NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(1)
Business Overview
Pressure
Biosciences, Inc. (“we”, “our”, “the Company”) is focused on solving the challenging problems
inherent in biological sample preparation, a crucial laboratory step performed by scientists worldwide working in biological life
sciences research. Sample preparation is a term that refers to a wide range of activities that precede most forms of scientific
analysis. Sample preparation is often complex, time-consuming, and in our belief, one of the most error-prone steps of scientific
research. It is a widely-used laboratory undertaking, the requirements of which drive what we believe is a large and growing worldwide
market. We have developed and patented a novel, enabling technology platform that can control the sample preparation process.
It is based on harnessing the unique properties of high hydrostatic pressure. This process, called pressure cycling technology,
or PCT, uses alternating cycles of hydrostatic pressure between ambient and ultra-high levels (35,000 psi or greater) to safely,
conveniently and reproducibly control the actions of molecules in biological samples, such as cells and tissues from human, animal,
plant, and microbial sources.
Our
pressure cycling technology uses internally developed instrumentation that is capable of cycling pressure between ambient and
ultra-high levels - at controlled temperatures and specific time intervals - to rapidly and repeatedly control the interactions
of bio-molecules, such as DNA, RNA, proteins, lipids, and small molecules. Our laboratory instrument, the Barocycler®, and
our internally developed consumables product line, including PULSE (Pressure Used to Lyse Samples for Extraction) Tubes, other
processing tubes, and application specific kits (which include consumable products and reagents) together make up our PCT Sample
Preparation System, or PCT SPS.
In
2015, together with an investment bank, we formed a subsidiary called Pressure BioSciences Europe (“PBI Europe”) in
Poland. We have 49% ownership interest with the investment bank retaining 51%. As of now, PBI Europe does not have any operating
activities but is expected to commence operations in 2016. Therefore, we don’t have control of the subsidiary and did not
consolidate in our financial statements. PBI Europe did not have any operations in 2015.
(2)
Going Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates
the realization of assets and the liquidation of liabilities in the normal course of business. However, we have experienced negative
cash flows from operations with respect to our pressure cycling technology business since our inception. As of December 31, 2015,
we do not have adequate working capital resources to satisfy our current liabilities and as a result, there is substantial doubt
regarding our ability to continue as a going concern. We have been successful in raising cash through debt and equity offerings
in the past and as described in Note 6, completed debt financing subsequent to December 31, 2015. We have financing efforts in
place to continue to raise cash through debt and equity offerings.
Management
has developed a plan to continue operations. This plan includes obtaining equity or debt financing. During the year ended December
31, 2015 we received 6,822,255 net proceeds, in additional convertible and non-convertible debt. Although we have successfully
completed financings and reduced expenses in the past, we cannot assure you that our plans to address these matters in the future
will be successful.
We
need substantial additional capital to fund normal operations in future periods. In the event that we are unable to obtain financing
on acceptable terms, or at all, we will likely be required to cease our operations, pursue a plan to sell our operating assets,
or otherwise modify our business strategy, which could materially harm our future business prospects. These financial statements
do not include any adjustments that might result from this uncertainty.
(3)
Summary of Significant Accounting Policies
i.
Principles of Consolidation
The
consolidated financial statements include the accounts of Pressure BioSciences, Inc., and its wholly-owned subsidiary PBI BioSeq,
Inc. All intercompany accounts and transactions have been eliminated in consolidation.
ii.
Use of Estimates
To
prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America, we are required to make significant estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. In addition, significant estimates were made in projecting future cash flows to quantify
impairment of assets, deferred tax assets, the costs associated with fulfilling our warranty obligations for the instruments that
we sell, and the estimates employed in our calculation of fair value of stock options awarded, beneficial conversion features
and derivative liabilities. We base our estimates on historical experience and on various other assumptions that we believe to
be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results could differ from the estimates and assumptions
used.
iii.
Revenue Recognition
Revenue
is recognized when realized or when realizable and earned when all the following criteria have been met: persuasive evidence of
an arrangement exists; goods were shipped, delivery of service has occurred and risk of loss has passed to the customer; the seller’s
price to the buyer is fixed or determinable; and collectability is reasonably assured.
Our
current instruments, the Barocycler NEP3229 and NEP2320, require a basic level of instrumentation expertise to set-up for initial
operation. To support a favorable first experience for our customers, upon customer request and for an additional fee, we will
send a highly trained technical representative to the customer site to install Barocyclers that we sell, lease, or rent through
our domestic sales force. The installation process includes uncrating and setting up the instrument, followed by introductory
user training. Product revenue related to current Barocycler instrumentation is recognized upon shipment of the unit, or in the
case where the customer requests installation and training, the completion of the installation and introductory training process
of the instrumentation at the customer location, for domestic installations. Product revenue related to sales of PCT instrumentation
to our foreign distributors is recognized upon shipment through a common carrier. We provide for the expected costs of warranty
upon the recognition of revenue for the sales of our instrumentation. Our sales arrangements do not provide our customers with
a right of return. Product revenue related to the HUB440 and our consumable products such as PULSE Tubes, MicroTubes, and application
specific kits is recorded upon shipment through a common carrier. Shipping costs are included in sales and marketing expense.
Any shipping costs billed to customers are recognized as revenue.
The
Company applies ASC 845, “Accounting for Non-Monetary Transactions”, to account for products and services sold through
non-cash transactions based on the fair values of the products and services involved, where such values can be determined. Non-cash
exchanges would require revenue to be recognized at recorded cost or carrying value of the assets or services sold if any of the
following conditions apply:
|
a)
|
The fair value of
the asset or service involved is not determinable.
|
|
|
|
|
b)
|
The transaction
is an exchange of a product or property held for sale in the ordinary course of business for a product or property to be sold
in the same line of business to facilitate sales to customers other than the parties to the exchange.
|
|
|
|
|
c)
|
The transaction
lacks commercial substance.
|
The
Company currently records revenue for its non-cash transactions at recorded cost or carrying value of the assets or services sold.
We
account for our lease agreements under the operating method. We record revenue over the life of the lease term and we record depreciation
expense on a straight-line basis over the thirty-six month estimated useful life of the Barocycler instrument. The depreciation
expense associated with assets under lease agreement is included in the “Cost of PCT products and services” line item
in our consolidated statements of operations. Many of our lease and rental agreements allow the lessee to purchase the instrument
at any point during the term of the agreement with partial or full credit for payments previously made. We pay all maintenance
costs associated with the instrument during the term of the leases.
Revenue
from government grants is recorded when qualifying expenses are incurred under the grant in accordance with the terms of the grant
award.
Deferred
revenue represents amounts received from grants and the Company’s service contracts for which the related revenues have
not been recognized because one or more of the revenue recognition criteria have not been met. The current portion of deferred
revenue represents the amount to be recognized within one year from the balance sheet date based on the estimated performance
period of the underlying deliverables. Revenue from service contracts is recorded ratably over the length of the contract.
Our
transactions sometimes involve multiple elements (i.e., products and services). Revenue under multiple element arrangements is
recognized in accordance with FASB ASC 605-25
Multiple-Element Arrangements (“ASC 605”)
. When vendor specific
objective evidence or third party evidence of selling price for deliverables in an arrangement cannot be determined, the Company
develops a best estimate of the selling price to separate deliverables and allocates arrangement consideration using the relative
selling price method. If an arrangement includes undelivered elements that are not essential to the functionality of the delivered
elements, we defer the fair value of the undelivered elements to such time as they are delivered. Fair value is determined based
upon the price charged when the element is sold separately. If there is not sufficient evidence of the fair value of the undelivered
elements the Company uses its best estimate of the value of those items and recognizes revenues based on the relative values of
the delivered and undelivered items. We provide certain customers with extended service contracts with revenue recognized ratably
over the life of the contract.
iv.
Cash and Cash Equivalents
Our
policy is to invest available cash in short-term, investment grade interest-bearing obligations, including money market funds,
and bank and corporate debt instruments. Securities purchased with initial maturities of three months or less are valued at cost
plus accrued interest, which approximates fair value, and are classified as cash equivalents.
v.
Research and Development
Research
and development costs, which are comprised of costs incurred in performing research and development activities including wages
and associated employee benefits, facilities, consumable products and overhead costs that are expensed as incurred. In support
of our research and development activities we utilize our Barocycler instruments that are capitalized as fixed assets and depreciated
over their expected useful life.
vi.
Inventories
Inventories
are valued at the lower of cost (average cost) or market (sales price). The cost of Barocyclers consists of the cost charged by
the contract manufacturer. The cost of manufactured goods includes material, freight-in, direct labor, and applicable overhead.
The composition of inventory as of December 31, is as follows:
|
|
2015
|
|
|
2014
|
|
Raw materials
|
|
$
|
310,367
|
|
|
$
|
304,928
|
|
Finished goods
|
|
|
778,004
|
|
|
|
595,624
|
|
Inventory reserve
|
|
|
(50,000
|
)
|
|
|
(50,000
|
)
|
Total
|
|
$
|
1,038,371
|
|
|
$
|
850,552
|
|
vii.
Property and Equipment
Property
and equipment are stated at cost, less accumulated depreciation. For financial reporting purposes, depreciation is recognized
using the straight-line method, allocating the cost of the assets over their estimated useful lives of three years for certain
laboratory equipment, from three to five years for management information systems and office equipment, and three years for all
PCT finished units classified as fixed assets.
viii.
Intangible Assets
We
have classified as intangible assets, costs associated with the fair value of acquired intellectual property. Intangible assets,
including patents, are being amortized on a straight-line basis over sixteen years. We perform an annual review of our intangible
assets for impairment. When impairment is indicated, any excess of carrying value over fair value is recorded as a loss. As of
December 31, 2015 and 2014, the outstanding balance for intangible assets is zero.
ix.
