MITI 8-K
Mitesco, Inc. (MITI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
(Exact Name of Registrant as Specified in Charter)
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| (State or another jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
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| (Address of principal executive offices) (Zip Code) |
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | N/A | N/A |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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Item 1.01 |
Entry into a Material Definitive Agreement. |
Restructuring plans and elimination of obligations
The Company is continuing an effort to restructure its obligations including all debts, notes, accounts payable and certain of its previously issued preferred shares.
This is an update from the information contained in a Form 8-K Filing dated October 24, 2024. The link for the filing is here:
https://www.sec.gov/ix?doc=/Archives/edgar/data/0000802257/000118518524001041/mitesco20241024_8k.htm.
Since September 28, 2024, the Company has entered into Obligation Exchange Agreements pursuant to which it has now converted over $10 million of its obligations, including accounts payable, notes and certain of its previously issued preferred shares, into restricted common stock using a price per share of $4.00, resulting in the aggregate issuance of roughly 2.5 million shares of restricted common stock. Further, as of November 12, 2024, the Company has begun processing six (6) Share Exchange Agreements for the cancellation of $13.5 million of its Series D and Series F Preferred shares in exchange for an estimated 535,000 shares of its newly created Series A Amortizing Convertible Preferred Stock (the “Series A Shares” or “Series A Preferred Stock”), whose stated value is $25.00 per share.
As disclosed previously, the Series A Shares may be converted into shares of common stock by dividing the stated value by $4.00 (the “Conversion Price”). The Series A Shares may be converted at the option of the holder at any time, or mandatorily by the Company if certain conditions set forth in the certificate of designation (filed previously) are met. As stipulated in the certificate of designation, unless converted, shares of Series A Preferred Stock will be redeemed by the Company, using common stock, or cash, 1/36th of the remaining amounts monthly beginning in January 2025. The cash redemption shall be at 105% of the original price of the Series A Preferred Stock (as adjusted) and common stock redemption shall be at a 10% discount to the average of the five lowest closing prices over a 30 trading day period. The Company intends to accrue the redemption shares monthly and issue any shares to be used thereunder quarterly to reduce its expense.
As a result of its terms, timeframe and other factors including regulatory and market factors outside of the control of the Company, the risk to the holders of Series A Preferred Stock is deemed to be significant, and as such its issuance is limited to only accredited institutional entities.
Following the exchange transactions noted above, as of the date of this filing, there currently remain outstanding nine (9) historical senior securities and notes that remain un-exchanged for common stock, and eight (8) of those are held by former officers, directors and related parties of the Company. These former insider holdings includes: (i) a single issuance of its Series D Preferred shares whose value at September 30, 2024 was approximately $30,000; (ii) three (3) issuances of its or Series F Preferred shares whose value at September 30, 2024 was approximately $2.1 million; and (iii) five (5) promissory notes whose aggregate value is around $350,000. The Company continues to negotiate restructuring of these instruments with the respective holders.
Furthermore, all participants in its restructuring activities have agreed to the cancelation of their warrants.
Lastly, the Company has agreed to use its commercially reasonable efforts to file a registration statement to register the resale of common stock issued in exchange for its obligations and the shares which may be issued in the conversion or redemption of Series A Preferred stock, within 120 days from the date of execution of the agreements. Further, the Company shall use its commercially reasonable efforts to cause the registration statement to be declared effective as promptly as practicable following the filing of the same. There can be no assurance that the regulatory process will be completed timely, or that the shares will ultimately become registered. Nor can there be any assurance that there will be a market for the common stock of price or volume sufficient to meet the needs of the holders for liquidity in the markets.
The Company expects to recognize a substantial gain upon extinguishment of the outstanding debt described in this Form 8-K (accounts payable and promissory notes) upon its conversion into common stock, which treatment will be subject to final review by our auditors.
A copy of the forms of the Obligation Exchange Agreement and Share Exchange Agreement is filed as Exhibit 10.1 and 10.2 respectively to this Current Report on Form 8-K and a letter that accompanied the exchange agreements as Exhibit 99.1, each incorporated herein by reference.
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Item 3.02 |
Unregistered Sales of Equity Securities. |
The disclosure made under Item 1.01 and Item 5.02 in this Form 8-K is incorporated herein by reference. In connection with the debt restructuring, the Company completed the issuance of shares of common stock to a combination of accredited and non-accredited investors in a transaction not involving a public offering pursuant to section 4(a)(2) of the United States Securities Act of 1933, as amended (the “Securities Act”). In connection with the issuance of compensation to directors, the Company relied on Regulation D/section 4(a)(2) of the Securities Act to issue shares of common and preferred stock.
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Item 5.01 |
Changes in Control of Registrant |
A number of holders of the Company’s 10% Series X Cumulative Redeemable Perpetual Preferred Stock (the “Series X Preferred Stock”) have opted to exchange their shares for common stock in the restructuring noted above, and as disclosed below, the Company has previously issued shares of Series X Preferred Stock to some of its directors. As a result, the composition of our holders of Series X Preferred stock has changed and has been reduced to four (4) persons, as shown in the table below.
As of the date of this filing, the Company has 19,703 shares of its outstanding. The Series X Preferred Stock has a par value of $0.01 per share, no stated maturity, a liquidation preference of $25.00 per share, and will not be subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless the Company decides to redeem or otherwise repurchase the Series X Preferred Stock. The Series X Preferred Stock will rank senior to all classes of the Company’s common and preferred stock and accrues dividends at the rate of 10% on $25.00 per share. Each one share of the Series X Preferred Stock is entitled to 400 votes on all matters submitted to a vote of our shareholders. The dividends, if paid in restricted common stock instead of cash, use the closing price on the 15th of the month in determining the number of shares to be issued.
