Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Deficiency

v3.5.0.2
Stockholders' Deficiency
9 Months Ended
Sep. 30, 2016
Equity [Abstract]  
Stockholders' Deficiency

8. STOCKHOLDERS’ DEFICIENCY

 

PREFERRED STOCK

 

SERIES A CONVERTIBLE PREFERRED STOCK

 

On March 24, 2016, the Company issued 500,000 shares of Series A Convertible Preferred Stock to the Company’s Chief Operating Officer in connection with his March 24, 2015 employment agreement. The $500,000 of aggregate fair value of the shares was recognized over the one year service period. The Company recognized $0 and $114,754 of stock-based compensation expense during the three and nine months ended September 30, 2016, respectively, related to the award which is included within stock-based compensation on the condensed consolidated statement of changes in stockholders’ deficiency.

 

The Series A Convertible Preferred Stock shall have no liquidation preference so long as the Series C Convertible Preferred Stock shall be outstanding.

 

SERIES B CONVERTIBLE PREFERRED STOCK

 

As of September 30, 2016, the liquidation preference for the Series B Convertible Preferred Stock amounted to $825,000.

 

SERIES C CONVERTIBLE PREFERRED STOCK

 

On March 11, 2016, the Company entered into a securities purchase agreement with a purchaser for gross proceeds of an aggregate of $2,900,040 (“Subscription Amount”), of which, $650,040 was paid to the Company at closing and the remaining $2,250,000 (“Milestone Amounts”) was payable to the Company upon the completion of certain milestones (“Milestones”), as specified in the agreement. Through September 30, 2016, based on the Company’s achievement of certain of the milestones prior to the June 24, 2016 deadline, net proceeds of an aggregate of $1,147,950 (gross proceeds of $1,267,160 less issuance costs of $197,160, of which, as of September 30, 2016, $149,658 had not been paid and was included within accrued expenses) of the Subscription Amount had been paid to the Company. See Note 4 – Accrued Expenses – Warrants Payable and Note 7 – Fair Value Measurement for additional details. As a result, the Company issued the following to the purchaser during the nine months ended September 30, 2016: (i) 21,120 shares of Series C Convertible Preferred Stock and (ii) five-year warrants to purchase an aggregate of 3,017,047 shares of common stock at an exercise price of $1.00 per share with an issuance date fair value of $167,956 which was recorded as a derivative liability.

 

On March 11, 2016, the Company entered into a securities purchase agreement with a purchaser for net proceeds of an aggregate of $85,285 (gross proceeds of $99,960 less issuance costs of $14,675, of which, as of September 30, 2016, $9,677 had not been paid and was included within accrued expenses). See Note 4 – Accrued Expenses – Warrants Payable and Note 7 – Fair Value Measurement for additional details. Pursuant to the securities purchase agreement, the Company issued the following to the purchaser: (i) 1,666 shares of Series C Convertible Preferred Stock, and (ii) a five-year warrant to purchase 238,000 shares of common stock for an exercise price of $1.00 per share with an issuance date fair value of $10,458 which was recorded as a derivative liability.

 

On March 24, 2016, the Company issued 750 shares of Series C Convertible Preferred Stock to the Company’s Chief Operating Officer in connection with his March 24, 2015 employment agreement. The $75,000 of aggregate fair value of the shares was recognized over the one year service period. The Company recognized $0 and $17,213 of stock-based compensation expense during the three and nine months ended September 30, 2016, respectively, related to the award which is included within stock-based compensation on the condensed consolidated statement of changes in stockholders’ deficiency.

 

During the nine months ended September 30, 2016, the Company issued 444 shares of Series C Convertible Preferred Stock with a fair value of $39,964 to the Company’s Executive Chairman of the Board in satisfaction of amounts previously owed which was accrued for as of December 31, 2015, which is included within Series C convertible preferred stock issued as compensation to the Executive Chairman on the condensed consolidated statement of changes in stockholders’ deficiency.

 

During the nine months ended September 30, 2016, the Company issued 2,932 shares of Series C Convertible Preferred Stock in satisfaction of the $293,200 dividend for the three months ended December 31, 2015 and 3,184 shares of Series C Convertible Preferred Stock in satisfaction of the $318,400 dividend for the three months ended March 31, 2016. As of September 30, 2016, the Company accrued an aggregate of $752,000 related to dividends payable, of which, $365,300 was for the dividend for the three months ended June 30, 2016 and $386,700 was for the dividend for the three months ended September 30, 2016. See Note 4 – Accrued Expenses.

 

In the event of a liquidation, the Series C Convertible Preferred Stock is also entitled to a liquidation preference equal to the stated value plus any accrued and unpaid dividends, which, as of September 30, 2016, was equal to $15,794,600.

 

NON-CONTROLLING INTERESTS

 

350 Green is not owned by the Company but is deemed to be a VIE where the entirety of its results of operations are consolidated in the Company’s financial statements.