Long-Lived Assets
The
Company’s long-lived assets are reviewed for impairment in accordance with the guidance of the FASB ASC 360-10-05,
Property,
Plant, and Equipment
, whenever events or changes in circumstances indicate that the carrying amount of the asset may not be
recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to
the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Through December
31, 2015, the Company had not experienced impairment losses on its long-lived assets. While our current and historical operating
losses and cash flow are indicators of impairment, we performed an impairment test at December 31, 2015 and determined that such
long-lived assets were not impaired.
x.
Concentrations
Credit
Risk
Our
financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents
and trade receivables. We have cash investment policies which, among other things, limit investments to investment-grade securities.
We perform ongoing credit evaluations of our customers, and the risk with respect to trade receivables is further mitigated by
the fact that many of our customers are government institutions and university labs. Allowances are provided for estimated amounts
of accounts receivable which may not be collected. At December 31, 2015 and 2014, we determined that no allowance against accounts
receivable was necessary.
The
following table illustrates the level of concentration of the below two groups within revenue as a percentage of total revenues
during the years ended December 31:
|
|
2015
|
|
|
2014
|
|
Top Five Customers
|
|
|
38
|
%
|
|
|
32
|
%
|
Federal Agencies
|
|
|
23
|
%
|
|
|
6
|
%
|
The
following table illustrates the level of concentration of the below two groups within accounts receivable as a percentage of total
accounts receivable balance as of December 31:
|
|
2015
|
|
|
2014
|
|
Top Five Customers
|
|
|
93
|
%
|
|
|
86
|
%
|
Federal Agencies
|
|
|
1
|
%
|
|
|
9
|
%
|
Product
Supply
BIT
Group USA, formerly Source Scientific, LLC, has been our sole contract manufacturer for all of our PCT instrumentation. Until
we develop a broader network of manufacturers and subcontractors, obtaining alternative sources of supply or manufacturing services
could involve significant delays and other costs and challenges, and may not be available to us on reasonable terms, if at all.
The failure of a supplier or contract manufacturer to provide sufficient quantities, acceptable quality and timely products at
an acceptable price, or an interruption of supplies from such a supplier could harm our business and prospects.
Investment
in Available-For-Sale Equity Securities
As
of December 31, 2015, we held 601,500 shares of common stock of Everest Investments Holdings S.A. (“Everest”), a Polish
publicly traded company listed on the Warsaw Stock Exchange. We exchanged 1,000,000 shares of our common stock for the 601,500
shares from Everest. We account for this investment in accordance with ASC 320
“Investments — Debt and Equity Securities”
as securities available for sale. On December 31, 2015, our balance sheet reflected the fair value of our investment in Everest
to be $294,522, based on the closing price of Everest shares of $0.49 per share on that day. The carrying value of our investment
in Everest common stock held will change from period to period based on the closing price of the common stock of Everest as of
the balance sheet date. This change in market value will be recorded by us on a quarterly basis as an unrealized gain or loss
in Comprehensive Income or Loss.
xi.
Computation of Loss per Share
Basic
loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding.
Diluted loss per share is computed by dividing loss available to common shareholders by the weighted average number of common
shares outstanding plus additional common shares that would have been outstanding if dilutive potential common shares had been
issued. For purposes of this calculation, convertible preferred stock, common stock dividends, warrants to acquire preferred stock
convertible into common stock, and warrants and options to acquire common stock, are all considered common stock equivalents in
periods in which they have a dilutive effect and are excluded from this calculation in periods in which these are anti-dilutive.
The following table illustrates our computation of loss per share for the years ended December 31:
|
|
2015
|
|
|
2014
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,415,298
|
)
|
|
$
|
(4,612,540
|
)
|
Beneficial conversion
feature for preferred stock
|
|
|
-
|
|
|
|
(1,495,415
|
)
|
Preferred
dividends accrued
|
|
|
(23,194
|
)
|
|
|
(143,771
|
)
|
Net
loss applicable to common shareholders
|
|
$
|
(7,438,492
|
)
|
|
$
|
(6,251,726
|
)
|
|
|
|
|
|
|
|
|
|
Denominator
for basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
20,726,205
|
|
|
|
14,264,753
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share - basic and diluted
|
|
$
|
(0.36
|
)
|
|
$
|
(0.44
|
)
|
The
following table presents securities that could potentially dilute basic loss per share in the future. For all periods presented,
the potentially dilutive securities were not included in the computation of diluted loss per share because these securities would
have been anti-dilutive for the years ended December 31:
|
|
2015
|
|
|
2014
|
|
Stock
options
|
|
|
5,571,250
|
|
|
|
3,406,250
|
|
Convertible debt
|
|
|
19,689,286
|
|
|
|
5,453,571
|
|
Common stock warrants
|
|
|
29,227,664
|
|
|
|
19,182,201
|
|
Convertible preferred
stock:
|
|
|
|
|
|
|
|
|
Series D Convertible
Preferred
|
|
|
750,000
|
|
|
|
750,000
|
|
Series G Convertible
Preferred
|
|
|
865,700
|
|
|
|
865,700
|
|
Series H Convertible
Preferred
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
Series H2 Convertible
Preferred
|
|
|
2,100,000
|
|
|
|
2,100,000
|
|
Series J Convertible
Preferred
|
|
|
3,546,000
|
|
|
|
3,546,000
|
|
Series
K Convertible Preferred
|
|
|
11,416,000
|
|
|
|
11,416,000
|
|
|
|
|
74,165,900
|
|
|
|
47,719,722
|
|
xii.
Accounting for Income Taxes
We
account for income taxes under the asset and liability method, which requires recognition of deferred tax assets, subject to valuation
allowances, and liabilities for the expected future tax consequences of events that have been included in the financial statements
or tax returns. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting and income tax purposes. The Company considers many factors when assessing the likelihood
of future realization of our deferred tax assets, including recent cumulative earnings experience by taxing jurisdiction, expectations
of future taxable income or loss, the carry-forward periods available to us for tax reporting purposes, and other relevant factors.
A valuation allowance is established if it is more likely than not that all or a portion of the net deferred tax assets will not
be realized. If substantial changes in the Company’s ownership should occur, as defined in Section 382 of the Internal Revenue
Code, there could be significant limitations on the amount of net loss carry forwards that could be used to offset future taxable
income.
Tax
positions must meet a “more likely than not” recognition threshold at the effective date to be recognized. At December
31, 2015 and 2014, the Company did not have any uncertain tax positions. No interest and penalties related to uncertain tax positions
were accrued at December 31, 2015 and 2014.
xiii.
Accounting for Stock-Based Compensation
We
maintain equity compensation plans under which incentive stock options and non-qualified stock options are granted to employees,
independent members of our Board of Directors and outside consultants. We recognize equity compensation expense over the requisite
service period using the Black-Scholes formula to estimate the fair value of the stock options on the date of grant. Employee
awards are accounted for under ASC 718 where the awards are valued at grant date. Awards given to nonemployees are accounted for
under ASC 505 where the awards are valued at earlier of commitment date or completion of services.
Determining
Fair Value of Stock Option Grants
Valuation
and Amortization Method
- The fair value of each option award is estimated on the date of grant using the Black-Scholes pricing
model based on certain assumptions. The estimated fair value of employee stock options is amortized to expense using the straight-line
method over the vesting period, which generally is over three years.
Expected
Term
- The Company uses the simplified calculation of expected life, described in the FASB ASC 718,
Compensation-Stock
Compensation
, as the Company does not currently have sufficient historical exercise data on which to base an estimate of expected
term. Using this method, the expected term is determined using the average of the vesting period and the contractual life of the
stock options granted.
Expected
Volatility
- Expected volatility is based on the Company’s historical stock volatility data over the expected term of
the award.
Risk-Free
Interest Rate
- The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield
currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term.
Forfeitures
- As required by FASB ASC 718,
Compensation-Stock Compensation
, the Company records stock-based compensation expense
only for those awards that are expected to vest. The Company estimated a forfeiture rate of 5% for awards granted based on historical
experience and future expectations of options vesting. We used this historical rate as our assumption in calculating future stock-based
compensation expense.
The
following table summarizes the assumptions we utilized for grants of stock options to the three sub-groups
of
our stock option recipients during the years ended December 31, 2015 and 2014:
Assumptions
|
|
Non-Employee
Board Members
|
|
|
CEO,
other Officers
and Employees
|
|
Expected life
|
|
|
6.0
(yrs)
|
|
|
|
6.0
(yrs)
|
|
Expected volatility
|
|
|
116.32%-141.15
|
%
|
|
|
116.32%-141.15
|
%
|
Risk-free interest rate
|
|
|
0.65%-2.54
|
%
|
|
|
0.65%-2.54
|
%
|
Forfeiture rate
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
We
recognized stock-based compensation expense of $208,989 and $101,125 for the years ended December 31, 2015 and 2014, respectively.
The following table summarizes the effect of this stock-based compensation expense within each of the line items within our accompanying
Consolidated Statements of Operations for the years ended December 31:
|
|
2015
|
|
|
2014
|
|
Research and development
|
|
$
|
50,617
|
|
|
$
|
30,550
|
|
Selling and marketing
|
|
|
32,704
|
|
|
|
19,792
|
|
General and administrative
|
|
|
125,668
|
|
|
|
50,783
|
|
Total stock-based
compensation expense
|
|
$
|
208,989
|
|
|
$
|
101,125
|
|
During
the years ended December 31, 2015 and 2014, the total fair value of stock options awarded was $598,582 and $401,617, respectively.
As
of December 31, 2015, the total estimated fair value of unvested stock options to be amortized over their remaining vesting period
was $740,117. The non-cash, stock based compensation expense associated with the vesting of these options will be $342,000 in
2016, $198,680 in 2017, and $199,437 in 2018.
xiv.
Advertising
Advertising
costs are expensed as incurred. We incurred $12,291 in 2015 with none incurred in 2014 for advertising.
xv.