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Name |
NUMBER OF SERIES X PREFERRED SHARES |
VOTES AT 400 EACH |
ADD COMMON SHARES OWNED |
TOTAL VOTING |
% OF TOTAL SHARE VOTES |
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MACK LEATH (1) |
2,400 |
960,000 |
275,873 |
1,235,873 |
7.16% |
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JORDAN BALENCIC (1) |
2,400 |
960,000 |
257,422 |
1,217,411 |
7.05% |
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JOHN MITCHELL (1) |
2,400 |
960,000 |
298,790 |
1,258,790 |
7.29% |
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ANGLO IRISH MANAGEMENT LLC |
12,503 |
5,001,200 |
157,795 |
5,158,995 |
29.88% |
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Total |
19,703 |
7,881,200 |
8,871,069 |
51.38% |
(1) Director since December 2023
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Item 5.02 |
Departure of Certain Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
On November 12, 2024 the Company issued 150,000 shares of restricted stock to each of the members of the Board of Directors in consideration of their contribution to the operations of the Company, over and above their activities on the Board, during the second half of 2024. Each of the two (2) disinterested members of the Board approved the issuance for the third director. A charge of $.34 per share, $51,000 for each director, or $153,000 in total, will be taken in the 4th quarter of 2024 related to this issuance.
This brings the total compensation for each Director for FY2024 to $136,000, consisting of a) an annual stipend of $60,000 paid in the form of the issuance of 2,400 shares of Series X Preferred shares, and b) 250,000 shares of restricted common stock issued for services and performance outside of their Board responsibilities in two (2) separate issuances, one for the first half of FY2024 of 100,000 shares, and a second for the last half of FY2024 of 150,000 shares.
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Item 8.01 |
Other Events. |
Restructuring Plans
The Company is in discussions with various of its institutional investors regarding its restructuring plans and expects to make further progress over the next few weeks and months. The goal is to have substantially all of its payables, notes and other obligations extinguished by the end of the fiscal year, December 31, 2024. While it has received positive and supportive feedback from those with whom it has discussed the plans, there can be no assurance that the restructuring will be successful, or that the current business activities will grow to a level that can support the costs associated with being a public company.
Series X Preferred Stock Dividend Issuance
The Company issued 4,417 shares of restricted common stock in consideration of dividend payments for October 2024. The closing price per share as of the 15th of October, the prescribed date for the payment of Series X Preferred stock dividends was $.57 per share. Each of the Directors holds a certain number of Series X Preferred shares as noted below. Further, as of November 16, 2024 it has issued a total of 7,463 shares of restricted common stock in consideration of the payment of the Series X dividends for the November 2024 period based on a closing price of $.55 on November 15, 2024.
Forward-Looking Statements
This Form 8-K contains forward-looking statements. You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “proposed,” “intended,” or “continue” or the negative of these terms or other comparable terminology. You should read statements that contain these words carefully, because they discuss our expectations about our future events or state other “forward-looking” information. There may be events in the future that we are not able to accurately predict or control. The forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. We cannot give any guarantee that these plans, intentions, or expectations will be achieved. All forward-looking statements involve risks and uncertainties, and actual results may differ materially from those discussed in the forward-looking statements as a result of various factors.
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Item 9.01 |
Financial Statements and Exhibits. |
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Exhibits |
Description |
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10.1 |
Form of obligation exchange agreement for restricted common stock |
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10.2 |
Form of share exchange agreement for Series A Convertible Preferred stock |
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99.1 |
Form of letter accompanying the obligation exchange agreement |
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104 |
Cover Page Interactive Data File (formatted as Inline XBRL) |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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Dated: November 18, 2024 |
MITESCO, INC. |
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By: |
/s/ Mack Leath |
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Mack Leath |
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Chairman and CEO |
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Exhibit 10.1
OBLIGATION EXCHANGE AGREEMENT
This Obligation Exchange Agreement (this “Agreement”) is entered into as of September 28, 2024, by and among ________________, a (“Creditor”), and Mitesco, Inc., a Nevada corporation (the “Company”).
Whereas, Company has incurred certain obligations towards the Creditor in the form of account payable (the “Obligation”);
Whereas, both parties agree that the total unaudited amounts owed to the Creditor were $_________ as of September 28, 2024;
Whereas, both parties agree that in order to settle this matter the new amount owed in full resolution of all amounts incurred shall be $_________;
Whereas both parties agree that any previously issued warrants shall be cancelled as a part of this agreement;
Whereas, the parties agree to fully resolve and settle all amounts owed as set forth herein (the “Exchange”); and,
Whereas, both parties have agreed, subject to the terms, amendments, conditions and understandings expressed in this Agreement, to enter into this Exchange.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Recitals. Each of the parties hereto acknowledges and agrees that the recitals set forth above in this Agreement are true and accurate and are hereby incorporated into and made a part of this Agreement.
2. Exchange. The parties hereby agree to an exchange of the Obligation for the issuance of ________ shares of restricted common stock of the Company, $0.01 par value per share (the “Common Stock”), at an exchange price of $4.00 per share (the “Exchange Price”).
3. Representations and Warranties of the Company. In order to induce Creditor to enter into this Agreement, Company, for itself, and for its affiliates, successors and assigns, hereby acknowledges, represents, warrants and agrees as follows:
(a) Company has full power and authority to enter into this Agreement and to incur and perform all obligations and covenants contained herein, all of which have been duly authorized by all proper and necessary action. Assuming due execution and delivery of this Agreement by the Creditor and the Company, this Agreement constitutes the valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms and conditions, except as such enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditor’s rights and remedies.
(b) No consent, approval, filing or registration with or notice to any governmental authority is required as a condition to the validity of this Agreement or the performance of any of the obligations of Company hereunder.
