| Stockholders' Equity | All share and per-share amounts reflect the
impact of the Reverse Split and are rounded to thousands. Common Stock Generally, we issue common stock in connection
with acquisitions, as a part of equity financing transactions, as dividends on preferred stock, upon conversion of preferred shares
and convertible notes to common stock and upon the exercise of stock options or warrants. In 2015, we issued 667,000 shares as a part
of the merger agreement with IPSA, 809,000 shares as a part of equity financing transactions, 17,000 shares as dividends on Preferred
Stock, 72,000 shares due upon the conversion of Preferred Stock, 204,000 shares upon the exercise of options, 92,000 shares upon
the exercise of warrants, 13,000 shares in exchange for services and 14,000 shares upon conversion of a portion of the principal
and interest of outstanding convertible promissory notes. Year Ended December 31, 2015 Q1 2015 Securities Purchase Agreements On February 9, 2015, we entered into a securities
purchase agreement with an accredited investor, pursuant to which we issued 372,000 shares of common stock at a purchase price
of $16.50 per share. In addition, we issued warrants to purchase up to 342,000 shares of our common stock in the aggregate, at
an exercise price of $12.00 per share. The warrants have a term of three years and may be exercised at any time from or after the
date of issuance, may be exercised on a cashless basis and contain customary, structural anti-dilution protection (i.e., stock
splits, dividends, etc.). The warrants qualified for equity accounting. Upon closing of this equity financing, we received proceeds
of $6,145,000. On February 17, 2015, we entered into a securities
purchase agreement with an accredited investor, pursuant to which we issued 77,000 shares of common stock at a purchase price of
$16.50 per share. In addition, we issued warrants to purchase up to 71,000 shares of our common stock in the aggregate, at an exercise
price of $12.00 per share. The warrants have a term of three years and may be exercised at any time from or after the date of issuance,
may be exercised on a cashless basis and contain customary, structural anti-dilution protection (i.e., stock splits, dividends,
etc.). The warrants qualified for equity accounting. Upon closing of this equity financing, we received proceeds of $1,279,000. On March 12, 2015, we entered into securities
purchase agreements with a group of accredited investors, pursuant to which we issued 246,000 shares of common stock at a purchase
price of $16.50 per share. In addition, we issued warrants to purchase up to 123,000 shares of our common stock in the aggregate,
at an exercise price of $22.50 per share. The warrants have a term of three 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.). The warrants
qualified for equity accounting. Upon closing of this equity financing, we received proceeds of $4,055,000. We incurred fees of $185,000 in connection with
the financing transactions discussed above and this amount has been charged to additional paid in capital. Q4 2015 Private Investment in Public Equity
PIPE Financing On November 5, 2015, we entered into securities
purchase agreements with a group of accredited investors, pursuant to which we issued 51,000 shares of common stock at a purchase
price of $16.50 per share. In addition, we agreed to issue warrants to purchase up to 13,000 shares of our common stock in the
aggregate, at an exercise price of $22.50 per share. 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.).
