| Stockholders' Equity | Common Stock: Generally, the Company issues
common stock in connection with acquisitions, as a part of equity financing transactions, as dividends on preferred stock, upon
conversion of preferred shares to common stock and upon the exercise of stock options or warrants. During the nine months ended September 30, 2016,
the Company issued common stock and common stock warrants as a part of the following four equity financing transactions: On January 26, 2016, the
Company entered into securities purchase agreements with a group of accredited investors, pursuant to which the Company was to
issue 227,273 shares of common stock at a purchase price of $1.10 per share. In addition, the Company issued warrants to purchase
up to 56,818 shares of the Corporation’s common stock in the aggregate, at an exercise price of $1.50 per share (the “Warrants”).
The Warrants have a term of five years and may be exercised at any time from or after the date of issuance and contain customary,
structural anti-dilution protection (i.e., stock splits, dividends, etc.). Upon closing of this equity financing, the Company
received proceeds of $250,000. On February 24, 2016, the
Company received proceeds of $1,256,782 in connection with the Company's offer to amend and exercise warrants. In connection with
the offering, warrant holders elected to exercise a total of 1,142,529 of their $1.125 warrants at a reduced exercise price of
$1.10 per share. The Company issued new warrants to the participants to purchase 285,654 shares of common stock with a term of
five (5) years and have an exercise price per share equal to $1.50. The Company incurred fees of $105,407 relative to this transaction. On March 3, 2016 the Company
agreed to replace the 480,784 $1.50 warrants from the November 5, 2015, December 23, 2015 and January 26, 2016 financings with
1,923,137 five year warrants at $1.10 per share. These 1,923,137 warrants are subject to the Company’s customary, structural
anti-dilution protections (i.e. stock splits, dividends, etc.). On March 10, 2016, the Company
entered into securities purchase agreements with accredited investors, advisory clients of Wellington Management Company, LLP
In the event, prior to March 10, 2021, the Company issues “Additional Stock” (as defined in the Qualified Purchasers
Securities Purchase Agreement) for per share consideration that is less than the Exercise Price of the Qualified Purchaser warrants,
then the Exercise Price of each Warrant shall be reduced concurrently with such issue, to match the per share price of the dilutive
issuance. Additional Stock as defined in the Securities Purchase Agreement excludes common stock issued for exercises of stock
options and warrants, conversions of promissory notes, and certain other adjustments as defined in the agreement. Additionally, in the event,
prior to March 10, 2018, the Company issues “Additional Stock” for a per share consideration of less than $1.10 resulting
in a “Dilutive Issuance” as defined in the Securities Purchase Agreement, the Company shall issue shares to the Qualified
Purchasers, for no additional consideration, based on a formula defined in the Securities Purchase Agreement. Furthermore, in the event,
prior to March 10, 2018, the Company issues “Additional Stock” (as defined in the Qualified Purchasers Warrant Agreement)
the number of warrant shares shall be increased by the number of shares necessary to ensure that the “Ownership Percentage”
immediately following the issuance of any such shares shall remain equal to the Ownership Percentage immediately prior to such
issuance. Ownership Percentage is calculated as the 5,073,863 warrant shares issued to Qualified Investors divided by 141,538,754
fully diluted shares agreed upon at the issuance date. Additional stock per the Warrant Agreement excludes all of the same items
described above and also excludes shares issued for a strategic investment between $10 million and $25 million. On August 29, 2016 the Qualified
Purchasers agreed that any issuance of Additional Stock, as defined in the Securities Purchaser Agreement, will exclude any new
common stock or warrant shares issued as part of the 2016 Q3 Convertible Debt financing, as discussed in Note 8. There was no activity during
the three months ended September 30, 2016 to cause the above referenced dilutive or derivative features to be initiated. Qualified Purchasers cannot
exercise their warrants unless their beneficial ownership of outstanding common stock falls below 9.9%. As of the March 10, 2016
issuance date and September 30, 2016, the Qualified Purchasers beneficially owned approximately 14% of the Company’s common
stock, thus, the warrants are not exercisable. If the Qualified Purchasers ownership of outstanding common stock falls below 9.9%,
they are permitted to exercise warrants only to the extent that their beneficial ownership reaches 9.9%. Aside from legal fees, the
Company incurred $397,699 in fees, plus the issuance of 202,955 $1.10 five year warrants, with an exercise price of $1.10
and in connection with this financing transaction and this amount is not reflected in the proceeds above. The table below summarizes
the common stock and warrant activity referenced:
Common Shares Warrants
January 26, 2016 Securities Purchase Agreement 227,273 56,818
February 24, 2016 Warrant Exercises 1,142,529 (1,142,529 )
February 24, 2016 Warrant Issue 285,654