(c) There is no fact known to Company or which should be known to Company which Company has not disclosed to Creditor on or prior to the date of this Agreement which would or could materially and adversely affect the understanding of Creditor expressed in this Agreement or any representation, warranty, or recital contained in this Agreement.
4. Representations and Covenants of the Creditor.
The Creditor represents and warrants to the Company that:
(a) The Creditor has the authority to enter into this Agreement. This Agreement has been duly and validly authorized, executed and delivered by the Creditor and shall constitute the legal, valid and binding obligations of the Creditor enforceable against the Creditor in accordance with its terms, except as such enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditor’s rights and remedies.
(b) The Creditor has no defenses, affirmative or otherwise, rights of setoff, rights of recoupment, claims, counterclaims, actions or causes of action of any kind or nature whatsoever against the Company, directly or indirectly, arising out of, based upon, or in any manner connected with [the transactions between the Creditor and the Company pursuant to its business relationship] / [the Promissory Note], whether known or unknown, which occurred, existed, was taken, permitted, or begun prior to the execution of this Agreement. To the extent any such defenses, affirmative or otherwise, rights of setoff, rights of recoupment, claims, counterclaims, actions or causes of action exist or existed, such defenses, rights, claims, counterclaims, actions and causes of action are hereby waived, discharged and released. Parties hereby acknowledge and agree that the execution of this Agreement shall not constitute an acknowledgment of or admission by either party of the existence of any claims or of liability for any matter or precedent upon which any claim or liability may be asserted.
(c) The Creditor, by reason of its business and financial experience, has the capacity to protect his, her, or its own interests in connection with the transactions contemplated by this Agreement and has had the opportunity to consult counsel or other advisors with respect thereto. Creditor acknowledges that the Exchange Price is at a significant premium to the current market price of the Common Stock. Creditor further acknowledges that the Company does not guarantee that the Exchange Price will be the fair market value of the Common Stock at the time of sale and agrees that the terms of this Agreement are the result of negotiations between the parties. Based upon Creditor’s independent analysis, Creditor has reached his own business decision to enter into this Agreement.
(d) The Creditor represents that he, she or it is not an “accredited investor” as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act. The Creditor has been provided with the list of documents identified in Exhibit A of the Agreement to review and conduct diligence of the Company. Further, the Creditor has reviewed the risks involved in the sale of Common Stock set forth in Exhibit B of this Agreement. The Creditor has had the opportunity to review the documents indicated thereunder and has had the opportunity to ask questions to the Company, and to independently investigate and evaluate the value of the Common Stock and the financial condition and affairs of the Company.
(e) The Creditor acknowledges that the offer of Common Stock pursuant to this Agreement has not been reviewed or approved by the United States Securities and Exchange Commission (“SEC”) and is sold pursuant to an exemption from registration available under section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder. The Creditor represents that the Common Stock is being acquired for his, her or its own account, for investment and not for distribution or resale to others. The Creditor agrees that he, she or it will not sell or otherwise transfer the Common Stock unless it is registered under the Securities Act or unless an exemption from such registration is available and, upon the Company’s request, the Creditor receives an opinion of counsel reasonably satisfactory to the Company confirming that an exemption from such registration is available for such sale or transfer.
(f) The Creditor understands that the shares of Common Stock have not been registered under the Securities Act by reason of a claimed exemption under the provisions of the Securities Act which depends, in part, upon his, her or its investment intention. The Company realizes that, in the view of the SEC, a purchase now with the intention to distribute would represent a purchase with an intention inconsistent with his, her or its representation to the Company, and the SEC might regard such a distribution as a deferred sale to which such exemption is not available.
(g) The Creditor acknowledges that the Common Stock will remain restricted until such time that the shares are registered for resale by the Company or an exemption becomes available. The capital markets are complex, movements in share price can be erratic, particularly for small cap securities with low trading volume. The Creditor further acknowledges that there can be no assurance that (1) an active trading market will be developed or sustained, (2) the liquidity of such market will increase, (3) the undersigned will be able sell his, her, or its shares of Common Stock, or (4) the price that the undersigned may obtain for his, her, or its Common Stock will be greater than the Exchange Price. Further, the Creditor understands that there is no assurance that the Company will effect a financing event or any public listing of its securities.
(h) The Creditor acknowledges and consents to the placement of one or more legends on any certificate or other document evidencing his, her or its shares of Common Stock issuable, stating that they have not been registered under the Securities Act, substantially in the form as set forth below and setting forth or referring to the restrictions on the transferability and sale thereof:
THESE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
(i) The Creditor agrees to indemnify and hold harmless the Company and its officers, directors, employees and affiliates and each other person, if any, who controls any of the foregoing, against any loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any litigation commenced or threatened or any claim whatsoever) arising out of or based upon any false representation or warranty by the Creditor, or the Creditor’s breach of, or failure to comply with, any covenant or agreement made by the Creditor herein or in any other document furnished by the Creditor to the Company or its respective officers, directors, employees or affiliates or each other person, if any, who controls any of the foregoing in connection with this transaction.
(j) The Company agrees to indemnify and hold harmless the Creditor and its heirs, executors, assigns, officers, directors, employees and affiliates and each other person, if any, who controls any of the foregoing, against any loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any litigation commenced or threatened or any claim whatsoever) arising out of or based upon any false representation or warranty by the Company, or the Company’s breach of, or failure to comply with, any covenant or agreement made by the Company herein.
5. Registration Rights. The Creditor shall be afforded the following registration rights with respect to the shares of Common Stock:
(a) Within one hundred and twenty (120) days of the execution of this agreement, [provided the Company has secured such agreements from substantially all of its Creditors], the Company will use its commercially reasonable efforts to file a Registration Statement on Form S-3 (or Form S-1 if Form S-3 is unavailable to be used) with the SEC (the “Resale Registration”) to register the resale by the Creditors of all shares of Common Stock (collectively the “Registrable Securities”). The Company shall use its commercially reasonable efforts to cause the Resale Registration to be declared effective as promptly as practicable following the filing of the Resale Registration.