The warrants qualified for equity accounting. Upon closing of this equity financing, we received proceeds of $846,000. Two
of the accredited investors are Dan Wachtler, CEO of the IPSA subsidiary, who invested $250,000 and was issued 15,000 shares of
common stock and 4,000 warrants, and John Catsimatidis, a former member of our Board of Directors, who invested $242,750 and was
issued 15,000 shares of common stock and 4,000 warrants. On December 23, 2015, we entered into securities
purchase agreements with a group of accredited investors, pursuant to which we issued 62,000 shares of common stock at a purchase
price of $16.50 per share. In addition, we issued warrants to purchase up to 15,000 shares of our common stock in the aggregate,
at an exercise price of $22.50 per share. 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.). The warrants
qualified for equity accounting. Upon closing of this equity financing, we received proceeds of $1,019,700. As noted below, the
warrants were replaced on March 3, 2016. Fees associated with the November and December 2015 financings were immaterial and expensed
in the ordinary course of business. Year Ended December 31, 2016 Q1 2016 Private Investment in Public Equity
(PIPE) Financing On January 26, 2016, we entered into securities
purchase agreements with a group of accredited investors, pursuant to which we issued 15,000 shares of common stock at a purchase
price of $16.50 per share. In addition, we issued warrants to purchase up to approximately 4,000 shares of our common stock in
the aggregate, at an exercise price of $22.50 per share (the Warrants). The Warrants, which qualified for equity
classification, 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.). As noted below, these original warrants were replaced
on March 3, 2016. Upon closing of this equity financing, we received proceeds of $250,000. Series D Warrant Inducement Offer On February 24, 2016, we received proceeds of
$1,257,000 in connection with our offer to amend and exercise warrants. In connection with the offering, warrant holders elected
to exercise a total of 76,000 of their $16.875 warrants at a reduced exercise price of $16.50 per share. We issued new warrants
to the participants to purchase 19,000 shares of common stock with a term of five (5) years and have an exercise price per share
equal to $22.50. We incurred fees of $105,000 related to this transaction which was charged to additional paid in capital. On March 3, 2016 we agreed to replace the 32,000,
$22.50 warrants from the November 5, 2015, December 23, 2015 and January 26, 2016 PIPE financings with 128,000 five year warrants
at $16.50 per share. These 128,000 warrants also qualified for equity classification and are subject to our customary, structural
anti-dilution protections (i.e. stock splits, dividends, etc.). On March 10,
2016, we entered into securities purchase agreements with accredited investors, advisory clients of Wellington Management Company,
LLP (Wellington) and the Dan Wachtler
Family Trust pursuant to which we issued 338,000 shares of common stock at the purchase price of $16.50 per share. In addition,
we issued warrants to purchase up to 338,000 shares of our common stock in the aggregate, at an exercise price of $16.50 per share.
The warrants have a term of five years and may be exercised on a cashless basis. Per the terms of the agreement, other than
Dan Wachtler Family Trust, these purchasers are deemed to be Qualified Purchasers and are subject to the full-ratchet
and anti-dilution protections explained below. Upon closing of this equity financing, we received proceeds of $5,585,000. In the event, prior to March 10, 2021, we issue
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, we issue Additional Stock for a per share consideration of less than $16.50 resulting in a Dilutive
Issuance as defined in the Securities Purchase Agreement, we 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, we issue 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 338,000 warrant shares issued to Qualified Investors divided by 9,436,000 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. 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 December
31, 2016, the Qualified Purchasers beneficially owned approximately 13% of our 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 more than 9.9%. 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 12 Long-Term Debt. Aside from legal fees, we incurred $398,000
in fees, plus the issuance of 14,000 five year warrants, with an exercise price of $16.50 in connection with this financing
transaction and this amount was charged to additional paid in capital. 7% Class B Convertible Preferred Stock During 2010, we issued approximately 80,000
shares of 7% Class B Convertible Preferred Stock (Class B Preferred Stock). The holders of shares of Class B Convertible
Preferred Stock were entitled to receive a 7 percent annual dividend until the shares are converted to common stock. During 2015,
all 1,080,000 shares of Class B Preferred Stock were converted into 1,080,000 shares of Common Stock. No shares of Series B Preferred
Stock remain outstanding as of December 31, 2016 or 2015. 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 our books until declared.
On February 26, 2016, we declared the dividends on the Series B preferred stock accrued as of December 31, 2015, and we paid the
dividends in 333 shares of Company common stock during the three months ended March 31, 2016. There were no accrued dividends payable
as of December 31, 2016. Dividends paid during the year ended December
31, 2015 totaled 2,425 shares to the Series B investors valued at $56,372. 7% Class C Convertible Preferred Stock During
2011, we issued shares of Series C Convertible Preferred
Stock, $.001 par value per share (Series C Preferred Stock), along with warrants.