Fair Value of Financial Instruments
Due
to their short maturities, the carrying amounts for cash and cash equivalents, accounts receivable, accounts payable, and accrued
expenses approximate their fair value. Short-term and long-term liabilities are primarily related to liabilities transferred under
contractual arrangements with carrying values that approximate fair value.
xvi.
Fair Value Measurements
The
Company follows the guidance of FASB ASC Topic 820, “
Fair Value Measurements and Disclosures
” (“
ASC
820
”) as it related to financial assets and financial liabilities that are recognized or disclosed at fair value in
the financial statements on a recurring basis.
The
Company generally defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date (exit price). The Company uses a three-tier fair value
hierarchy, which classifies the inputs used in measuring fair values. These tiers include: Level 1, defined as observable inputs
such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active
markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market
data exists, therefore requiring an entity to develop its own assumptions.
Financial
assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value
measurement. The Company has determined that its financial assets are currently classified within Level 1 and that its financial
liabilities are currently all classified within Level 3 in the fair value hierarchy.
The
following tables set forth the Company’s financial assets and financial liabilities that were accounted for at fair value
on a recurring basis as of December 31, 2015 and December 31, 2014. The development of the unobservable inputs for Level 3 fair
value measurements and fair value calculations are the responsibility of the Company’s management.
|
|
|
|
|
Fair
value measurements at December 31, 2015 using:
|
|
|
|
December
31, 2015
|
|
|
Quoted
prices in
active
markets
(Level 1)
|
|
|
Significant
other observable inputs
(Level
2)
|
|
|
Significant
unobservable
inputs
(Level
3)
|
|
Available-For-Sale
Equity Securities
|
|
|
294,522
|
|
|
|
294,522
|
|
|
|
-
|
|
|
|
-
|
|
Total
Financial Assets
|
|
$
|
294,522
|
|
|
$
|
294,522
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2015
|
|
|
Quoted
prices in
active
markets
(Level 1)
|
|
|
Significant
other
observable inputs
(Level 2)
|
|
|
Significant
unobservable
inputs
(Level 3)
|
|
Series D Preferred Stock
Purchase Warrants
|
|
$
|
173,526
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
173,526
|
|
Warrants Issued with Convertible Debt
|
|
|
3,122,450
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,122,450
|
|
Conversion Option
Derivative Liabilities
|
|
|
3,940,791
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,940,791
|
|
Total Derivatives
|
|
$
|
7,236,767
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,236,767
|
|
|
|
|
|
|
|
|
|
|
Fair
value measurements at December 31, 2014 using:
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
prices
in
active
|
|
Significant
other
|
|
Significant
unobservable
|
|
|
|
markets
|
|
observable
inputs
|
|
inputs
|
|
December
31, 2014
|
|
(Level
1)
|
|
(Level
2)
|
|
(Level
3)
|
Series
D Preferred Stock Purchase Warrants
|
|
$159,875
|
|
-
|
|
-
|
|
$159,875
|
Conversion
Option Liabilities
|
|
590,341
|
|
-
|
|
-
|
|
590,341
|
Total
Derivatives
|
|
$750,216
|
|
$ -
|
|
$ -
|
|
$750,216
|
The
following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial
instruments, measured at fair value on a recurring basis using significant unobservable inputs:
|
|
January
1, 2015
|
|
|
Issuance
fair value
|
|
|
Change
in fair value
|
|
|
Gain
on extinguishment of derivative liabilities
|
|
|
December
31, 2015
|
|
Series D Preferred Stock
Purchase Warrants
|
|
$
|
159,875
|
|
|
$
|
-
|
|
|
$
|
13,651
|
|
|
$
|
-
|
|
|
$
|
173,526
|
|
Warrants Issued
with Convertible Debt
|
|
|
-
|
|
|
|
2,320,021
|
|
|
|
802,429
|
|
|
|
-
|
|
|
|
3,122,450
|
|
Conversion
Option Derivative Liabilities
|
|
|
590,341
|
|
|
|
5,305,185
|
|
|
|
600,445
|
|
|
|
(2,555,180
|
)
|
|
|
3,940,791
|
|
Total Derivatives
|
|
$
|
750,216
|
|
|
$
|
7,625,206
|
|
|
$
|
1,416,525
|
|
|
$
|
(2,555,180
|
)
|
|
$
|
7,236,767
|
|
|
|
January
1, 2014
|
|
|
Issuance
fair value
|
|
|
Change
in fair value
|
|
|
Gain
on extinguishment of derivative liabilities
|
|
|
December
31, 2014
|
|
Series
D Preferred Stock Purchase Warrants
|
|
$
|
344,570
|
|
|
$
|
-
|
|
|
$
|
145,710
|
|
|
$
|
(330,405
|
)
|
|
$
|
159,875
|
|
Conversion
Option Liabilities
|
|
|
356,197
|
|
|
|
898,684
|
|
|
|
(344,202
|
)
|
|
|
(320,338
|
)
|
|
|
590,341
|
|
Total
Derivatives
|
|
$
|
700,767
|
|
|
$
|
898,684
|
|
|
$
|
(198,492
|
)
|
|
$
|
(650,743
|
)
|
|
$
|
750,216
|
|
The
issuance fair value for 2015 includes the “day 1” derivative loss on the conversion option derivative liabilities
of $805,476 which are included in “change in fair value of derivative liabilities” in the consolidated statement of
operations.
The
fair value of the derivative liabilities were determined using a binomial pricing model. The assumptions for the binomial pricing
model are represented in the table below for the warrants issued in the Series D private placement reflected on a per share common
stock equivalent basis.
Assumptions
|
|
November
10, 2011
|
|
|
Warrants
revalued at
December 31, 2014
|
|
|
Warrants
revalued at
December 31, 2015
|
|
Expected
life (in months)
|
|
|
60.0
|
|
|
|
22.0
|
|
|
|
11.0
|
|
Expected
volatility
|
|
|
104.5
|
%
|
|
|
116.0
|
%
|
|
|
104.9
|
%
|
Risk-free
interest rate
|
|
|
0.875
|
%
|
|
|
0.58
|
%
|
|
|
0.65
|
%
|
Exercise
price
|
|
$
|
0.81
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
Fair
value per warrant
|
|
$
|
0.54
|
|
|
$
|
0.15
|
|
|
$
|
0.16
|
|
There
were no warrants issued in 2014 with Convertible Debt. The assumptions for the binomial pricing model are represented in the table
below for the warrants issued with the Convertible Debt in 2015 reflected on a per share common stock equivalent basis.
Assumptions
|
|
At
Issuance
Fair
value
|
|
|
Warrants
revalued at
December 31, 2015
|
|
Expected
life (in months)
|
|
|
60.0
|
|
|
|
55.0-60.0
|
|
Expected
volatility
|
|
|
118.3-120.1
|
%
|
|
|
136.3-141.6
|
%
|
Risk-free
interest rate
|
|
|
1.48-1.69
|
%
|
|
|
1.29-1.76
|
%
|
Exercise
price
|
|
$
|
0.40
|
|
|
$
|
0.40
|
|
Fair
value per warrant
|
|
$
|
0.19-$0.21
|
|
|
$
|
0.30
|
|
The
2015 assumptions for the binomial pricing model are represented in the table below for the conversion options reflected on a per
share common stock equivalent basis.
Assumptions
|
|
At
Issuance
fair value
|
|
|
At
Settlement
fair value
|
|
|
Conversion
options
revalued at
December 31, 2015
|
|
Expected life (in months)
|
|
|
6-24
|
|
|
|
0-18
|
|
|
|
18-24
|
|
Expected volatility
|
|
|
104.2-153.8
|
%
|
|
|
86.9%-142.2
|
%
|
|
|
112.2-114.7
|
%
|
Risk-free interest rate
|
|
|
0.05-0.99
|
%
|
|
|
0.01-0.72
|
%
|
|
|
1.06
|
%
|
Exercise price
|
|
|
$0.10-$0.35
|
|
|
|
$0.10-$0.25
|
|
|
$
|
0.28
|
|
Fair value per conversion option
|
|
|
$0.09-$0.28
|
|
|
|
$0.07-$0.26
|
|
|
|
$0.14-$0.33
|
|
The
2014 assumptions for the binomial pricing model are represented in the table below for the conversion options reflected on a per
share common stock equivalent basis.
Assumptions
|
|
|
At
Issuance
fair
value
|
|
|
|
Conversion
options
revalued
at
December
31, 2014
|
|
Expected life (in months)
|
|
|
6-24
|
|
|
|
1-32
|
|
Expected volatility
|
|
|
104.4-206.2
%
|
|
|
|
77.4-154.1
%
|
|
Risk-free interest rate
|
|
|
0.05-0.99
%
|
|
|
|
0.03-.0.88
%
|
|
Exercise price
|
|
|
$0.13-$0.45
|
|
|
|
$0.14-0.35
|
|
Fair value per conversion option
|
|
|
$0.15-$0.29
|
|
|
|
$0.00-$0.19
|
|
xvii.
Recently Issued Accounting Standards
In
April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 requires
that debt issuance costs be presented as a direct deduction from the carrying amount of the related debt liability, consistent
with the presentation of debt discounts. Prior to the issuance of ASU 2015-03, debt issuance costs were required to be presented
as deferred charge assets, separate from the related debt liability. ASU 2015-03 does not change the recognition and measurement
requirements for debt issuance costs. The Company early-adopted ASU 2015-03 as of the end of its Fiscal 2015, and applied its
provisions retrospectively. The adoption of ASU 2015-03 resulted in the reclassification of approximately $888,000 unamortized
debt issuance costs related to the Company's Senior Notes (see Note 8) from other non-current assets to long-term debt within
its consolidated balance sheets as of December 31, 2015. Other than this reclassification, the adoption of ASU 2015-03 and other
new pronouncements that have been issued did not have an impact on the Company's consolidated financial statements.