(b) The Company will use its commercially reasonable efforts to keep the Resale Registration continuously effective (including by filing a post-effective amendment to the Resale Registration or a new Registration Statement if the Resale Registration expires) for a period of three (3) years after the date of effectiveness of the Resale Registration or for such shorter period as such securities no longer constitute Registrable Securities hereunder; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 5, or keep such registration effective pursuant to the terms hereunder, in any particular jurisdiction in which the Company would be required to qualify to do business as a foreign corporation or as a dealer in securities under the securities laws of such jurisdiction or to execute a general consent to service of process in effecting such registration, qualification or compliance, in each case where it has not already done so; and provided further that the Company will not be in breach of this Section 5 if the Company engages in a transaction approved by the Board of the Company and (if applicable) the stockholders of the Company, the result of which is that the Company’s reporting obligations under the Exchange Act are terminated.
(c) Notwithstanding any other provision of this Section 5, if the SEC sets forth a limitation on the number of shares of Common Stock permitted to be registered on the Resale Registration as a secondary offering, the Company shall register the maximum number of Registrable Securities that it is permitted to register, and will, following effectiveness of the Resale Registration, file a new registration statement registering the resale of any remaining unregistered portion of the Registrable Securities as soon as is practicable in light of the requirements of applicable laws, rules, regulations and guidance of the SEC.
6. Certain Acknowledgments. Each of the parties acknowledges and agrees that no property or cash consideration of any kind whatsoever has been or shall be given by the Company to the Creditor in connection with the Exchange. The parties intend that this Agreement will qualify for tacking of the holding period of the restricted common stock pursuant to Rule 144(d) under the Securities Act of 1933, and each party agrees not to take a position to the contrary.
7. Exchange. The Creditor shall cancel all Obligations of the Company, and the Company will in turn issue the restricted Common Stock to the Creditor pursuant to this Agreement. If there is a conflict between the terms of any prior agreement and the terms of this Agreement, this Agreement shall control. No forbearance or waiver may be implied by this Agreement. Except as expressly set forth herein, the execution, delivery, and performance of this Agreement shall not operate as a waiver of, or as an amendment to, any right, power, or remedy of Creditor under the Obligation, as in effect prior to the date hereof. For the avoidance of doubt, this Agreement shall be subject to the governing law, venue, and exclusive jurisdiction provisions, as set forth in the Obligation.
8. No Reliance. Creditor acknowledges and agrees that neither Company nor any of its officers, directors, members, managers, equity holders, representatives or agents has made any representations or warranties to the Creditor or any of its agents, representatives, officers, directors, or employees except as expressly set forth in this Agreement and, in making its decision to enter into the transactions contemplated by this Agreement, Creditor is not relying on any representation, warranty, covenant or promise of Company or its officers, directors, members, managers, equity holders, agents or representatives other than as set forth in this Agreement.
9. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. The parties hereto confirm that any electronic copy of another party’s executed counterpart of this Agreement (or such party’s signature page thereof) will be deemed to be an executed original thereof.
10. Further Assurances. Each party shall do and perform or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
[Remainder of page intentionally left blank; Signature page follows]
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date set forth above.
CREDITOR:
By:
Name:
Title:
COMPANY:
MITESCO, INC.
By:
Title: Chief Executive Officer
Exhibit A
Investment Documents
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1. |
Company’s annual report on Form 10-K for the fiscal years ended December 31, 2023 and December 31, 2022; HERE: https://www.sec.gov/ix?doc=/Archives/edgar/data/0000802257/000118518524000401/mitesco20231231_10k.htm |
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2. |
Quarterly reports on Form 10-Q; HERE: https://www.sec.gov/ix?doc=/Archives/edgar/data/0000802257/000118518524000820/mitesco20240630_10q.htm |
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3. |
Form 8-Ks filed with the SEC on August 27, 2024 and September 10, 2024, including the associated exhibits; HERE: https://www.sec.gov/ix?doc=/Archives/edgar/data/0000802257/000118518524000853/mitesco20240827_8k.htm AND https://www.sec.gov/ix?doc=/Archives/edgar/data/0000802257/000118518524000876/mitesco20240910_8k.htm |
ALL SEC FILINGS FOR MITESCO, INC ARE HERE:
https://www.sec.gov/edgar/browse/?CIK=802257&owner=exclude
Exhibit B
Risk Factors
We are in the initial stages of our present business plan and have a limited historical performance for you to base an investment decision upon, and we may never become profitable.
We have a new business plan and no operating history upon which an evaluation of our prospects and future performance can be made. Our planned operations are subject to all business risks associated with new companies. The likelihood of our success must be considered considering the problems, expenses, difficulties, complications, and delays frequently encountered in connection with the establishment of a new business, operation in a competitive industry. There is a possibility that we could sustain losses in the future. There can be no assurances that we will ever operate profitably. If we are not successful in implementing our strategy as anticipated, continue to incur losses, and fail to raise additional capital, we may need to consider alternative options and in an extreme scenario, shut down operations.
You will forfeit any right to receive cash entirely and may lose all your investment in the Preferred Stock.
By entering into the Obligation Exchange Agreement, you will forfeit your ability to receive any cash and will have no claims for recovery under the [contract] / [promissory note] with the Company. Furthermore, investment in stock is inherently risky and if the Company’s business is not viable or the stock does not perform as expected, or at all, you may lose all your investment.
The Exchange Price may not accurately reflect the value of your investment.