March 3, 2016 Warrants Replaced (480,784 )
March 3, 2016 Warrant Re-Issue 1,923,137
March 10, 2016 Stock Purchase Agreement 5,076,863 5,076,863
Warrants Issued for Services 202,955
Totals 6,446,665 5,922,114 7% Series B Convertible
Preferred Stock: During 2010, the Company
issued 1,200,000 shares of 7% Series B Convertible Preferred Stock (“Series B Preferred Stock”), along with 1,058,940
detachable warrants. The holders of shares of Series B Preferred Stock were entitled to receive a 7 percent annual dividend until
the shares were converted to common stock. The warrants, immediately exercisable, are for a term of five years, and entitle the
holder to purchase shares of common stock at an exercise price of $ 0.77 per share. During the three months ended March 31, 2015,
880,000 shares of Series B Preferred Stock were converted into 880,000 shares of common stock. As of September 30, 2016 and December
31, 2015, no shares of the Series B Preferred Stock remained outstanding. The Class B preferred stock
accrued 7 percent per annum dividends. The dividends began accruing April 30, 2010, and were cumulative. Dividends were payable
annually in arrears. At December 31, 2015, $6,857 of dividends had accrued on these shares. However, they are unrecorded on the
Company’s books until declared. On February 26, 2016, the Company declared the dividends on its Series B preferred stock
accrued as of December 31, 2015, and the Company paid the dividends in 4,969 shares of Company common stock during the three months
ended March 31, 2016. There were no accrued dividends payable as of September 30, 2016. Series C Convertible
Preferred Stock: During 2011, the Company
issued 2,380,952 shares of Series C Convertible Preferred Stock; $.001 par value per share (“Series C Preferred Stock”),
along with 8,217,141 warrants. Each share was priced at $2.10 and, when issued, included 3 warrants at an exercise price of $0.77
which expire in 5 years. The Series C Preferred Stock (a) is convertible into three shares of common stock, subject to certain
adjustments, (b) pays 7 percent dividends per annum, payable annually in cash or shares of common stock, at the Company’s
option, and (c) is automatically converted into common stock should the price of the Company’s common stock exceed $2.50
for 30 consecutive trading days. The warrants issued in connection with the Series C Preferred Stock contain full-ratchet anti-dilution
provisions that required them to be recorded as a derivative instrument. On August 11, 2015, the
Company executed an Exchange Agreement with the holders of the Series C Preferred Stock Warrants, replacing the original $0.77
warrants, with $1.20 warrants, which are not eligible for exercise until after February 11, 2017 and have an expiration date of
August 11, 2018. Additionally, the Company did not provide full-ratchet anti-dilution provisions. On
February 9, 2016, the Company entered into a letter agreement (the “Agreement”) with Miriam Blech and River Charitable
Remainder Unitrust f/b/o Isaac Blech, who together control all of the Company’s Class C Preferred Stock. Pursuant
to the Agreement, the parties agreed to postpone payment of the annual dividend on the Company’s Class C Preferred Stock
until five (5) business days following the day on which the Company holds an annual or special meeting of its stockholders where
the stockholders approve a proposal to increase the authorized capital stock of the Company. Associated
with the March 10, 2016 common stock financing, Mr. Isaac Blech and his affiliates agreed that the Company does not have to reserve
shares of common stock for the conversion of their Series C Preferred Stock and underlying warrants until five (5) business days
following the day on which the Company holds an annual or special meeting of its stockholders where the stockholders approve a
proposal to increase the authorized capital stock of the Company. In addition, Mr. Blech and his affiliates agreed not to convert
the Series C Preferred Stock or exercise the underlying warrants into shares of the Company’s common stock, until such time
as the Company’s stockholders approve a proposal to increase the authorized capital stock of the Company. On
August 30, 2016, the Company entered into a letter agreement (“Consent Agreement”) with Miriam Blech and River Charitable
Remainder Unitrust f/b/o Isaac Blech. Pursuant to the Consent Agreement, Blech agreed to waive certain rights and preferences associated
with the Series C Preferred Stock. In addition, Blech agreed that within 5 days of the approval by the Company’s stockholders
of a proposal to either increase the authorized capital stock of the Company or take such other corporate action as is necessary
and appropriate to reserve such number of shares of authorized but unissued shares of common stock for the conversion of all of
the Series C Preferred Stock in accordance with their terms, Blech will convert all of their respective shares of Series C Preferred
Stock into shares of the Company’s common stock. As of September 30, 2016
and December 31, 2015, 2,380,952 shares of the Series C Preferred Stock remain outstanding. As discussed in Note 14,
on October 24, 2016, the Company’s shareholders approved certain measures, measures that, once implemented by the Board of
Directors, will allow the Series C shareholders to receive dividend payments and convert their preferred shares into common stock.