Each share was priced at $31.50 and, when issued, included 3 warrants at an exercise price of $11.55 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 our option, and (c) was automatically converted into
common stock should the price of our common stock exceed $37.50 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
liability. On August
11, 2015, we executed an Exchange Agreement with the holders of the Series C Preferred Stock Warrants, replacing the original $11.55
warrants, with $18.00 warrants, which are not eligible for exercise until after February 11, 2017 and have an expiration date of
August 11, 2018. Additionally, we did not provide full-ratchet anti-dilution provisions. River
Charitable Remainder Unitrust f/b/o Isaac Blech (the Trust), of which Isaac Blech, one of our current Directors,
is the sole trustee; and (ii) Miriam Blech, the wife of Isaac Blech. On February
9, 2016, we 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 our Class C Preferred Stock. Pursuant to the Agreement, the parties agreed
to postpone payment of the annual dividend on our Class C Preferred Stock until five (5) business days following the day on which
we hold an annual or special meeting of its stockholders where the stockholders approve a proposal to increase the authorized common
stock. Associated
with the March 10, 2016 PIPE financing, Mr. Isaac Blech and his affiliates agreed that we do 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 we hold an annual or special meeting of our stockholders where the stockholders approve a proposal to increase our the
authorized capital stock. In addition, Mr. Blech and his affiliates agreed not to convert the Series C Preferred Stock or exercise
the underlying warrants into shares of our common stock, until such time as our stockholders approved a proposal to increase our
authorized capital stock. On August
30, 2016, we 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 our stockholders of a proposal
to either increase our authorized capital stock 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 our
common stock. On October 24, 2016, our shareholders approved
certain measures which were implemented by the Board of Directors and allowed the Series C shareholders to convert their 2,400,000
Series C Preferred Stock into 476,000 split adjusted shares of common stock on December 7, 2016. Any and all accrued or unpaid
dividends outstanding were forgiven by the Series C shareholders. There were no dividend payments to the Series
C shareholders during 2016. Dividends paid during the year ended December
31, 2015 totaled 15,054 shares to the Series C investors valued at $350,000. There were zero and 2,380,952 outstanding shares
of the Series C Preferred Stock as of December 31, 2016 and 2015, respectively. Stock Option and Warrant Exchanges On July 15, 2016, we exchanged, with former
members of our Board of Directors, 20,000 and 2,000 stock options with strike prices of $19.50 and $21.75, respectively, for 22,000
three year warrants with a $22.50 strike price. On September 26, 2016, 69,000 outstanding stock
options with strike prices of $11.40 and 5 year terms originally issued to Centurion in December 2012 were modified as follows:
(1) 35,000 options were transferred to our CEO and partner of Centurion with no modification of terms and (2) 34,000 options were
cancelled and replaced with 5 year warrants with strike prices of $16.50. 1,000 of the warrants were issued to our CEO and 33,000
of the warrants were issued to affiliates of Centurion. Stock Options In May 2008, we adopted a stock incentive plan,
entitled the 2008 Stock Incentive Plan (the Plan), authorizing us to grant stock options of up to 667,000 common
shares for employees and key consultants. On August 13, 2014, our stockholders approved an amendment to the Plan increasing the
number of shares of Common Stock available for issuance under the Plan to 1,333,000. All options are approved by the Compensation
Committee. As of December 31, 2016, there were 34,000 shares available for grant under the Plan. Our results for 2016 and 2015 include stock
option based compensation expense of $2,948,000 and $1,129,000, respectively. These amounts are included within Selling, General
& Administrative expenses on the Consolidated Statements of Operations. There were no tax benefits recognized in 2016 or 2015
for stock based compensation. We grant stock options to key employees and