The Exchange Price of your Common Stock is derived, in substantial part, from a good faith estimate of the future value of Common Stock of the Company, which may never appreciate at our predicted levels, or worse, may plummet compared to the current stock price. The Exchange Price may not accurately reflect the value of our Common Stock and may not be realized upon any subsequent disposition of the same.
Liquidity risks associated with our Common Stock.
Common Stock will remain restricted until such time that the shares are registered for resale by the Company or an exemption becomes available. The capital markets are complex, movements in share price can be erratic, particularly for small cap securities with low trading volume. There can be no assurance that (1) an active trading market will be developed or sustained, (2) the liquidity of such market will increase, (3) the Creditor will be able sell his, her, or its shares of Preferred Stock, or (4) the price that the Creditor may obtain for his, her, or its Common Stock (upon conversion or redemption into Common Stock) will be equal to our greater than the Exchange Price. Further, there is no assurance that the Company will effect a financing event or any public listing of its securities.
Investment in Common Stock is risky.
Common Stock involves a high degree of risk in that (i) it does not have a market and is thinly traded; (ii) the Exchange Price defined in the Certificate of Designation may not be the fair market value of the Company; (iii) an investment in the Company is highly speculative and only meant for investors who can afford the loss of their entire investment; (iv) an investor may not be able to liquidate his, her or its investment in the Common Stock until they are registered for resale or an exemption from registration available; (v) an investor could sustain the loss of his, her or its entire investment; and (vi) the Company is and will be subject to numerous other risks and uncertainties, including without limitation, significant and material risks relating to the Company’s business and operations, and the industries, markets and geographic regions in which the Company competes, as well as risks associated with the Common Stock, all as more fully set forth in the annual report on Form 10-K filed with the SEC.
We will need additional capital to implement and fund our operations.
The extent of our capital needs will depend on numerous factors, including (i) the availability and terms of any financing available to us; (ii) the opening of new data centers and acquisition of new resources, including human capital; (iii) the level of our investment in research and development; (iv) the amount of our capital expenditures; and (v) regulations applicable to our operations. We cannot assure you that we will be able to obtain capital in the future to meet our needs. Even if we do find a source of additional capital, we may not be able to negotiate terms and conditions for receiving the additional capital that are acceptable to us. Any future capital investments could dilute or otherwise materially and adversely affect the holdings or rights of our existing stockholders. We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us.
There are several market risks that remain outside of our control.
The market values of securities or other assets will fluctuate, sometimes sharply and unpredictably, due to changes in general market conditions, overall economic trends or events, governmental actions or intervention, actions taken by the U.S. Federal Reserve or foreign central banks, market disruptions caused by trade disputes or other factors, political developments, investor sentiment, and other factors that may or may not be related to the issuer of the security or other asset. Economies and financial markets throughout the world are increasingly interconnected. Economic, financial or political events, trading and tariff arrangements, public health events, terrorism, natural disasters and other circumstances in one country or region could have profound impacts on global economies or markets.
Exhibit 10.2
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this “Agreement”) is entered into as of _, 2024, by and among (“Shareholder”) on the one hand and Mitesco, Inc., a Nevada corporation (the “Company”) on the other.
Whereas, in order to simplify the capitalization structure of the Company, the Board of Directors (the “Board”) deem it advisable and in the best interest of the Company that the [Series D / Series F Preferred Stock] be exchanged for Series A Preferred Stock, par value $0.01 per share (“Preferred Stock” or “Exchange Shares”);
Whereas, the Shareholder currently owns [●] shares of [Series D / Series F] Preferred Stock of the Company (the “Existing Shares”);
Whereas, the Board has determined that the current fair market value of the Existing Shares is $1,000.00 per share (“Existing Share Price”);
Whereas, the Board has determined that the current stated value of the Preferred Stock is $25.00 per share (“Exchange Price”);
Whereas, based on the ratio between the Existing Share Price and Exchange Price 40:1, the Shareholder is entitled to receive [●] Exchange Shares (the “Exchange”);
Whereas, the parties agree that as a part of this agreement all previously issued warrants shall be cancelled;
Whereas, both parties have agreed, subject to the terms, amendments, conditions and understandings expressed in this Agreement, to enter into this Exchange.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Recitals. Each of the parties hereto acknowledges and agrees that the recitals set forth above in this Agreement are true and accurate and are hereby incorporated into and made a part of this Agreement.
2. Exchange. The parties hereby agree to an exchange of the Existing Shares for the issuance of [●] Exchange Shares. The Preferred Stock may either be (i) converted into Common Stock at the Conversion Price (defined in the Certificate of Designation), or (ii) redeemed for cash or Common Stock, each pursuant to the terms of the “Certificate of Designation, Preferences and Rights of the Series “A” Amortizing Convertible Preferred Stock” (the “Certificate of Designation”), a copy of which is provided to the Shareholder as Exhibit A.
3. Representations and Warranties of the Company. In order to induce Shareholder to enter into this Agreement, Company, for itself, and for its affiliates, successors and assigns, hereby acknowledges, represents, warrants and agrees as follows:
(a) Company has full power and authority to enter into this Agreement and to incur and perform all obligations and covenants contained herein, all of which have been duly authorized by all proper and necessary action. Assuming due execution and delivery of this Agreement by the Shareholder and the Company, this Agreement constitutes the valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms and conditions, except as such enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditor’s rights and remedies.
(b) No consent, approval, filing or registration with or notice to any governmental authority is required as a condition to the validity of this Agreement or the performance of any of the obligations of Company hereunder.
(c) There is no fact known to Company or which should be known to Company which Company has not disclosed to Shareholder on or prior to the date of this Agreement which would or could materially and adversely affect the understanding of Shareholder expressed in this Agreement or any representation, warranty, or recital contained in this Agreement.
