| Stockholder's Equity | 12. Stockholder’s Equity
Common Stock Paid-in Accumulated
Total Stockholders’
Non-controlling interest in consolidated Total
Shares Amount Capital Deficit Equity Entities Equity
Balance, December 31, 2017 4,889,745 $ 489 $ 23,223,435 $ (18,090,961 ) $ 5,132,963 $ 15,585 $ 5,148,548
Issuance of common stock from warrant exercise for cash 126,000 13 680,387 - 680,400 - 680,400
Issuance of common stock for services by third parties 12,525 1 60,931 - 60,932 - 60,932
Issuance of common stock for services by employees 16,500 1 90,509 - 90,510 - 90,510
Stock-based compensation - - 174,744 - 174,744 - 174,744
Net profit attributable to noncontrolling interests - - - - - 593 593
Net loss attributable to common shareholders - - - (1,319,117 ) (1,319,117 ) - (1,319,117 )
Balance, March 31, 2018 5,044,770 $ 504 $ 24,230,006 $ (19,410,078 ) $ 4,836,610 $ 16,178 $ 4,836,610 Reverse Stock Splits All shares related and per share information
in these financial statements has been adjusted to give effect to the 20-for-1 reverse stock split of the Company’s common
stock effected on October 18, 2016, and the 3-for-1 reverse stock split of the Company’s common stock effected on June 15,
2017. Issuance of Common Stock During the first quarter of 2018, the Company
issued 126,000 shares of common stock at $5.40 per share in connection with the exercise of warrants for cash proceeds of $680,400. In January and February 2018, the Company issued
16,500 shares of common stock to directors and employees for stock-based compensation of $90,510. The shares were valued using
the closing share price of our common stock on the date of grant, with the range of $3.99 - $5.11 per share. During the first quarter of 2018, the Company
issued 12,525 shares of common stock to a consultant in exchange for services. The shares were valued using the closing share price
of our common stock on the date of grant, with a range of $3.99 - $5.11 per share, for a total value of $50,118. In December 2017, the Company issued 18,371
shares of common stock to directors and employees for stock-based compensation of $79,351. The shares were valued using the closing
share price of our common stock on the date of grant, with the range of $3.78 - $4.33 per share. In December 2017, the Company issued 32,000
shares of common stock to a consultant in exchange for services, which were subject to a claw-back provision tied to specific performance.
The shares were valued using the closing share price of our common stock on the date of grant, $4.54 per share. In December 2017, the Company issued 14,384
shares of its common stock upon conversion of 8% convertible promissory notes with an aggregate principal amount converted of $52,500.
No gain or loss recorded on the transactions. In September 2017, the Company issued 14,760
shares of common stock to directors and employees for stock-based compensation of $56,221. The shares were valued using the closing
share price of our common stock on the date of grant, with the range of $3.78 - $4.38 per share. In August 2017, the Company issued 83,334 shares
of its common stock upon conversion of a 6% convertible promissory note with an aggregate principal amount converted of $500,000.
No gain or loss recorded on the transactions. In August 2017, the Company issued 5,209 shares
of common stock to a third-party consultant in exchange for services rendered. The shares were valued using the closing share price
of our common stock on the date of grant, with the range of $3.40 - $3.50 per share. In August 2017, the Company completed an underwritten
public offering of 1,200,000 units consisting of 1,200,000 shares of its common stock and warrants to purchase up to an aggregate
of 1,200,000 shares of its common stock (each, a “Unit”) at a public offering price of $4.50 per Unit. The warrants
have a per share exercise price of $5.40, are exercisable immediately, and will expire five years from the date of issuance. The
gross proceeds to the Company from this offering were $5.4 million, before deducting underwriting discounts and commissions and
other estimated offering expenses. On August 24, 2017, the underwriters exercised their option to purchase an additional 180,000
Units to cover over-allotments, that resulted in additional gross proceeds to the Company of $810,000, before deducting offering
expenses. In June 2017, the Company issued 2,716 shares
of common stock to employees for stock-based compensation of $15,943, all of which were fully vested upon issuance. The shares
were valued using the closing share price of our common stock on the date of grant, with the range of $4.38 - $6.00 per share. In May 2017, the Company completed the acquisition
of a majority stake in BBD. We issued 28,096 shares of common stock to the owners of BBD as consideration for 90% of the BBD LLC
units. Based on the closing share price of our common stock of $4.80 on May 1, 2017, the value of the transaction was $134,858.
