| Stockholders' Equity Note Disclosure [Text Block] | NOTE F — STOCKHOLDERS’ EQUITY Common Stock We have 400 million common shares authorized with a par value of $0.01 per share. During the six months ended June 30, 2015 we issued 21,380 common shares upon the election of a Class A preferred shareholder conversion and 16,363 common shares issued in satisfaction of Class A preferred dividend distribution. Preferred Stock Our certificate of incorporation permits the Company to issue up to 100,000,000 shares of $0.01 par value preferred stock. Under the amendment, the board of directors has the authority to allocate these shares into as many separate classes of preferred as it deems appropriate and with respect to each class, designate the number of preferred shares issuable and the relative rights, preferences, seniority with respect to other classes and to our common stock and any limitations and/or restrictions that may be applicable without obtaining shareholder approval. Class A N on-voting C umulative C onvertible Preferred Stock At June 30, 2015, there were 565,721 outstanding shares of Class A Preferred stock, of which 8,709 shares resulted from the settlement of dividends due to conversion, and those shares no longer accrue dividends. Dividends payable upon the conversion of the remaining 557,012 outstanding shares of Class A Preferred stock amounted to approximately $2,296,000 at June 30, 2015, of which $112,000 was accrued during six month period ended June 30, 2015. During the six months ending June 30, 2015, holders of Class A preferred shares converted 21,380 shares into common stock and the Company settled $65,000 Class A Preferred dividends. No Class A Preferred shares were sold or converted during the six month period ended June 30, 2014 and no Class A Preferred dividends were settled during the six months ended June 30, 2014. Accrued dividends payable upon the conversion of the Class A Preferred stock amounted to approximately $2,134,000 at June 30, 2014. The Company accrued $115,000, during the six month period ended June 30, 2014. The Company has authorized the issuance of up to 3,300,000 Class A Non-Voting Cumulative Convertible Preferred Shares. Each Class A Preferred Share is convertible after a one year holding period, at the holder’s election, into one share of our common stock. The conversion rate is subject to adjustment in the event of the issuance of our common stock as a dividend or distribution and in the case of the subdivision or combination of our common stock. The Class A Preferred has no voting rights except with respect to matters directly impacting the rights and privileges accorded to such Class. The holders of the Class A Preferred are entitled to receive cumulative preferential dividends in the amount of $0.40 per share of Class A Preferred for each annual dividend period. Dividends payable on the Class A Preferred will be paid in cash out of any funds legally available for the payment of dividends or, in the discretion of the board, will be paid in Class A Preferred at a rate of one share of Class A Preferred for each $4.00 of dividends. If dividends are paid in shares of Class A Preferred, such dividends are not entitled to accumulate additional dividends and themselves may be converted into the common stock of the Company on a one-to-one basis. Holders of Class A Preferred are permitted to request that dividends payable in Class A Preferred be immediately converted into shares of our common stock. At times, our board may elect to settle dividends through the issuance of common stock in lieu of cash. Accumulated and unpaid dividends on the Class A Preferred will not bear interest. Class A Preferred shares are also entitled to participate pro rata in dividends declared and/or distributions made with respect to all classes of our outstanding equity. The Company may, in the absolute discretion of our board, redeem at any time and from time to time from any source of funds legally available any and all of the outstanding Class A Preferred at the redemption price of $4.00 per Class A Preferred plus all unpaid accumulated dividends payable with respect to each Class A Preferred Share. In the event of the liquidation, dissolution and winding up of the Company, and subject to the liquidation rights and privileges of our Class C Preferred, Class A Preferred shareholders have a liquidation preference with respect to all accumulated and unsettled dividends. The value of the Class A Preferred shareholders’ liquidation preference was approximately $2,296,000 and $2,249,000 at June 30, 2015 and December 31, 2014, respectively. In the event of liquidation, dissolution or winding up of the Company, unpaid accumulated dividends on the Class A Preferred are payable in Class A Preferred shares at a rate of 1 share of Class A Preferred for each $4.00 of dividends. Class B Preferred Stock No Class B Preferred shares were sold during the six month period ended June 30, 2015 and no Class B Preferred shares were issued to Class B Preferred shareholders as a dividend during the six month period ended June 30, 2015. Depending upon our cash position, from time to time we may request that a converting preferred shareholder entitled to receive dividends in cash consent to receive shares of restricted common stock in lieu thereof. At June 30, 2015, there were 67,500 outstanding shares of Class B Preferred stock. At June 30, 2015, dividends payable upon the conversion of these