(4)
Property and Equipment, net
Property
and equipment as of December 31, 2015 and 2014 consisted of the following components:
|
|
December
31,
|
|
|
|
2015
|
|
|
2014
|
|
Laboratory and manufacturing
equipment
|
|
$
|
226,081
|
|
|
$
|
226,081
|
|
Office equipment
|
|
|
158,872
|
|
|
|
149,459
|
|
Leasehold improvements
|
|
|
8,117
|
|
|
|
8,117
|
|
PCT collaboration,
demonstration and leased systems
|
|
|
461,858
|
|
|
|
461,858
|
|
Total property and equipment
|
|
|
854,928
|
|
|
|
845,515
|
|
Less accumulated
depreciation
|
|
|
(834,779
|
)
|
|
|
(809,490
|
)
|
Net book value
|
|
$
|
20,149
|
|
|
$
|
36,025
|
|
Depreciation
expense for the years ended December 31, 2015 and 2014 was $25,288 and $29,213, respectively.
(5)
Intangible Assets, net
Intangible
assets as of December 31, 2015 reflect the purchase price attributable to patents in connection with the 1998 acquisition of BioSeq,
Inc. and the PCT business. Acquired PCT patents were being amortized to expense on a straight-line basis at the rate of $48,632
per year over their estimated remaining useful lives of approximately 6 years. Intangible assets at December 31, 2015 and 2014
consisted of the following:
|
|
2015
|
|
|
2014
|
|
PCT
Patents
|
|
$
|
778,156
|
|
|
$
|
778,156
|
|
Less
accumulated amortization
|
|
|
(778,156
|
)
|
|
|
(778,156
|
)
|
Net book
value
|
|
$
|
-
|
|
|
$
|
-
|
|
Amortization
expense for the year ended December 31, 2014 was $36,498, at which time the assets were fully amortized.
(6)
Retirement Plan
We
provide all of our employees with the opportunity to participate in our retirement savings plan. Our retirement savings plan has
been qualified under Section 401(k) of the Internal Revenue Code. Eligible employees are permitted to contribute to the plan through
payroll deductions within statutory limitations and subject to any limitations included in the plan. During 2015 and 2014 we contributed
$22,098 and $10,022, respectively, in the form of discretionary Company-matching contributions.
(7)
Income Taxes
Tax
positions must meet a “more likely than not” recognition threshold at the effective date to be recognized. At December
31, 2015 and 2014, the Company did not have any uncertain tax positions. No interest and penalties related to uncertain tax positions
were accrued at December 31, 2015 and 2014.
We
did not record an income tax benefit or provision for the years ended December 31, 2015 and 2014.
Significant
items making up the deferred tax assets and deferred tax liabilities as of December 31, 2015 and December 31, 2014 are as follows:
|
|
2015
|
|
|
2014
|
|
Current
deferred taxes
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
19,640
|
|
|
$
|
19,640
|
|
Other
accruals
|
|
|
23,714
|
|
|
|
21,818
|
|
Less:
valuation allowance
|
|
|
(43,354
|
)
|
|
|
(41,458
|
)
|
Total
current deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Long
term deferred taxes:
|
|
|
|
|
|
|
|
|
Accelerated
tax depreciation
|
|
$
|
14,134
|
|
|
$
|
12,162
|
|
Non-cash,
stock-based compensation, nonqualified
|
|
|
562,426
|
|
|
|
440,614
|
|
Goodwill
and intangibles
|
|
|
-
|
|
|
|
-
|
|
Operating
loss carry forwards and tax credits
|
|
|
12,028,900
|
|
|
|
9,720,260
|
|
Less:
valuation allowance
|
|
|
(12,605,460
|
)
|
|
|
(10,173,036
|
)
|
Total
long term deferred tax assets (liabilities), net
|
|
|
-
|
|
|
|
-
|
|
Total
net deferred tax liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
A
valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized.
Accordingly, a valuation allowance was established in 2015 and 2014 for the full amount of our deferred tax assets due to the
uncertainty of realization. We believe based on our projection of future taxable operating income for the foreseeable future,
it is more likely than not that we will not be able to realize the benefit of the deferred tax asset at December 31, 2015.
We
have net operating loss carry-forwards for federal income tax purposes of $26,752,000 as of December 31, 2015. Included in these
numbers are loss carry-forwards that were obtained through the acquisition of BioSeq, Inc. and are subject to Section 382 NOL
limitations. These net operating loss carry-forwards expire at various dates from 2018 through 2036.
We
had net operating loss carry-forwards for state income tax purposes of approximately $20,895,000 at December 31, 2015. These net
operating loss carry-forwards expire at various dates from 2016 through 2036.
We
have research and development tax credit carry-forwards for federal income tax purposes of approximately $1,019,000 as of December
31, 2015 and research and development tax credit carry-forwards for state income tax purposes of approximately $165,000 as of
December 31, 2015. The federal credit carry-forwards expire at various dates from 2016 through 2036. The state credit carry-forwards
expire at various dates from 2023 through 2031.
In
addition, we have federal alternative minimum tax credit carry-forwards for federal income tax purposes of approximately $217,000
as of December 31, 2015. These credits do not expire.
Our
effective income tax (benefit) provision rate was different than the statutory federal income tax (benefit) provision rate as
follows for the years ended December 31:
|
|
2015
|
|
|
2014
|
|
Federal tax provision rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Permanent differences
|
|
|
(12
|
)%
|
|
|
(2
|
)%
|
State tax expense
|
|
|
0
|
%
|
|
|
0
|
%
|
Refundable AMT and R&D tax credit
|
|
|
0
|
%
|
|
|
0
|
%
|
Net operating loss carry back
|
|
|
0
|
%
|
|
|
0
|
%
|
Valuation allowance
|
|
|
(23
|
)%
|
|
|
(32
|
)%
|
Effective income
tax provision
|
|
|
0
|
%
|
|
|
0
|
%
|
(8)
Commitments and Contingencies
Operating
Leases
Our
corporate office is currently located at 14 Norfolk Avenue, South Easton, Massachusetts 02375. We are currently paying $4,800
per month, on a lease extension, signed on December 29, 2015, that expires December 31, 2016, for our corporate office.
On
November 1, 2014 we signed a lease for lab space in Medford, MA. We subsequently expanded our space in Medford. The lease expires
December 30, 2017 and requires monthly payments of $5,385 subject to annual cost of living increases.
Following
is a schedule by years of future minimum rental payments required under operating leases with initial or remaining non-cancelable
lease terms in excess of one year as of December 31, 2015:
2016
|
|
$
|
122,220
|
|
Thereafter
|
|
|
64,620
|
|
Total minimum
payments required
|
|
$
|
186,840
|
|
Royalty
Commitments
BioMolecular
Assays, Inc.
In
1996, we acquired our initial equity interest in BioSeq, Inc., which at the time was developing our original pressure cycling
technology. BioSeq, Inc. acquired its pressure cycling technology from BioMolecular Assays, Inc. under a technology transfer and
patent assignment agreement. In 1998, we purchased all of the remaining outstanding capital stock of BioSeq, Inc., and at such
time, the technology transfer and patent assignment agreement was amended to require us to pay BioMolecular Assays, Inc. a 5%
royalty on our sales of products or services that incorporate or utilize the original pressure cycling technology that BioSeq,
Inc. acquired from BioMolecular Assays, Inc. We are also required to pay BioMolecular Assays, Inc. 5% of the proceeds from any
sale, transfer or license of all or any portion of the original pressure cycling technology. These payment obligations terminate
in 2016. During the fiscal years ended December 31, 2015 and 2014, we incurred $31,301 and $31,835 in royalties, respectively.
In
connection with our acquisition of BioSeq, Inc., we licensed certain limited rights to the original pressure cycling technology
back to BioMolecular Assays, Inc. This license is non-exclusive and limits the use of the original pressure cycling technology
by BioMolecular Assays, Inc. solely for molecular applications in scientific research and development and in scientific plant
research and development. BioMolecular Assays, Inc. is required to pay us a royalty equal to 20% of any license or other fees
and royalties, but not including research support and similar payments, it receives in connection with any sale, assignment, license
or other transfer of any rights granted to BioMolecular Assays, Inc. under the license. BioMolecular Assays, Inc. must pay us
these royalties until the expiration of the patents held by BioSeq, Inc. in 1998, which we anticipate will be 2016. We have not
received any royalty payments from BioMolecular Assays, Inc. under this license.
Battelle
Memorial Institute
In
December 2008, we entered into an exclusive patent license agreement with the Battelle Memorial Institute (“
Battelle
”).
The licensed technology is described in the patent application filed by Battelle on July 31, 2008 (US serial number 12/183,219).
This application includes subject matter related to a method and a system for improving the analysis of protein samples, including
through an automated system utilizing pressure and a pre-selected agent to obtain a digested sample in a significantly shorter
period of time than current methods, while maintaining the integrity of the sample throughout the preparatory process. Pursuant
to the terms of the agreement, we paid Battelle a non-refundable initial fee of $35,000. In addition to royalty payments on net
sales on “licensed products”, we are obligated to make minimum royalty payments for each year that we retain the rights
outlined in the patent license agreement and we are required to have our first commercial sale of the licensed products within
one year following the issuance of the patent covered by the licensed technology. After re-negotiating the terms of the contract
in 2013 the minimum annual royalty was $1,200 and $2,900 for the years ended 2015 and 2014, respectively.
Target
Discovery Inc
.
In
March 2010, we signed a strategic product licensing, manufacturing, co-marketing, and collaborative research and development agreement
with Target Discovery Inc. (“
TDI
”). Under the terms of the agreement, we have been licensed by TDI to manufacture
and sell a highly innovative line of chemicals used in the preparation of tissues for scientific analysis (“
TDI reagents
”).
The TDI reagents were designed for use in combination with our pressure cycling technology. The companies believe that the combination
of PCT and the TDI reagents can fill an existing need in life science research for an automated method for rapid extraction and
recovery of intact, functional proteins associated with cell membranes in tissue samples. We did not incur any royalty obligation
under this agreement in 2015 or 2014.
In
April 2012, we signed a non-exclusive license agreement with TDI to grant the non-exclusive use of our pressure cycling technology.