Issuance costs incurred were $14,400. In April 2017, the independent directors, Messrs.
Trent Davis and Michael Fleming, respectively, each exercised 4,630 stock options to purchase common stock at $5.40 per share. In April 2017, the Company issued 50,335 shares
of common stock to three third-party consultants in exchange for services rendered. The shares were valued using the closing share
price of our common stock on the date of grant, with the range of $4.35 - $4.50 per share. In April 2017, the Company approved a restricted
stock unit grant of 33,334 shares of common stock to the Company’s Chief Executive Officer, Grover Wickersham. The grant
vested on April 5, 2017, of which 10,218 shares were withheld in order to satisfy Mr. Wickersham’s personal tax withholding
responsibility. The shares were valued using the $4.80 closing share price of our common stock on the date of grant. In April 2017, the Company issued 16,667 shares
of its common stock upon conversion of 50 shares of preferred stock. In March 2017, the Company issued 83,334 shares
of its common stock upon conversion of 250 shares of preferred stock. In March 2017, the Company issued 22,436 shares
of its common stock upon conversion of 8% convertible promissory notes with an aggregate principal amount converted of $87,500.
No gain or loss recorded on the transactions. On March 8, 2017, the Company completed the
acquisition of MotherLode. We issued 86,667 shares of common stock to the owners of MotherLode as consideration for the acquisition.
Based on the closing share price of our common stock of $4.35 on March 8, 2017, the value of the transaction was $377,000. Issuance
costs incurred were $5,580. In March 2017, the Company issued 575 shares
of common stock to employees for stock-based compensation of $2,517. The shares were valued using the $4.38 closing share price
of our common stock on the date of grant. In March 2017, the Company issued 19,796 shares
of common stock to four third-party consultants in exchange for services rendered. The shares were valued using the closing share
price of our common stock on the date of grant, with the range of $3.90 - $4.35 per share. From March 31, 2017 to June 2, 2017, the Company
issued 400,019 shares of its common stock for aggregate cash proceeds of $1,560,000, including 400,019 warrants for common stock. From January 15, 2017 through February 16,
2017, the Company received warrant exercises and common stock subscriptions for 40,834 shares for aggregate cash proceeds of $159,250. From January 4, 2017 to January 22, 2017, the
Company sold 15,001 shares of common stock to accredited investors at a price of $3.90 per share for aggregate cash proceeds of
$58,500. Issuance of Convertible Preferred Stock Each share of Series A Preferred has a stated
value of $1,000, which is convertible into shares of the Company’s common stock at a fixed conversion price equal to $4.50
per share. The Series A Preferred accrue dividends at a rate of 8% per annum, cumulative. Dividends are payable quarterly in arrears
at the Company’s option either in cash or “in kind” in shares of common stock; provided, however that dividends
may only be paid in cash following the fiscal year in which the Company has net income (as shown in its audited financial statements
contained in its Annual Report on Form 10-K for such year) of at least $500,000, to the extent permitted under applicable law out
of funds legally available therefore. For “in-kind” dividends, holders will receive that number of shares of common
stock equal to (i) the amount of the dividend payment due such stockholder divided by (ii) 90% of the average of the per share
market values during the twenty (20) trading days immediately preceding a dividend date. In the event of any voluntary or involuntary
liquidation, dissolution or winding up, or sale of the Company, each holder of Series A Preferred is entitled to receive its pro
rata portion of an aggregate payment equal to: (i) $1,000 multiplied by (ii) the total number of shares of Series A Preferred issued
under the Series A Certificate of Designation multiplied by (iii) 2.5. For all matters submitted to a vote of the
Company’s stockholders, the holders of the Series A Preferred as a class have an aggregate number of votes equal to the product