Board members at prices not less than the fair market value of our common stock on the grant date. Options issued expire either
at five or ten years from the date of grant. The options are exercisable either immediately, or based upon certain performance
criteria tied to profitability, or based on a vesting schedule over 1 to 4 years. Compensation cost is recognized on a straight
line basis based on the applicable vesting schedule. We use the Black-Scholes valuation method to estimate the grant date fair
value of each option. The fair values of options granted were estimated using the following weighted-average assumptions:
Years Ended December 31,
2016 2015
Exercise price $10.20 - $20.10 $18.00 - $34.80
Risk free interest rate 0.84% to 2.39% 0.80% to 1.84%
Volatility 58.89% - 89.46% 27.62% - 60.7%
Expected Term 2.5 Years 5.5 Years 2.5 Years 5.5 Years
Dividend yield None None The expected dividend yield is zero as we do
not currently pay dividends on our common stock. As our common stock has very low trading volume, volatility is calculated based
on the average volatility of a group which includes us and peer companies. The risk free interest rate is based on the U.S. Treasury
rates on the grant date with maturity dates approximating the expected life of the option on the grant date. The expected term
is an estimate based on the average of the date of vesting and the end of term of the option. These assumptions are evaluated and
revised for future grants, as necessary, to reflect market conditions and experience. Due to the increase in trading volume over
the past year, we have gradually increased the weight of the Companys own stock price volatility as a percentage of volatility
estimates over the course 2016. There were no other significant changes made to the methodology used to determine the assumptions
during 2016. The weighted-average grant-date fair value of stock options granted was $7.14 during 2016 and $7.65 during 2015. The following represents the activity under
the Plan as of December 31, 2016 and changes during the two years then ended:
Outstanding Options Weighted Average Exercise Price
Outstanding at December 31, 2014 753,991 $ 12.15
Issued 209,333 $ 20.55
Exercised (203,560 ) $ 9.90
Forfeitures (69,092 ) $ 16.05
Outstanding at December 31, 2015 690,672 $ 15.15
Issued 571,378 $ 13.08
Exercised (46,800 ) $ 9.60
Forfeitures (167,843 ) $ 14.56
Outstanding at December 31, 2016 1,047,407 $ 14.18
Exercisable at December 31, 2016 710,105 $ 14.00 The weighted-average remaining contractual life
for options outstanding at December 31, 2016 was 8.0 years and for options exercisable at December 31, 2016 was 7.28 years. The
aggregate intrinsic value of options outstanding at December 31, 2016 was $426,001 and for options exercisable at December 31,
2016 was $339,344. As of December 31, 2016 there was approximately $1,736,000 of unrecognized compensation cost related to outstanding
stock options. The unrecognized compensation cost will be recognized over a weighted-average period of .8 years. At December 1, 2016, we had issued 132,000 stock
options to employees, with the vesting of these options contingent on shareholder approval of an increase in the amount of authorized
shares of common stock at the next annual meeting. Prior to December 2016, these option grants were not included as outstanding
stock option grants. With the December 2016 increase in authorized shares, the contingency was removed and these outstanding options
are included as issued during 2016 and are included in our outstanding stock options at December 31, 2016. Warrants We predominantly issue warrants to purchase
Common Stock in connection with the issuance of Convertible Preferred Stock, Convertible Notes and equity financings. We have also
issued warrants for services rendered by board members and outside companies. Additionally, we have issued warrants in connection
with an acquisition.669,000 of the 2,335,000 outstanding warrants have been issued in connection with equity instruments and are
accounted for as a derivative liability. The remaining 1,666,000 warrants were issued for services rendered by board members or
external companies, in connection with acquisitions, or in connection with the issuance of convertible notes or equity instruments
and have been recorded as equity based on fair value. The warrants expire 3 or 5 years from the date of issuance. Generally, warrants