We recorded $22,000 of minimum royalty income in 2015 but none in 2014.
Severance
and Change of Control Agreements
Each
of Mr. Schumacher, and Drs. Ting, Lazarev, and Lawrence, executive officers of the Company, are entitled to receive a severance
payment if terminated by us without cause. The severance benefits would include a payment in an amount equal to one year of such
executive officer’s annualized base salary compensation plus accrued paid time off. Additionally, the officer will be entitled
to receive medical and dental insurance coverage for one year following the date of termination.
Each
of these executive officers, other than Mr. Schumacher, is entitled to receive a change of control payment in an amount equal
to one year of such executive officer’s annualized base salary compensation, accrued paid time off, and medical and dental
coverage, in the event of a change of control of the Company. In the case of Mr. Schumacher, this payment would be equal to two
years of annualized base salary compensation, accrued paid time off, and two years of medical and dental coverage. The severance
payment is meant to induce the aforementioned executives to remain in the employ of the Company, in general; and particularly
in the occurrence of a change in control, as a disincentive to the control change.
(9)
Convertible Debt
and Other Debt
We
have entered into various convertible debentures. The convertible debentures have terms ranging from 12 to 24 months and subject
to annual interest rates ranging from 2% to 9%. The proceeds received are net of fees. The lenders charge interest per annum based
on the principal balance. The lenders have the right, at any time after 180 days from the issue date to convert any or part of
the outstanding and unpaid principal and interest into shares of the Company’s common stock based on a volume weighted average
price of the closing prices of the Company’s shares during various periods prior to conversion subject to adjustments for
stock splits, stock dividends or rights offerings. The Company shall have the right to prepay the debenture for a payment of the
outstanding principal plus unpaid interest at any time on or before six months after the effective date. If the Company chooses
to prepay it will incur pre-payment penalties ranging from 9.5% to 38% of the principal balance. The Company is required to reserve
shares of common stock for full conversion of these debentures. The maturity dates range from six months to two years after the
effective date of the payment. The convertible debt as of December 31, 2015 are secured by the assets of the Company. The Company
determined that the conversion feature met the definition of a liability in accordance with ASC 815-40 and therefore bifurcated
the conversion feature on each debt agreement and accounted for it as a derivative liability. The fair value of the conversion
feature was accounted for as a note discount and will be amortized to interest expense over the life of the loan. The fair value
of the conversion feature was reflected in the conversion option liability line in the consolidated balance sheets. We will continue
to classify the fair value of the conversion options as a liability until the conversion options are exercised, expire or are
amended in a way that would no longer require these conversion options to be classified as a liability, whichever comes first.
The
proceeds from these convertible debts were allocated between the host debt instrument and the convertible option based on the
residual method. The estimated fair value of the convertible option was determined using a binomial formula, resulting in allocations
to the convertible option and accounted for as a liability in the Company’s consolidated balance sheets. In accordance with
the provisions of ASC 815-40, the gross proceeds are offset by debt discounts, which are amortized to interest expense over the
expected life of the debt.
In
connection with the senior secured convertible debentures issued in our still open $5 million private placement, we also issued
warrants to the lenders to purchase an aggregate 8,767,857 shares of the Common Stock, at an exercise price of $0.40 per share,
expiring five years after the issuance date.
ASC
470-20 states that the proceeds from the issuance of debt with detachable stock warrants should be allocated between the debt
and warrants on the basis of their relative fair market values. The debt discount will be amortized to interest expense over the
two-year term of these loans. The convertible debentures and warrants issued in connection with the convertible debentures are
classified as derivative liabilities because the convertible debentures and warrants are entitled to certain rights in subsequent
financings and these instruments contain “down-round protection” and therefore, do not meet the scope exception for
treatment as a derivative under ASC 815, Derivatives and Hedging, (“ASC 815”). Since “down-round protection”
is not an input into the calculation of the fair value of the convertible debentures and warrants, the instruments cannot be considered
indexed to the Company’s own stock, which is a requirement for the scope exception as outlined under ASC 815. The estimated
fair value of the warrants was determined using the binomial model, resulting in an allocation of $1,933,375 to the total warrants
out of the gross proceeds of $4,910,000 at issuance date. The fair value will be affected by changes in inputs to that model including
our stock price, expected stock price volatility, the contractual term, and the risk-free interest rate. We will continue to classify
the fair value of the warrants as a liability until the warrants are exercised, expire or are amended in a way that would no longer
require these warrants to be classified as a liability, whichever comes first.
The
specific terms of the $5.4 million PIPE convertible debentures and outstanding balances as of December 31, 2015 are listed in
the tables below.
Fixed
Rate Convertible Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception
Date
|
|
Term
|
|
|
Loan
Amount
|
|
|
Outstanding
Balance
|
|
|
Original
Issue Discount
|
|
|
|
|
|
Interest
Rate
|
|
|
|
|
|
Deferred
Finance Fees
|
|
|
Discount
related to Fair value of conversion feature and warrants
|
|
|
Prepayment
Penalty
|
|
July 22,
2015
|
|
|
24 months
|
|
|
$
|
2,180,000
|
|
|
$
|
2,180,000
|
|
|
$
|
218,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
|
|
|
$
|
388,532
|
|
|
$
|
2,163,074
|
|
|
|
20
|
%
|
September 25, 2015
|
|
|
24 months
|
|
|
|
1,100,000
|
|
|
|
1,100,000
|
|
|
|
110,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
185,956
|
|
|
|
1,022,052
|
|
|
|
20
|
%
|
October 2, 2015
|
|
|
24 months
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
15,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
26,345
|
|
|
|
140,832
|
|
|
|
20
|
%
|
October 6, 2015
|
|
|
24 months
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
3,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
5,168
|
|
|
|
26,721
|
|
|
|
20
|
%
|
October 14, 2015
|
|
|
24 months
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
5,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
8,954
|
|
|
|
49,377
|
|
|
|
20
|
%
|
November 2, 2015
|
|
|
24 months
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
25,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
43,079
|
|
|
|
222,723
|
|
|
|
20
|
%
|
November 10, 2015
|
|
|
24 months
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
5,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
8,790
|
|
|
|
46,984
|
|
|
|
20
|
%
|
November 12, 2015
|
|
|
24 months
|
|
|
|
215,000
|
|
|
|
215,000
|
|
|
|
21,500
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
38,518
|
|
|
|
212,399
|
|
|
|
20
|
%
|
November 20, 2015
|
|
|
24 months
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
20,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
37,185
|
|
|
|
200,000
|
|
|
|
20
|
%
|
December 4, 2015
|
|
|
24 months
|
|
|
|
170,000
|
|
|
|
170,000
|
|
|
|
17,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
37,352
|
|
|
|
170,000
|
|
|
|
20
|
%
|
December 11, 2015
|
|
|
24 months
|
|
|
|
360,000
|
|
|
|
360,000
|
|
|
|
36,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
75,449
|
|
|
|
360,000
|
|
|
|
20
|
%
|
December 18, 2015
|
|
|
24 months
|
|
|
|
55,000
|
|
|
|
55,000
|
|
|
|
5,500
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
11,714
|
|
|
|
55,000
|
|
|
|
20
|
%
|
December 31, 2015
|
|
|
24
months
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
10,000
|
|
|
|
1
|
|
|
|
10
|
%
|
|
|
2
|
|
|
|
20,634
|
|
|
|
100,000
|
|
|
|
20
|
%
|
|
|
|
|
|
|
$
|
4,910,000
|
|
|
$
|
4,910,000
|
|
|
$
|
491,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
887,676
|
|
|
$
|
4,769,162
|
|
|
|
|
|
1
The original issue discount is reflected in the first year.
2
The annual interest starts accruing in the second year.
Deferred
finance fees include cash commissions amounting to $501,000 and the fair value of the 1,689,286 warrants issued to the placement
agent amounting to $386,676. For the year ended December 31, 2015, the Company recognized amortization expense related to the
debt discounts indicated above of $924,180. The unamortized debt discounts as of December 31, 2015 related to the convertible
debentures amounted to $5,223,658.
As
of December 31, 2015, the Company also had an outstanding convertible note with a third party amounting to $100,000. The note
is convertible at a fixed rate of $0.25 and matures in July 2016.
