Item 2. Unregistered Sales of Equity Securities
ITEM 2. Unregistered Sales of Equity Securities and Use of
Proceeds
During the nine-months ended November 30,
2019, we issued 1,383,015 shares of common stock for cash proceeds of $295,354.
ITEM 3. Defaults Upon Senior Securities.
As of the date of this filing, Robert Kopple,
the Company’s Vice Chairman of the Board, is the only significant unsecured note holder that has not agreed to restructure
his debt. Mr. Kopple claims to be owed approximately $5.3 million plus interest and approximately 3.14 million warrants on terms
significantly preferable to other similarly-situated unsecured creditors. To-date, Mr. Kopple has not accepted the Company’s
multiple offers to restructure his debt. The Company is presently engaged in a dispute with Mr. Kopple relating to the debt and
securities which Mr. Kopple claims to be owed to him and his affiliates by the Company. See, “Note 3 – Notes Payable”
and “Note 5 – Related Parties Transactions” to the Company’s condensed financial statements and “Liquidity
and Capital Resources” in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations” elsewhere in this quarterly report on Form 10-Q for additional information regarding amounts that may be owed
under the Company’s notes payable and the recent restructuring of certain Company debt.
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In June 2014, we entered into a Financing
Letter of Agreement (the “June 2014 Agreement”) with two affiliate entities of Mr. Kopple, KF Business Ventures and
the Kopple Family Partnership (the “Additional Kopple Parties”), pursuant to which the Additional Kopple Parties loaned
us an additional $1,000,000 (the “June 2014 Loan”). In connection with the June 2014 Loan, Mr. Kopple also added $202,205
in penalties and accrued interest, credited us with $200,000 for amounts previously repaid by us and consolidated several earlier
advances into a single new note (the “June 2014 Kopple Note”) in the principal amount of $2,715,2067 and bearing simple
interest at a rate of 10% per annum. We were also required to obtain a subordination agreement from the Breslow Parties in favor
of the Kopple Parties with respect to the June 2014 Kopple Note.
Pursuant to the June 2014 Agreement,
the Kopple Parties also placed various restrictions on our ability to raise additional capital, hire qualified personnel and pay
certain expenses without his prior approval for so long as the principal amount of his note remained outstanding. The June 2014
Kopple Note also required us to issue Mr. Kopple a stock purchase warrant (the “June 2014 Kopple Warrant”) to purchase
approximately 771,000 shares of our common stock at an exercise price of $0.70 per share, to be exercisable for seven years. Additionally,
if we borrowed funds, issued capital stock or rights to acquire or convert into capital stock, or granted rights in respect to
territories to any person for cash consideration of more than $5 million in the aggregate after the date of the June 2014 Kopple
Note, we would be required to pay the entire amount of such cash consideration in excess of $5 million as a mandatory prepayment
of the June 2014 Kopple Note. Additionally, Mr. Kopple required a default provision providing that in the event that the entire
outstanding balance of the June 2014 Kopple Note was not paid in full prior to October 1, 2014, then for each consecutive calendar
month during the period beginning October 1, 2014 and ending March 31, 2015, we would issue to Mr. Kopple additional stock purchase
warrants, each to purchase 416,458 shares of our common stock, up to a maximum aggregate of approximately 2.5 million shares of
our common stock, at $0.70 per share (the “Kopple Penalty Warrants”), the Kopple Penalty Warranties to be exercisable
for seven years from the time of their respective issuances. In addition to the Kopple Penalty Warrants, the default provision
under the June 2014 Kopple Note provides for a 5% late charge on the total amount due plus 15% per year interest. We have not
repaid the Kopple Parties for the amounts loaned to us. Additionally, we have not issued any of the Kopple Penalty Warrants and
management believes that Mr. Kopple is not entitled to receive them. We have also cancelled the June 2014 Kopple Warrant.
We consider the transactions described above with Mr. Kopple
to be related party transactions.
ITEM 4. Mine Safety Disclosures
Not applicable.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.