vest immediately or over a vesting schedule of between 1 and 3 years. We use the Black-Scholes or Binomial valuation
method, as appropriate, to estimate the grant date fair value of each warrant. During 2016 and 2015, we issued 30,000 and 5,000
warrants, respectively, to purchase shares of common stock in exchange for services. Our results for the year 2016 and 2015, include
expense related to warrants issued for services of $60,175 and $18,000, respectively, and were included within Selling, General
& Administrative expenses in the Consolidated Statements of Operations. The fair values of warrants granted for service
were estimated using the following weighted-average assumptions:
Years Ended December 31,
2016 2015
Exercise price $16.50 - $22.50 $22.50
Risk free interest rate 0.69% - 0.73% 0.39% to 0.46%
Volatility 56.4% - 59.66% 26.47% - 26.66%
Expected Term 1.5 - 2.0 Years 1.5 Years
Dividend yield None None During 2016, warrant holders exercised 114,000
warrants to purchase common stock, some of which were cashless exercises. The weighted average price of the exercised warrants
was $14.85 and we received $1,257,000 in proceeds and issued 91,000 shares of common stock as a result of these exercises. During
2015, warrant holders exercised 103,000 warrants to purchase common stock, some of which were cashless exercises. The weighted
average price of the exercised warrants was $11.40 and we received $881,000 in proceeds and issued 92,000 shares of common stock
as a result of these exercises. On
August 11, 2015 (the Closing Date), we entered into an exchange agreement (the Exchange Agreement) with
the holders of outstanding warrants to purchase shares of our common stock (the Holders), pursuant to which we agreed
to issue warrants to purchase an aggregate of 476,000 shares of our common stock (the Replacement Warrants) in
exchange for the cancellation of the Holders existing warrants to purchase an aggregate of 476,000 shares of our
common stock (the Prior Warrants). The Holders consist of (i) River Charitable
Remainder Unitrust f/b/o Isaac Blech (the Trust), of which Isaac Blech, a current member of our Board of Directors,
is the sole trustee; and (ii) Miriam Blech, the wife of Isaac Blech. As a result of the Exchange Agreement, the Prior
Warrants, which were recorded as a derivative liability and were valued at $2,618,000 as of August 11, 2015, were cancelled and
removed from derivative liabilities on our Consolidated Balance Sheets. The Replacement Warrants, which were determined to be equity
instruments, were recorded to additional paid in capital in the same amount on our Consolidated Balance Sheets. On January 26, 2016, we entered securities purchase
agreements with a group of accredited investors, pursuant to which we issued, among other things, warrants to purchase up to approximately
3,800 shares of our common stock in the aggregate, at an exercise price of $22.50 per share and a five year term. On March 3, 2016, we agreed to replace the approximately
32,000, $22.50 warrants from the November 5, 2015, December 23, 2015 and January 26, 2016 financings with approximately 128,000
five year warrants at $16.50 per share. On March 10, 2016, we entered securities purchase
agreements with Wellington and the Dan Wachtler Family Trust pursuant to which we issued, among other things, warrants to purchase
up to approximately 338,000 shares of our common stock in the aggregate, at an exercise price of $16.50 per share with a five year
term. On February 24, 2016, we offered to amend and
exercise certain warrants. In connection with the offering, we issued new warrants to the participants to purchase approximately
19,000 shares of common stock with a term of five (5) years and have an exercise price per share equal to $22.50. Between September and December 2016, we issued
240,000 five year warrants with a strike price of $12.00 to the Q3 and Q4 Convertible Promissory Note investors. The following represents the stock warrant activity as of December
31, 2016 and changes during the two years then ended:
Outstanding Warrants Weighted Average Exercise Price
Outstanding at December 31, 2014 1,250,204 $ 15.90
Issued 1,056,576 $ 16.09
Exercised (103,087 ) $ 11.40
Cancelled (479,176 ) $ 12.00
Outstanding at December 31, 2015 1,724,517 $ 17.40
Issued 843,896 $ 15.64
Exercised (114,169 ) $ 14.85
Cancelled (118,973 ) $ 35.70
Outstanding at December 31, 2016 2,335,271 $ 15.90 |
