Stockholders' Equity | NOTE 6 Stockholders' Equity Preferred Stock The Companys articles of incorporation authorize the Company to issue up to 40,000,000 shares of $0.0001 par value, preferred shares having preferences to be determined by the board of directors for dividends, and liquidation of the Companys assets. Of the 40,000,000 preferred shares the Company is authorized by its articles of incorporation, the Board of Directors has designated 3,000,000 as Series AA preferred shares. As of June 30, 2016, the Company had no shares of Preferred Stock outstanding. Common Stock As of June 30, 2016, the Company has 118,784,846, $0.0001 par value, shares of common stock outstanding. The Company's articles of incorporation authorize the Company to issue up to 300,000,000 shares of $0.0001 par value, common stock. The holders are entitled to one vote for each share on matters submitted to a vote to shareholders, and to share pro rata in all dividends payable on common stock after payment of dividends on any preferred shares having preference in payment of dividends. Equity Incentive Program On December 18, 2014, the Companys Board of Directors approved an Equity Incentive Program (the Equity Incentive Program), whereby the Companys employees may elect to receive equity in lieu of cash for all or part of their salary compensation. For the quarter ended June 30, 2016, employees could elect to receive ten shares of common stock per each dollar participated in the Equity Incentive Program. During the six months ended June 30, 2016, the Company issued the following shares of common stock in connection with financing activities: On February 26, 2016, the Company closed a rights offering. The rights offering was made pursuant to a registration statement on Form S-1 filed with the Securities and Exchange Commission and declared effective on January 20, 2016. Pursuant to the rights offering, the Company distributed to holders of its common stock non-transferable subscription rights to purchase up to 50,200,947 shares of the Companys common stock, par value $0.0001 per share. Each shareholder received one subscription right for every one share of common stock owned at 5:00 p.m. EST on October 30, 2015, the record date. Each subscription right entitled a shareholder to purchase 0.7 shares of the Companys common stock at a subscription price of $0.08 per share, which was referred to as the basic subscription privilege. If a shareholder fully exercised their basic subscription privilege and other shareholders did not fully exercise their basic subscription privileges, shareholders could also exercise an over-subscription privilege to purchase a portion of the unsubscribed shares at the same subscription price of $0.08 per share. During the rights offering, subscription rights to purchase a total of 37,475,620 shares of common stock, par value $0.0001, were exercised. The exercise of these subscription rights resulted in gross proceeds to the Company of $2,998,050 before deducting expenses of the rights offering. During the six months ended June 30, 2016, the Company issued the following shares of common stock for compensation: On January 31, 2016, the Company issued an aggregate of 97,292 shares of Common Stock to five employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.08 per share. On February 28, 2016, the Company issued an aggregate of 97,292 shares of Common Stock to five employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.08 per share. On March 28, 2016, the Company issued an aggregate of 419,348 shares of Common Stock to four employees of the Company pursuant to certain performance incentive programs at a price of $0.11 per share. On March 31, 2016, the Company issued an aggregate of 837,498 shares of Common Stock to seven directors of the Company pursuant to the Company's FY2016 Director Compensation Plan at a price of $0.09 per share. On March 31, 2016, the Company issued an aggregate of 97,292 shares of Common Stock to five employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.08 per share. On April 30, 2016, the Company issued an aggregate of 64,875 shares of Common Stock to seven employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.10 per share. On May 31, 2016, the Company issued an aggregate of 86,234 shares of Common Stock to eight employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.10 per share. On June 13, 2016, the Company issued an aggregate of 6,281,250 shares of Common Stock to seven directors of the Company pursuant to the Company's FY2016 Director Compensation Plan due to the market condition related to the grant being achieved (see below). On June 30, 2016, the Company issued an aggregate of 86,150 shares of Common Stock to eight employees of the Company pursuant to the Company's Equity Incentive Program at a price of $0.10 per share. On June 30, 2016, the Company issued an aggregate of 769,583 shares of Common Stock to seven directors of the Company pursuant to the Company's FY2016 Director Compensation Plan at a price of $0.10 per share. Summary: Number of Common Value Common shares for cash, net of offering costs 37,475,620 $ 2,936,792 Share-based compensation 8,836,814 $ 598,235 Performance and/or market based stock awards In January 2015, the Board of Directors approved the issuance of 940,595 restricted shares of the Company. These shares will be issued to the then members of the Board of Directors upon vesting, which will be when the market price of the Companys common stock trades at or above $2 for a specified period. The initial value of the