Variable Rate Convertible Notes
|
|
|
Inception
Date
|
|
Term
|
|
|
Loan
Amount
|
|
|
|
|
Interest
Rate
|
|
|
Fees
|
|
|
Fair
value of conversion feature
|
|
|
Prepayment
Penalty
|
|
|
Discount
to VWAP
|
|
Share
reserve requirement
|
|
|
December
4, 2013
|
|
|
12
months
|
|
|
$
|
223,000
|
|
|
*
|
|
|
4
|
%
|
|
$
|
10,000
|
|
|
$
|
59,903
|
|
|
20
|
|
%
|
|
|
|
|
-
|
|
|
February
2, 2015
|
|
|
12
months
|
|
|
|
100,000
|
|
|
*
|
|
|
4
|
%
|
|
|
5,000
|
|
|
|
62,219
|
|
|
19-33
|
|
%
|
|
|
|
|
-
|
|
|
February
2, 2015
|
|
|
12
months
|
|
|
|
120,000
|
|
|
*
|
|
|
4
|
%
|
|
|
5,000
|
|
|
|
74,663
|
|
|
19-33
|
|
%
|
|
|
|
|
-
|
|
|
February
22, 2015
|
|
|
six
months
|
|
|
|
100,000
|
|
|
*
|
|
|
4
|
%
|
|
|
-
|
|
|
|
61,597
|
|
|
19-33
|
|
%
|
|
|
|
|
-
|
|
|
February
25, 2015
|
|
|
12
months
|
|
|
|
112,500
|
|
|
*
|
|
|
8
|
%
|
|
|
4,000
|
|
|
|
312,847
|
|
|
19-33
|
|
%
|
|
|
|
|
-
|
|
|
March
4, 2015
|
|
|
12
months
|
|
|
|
52,500
|
|
|
*
|
|
|
4
|
%
|
|
|
2,500
|
|
|
|
53,213
|
|
|
19-38
|
|
%
|
|
|
|
|
-
|
|
|
March
6, 2015
|
|
|
12
months
|
|
|
|
236,250
|
|
|
*
|
|
|
2
|
%
|
|
|
33,900
|
|
|
|
212,918
|
|
|
19-35
|
|
%
|
|
|
|
|
-
|
|
|
March
17, 2015
|
|
|
24
months
|
|
|
|
50,000
|
|
|
*
|
|
|
4
|
%
|
|
|
-
|
|
|
|
64,382
|
|
|
19-33
|
|
%
|
|
|
|
|
-
|
|
|
March
20, 2015
|
|
|
12
months
|
|
|
|
25,000
|
|
|
*
|
|
|
4
|
%
|
|
|
-
|
|
|
|
25,077
|
|
|
19-33
|
|
%
|
|
|
|
|
-
|
|
|
March
26, 2015
|
|
|
12
months
|
|
|
|
150,000
|
|
|
*
|
|
|
6
|
%
|
|
|
2,000
|
|
|
|
164,501
|
|
|
19-37.5
|
|
%
|
|
|
|
|
-
|
|
|
March
27, 2015
|
|
|
12
months
|
|
|
|
52,500
|
|
|
*
|
|
|
4
|
%
|
|
|
2,500
|
|
|
|
57,502
|
|
|
19-38
|
|
%
|
|
|
|
|
-
|
|
|
March
27, 2015
|
|
|
12
months
|
|
|
|
100,000
|
|
|
*
|
|
|
8
|
%
|
|
|
8,000
|
|
|
|
154,359
|
|
|
19-38
|
|
%
|
|
|
|
|
-
|
|
|
April
1, 2015
|
|
|
12
months
|
|
|
|
100,000
|
|
|
*
|
|
|
8
|
%
|
|
|
-
|
|
|
|
155,793
|
|
|
25-35
|
|
%
|
|
40%
of 10 days
|
|
|
-
|
|
|
April
20, 2015
|
|
|
12
months
|
|
|
|
81,250
|
|
|
*
|
|
|
4
|
%
|
|
|
6,563
|
|
|
|
117,679
|
|
|
20
|
|
%
|
|
|
|
|
-
|
|
|
April
28, 2015
|
|
|
12
months
|
|
|
|
54,050
|
|
|
*
|
|
|
9
|
%
|
|
|
4,050
|
|
|
|
35,143
|
|
|
20
|
|
%
|
|
|
|
|
-
|
|
|
May
12, 2015
|
|
|
12
months
|
|
|
|
107,764
|
|
|
*
|
|
|
4
|
%
|
|
|
7,763
|
|
|
|
145,527
|
|
|
20
|
|
%
|
|
|
|
|
-
|
|
|
May
20, 2015
|
|
|
12
months
|
|
|
|
100,000
|
|
|
*
|
|
|
4
|
%
|
|
|
-
|
|
|
|
92,715
|
|
|
9.5-33
|
|
%
|
|
45%
of 10 days
|
|
|
3,000,000
|
|
|
May
26, 2015
|
|
|
12
months
|
|
|
|
60,000
|
|
|
*
|
|
|
8
|
%
|
|
|
3,500
|
|
|
|
79,287
|
|
|
10-35
|
|
%
|
|
|
|
|
-
|
|
|
June
23, 2015
|
|
|
12
months
|
|
|
|
126,000
|
|
|
*
|
|
|
4
|
%
|
|
|
6,000
|
|
|
|
108,297
|
|
|
19-33
|
|
%
|
|
35%
of 15 days
|
|
|
3,101,000
|
|
|
June
24, 2015
|
|
|
24
months
|
|
|
|
50,000
|
|
|
*
|
|
|
4
|
%
|
|
|
-
|
|
|
|
54,511
|
|
|
19-33
|
|
%
|
|
35%
of 10 days
|
|
|
1,000,000
|
|
|
July
2, 2015
|
|
|
12
months
|
|
|
|
52,500
|
|
|
*
|
|
|
4
|
%
|
|
|
2,500
|
|
|
|
54,297
|
|
|
19-33
|
|
%
|
|
35%
of 15 days
|
|
|
1,500,000
|
|
|
July
2, 2015
|
|
|
12
months
|
|
|
|
52,500
|
|
|
*
|
|
|
4
|
%
|
|
|
2,500
|
|
|
|
54,297
|
|
|
19-33
|
|
%
|
|
35%
of 15 days
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
$
|
2,105,814
|
|
|
|
|
|
|
|
|
$
|
105,776
|
|
|
$
|
2,200,727
|
|
|
|
|
|
|
|
|
|
9,601,000
|
|
|
*
The loans above either had outstanding balances as of December 31, 2014 or were issued in 2015 and subsequently paid off in 2015.
The
following table provides a summary of the changes in convertible debt, net of unamortized discount, during 2015:
|
|
2015
|
Balance at January 1,
|
|
$
|
1,004,513
|
|
Issuance of convertible debt, face value
|
|
|
7,287,317
|
|
Original issue discount
|
|
|
(567,780
|
)
|
Debt discount from derivative liabilities
(embedded conversion option and warrants)
|
|
|
(6,433,054
|
)
|
Deferred financing fees
|
|
|
(887,676
|
)
|
Repayment of convertible debt
|
|
|
(2,653,990
|
)
|
Conversion of convertible debt into
common stock
|
|
|
(382,054
|
)
|
Fees added to principal debt
|
|
|
84,000
|
|
Settlement of prepayment penalty
|
|
|
(96,023
|
)
|
Amortization
of debt discount to interest expense through December 31,
|
|
|
2,922,089
|
|
Balance at December 31,
|
|
|
277,342
|
|
Less: current
portion
|
|
|
100,000
|
|
Convertible debt,
long-term portion
|
|
$
|
177,342
|
|
Other
Notes
On
June 6, 2014, we signed a Merchant Agreement with On Deck Capital. Under the agreement we received $150,000 in exchange for rights
to all customer receipts until On Deck Capital is paid $190,499, to be collected at the rate of $756 per business day. The payments
are secured by essentially all tangible assets of the Company. The Company paid On Deck Capital $3,750 in fees related to this
transaction. The note was paid off in its entirety in 2015.
On
January 15, 2015 we signed a Merchant Agreement with a lender. Under the agreement, we received $150,000 in exchange for rights
to all customer receipts until the lender was paid $187,500, which was collected at the rate of $744 per business day. The payments
were secured by essentially all tangible assets of the Company. $67,925 of the proceeds were used to pay off the outstanding balance
of a previous loan from this lender. The Company paid $1,875 in fees in connection with this loan. The note was paid off in its
entirety prior to December 31, 2015.
On
January 29, 2015 we signed a Merchant Agreement with a lender. Under the agreement, we received $200,000 in exchange for rights
to all customer receipts until the lender was paid $278,000, which was collected at the rate of $1,985 per business day. The payments
were secured by essentially all tangible assets of the Company. The Company paid $999 in fees in connection with this loan. The
note was paid off in its entirety prior to December 31, 2015.
On
March 17, 2015 we signed a Merchant Agreement with a lender. Under the agreement, we received $50,000 in exchange for rights to
all customer receipts until the lender was paid $67,450, which was collected at the rate of $559 per business day. The payments
were secured by essentially all tangible assets of the Company. The Company paid $999 in fees in connection with this loan. The
note was paid off in its entirety prior to December 31, 2015.
On
May 29, 2015 we signed a Merchant Agreement with a lender. Under the agreement, we received $100,000 in exchange for rights to
all customer receipts until the lender was paid $132,000, which was collected at the rate of $1,098 per business day. The Company
paid $3,999 in fees in connection with this loan. The note was paid off in its entirety prior to December 31, 2015.
On
August 28, 2015 we signed a Merchant Agreement with a lender. Under the agreement, we received $300,000 in exchange for rights
to all customer receipts until the lender is paid $384,000, to be collected at the rate of $2,560 per business day. The payments
are not secured. On the closing date, $131,710 of the proceeds were used to pay off the outstanding balances of two existing Notes.
The Company paid $6,000 in fees in connection with this loan. The outstanding balance is recorded as other debt on the balance
sheet.
During
the year ended December 31, 2015, we signed three ninety-day notes with an investor. Under the terms of the notes, the Company
received a total of $600,000. The investor converted these loans, plus $60,000 in accrued interest into the Company’s $5
million PIPE offering on July 21, 2015. There was no gain or loss on the conversion.
During
the year ended December 31, 2015, the Company made payments of $587,949 in total on the non-convertible debt from non-related
parties.
Related
Party Notes
During
the year ended December 31, 2015, the Company received advances from certain officers of the Company amounting to $6,300 and made
payments of $12,300. These advances are non-interest bearing and payable on demand. As of December 31, 2015 there are no outstanding
notes to related parties.
(10)
Stockholders’ (Deficit)
Preferred
Stock
We
are authorized to issue 1,000,000 shares of preferred stock with a par value of $0.01. Of the 1,000,000 shares of preferred stock:
|
1)
|
20,000
shares have been designated as Series A Junior Participating Preferred Stock (“
Junior A
”)
|
|
|
|
|
2)
|
313,960
shares have been designated as Series A Convertible Preferred Stock (“
Series A
”)
|
|
|
|
|
3)
|
279,256
shares have been designated as Series B Convertible Preferred Stock (“
Series B
”)
|
|
|
|
|
4)
|
88,098
shares have been designated as Series C Convertible Preferred Stock (“
Series C
”)
|
|
|
|
|
5)
|
850
shares have been designated as Series D Convertible Preferred Stock (“
Series D
”)
|
|
|
|
|
6)
|
500
shares have been designated as Series E Convertible Preferred Stock
(“Series E”)
|
|
|
|
|
7)
|
240,000
shares have been designated as Series G Convertible Preferred Stock (“
Series G
”)
|
|
|
|
|
8)
|
10,000
shares have been designated as Series H Convertible Preferred Stock (“
Series H
”)
|
|
|
|
|
9)
|
21
shares have been designated as Series H2 Convertible Preferred Stock (“
Series H2
”)
|
|
|
|
|
10)
|
6,250
shares have been designated as Series J Convertible Preferred Stock (“
Series J
”)
|
|
|
|
|
11)
|
15,000
shares have been designated as Series K Convertible Preferred Stock (“
Series K
”)
|
As
of December 31, 2015 and 2014, there were no shares of Junior A, and Series A, B, C, E, and H1 issued and outstanding.