The Series C warrants will become exercisable during February 2017. Stock Options: The Company issued 255,000
stock options for services during the three months ended September 30, 2016 and 150,000 stock options during the three months
ended September 30, 2015 under the 2008 Stock Incentive Plan. The Company’s results for the three months ended September
30, 2016 and 2015, include stock option based compensation expense of $212,410 and $155,550, respectively. These amounts are included
within selling, general and administrative expenses on the Consolidated Statements of Operations. There were no tax benefits recognized
with respect to that stock based compensation during the three months ended September 30, 2016 or 2015. The fair value of the 255,000
stock options granted during the three months ended September 30, 2016 were estimated using the Black Scholes option pricing model
and using the following weighted-average assumptions:
Exercise price $0.70 - $1.11
Risk free interest rate 0.84% - 1.20%
Volatility 64.57% - 80.96%
Expected term 2.5 - 5.5 Years
Dividend yield None As of September 30, 2016
the Company has issued employees 2,114,000 contingent vesting options. The vesting of these options is contingent on shareholder
approval of an increase in the amount of authorized shares of common stock. At the October 24, 2016 special stockholders meeting,
Stockholders approved an amendment to the Company’s certificate of incorporation effecting a reverse stock split of between
1:9 to 1:18 and approved an amendment to the company’s certificate of incorporation to decrease the company’s authorized
shares of common stock from 125 million shares to 30 million shares. The net effect of these proposals when or if they are implemented
by the Board will enable an increase its post reverse stock split authorized share limits. In the event that the Board does not
approve the increase in authorized shares by December 7, 2016 the options will be cancelled. The Company has determined that due
to the contingent vesting of these options, they are not included in the Company’s outstanding stock options at September
30, 2016. On July 15, 2016 the Company
exchanged 300,000 $1.30 stock options and 25,000 $1.45 stock options held by prior members of the Company’s Board of Directors,
for 325,000 $1.50 three year stock warrants. As of September 26, 2016
Mr. Grano, through Centurion Holdings, of which he is Chairman and CEO, owned 1,036,842 stock options at strike price of $0.76
per share. Upon approval of the Board of Directors, 528,789 of these stock options were re-issued to Mr. Grano with the same terms
and conditions, with the remaining 508,053 options cancelled and reissued to Centurion Holdings associates of Mr. Grano’s
as $1.10 five year warrants, with no cashless exercise provisions. The following table represents
the activity under the stock incentive plan as of September 30, 2016 and the changes during each period:
Options Shares
Weighted Average Exercise Price
Outstanding at December 31, 2014 11,309,864 $ 0.81
Issued 3,140,000 $ 1.37
Exercised (3,053,397 ) $ 0.66
Forfeitures (1,036,383 ) $ 1.07
Outstanding at December 31, 2015 10,360,084 $ 1.01
Issued 1,136,663 $ 0.97
Exercised (702,000 ) $ 0.64
Forfeitures (2,227,942 ) $ 0.92
Outstanding at September 30, 2016 8,566,805 $ 1.04 Warrants: During July 2016, the Company
issued 325,000 3 year $1.50 warrants as replacement of cancelled stock options for various members of the Board of Directors. As
described in Note 8, during September 2016, the Company issued 2,310,000 5 year $0.80 warrants to the 2016 Q3 Convertible Promissory
Note investors. On September 26, 2016 upon
approval of the Board of Directors 508,053 stock options originally issued to Centurion Holdings, of which Mr. Grano is Chairman
and CEO, were cancelled and reissued to Centurion Holdings associates of Mr. Grano’s, as $1.10 five year warrants with no
cashless exercise provisions. No warrants to purchase
common stock were exercised during the three months ended September 30, 2016, and 100,000 warrants were cancelled. The following table represents
the warrant activity as of September 30, 2016 and the changes during each period:
Warrants
Shares
Weighted Average Exercise Price
Outstanding at December 31, 2014 18,753,060 $ 1.06
Issued 15,848,643 $ 1.09
Exercised (1,546,308 ) $ 0.76
Cancelled (7,187,642 ) $ 0.80
Outstanding at December 31, 2015 25,867,753 $ 1.16
Issued 11,361,662 $ 1.07
Exercised (1,712,529 ) $ 0.99
Cancelled (1,784,595 ) $ 2.38
Outstanding at September 30, 2016 33,732,291 $ 1.07 |