4. Representations and Covenants of the Shareholder.
The Shareholder represents and warrants to the Company that:
(a) The Shareholder has the authority to enter into this Agreement. This Agreement has been duly and validly authorized, executed and delivered by the Shareholder and shall constitute the legal, valid and binding obligations of the Shareholder enforceable against the Shareholder in accordance with its terms, except as such enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditor’s rights and remedies.
(b) The Shareholder has no defenses, affirmative or otherwise, rights of setoff, rights of recoupment, claims, counterclaims, actions or causes of action of any kind or nature whatsoever against the Company, directly or indirectly, arising out of, based upon, or in any manner connected with the Existing Shares, whether known or unknown, which occurred, existed, was taken, permitted, or begun prior to the execution of this Agreement. To the extent any such defenses, affirmative or otherwise, rights of setoff, rights of recoupment, claims, counterclaims, actions or causes of action exist or existed, such defenses, rights, claims, counterclaims, actions and causes of action are hereby waived, discharged and released. Parties hereby acknowledge and agree that the execution of this Agreement shall not constitute an acknowledgment of or admission by either party of the existence of any claims or of liability for any matter or precedent upon which any claim or liability may be asserted.
(c) The Shareholder, by reason of its business and financial experience, has the capacity to protect his, her, or its own interests in connection with the transactions contemplated by this Agreement and has had the opportunity to consult counsel or other advisors with respect thereto. [Shareholder acknowledges that the Conversion Price (defined in the Certificate of Designation) is at a significant premium to the current market price of the Common Stock. Shareholder further acknowledges that the Company does not guarantee that the Conversion Price will be equal or greater than the then fair market value of the Common Stock and agrees that the terms of this Agreement are the result of negotiations between the parties]. The Shareholder has had the opportunity to review the risks involved in the sale of Preferred Stock as set forth in Exhibit B of this Agreement, the Company’s filings with the United States Securities and Exchange Commission (“SEC”), including its annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, among others, on EDGAR database (available publicly on www.sec.gov), has had the opportunity to ask questions to the Company, and to independently investigate and evaluate the value of the Preferred Stock and the financial condition and affairs of the Company. Based upon Shareholder’s independent analysis, Shareholder has reached his own business decision to enter into this Agreement.
(d) The Shareholder represents that he, she or it is an “accredited investor” as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act, and that he, she or it is able to bear the economic risk of an investment in the Company. The Shareholder has adequate means of providing for such Shareholder’s current financial needs and foreseeable contingencies and has no need for liquidity of his, her, or its investment in the Preferred Stock for an indefinite period of time.
(e) The Shareholder acknowledges that the offer of Preferred Stock pursuant to this Agreement has not been reviewed or approved by the SEC and is sold pursuant to an exemption from registration available under section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder. The Shareholder represents that the Preferred Stock is being acquired for his, her or its own account, for investment and not for distribution or resale to others. The Shareholder agrees that he, she or it will not sell or otherwise transfer the Preferred Stock unless it is registered under the Securities Act or unless an exemption from such registration is available and, upon the Company’s request, the Shareholder receives an opinion of counsel reasonably satisfactory to the Company confirming that an exemption from such registration is available for such sale or transfer.
(f) The Shareholder understands that the shares of Preferred Stock have not been registered under the Securities Act by reason of a claimed exemption under the provisions of the Securities Act which depends, in part, upon his, her or its investment intention. The Company realizes that, in the view of the SEC, a purchase now with the intention to distribute would represent a purchase with an intention inconsistent with his, her or its representation to the Company, and the SEC might regard such a distribution as a deferred sale to which such exemption is not available.
(g) The Shareholder acknowledges and consents to the placement of one or more legends on any certificate or other document evidencing his, her or its shares of Preferred Stock issuable, stating that they have not been registered under the Securities Act, substantially in the form as set forth below and setting forth or referring to the restrictions on the transferability and sale thereof:
THESE SECURITIES REPRESENTED HEREBY OR THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
(h) The Shareholder agrees to indemnify and hold harmless the Company and its officers, directors, employees and affiliates and each other person, if any, who controls any of the foregoing, against any loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any litigation commenced or threatened or any claim whatsoever) arising out of or based upon any false representation or warranty by the Shareholder, or the Shareholder’s breach of, or failure to comply with, any covenant or agreement made by the Shareholder herein or in any other document furnished by the Shareholder to the Company or its respective officers, directors, employees or affiliates or each other person, if any, who controls any of the foregoing in connection with this transaction.
(i) The Company agrees to indemnify and hold harmless the Shareholder and its heirs, executors, assigns, officers, directors, employees and affiliates and each other person, if any, who controls any of the foregoing, against any loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any litigation commenced or threatened or any claim whatsoever) arising out of or based upon any false representation or warranty by the Company, or the Company’s breach of, or failure to comply with, any covenant or agreement made by the Company herein.
5. Registration Rights. The Shareholder shall be afforded the following registration rights with respect to the shares of Common Stock in the event of a conversion event under the Certificate of Designation:
(a) Within ninety (90) days of the execution of this agreement, the Company will use its commercially reasonable efforts to file a Registration Statement on Form S-3 (or Form S-1 if Form S-3 is unavailable to be used) with the SEC (the “Resale Registration”) to register the resale by the Shareholders of all shares of Common Stock issuable in connection with a Mandatory Conversion or Mandatory Redemption as those terms are defined in the Certificate of Designation (collectively the “Registrable Securities”). The Company shall use its commercially reasonable efforts to cause the Resale Registration to be declared effective as promptly as practicable upon filing of the Resale Registration.