of (x) the number of shares of Common Stock (rounded to the nearest whole number) into which the total shares of Series A Preferred
Stock issued under the Series A Certificate of Designation on such date of determination are convertible multiplied by (y) 2.5
(the “Total Series A Votes”), with each holder of Series A Preferred entitled to vote its pro rata portion of the Total
Series A Votes. Holders of Common Stock do not have cumulative voting rights. In addition, the holders of Series A Preferred vote
separately a class to change any of the rights, preferences and privileges of the Series A Preferred. As of March 31, 2018, the Company has zero
shares of preferred stock outstanding. Stock-Based Compensation On September 8, 2016, the Company adopted the
2016 Equity Incentive Plan (the “2016 Plan”). The total number of shares available for the grant of either stock options
or compensation stock under the 2016 Plan is 166,667 shares, subject to adjustment. On January 1, 2017, the number of shares available
for grant under the 2016 Plan reset to 307,139 shares, equal to 8% of the number of outstanding shares of the Company’s capital
stock, calculated on an as-converted basis, on December 31 of the preceding calendar year. On October 18, 2017, the Board of Directors
(the “Board”) approved amendments to the 2016 Plan to (i) increase the number of shares of the common stock that may
be issued under the 2016 Plan (the “Aggregate Limit”) by an additional 192,861 shares of common stock, for a total
of 500,000 shares of common stock, (ii) increase the number of shares of common stock that may be granted to any participant pursuant
to options to purchase common stock and stock appreciation rights under the 2016 Plan in any one year period (the “Individual
Option Limit”) from 8,333 shares to 200,000 shares, (iii) increase the number of shares of common stock that may be granted
to any participant pursuant to other awards (the “Individual Award Limit”) under the 2016 Plan in any one year period
from 8,333 shares to 200,000 shares and (iv) increase the number of shares of common stock that may be paid to any one participant
under the 2016 Plan for a performance period pursuant to performance compensation awards under the 2016 Plan (the “Individual
Performance Award Limit”) from 8,333 shares to 200,000 shares, which amendments were adopted and approved at the December
2017 meeting of stockholders. The exercise price per share of each stock option will not be less than 100 percent of the fair market
value of the Company’s common stock on the date of grant. On January 1, 2018, the number of shares available for grant under
the 2016 Plan reset to 1,131,880 shares, equal to 8% of the number of outstanding shares of the Company’s capital stock,
calculated on an as-converted basis, on December 31 of the preceding calendar year, added to the prior year plan amount. At March
31, 2018, there were 709,422 options and 145,146 restricted stock units (“RSUs”) issued under the 2016 Plan, with vesting
schedules varying between immediate and five (5) years from the grant date. On January 29, 2015, the Company adopted the
2015 Stock Incentive Plan (the 2015 Plan). The total number of shares available for the grant of either stock options or compensation
stock under the 2015 Plan is 50,000 shares, subject to adjustment. The exercise price per share of each stock option will not be
less than 20 percent of the fair market value of the Company’s common stock on the date of grant. At March 31, 2018, there
were 14,584 options issued under the Plan outstanding, which options vest at the rate of at least 25 percent in the first year,
starting 6-months after the grant date, and 75% in year two. The Company also issues, from time to time,
options which are not registered under a formal option plan. At March 31, 2018, there were no options outstanding that were not
issued under the Plans. A summary of all stock option activity at and
for the three months ended March 31, 2018 is presented below:
# of Options Weighted- Average Exercise Price
Outstanding at December 31, 2017 369,006 $ 6.47
Options granted 355,000 $ 3.97
Options exercised -
Options canceled -
Outstanding at March 31, 2018 724,006 $ 4.84