outstanding shares of Class B Preferred amounted to approximately $335,000, of which $16,000 was accrued during the six month period ended June 30, 2015. Subject to the dividend rights and privileges of our Class A Preferred, the holders of the Class B Preferred are entitled to receive cumulative preferential dividends in the amount of $0.50 per share of Class B Preferred for each annual dividend period. Dividends payable on the Class B Preferred will be paid in cash out of any funds legally available for the payment of dividends or, in the discretion of the board, will be paid in Class B Preferred at a rate of one share of Class B Preferred for each $5.00 of dividends. If dividends are paid in shares of Class B Preferred, such dividends are not entitled to accumulate additional dividends and themselves may be converted into the common stock of the Company on a one-to-one basis. Holders of Class B Preferred are permitted to request that dividends payable in Class B Preferred be immediately converted into shares of our common stock. At times, our board may elect to settle dividends through the issuance of common stock in lieu of cash. Accumulated and unpaid dividends on the Class B Preferred will not bear interest. Class B Preferred shares are also entitled to participate pro rata in dividends declared and/or distributions made with respect to all classes of our outstanding equity. The Company may, in the absolute discretion of our board, redeem at any time and from time to time from any source of funds legally available any and all of the outstanding Class B Preferred at the redemption price of $5.00 per Class B Preferred plus all unpaid accumulated dividends payable with respect to each Class B Preferred Share. In the event of the liquidation, dissolution and winding up of the Company, and subject to the liquidation rights and privileges of our Class C Preferred and Class A Preferred shareholders, the Class B Preferred shareholders have a liquidation preference with respect to all accumulated and unsettled dividends. The value of the Class B Preferred shareholders’ liquidation preference was $335,000 and $319,000 at June 30, 2015 and December 31, 2014, respectively. In the event of a liquidation, dissolution or winding up of the Company, unpaid accumulated dividends on the Class B Preferred are payable in Class B Preferred shares at a rate of 1 share of Class B Preferred for each $5.00 of dividends. Series C Preferred Stock The Company has authorized and issued 16,250,000 shares of Series C Voting Convertible Preferred Stock. No Series C Preferred stock was converted during the six month period ended June 30, 2015 or during the year ended December 31, 2014. The value of the Series C Preferred shareholders’ liquidation preference was $6,500,000 at June 30, 2015 and at December 31, 2014. Each Series C Preferred Share is convertible after a one year holding period, at the holder’s election, into one share of our common stock. The conversion rate is subject to adjustment in the event of the issuance of our common stock as a dividend or distribution and in the case of the subdivision or combination of our common stock. The Series C Preferred shares have no right to receive dividends and no redemption right. The Series C Preferred shares vote with the common stock on an as-converted basis. The Series C Preferred shares have a liquidation preference at their stated value per share of $0.40 that is senior to our common stock, and the Company’s Class A Non-Voting Cumulative Convertible Preferred Shares and Class B Non-Voting Cumulative Convertible Preferred Shares. The liquidation preference is payable upon a liquidation, dissolution or winding up of the Company, weather voluntary or involuntary or upon a deemed liquidation of the Company. Series C-2 Preferred Stock In March 2014, the board of directors authorized and the Class A Preferred, the Class B Preferred and the Series C Preferred shareholders approved, a series of preferred stock, designated as Series C-2 Voting Convertible Preferred Stock. On March 28, 2014, we sold and issued a total of 25,000,000 shares of Series C-2 Voting Convertible Preferred Stock in a private placement transaction, generating gross proceeds of $5,000,000. Direct expenses of approximately $46,000 pertaining to the transaction, consisting of primarily external legal costs, were incurred, resulting in net proceeds of approximately $4,954,000. As of June 30, 2015, Series C-2 Preferred shareholders have not converted any shares of Series C-2 Preferred into common stock. At June 30, 2015, there were 25,000,000 shares of Preferred C-2 stock outstanding. The value of the Series C-2 Preferred shareholders’ liquidation preference was $5,000,000 at June 30, 2015 and at December 31, 2014. Each Series C-2 Preferred Share is convertible, at the holder’s election, into one share of our common stock, par value $0.01 per share. The conversion rate is subject to adjustment in the event of the issuance of common stock as a dividend or distribution, and the subdivision or combination of the outstanding common stock or a reorganization, recapitalization, reclassification, consolidation or merger of the Company. The Series C-2 Preferred Shares have a liquidation preference at their stated value per share of $0.20 that ranks pari passu to our existing Series C Voting Convertible Preferred Shares and is senior to our common stock, and our Class A Non-Voting Cumulative Convertible Preferred