Series
D Convertible Preferred Stock
On
November 11, 2011, we completed a registered direct offering, pursuant to which we sold an aggregate of 843 units for a purchase
price of $1,000 per unit, resulting in gross proceeds to us of $843,000 (the “
Series D
Placement
”).
Each unit (“
Series D Unit
”) consisted of (i) one share of Series D Convertible Preferred Stock, $0.01 par value
per share (the “
Series D Convertible Preferred Stock
”) convertible into 1,538.46 shares of our common stock,
(subject to adjustment for stock splits, stock dividends, recapitalization, etc.) and (ii) one five-year warrant to purchase approximately
614 shares of our common stock at a per share exercise price of $0.81, subject to adjustment as provided in the Warrants (“
Series
D Warrant
”). The Series D Warrants will be exercisable beginning on May 11, 2012 and until the close of business on
the fifth anniversary of the initial exercise date.
The
proceeds from the sale of each Series D Unit were allocated between the Series D Convertible Preferred Stock and the Series D
Warrants based on the residual method. The estimated fair value of the Series D Warrants was determined using a binomial formula,
resulting in an allocation of the gross proceeds of $283,725 to the total warrants issued. The allocation of the gross proceeds
to the Series D Convertible Preferred Stock was $559,275. In accordance with the provisions of ASC 470-20, an additional adjustment
between Additional Paid in Capital and Accumulated Deficit of $530,140 was recorded to reflect an implicit non-cash dividend related
to the allocation of proceeds between the stock and warrants issued. The $530,140 represents the value of the adjustment to additional
paid in capital related to the beneficial conversion feature of the Series D Convertible Preferred Stock. The value adjustment
was calculated by subtracting the fair market value of the underlying common stock on November 10, 2011 issuable upon conversion
of the Series D Convertible Preferred Stock from the fair market value of the Series D Convertible Preferred Stock as determined
when the Company performed a fair market value allocation of the proceeds to the Series D Convertible Preferred Stock and warrants.
The warrants are recorded as a liability. See “Warrant Derivative Liability” below.
The
Series D Convertible Preferred Stock will rank senior to the Company’s common stock and Series C Convertible Preferred Stock
with respect to payments made upon liquidation, winding up or dissolution. Upon any liquidation, dissolution or winding up of
the Company, after payment of the Company’s debts and liabilities, and before any payment is made to the holders of any
junior securities, the holders of Series D Convertible Preferred Stock will first be entitled to be paid $1,000 per share subject
to adjustment for accrued but unpaid dividends.
We
may not pay any dividends on shares of common stock unless we also pay dividends on the Series D Convertible Preferred Stock in
the same form and amount, on an as-if-converted basis, as dividends actually paid on shares of our common stock. Except for such
dividends, no other dividends may be paid on the Series D Convertible Preferred Stock.
Each
share of Series D Convertible Preferred Stock is convertible into 1,538.46 shares of common stock (based upon an initial conversion
price of $0.65 per share) at any time at the option of the holder, subject to adjustment for stock splits, stock dividends, combinations,
and similar recapitalization transactions (the “
Series D
Conversion Ratio
”). Subject to certain exceptions,
if the Company issues any shares of common stock or common stock equivalents at a per share price that is lower than the conversion
price of the Series D Convertible Preferred Stock, the conversion price will be reduced to the per share price at which such shares
of common stock or common stock equivalents are issued. Each share of Series D Convertible Preferred Stock will automatically
be converted into shares of common stock at the Series D Conversion Ratio then in effect if, after six months from the closing
of the Series D Placement, the common stock trades on the OTC Market (or other primary trading market or exchange on which the
common stock is then traded) at a price equal to at least 300% of the then effective Series D Convertible Preferred Stock conversion
price for 20 out of 30 consecutive trading days with each trading day having a volume of at least $50,000. Unless waived under
certain circumstances by the holder of the Series D Convertible Preferred Stock, such holder’s Series D Convertible Preferred
Stock may not be converted if upon such conversion the holder’s beneficial ownership would exceed certain thresholds.
In
addition, in the event we consummate a merger or consolidation with or into another person or other reorganization event in which
our shares of common stock are converted or exchanged for securities, cash or other property, or we sell, lease, license or otherwise
dispose of all or substantially all of our assets or we or another person acquire 50% or more of our outstanding shares of common
stock, then following such event, the holders of the Series D Convertible Preferred Stock will be entitled to receive upon conversion
of the Series D Convertible Preferred Stock the same kind and amount of securities, cash or property which the holders of the
Series D Convertible Preferred Stock would have received had they converted the Series D Convertible Preferred Stock immediately
prior to such fundamental transaction.
The
holders of Series D Convertible Preferred Stock are not entitled to vote on any matters presented to the stockholders of the Company
for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu
of meeting), except that the holders of Series D Convertible Preferred Stock may vote separately as a class on any matters that
would (i) amend, our Restated Articles of Organization, as amended, in a manner that adversely affects the rights of the Series
D Convertible Preferred Stock, (ii) alter or change adversely the powers, preferences or rights of the Series D Convertible Preferred
Stock or alter or amend the certificate of designation, (iii) authorize or create any class of shares ranking as to dividends,
redemption or distribution of assets upon liquidation senior to, or otherwise pari passu with, the Series D Convertible Preferred
Stock, or (iv) increase the number of authorized shares of Series D Convertible Preferred Stock.
If,
within 12 months of the initial issuance of the Series D Convertible Preferred Stock, we issue any common stock, common stock
equivalents, indebtedness or any combination thereof (a “
Subsequent Financing
”), the holders of Series D Convertible
Preferred Stock will have the right to participate on a pro-rata basis in up to 50% of such Subsequent Financing.
Series
D Warrants
The
Series D Warrants originally had an exercise price equal to $0.81 per share of common stock. In April 2012, the number of Series
D Warrants increased by 530,406 to a total of 1,047,875 and each Series D Warrant had an exercise price reset to $0.40 per share
of common stock. In December of 2013 the number of Series D Warrants increased by 628,733 to a total of 1,676,608 and each Series
D Warrant had an exercise price reset to $0.25 per share of common stock. The Series D Warrants will be exercisable beginning
on the six-month anniversary of the date of issuance and expire five years from the initial exercise date. The Series D Warrants
permit the holder to conduct a “cashless exercise” at any time a registration statement registering, or the prospectus
contained therein, is not available for the issuance of the shares of common stock issuable upon exercise of the Series D Warrant,
and under certain circumstances at the expiration of the Series D Warrants. The exercise price and/or number of shares of common
stock issuable upon exercise of the Series D Warrants are subject to adjustment for certain stock dividends, stock splits or similar
capital reorganizations, as set forth in the Warrants. The exercise price is also subject to adjustment in the event that we issue
any shares of common stock or common stock equivalents at a per share price that is lower than the exercise price for the Series
D Warrants then in effect. Upon any such issuance, subject to certain exceptions, the exercise price will be reduced to the per
share price at which such shares of common stock or common stock equivalents are issued and number of Series D Warrant shares
issuable thereunder shall be increased such that the aggregate exercise price payable thereunder, after taking into account the
decrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment. Unless waived under certain
circumstance by the holder of a Series D Warrant, such holder may not exercise the Series D Warrant if upon such exercise the
holder’s beneficial ownership of the Company’s common stock would exceed certain thresholds.
In
the event we consummate a merger or consolidation with or into another person or other reorganization event in which our shares
of common stock are converted or exchanged for securities, cash or other property, or we sell, lease, license or otherwise dispose
of all or substantially all of our assets or we or another person acquire 50% or more of our outstanding shares of common stock,
then following such event, the holders of the Series D Warrants will be entitled to receive upon exercise of the Series D Warrants
the same kind and amount of securities, cash or property which the holders would have received had they exercised the Series D
Warrants immediately prior to such fundamental transaction.
Series
G Convertible Preferred Stock
On
July 6 and November 15, 2012, we completed a private placement, pursuant to which we sold an aggregate of 145,320 units for a
purchase price of $5.00 per unit (the “Series G Purchase Price”), resulting in gross proceeds to us of $726,600 (the
“
Series G Private Placement
”). Each unit (“
Series G Unit
”) consists of (i) one share of
Series G Convertible Preferred Stock, $0.01 par value per share (the “Series G Preferred Stock”) convertible into
10 shares of our common stock, (subject to adjustment for stock splits, stock dividends, recapitalization, etc.) and (ii) a three-year
warrant to purchase 5 shares of our common stock at a per share exercise price of $0.50 (the “
Series G
Warrant
”).
The Series G Warrants will be exercisable until the close of business on the third anniversary of the applicable closing date
of the Series G Private Placement.
Each
share of Series G Preferred Stock will receive a cumulative dividend at the annual rate of (i) four percent (4%) on those shares
of Series G Preferred Stock purchased from the Company by an individual purchaser with an aggregate investment of less than $100,000,
(ii) six percent (6%) on those shares of Series G Preferred Stock purchased from the Company by an individual purchaser with an
aggregate investment of at least $100,000 but less than $250,000, and (iii) twelve percent (12%) on those shares of Series G Preferred
Stock purchased from the Company by an individual purchaser with an aggregate investment of at least $250,000. Dividends accruing
on the Series G Preferred Stock shall accrue from day to day until, and shall be paid within fifteen (15) days of, the first anniversary
of, the original issue date of the Series G Preferred Stock; provided, however, if any shares of the Company’s Series E
Preferred Stock are outstanding at such time, payment of the accrued dividends on the Series G Preferred Stock shall be deferred
until no such shares of Series E Convertible Preferred Stock remain outstanding. The Company may pay accrued dividends on the
Series G Preferred Stock in cash or in shares of its common stock equal to the volume weighted average price of the common stock
as reported by the OTC QB Market for the ten (10) trading days immediately preceding the Series G’s first anniversary.
