The terms of the contract call for an annual salary of $90,000 for the first year, effective March 1, 2019 and increasing to $120,000 once the Company’s revenue exceeds monthly expenses, then incrementally over time and with certain operational results, up to $200,000/year. The salary may be paid, at the employee’s discretion, either in cash or in common stock. A $1,000 per month allowance will be granted to the executive for housing near the Company’s South Carolina facility. The employment agreement awards the CEO 1,500,000 restricted shares of the Company’s restricted stock, which shall vest in the following manner: 375,000 shares on March 1, 2019, 375,000 shares on March 1, 2020; 375,000 shares on March 1, 2021 and the final 375,000 shares on March 1, 2022. On January 1, 2019 the fair value of the restricted stock award totaled $240,000 which will be expensed over vesting period. As of September 30, 2019, 375,000 shares were issued and the Company had recognized $102,391 of expense.

On January 28, 2019, the Company agreed to convert $131,327 of principal and interest of the notes payable described in Note 6(a) into 987,421 shares of the Company’s common stock.

On March 25, 2019, the Company issued 200,000 shares of common stock to two employees of the Company as compensation in lieu of commission on sales of the Company’s products. The Company recorded the fair value of the common shares of $34,000 in consulting expense.

On March 29, 2019, the Company executed a settlement agreement with a contractual consultant, UCAP Partners, LLC for the settlement of $25,000 owed to the contractor for the provision of services as related to the March 15, 2018 agreement between UCAP and us. The settlement terms include acknowledgement that the Company owes UCAP $25,000 as payment for said services; that UCAP purchased and fully paid for Series A Preferred Stock and Warrants from the Company on December 3, 2018 (100,000 Preferred Series A Shares and 100,000 warrants to purchase common shares at $0.10/share); the settlement is outlined as follows: the Company shall issue 164,000 shares of its common stock as payment in full for the services rendered on the consulting contract; the Company shall accept UCAP’s conversion and exercise of the purchased 100,000 Preferred Series A shares into 100,000 shares of the Company’s common stock and the Company shall accept the cashless conversion of UCAP’s 100,000 warrant into 34,400 shares of the Company’s restricted common stock; and, as inducement for and consideration for the settlement of the Company’s debt to UCAP, the Company agrees to grant 500,000 additional shares of the Company’s restricted stock. As a result of this transaction, 3,597,989 shares of Company’s common stock were issued and a $55,830 loss on settlement of debt was recognized.

During the nine months ended September 30, 2019, the Company issued a total of 76,154,631 shares of the Company’s common stock upon the conversion of $44,723 of principal ($42,223) and interest ($2,500) pursuant to the convertible note payable described in Note 6(i).

During the nine months ended September 30, 2019, the Company issued a total of 66,290,000 shares of the Company’s common stock upon the conversion of $64,558 of principal ($58,058) and interest ($6,500) pursuant to the convertible note payable described in Note 6(j).

During the nine months ended September 30, 2019, the Company issued a total of 18,559,816 shares of the Company’s common stock upon the conversion of $74,200 of the convertible note payable pursuant to the convertible note payable described in Note 6(k).

During the nine months ended September 30, 2019, the Company issued a total of 5,207,600 shares of the Company’s common stock upon the conversion of $4,508 of the convertible note payable and $179 of accrued interest pursuant to the convertible note payable described in Note 6(m).

During the nine months ended September 30, 2019, the Company issued a total of 7,500,000 shares of the Company’s common stock upon the conversion of $8,640 of principal pursuant to the convertible note payable described in Note 6(n).

During the nine months ended September 30, 2019, the Company issued a total of 4,999,000 shares of the Company’s common stock upon the conversion of $2,196 of principal and $953 of interest pursuant to the convertible note payable described in Note 6(o).

During the nine months ended September 30, 2019, the Company issued a total of 5,555,555 shares of the Company’s common stock upon the conversion of $5,000 of principal pursuant to the convertible note payable described in Note 6(p).

During the nine months ended September 30, 2019, the Company issued a total of 3,054,511 shares of the Company’s common stock upon the conversion of $13,000 of principal pursuant to the convertible note payable described in Note 6(q).

During the nine months ended September 30, 2019, the Company issued a total of 11,490,000 shares of the Company’s common stock upon the conversion of $27,804 of the convertible note payable and $5,287 of accrued interest pursuant to the convertible note payable described in Note 6(s).

On August 16, 2019, the Company issued 5,989,500 shares of common stock upon the cashless exercise of 6,000,000 warrants.

On September 24, 2019, the Company issued 6,041,381 shares of common stock upon the cashless exercise of 6,057,143 warrants.

On August 1, 2019, the Company entered into a consulting agreement for investor relations services through September 30, 2019. The agreement called for 1,000,000 restricted shares of common stock to be issued to the consultant. As of September 30, 2019, the Company recorded $15,000 in additional paid-in capital for the consulting expense related to the consulting services provided, due to the fact that the 1,000,000 common shares were issued subsequently on March 11, 2020.

NOTE 9 – STOCK OPTIONS

The Company did not grant any stock options during the year ended December 31, 2018 or the nine months ended September 30, 2019.

Below is a table summarizing the options issued and outstanding as of September 30, 2019:

	Number of warrants			Weighted average exercise price $
Balance, December 31, 2018		2,287,500			0.34
Granted		—			—
Expired		(1,905,000	)		0.16
Settled		—			—
Balance, September 30, 2019		382,500			1.24

As at September 30, 2019, the following share stock options were outstanding:

Date		Number		Number		Exercise		Weighted Average Remaining Contractual		Expiration		Proceeds to Company if
Issued		Outstanding		Exercisable		Price $		Life (Years)		Date		Exercised
	01/01/2016		75,000		75,000		0.33		0.25		12/31/2019		25,000
	01/01/2016		90,000		90,000		0.33		0.25		12/31/2019		30,000
	09/15/2016		10,000		10,000		1.00		0.25		12/31/2019		10,000
	10/01/2016		7,500		7,500		1.00		0.25		12/31/2019		7,500
	01/26/2017		200,000		200,000		2.00		2.33		01/26/2022		400,000
			382,500		382,500							$	472,500

The weighted average exercise prices are $1.24 for the options outstanding and exercisable, respectively. The intrinsic value of stock options outstanding at September 30, 2019 was $Nil.