Shares and Class B Non-Voting Cumulative Convertible Preferred Shares. The liquidation preference is payable upon a liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, or upon a deemed liquidation of the Company. A deemed liquidation includes, unless decided by the holders of at least two-thirds of the Series C-2 Preferred Shares, any consolidation, merger, or reorganization of the Company in which the shareholders of the Company own less than fifty percent of the voting power of the resultant entity, or an acquisition to which the Company is a party in which at least fifty percent of the Company’s voting power is transferred, or the sale, lease, exclusive license or transfer of all or substantially all of the assets or intellectual property of the Company other than to a wholly owned subsidiary. The Series C-2 Preferred Shares are not entitled to receive preferred dividends and have no redemption right, but are entitled to participate, on an as converted basis, with holders of outstanding shares of common stock in dividends and distributions on liquidation after all preferred shares have received payment in full of any preferred dividends or liquidation preferences. The Series C-2 Preferred Shares vote with the common stock on an as-converted basis. We may not, without approval of the holders of at least two-thirds of the Series C-2 Preferred Shares, (i) create any class or series of stock that is pari passu or senior to the Series C-2 Preferred Shares; (ii) create any class or series of stock that would share in the liquidation preference of the Series C-2 Preferred Shares or that is entitled to dividends payable other than in common stock or Series C-2 Preferred Shares of its own series, (iii) acquire any equity security or pay any dividend, except dividends on a class or series of stock that is junior to the Series C Preferred Shares, payable in such junior stock, (iv) reissue any Series C-2 Preferred Shares, (v) declare or pay any dividend that would impair the payment of the liquidation preference of the Series C-2 Preferred Shares, (vi) authorize or issue any additional Preferred Shares, (vii) change the Certificate of Incorporation to adversely affect the rights of the holders of the Series C-2 Preferred Shares, or (viii) authorize, commit to or consummate any liquidation, dissolution or winding up in which the liquidation preference of the Series C-2 Preferred Shares would not be paid in full. In conjunction with the issuance of the 25,000,000 shares of Series C-2 Preferred stock, we computed the value of the non-cash beneficial conversion feature associated with the right to convert the shares into common stock on a one-for-one basis. We compared the fair value of our common stock on the date of issuance with the effective conversion price, and determined that the value of the non-cash beneficial conversion feature is approximately $4,250,000, which is reflected in our condensed consolidated statements of operations for the six month period ended June 30, 2014 as an adjustment to arrive at the net loss attributable to common stockholders. The Series C-2 Preferred Shares will not be and have not been registered under the Securities Act of 1933, as amended, or the Securities Act, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. Stock Options 1998 Stock Option Plan In December 1997, our board approved a Stock Option Plan (the “1998 Plan”) which provided for the granting of up to 2,000,000 shares of common stock, pursuant to which officers, directors, key employees and key consultants/advisors are eligible to receive incentive, nonqualified or reload stock options which plan was ratified by the shareholders on May 28, 1998. Options granted under the 1998 Plan are exercisable for a period of up to 10 years from date of grant at an exercise price which is not less than the fair value on date of grant, except that the exercise period of options granted to a stockholder owning more than 10% of the outstanding capital stock may not exceed five years and their exercise price may not be less than 110% of the fair value of the common stock at date of grant. Options may vest over five years. By its terms, our 1998 Plan terminated as to the grant of future options on May 27, 2008. Consequently, no additional stock options will be granted under the 1998 Plan, although outstanding options remain available for exercise in accordance with their terms. There were no options exercised under the 1998 Plan during each of the six month periods ended June 30, 2015 and 2014. Through June 30, 2015, a total of 1,823,895 stock options had been granted under the 1998 Plan, no stock options had been exercised, and 1,723,895 stock options have expired. As of June 30, 2015, there were 100,000 outstanding stock options under the 1998 Plan, all of which were fully vested. 