| Shareholders' Equity | 9. SHAREHOLDERS’ EQUITY Preferred Stock The Company’s articles of incorporation
authorize the issuance of up to 100,000 shares of preferred stock, $0.01 par value. Shares of preferred stock may be issued with
such dividend, liquidation, voting and conversion features as may be determined by the Board of Directors without shareholder approval.
The Company is authorized to issue 50,000 shares of Series P preferred stock in connection with a shareholder rights plan that
expired in 2011. In February 2016 the Board of Directors approved the designation of 50,000 shares of Series A Convertible Preferred
Stock in connection with the disposition of the Company’s mining segment. The Series A Purchase Agreement contains customary
representations and warranties on the part of the Company. As contemplated by the Acquisition Agreement and the Series A Purchase
Agreement and as approved by the Company’s Board of Directors, the Company filed with the Secretary of State of the State
of Wyoming Articles of Amendment containing a Certificate of Designations with respect to the Preferred Stock (the “Certificate
of Designations”). Pursuant to the Certificate of Designations, the Company designated 50,000 shares of its authorized preferred
stock as Series A Convertible Preferred Stock. The Preferred Stock will accrue dividends at a rate of 12.25% per annum of the Adjusted
Liquidation Preference (as defined); such dividends are not payable in cash but are accrued and compounded quarterly in arrears.
The “Adjusted Liquidation Preference” is initially $40 per share of Preferred Stock for an aggregate of $2,000, with
increases each quarter by the accrued quarterly dividend. The Preferred Stock is senior to other classes or series of shares of
the Company with respect to dividend rights and rights upon liquidation. No dividend or distribution will be declared or paid on
junior stock, including the Company’s common stock, (1) unless approved by the holders of Preferred Stock and (2) unless
and until a like dividend has been declared and paid on the Preferred Stock on an as-converted basis. At the option of the holder, each share of
Preferred Stock may initially be converted into 13.33 shares of the Company’s $0.01 par value Common Stock (the “Conversion
Rate”) for an aggregate of 666,667 shares. The Conversion Rate is subject to anti-dilution adjustments for stock splits,
stock dividends and certain reorganization events and to price-based anti-dilution protections. Each share of Preferred Stock will
be convertible into a number of shares of Common Stock equal to the ratio of the initial conversion value to the conversion value
as adjusted for accumulated dividends multiplied by the Conversion Rate. In no event will the aggregate number of shares of Common
Stock issued upon conversion be greater than 793,349 shares. The Preferred Stock will generally not vote with the Company’s
Common Stock on an as-converted basis on matters put before the Company’s shareholders. The holders of the Preferred Stock
have the right to approve specified matters as set forth in the Certificate of Designations and have the right to require the Company
to repurchase the Preferred Stock in connection with a change of control. Concurrent with entry into the Acquisition Agreement
and the Series A Purchase Agreement, the Company and MEM entered into an Investor Rights Agreement, which provides MEM rights to
certain information and Board observer rights. MEM has agreed that it, along with its affiliates, will not acquire more than 16.86%
of the Company’s issued and outstanding shares of Common Stock. In addition, MEM has the right to demand registration of
the shares of Common Stock issuable upon conversion of the Preferred Stock under the Securities Act of 1933, as amended. Common Stock On January 5, 2018, we entered into a common
stock sales agreement with a financial institution pursuant to which we may offer and sell, through the sales agent, common stock
representing an aggregate offering price of up to $2.5 million through an at-the-market continuous offering program. During the
three months ended June 30, 2018, we issued an aggregate of 290,694 of common stock through our continuous at-the-market offering
program at an average price of $1.17 per share for total proceeds of approximately $0.3 million. Since the beginning of the program
in January, 2018 we had issued, as of June 30, 2018, 930,857 shares of common stock through our continuous at-the-market offering
program at an average price of $1.37 for total net proceeds after offering expenses of approximately $1.2 million. Warrants On December 21, 2016, the Company completed
a registered direct offering of 1,000,000 shares of common stock at a net gross price of $1.50 per share. Concurrently, the investors
received warrants to purchase 1,000,000 shares of Common Stock of the Company at an exercise price of $2.05 per share, subject
to adjustment, for a period of five years from closing. The total net proceeds received by the Company were approximately $1.32
million. The fair value of the warrants upon issuance was $1.24 million, with the remaining $0.08 million being attributed to common
stock. The warrants contain a dilutive issuance and other liability provisions which cause the warrants to be accounted for as
a liability. Such warrant instruments are initially recorded as a liability and are accounted for at fair value with changes in
fair value reported in earnings. As of June 30, 2018, the Company had a warrant liability of $1.0 million. As a result of common
stock issuances made during the six months ended June 30, 2018, the warrant exercise price was reduced from $2.05 to $1.13 per
share pursuant to the original warrant agreement. S tock Options From time to time, the Company grants stock
options under its incentive plan covering shares of common stock to employees of the Company. Stock options, when exercised, are
settled through the payment of the exercise price in exchange for new shares of stock underlying the option. These awards typically
expire ten years from the grant date. For the six months ended June 30, 2018 and
2017, no stock options were granted, exercised, forfeited or expired. As of June 30, 2018, there was $0.1 million of unrecognized
expense related to unvested stock options that were previously granted, which will be recognized as stock-based compensation expense
through November 2019. Presented below is information about stock options outstanding and exercisable as of June 30, 2018 and December
31, 2017:
June 30, 2018 December 31, 2017
Shares Price (1) Shares Price (1)
Stock options outstanding 389,687 $ 8.05 389,687 $ 8.05
Stock options exercisable 279,687 $ 10.76 274,132 $ 10.79
(1) Represents the weighted average price. The following table summarizes information
for stock options outstanding and exercisable at June 30, 2018:
Options Outstanding Options Exercisable
Number Exercise Price Remaining Number Weighted
of Range Weighted Contractual of Average
Shares Low High Average Term (years) Shares Exercise Price
56,786 $ 9.00 $ 9.00 $ 9.00 6.5 56,786 $ 9.00
49,504 12.48 12.48 12.48 5.0 49,504 12.48
98,396 13.92 17.10 15.01 1.3 98,396 15.01
15,001 22.62 30.24 24.03 5.0 15,001 24.03
60,000 0.72 0.72 0.72 9.1 60,000 0.72
110,000 1.16 1.16 1.16 9.4 - -
389,687 $ 0.72 $ 30.24 $ 8.05 6.2 279,687 $ 10.76 As of June 30, 2018, 666,467 shares are available
for future grants under the Company’s stock option plans. Common Stock Grants In May 2018, the Company granted 485,168 shares
of stock to Company employees and accordingly recorded $0.6 million in stock-based compensation expense. As the shares were immediately
vested, the associated stock-based compensation expense was recorded immediately upon grant. For the six months ended June 30,
2018, total stock-based compensation expense related to common stock grants was $0.6 million. For the six months ended June 30,
2017, no stock-based compensation expenses was recorded. As of June 30, 2018, there was no unrecognized expense related to any
previous common stock grants. |