Exercisable at March 31, 2018 198,448 $ 6.55 The aggregate intrinsic value of options outstanding
at March 31, 2018 was $1,579,436. At March 31, 2018, there were 525,558 unvested
options with an aggregate grant date fair value of $1,467,798. The unvested options will vest in accordance with the vesting schedule
in each respective option agreement, which varies between immediate and five (5) years from the grant date. The aggregate intrinsic
value of unvested options at March 31, 2018 was $1,475,574. During the three months ended March 31, 2018, 47,166 options became
vested. The Company uses the Black-Scholes valuation
model to measure the grant-date fair value of stock options. The grant-date fair value of stock options issued to employees is
recognized on a straight-line basis over the requisite service period. Stock-based awards issued to nonemployees are recorded at
fair value on the measurement date and are subject to periodic market adjustments as the underlying stock-based awards vest. To
determine the fair value of stock options using the Black-Scholes valuation model, the calculation takes into consideration the
effect of the following:
● Exercise price of the option
● Fair value of the Company’s common stock on the date of grant
● Expected term of the option
● Expected volatility over the expected term of the option
● Risk-free interest rate for the expected term of the option The calculation includes several assumptions
that require management’s judgment. The expected term of the options is calculated using the simplified method described
in GAAP. The simplified method defines the expected term as the average of the contractual term and the vesting period. Estimated
volatility is derived from volatility calculated using historical closing prices of common shares of similar entities whose share
prices are publicly available for the expected term of the options. The risk-free interest rate is based on the U.S. Treasury constant
maturities in effect at the time of grant for the expected term of the options. The following weighted-average assumptions
were used in the Black-Scholes valuation model for options granted during the three months ended March 31, 2018:
Risk-free interest rate 2.36 %
Expected term (in years) 6.11
Dividend yield -
Expected volatility 75 % The weighted-average grant-date fair value
per share of stock options granted during the three months ended March 31, 2018 was $2.66. The aggregate grant date fair value
of the 355,000 options granted during the three months ended March 31, 2018 was $942,837. For the three months ended March 31, 2018 and
2017, total stock option expense related to stock options was $174,744 and $158,658 respectively. At March 31, 2018, the total
compensation cost related to stock options not yet recognized is approximately $1,565,148, which is expected to be recognized over
a weighted-average period of approximately 2.55 years. Warrants During the three months ended March 31, 2018,
the Company issued an aggregate of 217,298 common stock warrants in connection with the purchase of $2.2 million in promissory
notes. $1.25 million was purchased with new cash proceeds and $922,980 was purchased from the conversion of prior existing notes.
The Company has determined the warrants should be classified as equity on the condensed consolidated balance sheet as of March
31, 2018. The estimated fair value of the warrants at issuance was $988,923, based on a combination of closing market trading price
on the date of issuance for the public offering warrants, and the Black-Scholes option-pricing model using the weighted-average
assumptions below:
Volatility 75 %
Risk-free interest rate 2.475 %
Expected term (in years) 4.5
Expected dividend yield -
Fair value of common stock $ 4.74 A total of 126,000 warrants were exercised
during the three months ended March 31, 2018 for cash proceeds of $680,400. A summary of activity in
warrants is as follows:
Warrants Weighted Average Remaining Life Weighted Average Exercise Price Aggregate Intrinsic Value
Outstanding at December 31, 2017 2,623,077 3.62 years $ 5.96 $ 54,880
Three months ended March 31, 2018:
Granted 217,298 4.5 years $ 5.40 $ 347,677
Exercised (126,000 ) 4.5 years $ 5.40 -
Forfeited and cancelled - - $ - -
Outstanding at March 31, 2018 2,714,375 3.67 years $ 5.94 $ 2,877,238 |