2011 Stock Option Plan In 2011, shareholders approved the 2011 Stock Option Plan (the “2011 Plan”) which provides for the grant of up to 3,000,000 common stock options to provide equity incentives to directors, officers, employees and consultants. Two types of options may be granted under the 2011 Plan: non-qualified stock options and incentive stock options. Non-qualified stock options may be granted to our officers, directors, employees and outside consultants. Incentive stock options may be granted only to our employees, including officers and directors who are also employees. In the case of non-qualified stock options, the exercise price may be less than the fair market value of our stock on the date of grant. In the case of incentive stock options, the exercise price may not be less than such fair market value and in the case of an employee who owns more than 10% of our common stock, the exercise price may not be less than 110% of such market price. Options generally are exercisable for ten years from the date of grant, except that the exercise period for an incentive stock option granted to an employee who owns more than 10% of our stock may not be greater than five years. During the six month period ended June 30, 2015, we granted 20,000 stock options under the 2011 Plan, 65,625 options became vested, and no options expired or were exercised. As of June 30, 2015, there were 1,298,000 stock options outstanding under the 2011 Plan, 840,625 of which were vested. At June 30, 2015, there were 1,702,000 options remaining available for future grant under the 2011 Plan. During the six month period ended June 30, 2014, we granted 10,500 stock options under the 2011 Plan, 250 options became vested, and 125,000 options were forfeited and no options expired or were exercised. During the six months ended June 30, 2015 we modified 50,000 options previously granted to the Company’s former CFO. On February 5, 2015, in consideration for the former CFO’s willingness to assist in the transition to a new accounting team, the Company has agreed to modify the option agreement so that the unvested portion remains intact for the full term of the original stock option agreement. We used the Black-Scholes option-pricing model to value the cost of this modification which was an immaterial amount for the six months ended June 30, 2015. These options vest upon the first day the closing trading price of the common stock of the Company shall be $10.00 or greater. Since they are now held by a non-employee we will revalue the fair value of these options on a quarterly basis through the vesting period. Non-Plan Options As of June 30, 2015, there were a total of 6,965,000 non-plan options outstanding, of which 4,815,000 were fully vested. During each of the six month periods ended June 30, 2015 and 2014, we granted no non-plan stock options, 337,500 options became vested, and no options were exercised or cancelled. Option Summary For the six month periods ended June 30, 2015 and 2014, compensation cost related to all stock options amounted to $97,000 and $43,000, respectively. For the three month periods ending June 30, 2015 and 2014, compensation cost related to all stock options amounted to $42,000 and $30,000, respectively. As of June 30, 2015, there was approximately $136,000 of total unrecognized compensation costs related to outstanding stock options, which are expected to be recognized over a weighted average 1.3 years. During the six month period ended June 30, 2015 and 2014, we granted 20,000 stock options with a weighted average grant-date fair value of $0.20 and 10,500 stock options with weighted average grant-date fair value of $0.37, respectively. The total grant date fair value of all stock options vested during the six month periods ended June 30, 2015 and 2014 was approximately $83,000 and $688,000, respectively. The fair value of options granted during the six month periods ended June 30, 2015 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
2015 2014
Expected term in years (years) 6.6 6.3
Expected forfeiture rate 0.0 % 0.0 %
Risk-free rate 2.1 % 2.1 %
Volatility 135.0 % 135.1 %
Dividend yield 0.0 % 0.0 % The average risk-free interest rate is based on the U.S. treasury security rate in effect as of the grant date. We determined expected volatility using the historical closing stock price. The expected term was generally determined using the simplified method as we do not believe we have sufficient historical stock option exercise experience on which to base the expected term. The following summarizes the activity of all of our outstanding stock options for the six month period ended June 30, 2015:
Weighted
Average
Weighted Remaining
Average Contractual Aggregate
Exercise Term Intrinsic
Shares Price (in years) Value
Outstanding at January 1, 2015 8,343,000 $ 0.63 6.0 -
Granted 20,000 0.20
Exercised - -
Canceled or expired - -
Outstanding at June 30, 2015 8,363,000 $ 0.63 5.5 $ 600
Exercisable at June 30, 2015 5,755,625 $ 0.74 5.4 $ - As of June 30, 2015, the exercise prices of all outstanding stock options, as well as all vested stock options, ranged from $0.20 per share to $5.00 per share. Warrants The following summarizes the activity of our outstanding warrants for the six month period ended June 30, 2015:
Weighted
Average
Weighted Remaining
Average Contractual Aggregate
Exercise Term Intrinsic
Shares Price (in years) Value
Outstanding at January 1, 2015 3,356,750 $ 1.99 (A) 5.6 $ 77,000
Granted - -
Exercised - -
Canceled or expired 37,500 0.01
Outstanding at June 30, 2015 3,319,250 $ 2.04 (A) 5.2 (B) $ 73,000
Exercisable at June 30, 2015 2,694,250 $ 2.64 5.2 (C) $ 73,000
(A) The weighted average exercise price for warrants outstanding as of January 1, 2015 and June 30, 2015 excludes 1,750,000 warrants with no determined exercise price.
(B) The weighted average remaining contractual term for warrants outstanding as of June 30, 2015 excludes 743,500 warrants with no expiration date.
(C) The weighted average remaining contractual term for warrants exercisable as of June 30, 2015 excludes 138,500 warrants with no expiration date. |