(b) The Company will use its commercially reasonable efforts to keep the Resale Registration continuously effective (including by filing a post-effective amendment to the Resale Registration or a new Registration Statement if the Resale Registration expires) for a period of three (3) years after the date of effectiveness of the Resale Registration or for such shorter period as such securities no longer constitute Registrable Securities hereunder; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 5, or keep such registration effective pursuant to the terms hereunder, in any particular jurisdiction in which the Company would be required to qualify to do business as a foreign corporation or as a dealer in securities under the securities laws of such jurisdiction or to execute a general consent to service of process in effecting such registration, qualification or compliance, in each case where it has not already done so; and provided further that the Company will not be in breach of this Section 5 if the Company engages in a Fundamental Transaction (as defined in the Certificate of Designation) approved by the Board of Directors of the Company and (if applicable) the stockholders of the Company, the result of which is that the Company’s reporting obligations under the Exchange Act are terminated.
(c) Notwithstanding any other provision of this Section 5, if the SEC sets forth a limitation on the number of shares of Common Stock permitted to be registered on the Resale Registration as a secondary offering, the Company shall register the maximum number of Registrable Securities that it is permitted to register, and will, following effectiveness of the Resale Registration, file a new registration statement registering the resale of any remaining unregistered portion of the Registrable Securities as soon as is practicable in light of the requirements of applicable laws, rules, regulations and guidance of the SEC.
6. Certain Acknowledgments. Each of the parties acknowledges and agrees that no property or cash consideration of any kind whatsoever has been or shall be given by the Company to the Shareholder in connection with the Exchange. The parties intend that this Agreement will qualify for tacking of the holding period of the restricted Preferred Stock pursuant to Rule 144(d) under the Securities Act of 1933, and each party agrees not to take a position to the contrary.
7. Exchange. The Existing Shares will be cancelled by Company and the Company will in turn issue the Exchange Shares to the Shareholder pursuant to this Agreement. If there is a conflict between the terms of any prior agreement and the terms of this Agreement, this Agreement and the Certificate of Designation shall control. No forbearance or waiver may be implied by this Agreement. The interpretation and construction of this Agreement, and all matters relating hereto, will be governed by the laws of the State of Delaware applicable to contracts made and to be performed entirely within the State of Delaware without giving effect to any conflict of law provisions thereof.
8. No Reliance. Shareholder acknowledges and agrees that neither Company nor any of its officers, directors, members, managers, equity holders, representatives or agents has made any representations or warranties to the Shareholder or any of its agents, representatives, officers, directors, or employees except as expressly set forth in this Agreement and, in making its decision to enter into the transactions contemplated by this Agreement, Shareholder is not relying on any representation, warranty, covenant or promise of Company or its officers, directors, members, managers, equity holders, agents or representatives other than as set forth in this Agreement.
9. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. The parties hereto confirm that any electronic copy of another party’s executed counterpart of this Agreement (or such party’s signature page thereof) will be deemed to be an executed original thereof.
10. Further Assurances. Each party shall do and perform or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
[Remainder of page intentionally left blank; Signature page follows]
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date set forth above.
SHAREHOLDER:
By:
Name:
Title:
COMPANY:
MITESCO, INC.
By:
Name: Mack Leath
Title: Chief Executive Officer
Exhibit A
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF THE
SERIES “A”AMORTIZING CONVERTIBLE PREFERRED STOCK OF
MITESCO, INC.
[Insert]
Exhibit B
Risk Factors
We are in the initial stages of our present business plan and have a limited historical performance for you to base an investment decision upon, and we may never become profitable.
We have a new business plan and no operating history upon which an evaluation of our prospects and future performance can be made. Our planned operations are subject to all business risks associated with new companies. The likelihood of our success must be considered considering the problems, expenses, difficulties, complications, and delays frequently encountered in connection with the establishment of a new business, operation in a competitive industry. There is a possibility that we could sustain losses in the future. There can be no assurances that we will ever operate profitably. If we are not successful in implementing our strategy as anticipated, continue to incur losses, and fail to raise additional capital, we may need to consider alternative options and in an extreme scenario, shut down operations.
[Risks arising from difference between Preferred and Common Stock].
The Exchange Price may not accurately reflect the value of your investment.
The Exchange Price of your Preferred Stock and the Conversion Price under the Certificate of Designation is derived, in substantial part, from a good faith estimate of the future value of Common Stock of the Company, which may never appreciate at our predicted levels, or worse, may plummet compared to the current stock price. The Conversion Price may not accurately reflect the value of our Common Stock and may not be realized upon any subsequent disposition of the same.
Liquidity risks associated with our Common Stock.
Preferred Stock will remain restricted until such time that the shares are converted to Common Stock and are registered for resale by the Company or an exemption becomes available. The capital markets are complex, movements in share price can be erratic, particularly for small cap securities with low trading volume. There can be no assurance that (1) an active trading market will be developed or sustained, (2) the liquidity of such market will increase, (3) the undersigned will be able sell his, her, or its shares of Preferred Stock, or (4) the price that the Shareholder may obtain for his, her, or its Common Stock (upon conversion or redemption into Common Stock) will be equal to our greater than the Conversion Price or the Mandatory Redemption Amount as defined in the Certificate of Designation. Further, there is no assurance that the Company will effect a financing event or any public listing of its securities.
Investment in Preferred Stock is risky.
Preferred Stock involves a high degree of risk in that (i) it does not have a market and is not currently traded; (ii) the Conversion Price defined in the Certificate of Designation may not be the fair market value of the Company; (iii) it may not get redeemed in cash as contemplated in the Certificate of Designation; (iv) an investment in the Company is highly speculative and only meant for investors who can afford the loss of their entire investment; (v) an investor may not be able to liquidate his, her or its investment in the Preferred Stock until they are converted to Common Stock and the Common Stock is registered for sale or an exemption from registration available; (vi) an investor could sustain the loss of his, her or its entire investment; and (vii) the Company is and will be subject to numerous other risks and uncertainties, including without limitation, significant and material risks relating to the Company’s business and operations, and the industries, markets and geographic regions in which the Company competes, as well as risks associated with the Preferred Stock, all as more fully set forth in the annual report on Form 10-K filed with the SEC.
