Note 10. Subsequent Events

On October 19, 2018, the company issued Red Diamond Partners 794,483 shares of common stock in consideration of (i) a “most favored nation” clause contained in a common stock subscription agreement and (ii) the termination of said agreement. The fair value of the stock issuance was $240,600, based upon the fair value of our common stock.

 

On November 6, 2018, the Company issued a $50,000 convertible note and warrants to purchase 41,667 shares to SCWorx for a purchase price of $50,000. The Note and warrants have an initial conversion/exercise price of $.30, subject to adjustment for the issuance of certain lower priced securities. In October, the Company received $30,000, the remaining payment related to the $750,000 convertible note.

 

As previously reported, the Company has not been in compliance with Nasdaq’s minimum bid price requirement of $1.00 per share, as set forth in Nasdaq Listing Rule 5550(a)(2), for continued listing on Nasdaq. On August 29, 2018, the Nasdaq officially notified the Company that it (i) did not meet the Nasdaq’s stockholder equity requirement of $2.5 million for continued listing, as set forth in Nasdaq Listing Rule 5550(b)(1), (ii) continues to not meet the Nasdaq’s minimum bid price requirement of $1.00 per share, for continued listing, as set forth in Nasdaq Listing Rule 5550(a)(2), and (iii) did not meet the Nasdaq periodic reporting requirement set forth in Nasdaq Listing Rule 5250(c)(1) because the Company had not as of August 29, 2018, filed this Quarterly Report on Form 10Q for the quarter ended June 30, 2018. The Company has since filed its Quarterly Report on Form 10Q for the quarter ended June 30, 2018, curing the periodic reporting deficiency.

 

Also, as previously reported, on August 30, 2018, the Company requested a hearing to appeal the Nasdaq’s delisting determination On October 25, 2018, as part of the appeal process, the Company presented to the Nasdaq the Company’s plan for meeting the Nasdaq’s original listing qualifications, in connection with the closing of the business combination of SCWorx. In order for the Company’s common stock to qualify for listing on the Nasdaq Stock Market following completion of the acquisition, the Company will be required to meet the Nasdaq’s listing standards for original listing (including among others its minimum bid price of $4 per share and minimum $5 million of stockholders’ equity).

 

On November 9, 2018, The Nasdaq Stock Market LLC (“Nasdaq”) notified the Company that the Nasdaq Hearings Panel (the “Panel”) granted the Company’s request for continued listing on The Nasdaq Capital Market, subject to the Company’s satisfaction of certain conditions, including interim funding milestones.

 

In accordance with the Nasdaq’s decision, subject to compliance with the interim funding milestones, which the Company has not met, the Company has until February 25, 2019 to complete its acquisition of SCWorx and demonstrate that the combined company satisfies the requirements for initial listing on The Nasdaq Capital Market.

 

Under the Panel’s decision, the Company was to have completed the interim funding milestone by November 15, 2018. Although the Company has made substantial progress towards meeting such milestone, the Company has not yet completed the required funding. Accordingly, the Company has requested that the Panel (i) reduce the amount of the required funding milestone and (ii) extend the time for completion of funding to November 30, 2018.

 

There is no assurance that the Nasdaq will agree to these Company requests. The Company believes that even at the reduced funding level, the combined company will still exceed the applicable Nasdaq stockholder equity requirement. If the Nasdaq does not agree to the Company’s requests, the Company will be delisted from the Nasdaq.

 

Even if the Panel grants the Company’s requests, there is no assurance that the Company will be able to satisfy the Panel’s revised conditions. If the Company is unable to fully comply with the terms of the Panel’s decision, including any revisions thereto, the company’s common stock could be delisted from The Nasdaq Capital Market which would have a material adverse effect on the company’s business and on the trading of its common stock. In addition, if the Company’s common stock is delisted from the Nasdaq Stock Market, there would be a failure of a closing condition to the SCWorx business combination, which, if not waived by SCWorx, would result in the termination of such transaction, which would have a material adverse effect on the Company.

 

On October 24, 2018, the Company issued 500,000 shares of common stock as collateral to secure the Company’s payment to a vendor by the due date of November 23, 2018, as extended. The stock based compensation expense associated with the award was approximately $136,500.

 

Effective October 24, 2018, the Company’s board of directors appointed Charles K. Miller a member of the Board and to serve on the Compensation and Audit Committees of the Board of Directors. The Board of Directors appointed Mr. Miller because of his strong corporate governance, business finance and technology expertise. The Board of Directors believes that Mr. Miller’s skills will be essential in connection with the anticipated completion of the Company’s acquisition of SCWorx. As compensation for serving in the foregoing capacities through December 31, 2018, the Board of Directors awarded Mr. Miller 62,500 shares of common stock which are fully vested. As of the date of this filing, the Company has not issued the shares. The stock based compensation expense associated with the award was approximately $17,500.