restricted stock grant was approximately $257,000, which will be amortized over the estimated service period. The Company recorded an expense of $41,854 and $43,440 from the amortization of the unvested restricted shares for the quarter and six months ended June 30, 2016, respectively. The shares were valued using a Monte Carlo Simulation with a six-year life, 88.0% volatility and a risk free interest rate of 1.79%. In September 2015, the Board of Directors approved the issuance of 1,524,245 restricted shares of the Company. These shares will be issued to the then Interim Chief Executive Officer and President upon vesting, which will be according to the following terms: 50% if the Companys revenue for the first half of 2016 is at least 20% greater than revenue for the first half of 2015 and 50% if the Company has positive EBITDA (a non GAAP measure) for the first half of 2016. The initial value of the restricted stock grant was approximately $92,000. The Company has not recorded any expense related to this grant as the applicable accounting guidance requires that if the performance condition must be met for the award to vest, compensation cost will be recognized only if the performance condition is satisfied and the above noted performance conditions have not been met. Further, the estimated quantity of awards for which it is probable that the performance conditions will be achieved must be reevaluated each reporting period and adjusted and management has estimated that the probability of achieving the performance conditions is minimal. The above noted vesting criteria were not met during the measurement period. As such, the grant expired without the vesting of any shares. In February 2016, the Board of Directors approved the issuance of 3,301,358 restricted shares of the Company. These shares will be issued to the then President (1,100,453 shares) and Chief Financial Officer (2,200,905 shares) upon vesting, which will be according to the following terms: - 20% when the market price of the Companys common stock trades at or above $0.30 for a specified period. - 30% when the market price of the Companys common stock trades at or above $0.40 for a specified period. - 30% when the market price of the Companys common stock trades at or above $0.50 for a specified period. - 20% when the market price of the Companys common stock trades at or above $0.60 for a specified period. The initial value of the restricted stock grant was approximately $198,000, which will be amortized over the estimated service period. The Company recorded an expense of $11,245 and $11,697 from the amortization of the unvested restricted shares for the quarter and six months ended June 30, 2016, respectively. The shares were valued using a Monte Carlo Simulation with a six-year life, 91.0% volatility and a risk free interest rate of 1.34%. In January 2016, the Board of Directors approved the issuance of 6,281,250 restricted shares of the Company. These shares will be issued to the then members of the Board of Directors upon vesting, which will be when the market price of the Companys common stock trades at or above $0.12 for a specified period or if the Company has positive EBITDA (a non GAAP measure) for one quarter in 2016. These shares were issued to the members of the Board on June 13, 2016, when the market price of the Companys common stock traded at or above $0.12 for a 30-day volume weighted average price. The initial value of the restricted stock grant was approximately $509,000, which has been amortized over the estimated performance period. The Company recorded an expense of $140,551 and $254,391 from the amortization of the restricted shares for the quarter and six months ended June 30, 2016, respectively. The shares were valued using a Monte Carlo Simulation with a one-year life, 106.0% volatility and a risk free interest rate of 0.65%. In May 2016, the Board of Directors approved the issuance of 1,100,453 restricted shares of the Company. These shares will be issued to the Chief Executive Officer upon vesting, which will be according to the following terms: - 20% when the market price of the Companys common stock trades at or above $0.30 for a specified period. - 30% when the market price of the Companys common stock trades at or above $0.40 for a specified period. - 30% when the market price of the Companys common stock trades at or above $0.50 for a specified period. - 20% when the market price of the Companys common stock trades at or above $0.60 for a specified period. The initial value of the restricted stock grant was approximately $198,000, which will be amortized over the estimated service period. The Company recorded an expense of $2,889 from the amortization of the unvested restricted shares for the three months ended June 30, 2016. The shares were valued using a Monte Carlo Simulation with a 6-year life, 92.0% volatility and a risk free interest rate of 1.43%. Options and warrants During the six months ended June 30, 2016, the Company did not have any issuances or exercises of stock warrants. During the six months ended June 30, 2016, the Company granted 45,000 stock options. The stock options were valued using the Black Sholes model with a 5-year life, 91.78% volatility and a risk free interest rate of 1.37%, which resulted in an initial fair value of $3,177. No stock options were exercised during the three and six months ended June 30, 2016. The Company recognized $19,518 and $45,034 of expense related to the vesting of outstanding options during the three and six months ended June 30, 2016, respectively. |