We will need additional capital to implement and fund our operations.
The extent of our capital needs will depend on numerous factors, including (i) the availability and terms of any financing available to us; (ii) the opening of new data centers and acquisition of new resources, including human capital; (iii) the level of our investment in research and development; (iv) the amount of our capital expenditures; and (v) regulations applicable to our operations. We cannot assure you that we will be able to obtain capital in the future to meet our needs. Even if we do find a source of additional capital, we may not be able to negotiate terms and conditions for receiving the additional capital that are acceptable to us. Any future capital investments could dilute or otherwise materially and adversely affect the holdings or rights of our existing stockholders. We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us.
There are several market risks that remain outside of our control.
The market values of securities or other assets will fluctuate, sometimes sharply and unpredictably, due to changes in general market conditions, overall economic trends or events, governmental actions or intervention, actions taken by the U.S. Federal Reserve or foreign central banks, market disruptions caused by trade disputes or other factors, political developments, investor sentiment, and other factors that may or may not be related to the issuer of the security or other asset. Economies and financial markets throughout the world are increasingly interconnected. Economic, financial or political events, trading and tariff arrangements, public health events, terrorism, natural disasters and other circumstances in one country or region could have profound impacts on global economies or markets.
Exhibit 99.1
The “Mitesco Restructuring Plan” and how you can participate.
We are contacting you today to execute a restructuring plan for Mitesco, Inc., and its subsidiaries (“the Company”) which involves the issuance of common stock in exchange for the cancellation of notes, accounts payable and other obligations. This will allow the Company to move forward with a much-improved balance sheet, and what management believes to be a reasonable capital table. The issuance uses an exchange rate of $4.00 per share price for the Company’s common stock. The current management is participating in this conversion on the same terms as those being granted to all other equity and debt holders. The exchange agreement also includes an undertaking for the Company to file a registration statement and to use its reasonable best efforts to make the shares tradable within 120 days. Any previously issued warrants are cancelled in this exchange, as they are all well out of the money. The details about your exchange issuance are below, and a “DocuSign” approval is provided for the execution of the documents.
The Current Business Situation
The Company has completely refocused its business model. Its new activities are centered on data center operations, and the software and systems that can create revenue from operations in “cloud computing” within data center. Management believes the market is poised for growth, the need is being communicated daily into the investment marketplace by business media, and that a competitive suite of products and services can be sold in scale. We have adopted a dual path strategy. First, we will provide clients with “generic” data processing, running software that belongs to a business. We will, however, be competing with many larger players including Amazon Web Services (AWS), Microsoft, Google and others. Our services can be as simple as data storage and backup, or complicated solutions like those using Oracle, SAP or other larger scale applications.
Secondly, we are soliciting software vendors to run their cloud applications on our data center for the benefit of their clients, with an emphasis on infrastructure related applications such as mapping, engineering, design, and operations of facilities. This aspect will take longer to build than the generic business, but we believe it should provide very long-term client use, since the projects take years to complete. This market segment also has fewer competitors than the “generic” data processing segment.
In both these situations the data storage aspect is clearly the most profitable, so to the extent that we invest in software solutions we are looking for situations where there are large storage and retrieval needs, such as image files, video and large format documents it is likely our return may be increased.
Status of the Common Stock and Debt Conversion
Our common stock is not very liquid at this time, and therefore management believes it cannot really be used to measure the true value of the business. We are effectively a private company, so any valuation needs to reflect more of a startup than a public company with a history. Before we can expect the stock to return to a liquid level of trading, if at all, we must first eliminate our previously incurred debts and prove our new business is viable.
We have an agreement from our institutional investors to provide nominal funding using simple 12-month notes. Thanks to their willingness to invest we have become current with our reporting requirements, accounting and audit, and started our refocus of operations.
Holders of a significant portion of our obligations, including the Board of Directors, have agreed to exchange all remaining notes and accounts payable for common stock using a $4.00 price per share. While this is a premium to the Company’s recent trading history, it is not unlike the valuation a similar private company start-up might find, and that new business would not be strapped with the debt from the previous business activities.
We could use the courts to reduce and convert the debts of the Company, and if we took that approach the shares issued would be for a fraction of the valuation using the $4 approach, and would create significant expense for the holders, and the Company.
For the shares we issue, we intend to undertake to file a registration statement within 120 days to make the stock tradable in the market without the cost, and wait time needed using Rule 144, the only alternative to a registration statement.
We do have a Series A Preferred Stock in process that can be used for the institutional accredited investors. It bears no interest and requires redemption over three (3) years using restricted common stock. Due to the complexity, and risk, of this security it cannot be used with those who are not either institutional and accredited investors, and that is most of the individuals involved. With the debt exchange for common stock proposed, the holders will have the potential to be out in months, assuming the market will see the value of the new business, and the regulatory bodies will approve the registration. Further, with a clean, “fresh start” balance sheet it is more likely the Company will be able to fund its needs for growth capital, and on terms more favorable to its shareholders.
What do you need to do next?
In your case we will issue _______ shares, at $4.00 per share, in exchange for the cancellation of the obligations on the books currently showing approximately $__________.
Management believes that this is the best approach for all involved. There is no chance that the Company will have positive cash flow sufficient to fund debt repayment for years to come, and it has been made clear by potential institutional investors that no financing of size will be available until the balance sheet is clean, and the business prospects proven.
Attached is a DocuSign agreement for your execution. Upon receipt of the executed documents we will ask that you share your information for the issuance with the transfer agent, and request that the issuance be processed immediately, at the Company’s expense.