 

STOCK-BASED COMPENSATION

 

The Company recognized stock-based compensation expense related to preferred stock, common stock, stock options and warrants for the three and nine months ended September 30, 2016 in the amounts of $305,458 and $1,147,496 respectively, and for the three and nine months ended September 30, 2015 in the amounts of $842,229 and $3,705,069, respectively. As of September 30, 2016, there was $143,353 of unrecognized stock-based compensation expense related to stock options that will be recognized over the weighted average remaining vesting period of 0.7 years.

 

STOCK OPTIONS

 

The weighted average estimated fair value of the options granted during the nine months ended September 30, 2016 was $0.38 per share. There were no options granted during the three months ended September 30, 2016. The weighted average estimated fair value of the options granted during the three and nine months ended September 30, 2015 was $0.27 and $0.36 per share, respectively.

 

In applying the Black-Scholes option pricing model to stock options granted, the Company used the following assumptions:

 

    For the Three Months Ended     For the Nine Months Ended  
    September 30,     September 30,  
    2016     2015     2016     2015  
                         
Risk free interest rate     N/A       0.66 %     0.73% - 0.90 %     0.63% - 1.21 %
Expected term (years)     N/A       2.50       2.50        2.50 - 3.50  
Expected volatility     N/A       89 %     102% - 118 %     87% - 101 %
Expected dividends     N/A       0.00 %     0.00 %     0.00 %

 

A summary of the option activity during the nine months ended September 30, 2016 is presented below:

 

                Weighted        
          Weighted     Average        
          Average     Remaining     Aggregate  
    Number of     Exercise     Life     Intrinsic  
    Shares     Price     In Years     Value  
                         
Outstanding, December 31, 2015     7,781,667     $ 1.15                  
Granted     130,000       0.38                  
Exercised     -       -                  
Cancelled/forfeited/expired     (988,332 )     1.11                  
Outstanding, September 30, 2016     6,923,335     $ 1.14       2.3     $ 27,900  
                                 
Exercisable, September 30, 2016     6,041,001     $ 1.19       2.1     $ 27,900  

 

STOCK WARRANTS

 

See Note 6 – Notes Payable – Convertible and Other Notes – Related Party for details associated with the issuance of warrants in connection with notes payable. See Note 8 – Stockholders’ Deficiency – Preferred Stock – Series C Convertible Preferred Stock for details associated with the issuances of warrants in connection with security purchase agreements.

 

During the nine months ended September 30, 2016, the Company agreed to extend the maturity date of warrants to purchase an aggregate of 2,590,000 shares of common stock with an exercise price of $2.25 per share by eighteen (18) months in exchange for the warrant holders’ consent to rescind a fundamental transactions provision. As a result, the Company recorded warrant modification expense of $6,838 during the nine months ended September 30, 2016.

 

During the nine months ended September 30, 2016, the Company recorded warrant modification expense of $457 related to the extension of the expiration date of warrants to purchase 25,000 shares of common stock.

 

A summary of the warrant activity during the nine months ended September 30, 2016 is presented below:

 

                Weighted        
          Weighted     Average        
          Average     Remaining     Aggregate  
    Number of     Exercise     Life     Intrinsic  
    Shares     Price     In Years     Value  
                         
Outstanding, December 31, 2015     61,043,591     $ 1.08                  
Issued     6,255,048       0.86                  
Exercised     -       -                  
Cancelled/forfeited/expired     (11,815,042 )     1.84                  
Outstanding, September 30, 2016     55,483,597     $ 0.89       2.7     $ 134  
                                 
Exercisable, September 30, 2016     55,483,597     $ 0.89       2.7     $ 134  

 

COMMON STOCK

 

In March 2016, one of the former members of Beam returned 242,303 shares of the Company’s common stock to the Company in exchange for cash of $45,000. The shares of common stock were cancelled by the Company in March 2016.

 

During the nine months ended September 30, 2016, the Company issued 750,000 shares of common to the Company’s Chief Operating Officer in connection with his March 24, 2015 employment agreement. The $300,000 of aggregate fair value of the shares was recognized over the one year service period. The Company recognized $0 and $68,852 of stock-based compensation expense during the three and nine months ended September 30, 2016, respectively, related to the award which is included within stock-based compensation on the condensed consolidated statement of changes in stockholders’ deficiency.

 

During the nine months ended September 30, 2016, the Company issued an aggregate of 348,081 shares of common stock to the Company’s Board of Directors as compensation for their attendance at various Board and OPFIN Committee meetings, of which, 194,158 shares were issued for 2016 meetings and 153,923 shares were issued for 2015 meetings. The shares had an aggregate grant date fair value of $65,982, of which, $35,924 was recognized during the nine months ended September 30, 2016 and is included within stock-based compensation on the condensed consolidated statement of changes in stockholders’ deficiency and $30,058 was recognized during the year ended December 31, 2015 and was included within stock-based compensation on the consolidated statement of changes in stockholders’ deficiency as of December 31, 2015.