At
the election of the Company and upon required advanced notice, each share of Series G Preferred Stock will automatically be converted
into shares of common stock at the Conversion Ratio then in effect: (i) if, after 6 months from the original issuance date of
the Series G Preferred Stock, the common stock trades on the OTC QB Market (or other primary trading market or exchange on which
the common stock is then traded) at a price equal to at least $0.75, for 7 out of 10 consecutive trading days with average daily
trading volume of at least 10,000 shares, (ii) on or after the first anniversary of the original issuance date of the Series G
Preferred Stock or (iii) upon completion of a firm-commitment underwritten registered public offering by the Company at a per
share price equal to at least $0.75, with aggregate gross proceeds to the Company of not less than $2.5 million. Unless waived
under certain circumstances by the holder of the Series G Preferred Stock, such holder’s Series G Preferred Stock may not
be converted if upon such conversion the holder’s beneficial ownership would exceed certain thresholds.
The
holders of Series G Preferred Stock are not entitled to vote on any matters presented to the stockholders of the Company for their
action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting),
except as required by law.
Series
G Warrants
The
Series G Warrants issued in the Series G Private Placement had an exercise price equal to $0.50 per share and expired on July
6, 2015.
Series
H Convertible Preferred Stock
On
December 28, 2012 the Company amended the Articles of Incorporation to authorize 10,000 shares of Series H Convertible Preferred
Stock. On January 4, 2013, the Company reported that it had entered into a securities purchase and exchange agreement with an
investor, pursuant to which the Company agreed to exchange 1,000,000 shares of the Company’s common stock, par value $0.01
per share of common stock held by the investor for an aggregate of 10,000 shares of a newly created series of preferred stock,
designated Series H Convertible Preferred Stock, par value $0.01 per share (the “
Series H Preferred Stock
”)
in a non-cash transaction. The investor originally purchased the common stock from the Company for $0.8025 per share. The exchange
ratio was 100 shares of common stock per share of Series H Preferred Stock at a stated conversion price of $0.8025 per share.
Series
H2 Convertible Preferred Stock
On
December 23, 2014 the Company amended the Articles of Incorporation to authorize 21 shares of Series H2 Convertible Preferred
Stock. On December 23, 2014, the Company reported that it had entered into a securities purchase and exchange agreement with an
investor, pursuant to which the Company agreed to exchange 2,100,000 shares of the Company’s common stock, par value $0.01
per share of common stock held by the investor for an aggregate of 21 shares of a newly created series of preferred stock, designated
Series H2 Convertible Preferred Stock, par value $0.01 per share (the “
Series H2 Preferred Stock
”) in a non-cash
transaction. The investor originally acquired the common stock from the Company for $0.25 per share in the warrant reset transaction
on December 23, 2014. The exchange ratio was 100,000 shares of common stock per share of Series H2 Preferred Stock at a stated
conversion price of $0.25 per share.
Series
J Convertible Preferred Stock
On
February 6, March 28 and May 20, 2013, the Company entered into a Securities Purchase with various individuals pursuant to which
the Company sold an aggregate of 5,087.5 units for a purchase price of $400.00 per unit (the “Purchase Price”), or
an aggregate Purchase Price of $2,034,700. Each unit purchased in the initial tranche consists of (i) one share of a newly created
series of preferred stock, designated Series J Convertible Preferred Stock, par value $0.01 per share (the “Series J Convertible
Preferred Stock”), convertible into 1,000 shares of the Company’s common stock, par value $0.01 per share and (ii)
a warrant to purchase 1,000 shares of common stock at an exercise price equal to $0.40 per share. The warrants expire three years
from the issuance date.
From
the date of issuance of any shares of Series J Convertible Preferred Stock and until the earlier of the first anniversary of such
date, the voluntary conversion of any shares of Series J Convertible Preferred Stock, or the date of any mandatory conversion
(solely under the Company’s control based upon certain triggering events) of the Series J Convertible Preferred Stock, dividends
will accrue on each share of Series J Convertible Preferred Stock at an annual rate of (i) four percent (4%) of the Purchase Price
on those shares of Series J Convertible Preferred Stock purchased from the Company pursuant to the Securities Purchase Agreement
by an individual purchaser who purchased from the Company shares of Series J Convertible Preferred Stock with an aggregate Purchase
Price of less than $250,000, and (ii) six percent (6%) of the Purchase Price on those shares of Series J Convertible Preferred
Stock purchased from the Company pursuant to the Securities Purchase Agreement by an individual purchaser who purchased shares
of Series J Convertible Preferred Stock with an aggregate purchase price of at least $250,000. Dividends accruing on the Series
J Convertible Preferred Stock shall accrue from day to day until the earlier of the first anniversary of the date of issuance
of such shares of Series J Convertible Stock, the voluntary conversion of any shares of Series J Convertible Preferred Stock,
or the date of any mandatory conversion of the Series J Convertible Preferred Stock, and shall be paid, as applicable, within
fifteen (15) days of the first anniversary of the original issue date of the Series J Convertible Preferred Stock, within five
(5) days of the voluntary conversion of shares of the Series J Convertible Preferred Stock, or within five (5) days of the mandatory
conversion of shares of the Series J Convertible Preferred Stock. The Company may pay accrued dividends on the Series J Convertible
Preferred Stock in cash or, in the sole discretion of the Board of Directors of the Company, in shares of its common stock in
accordance with a specified formula.
Each
share of Series J Convertible Preferred Stock is convertible into 1,000 shares of common stock at the option of the holder on
or after the six-month anniversary of the issuance of such share, subject to adjustment for stock splits, stock dividends, recapitalizations
and similar transactions (the “Conversion Ratio”). Unless waived under certain circumstances by the holder of Series
J Convertible Preferred Stock, such holder’s shares of Series J Convertible Preferred Stock may not be converted if upon
such conversion the holder’s beneficial ownership would exceed certain thresholds.
At
the election of the Company and upon required advance notice, each share of Series J Convertible Preferred Stock will automatically
be converted into shares of common stock at the Conversion Ratio then in effect: (i) on or after the six-month anniversary of
the original issuance date of the Series J Convertible Preferred Stock, the common stock trades on the OTC QB Market (or other
primary trading market or exchange on which the common stock is then traded) at a price per share equal to at least $0.80 for
7 out of 10 consecutive trading days with average daily trading volume of at least 50,000 shares, (ii) on the first anniversary
of the original issuance date of the Series J Convertible Preferred Stock or (iii) within three days of the completion of a firm-commitment
underwritten registered public offering by the Company at a per share price equal to at least $0.80, with aggregate gross proceeds
to the Company of not less than $2.5 million. Unless waived under certain circumstances by the holder of the Series J Convertible
Preferred Stock, such holder’s Series J Convertible Preferred Stock may not be converted if upon such conversion the holder’s
beneficial ownership would exceed certain thresholds.
The
holders of Series J Convertible Preferred Stock are not entitled to vote on any matters presented to the stockholders of the Company
for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu
of meeting), except as required by law.
Series
J Warrants
The
Warrants issued in the Private Placement have an exercise price equal to $0.40 per share, with a term expiring three years from
the issuance date. The Warrants also permit the holder to conduct a “cashless exercise” at any time the holder of
the Warrant is an affiliate of the Company. The exercise price and/or number of shares issuable upon exercise of the Warrants
will be subject to adjustment for stock dividends, stock splits or similar capital reorganizations, as set forth in the Warrant
agreement.
Subject
to the terms and conditions of the Warrants, at any time commencing six months from the closing date of the sale of Units under
the Securities Purchase Agreement the Company has the right to call the Warrants for cancellation if the volume weighted average
price of its common stock on the OTC QB Market (or other primary trading market or exchange on which the common stock is then
traded) equals or exceeds three times the per share exercise price of the Warrants for either (i) 10 consecutive trading days
or (ii) 15 out of 25 consecutive trading days.
Registration
Rights Agreement
In
connection with the Private Placement, the Company has agreed that, if, at any time after February 1, 2014, the Company files
a Registration Statement relating to an offering of equity securities of the Company (the “Registration Statement”),
subject to certain exceptions, including a Registration Statement relating solely to an offering or sale of securities having
an aggregate public offering price of less than $5,000,000, the Company shall include in the Registration Statement the resale
of the shares of common stock underlying the Warrants. Shares of common stock issued upon conversion of Series J Convertible Preferred
Stock or in payment of the dividend on the Series J Convertible Preferred Stock will not be registered and will not be subject
to registration rights. This right is subject to customary conditions and procedures.
Series
K Convertible Preferred Stock
On
December 12, 2013, the Company entered into a Securities Purchase with various individuals pursuant to which the Company sold
an aggregate of 4,000 units for a purchase price of $250.00 per unit (the “Purchase Price”), for an aggregate Purchase
Price of $1,000,000. Each unit purchased in the initial tranche consists of (i) one share of a newly created series of preferred
stock, designated Series K Convertible Preferred Stock, par value $0.01 per share (the “Series K Convertible Preferred Stock”),
convertible into 1,000 shares of the Company’s common stock, par value $0.01 per share and (ii) a warrant to purchase 500
shares of common stock at an exercise price equal to $0.3125 per share. The warrants expire three years from the issuance date.
Of the $1,000,000 invested in the Private Placement, $572,044 was received in cash and $427,956 was from the conversion of outstanding
indebtedness and interest. The Company incurred $43,334 of fees in conjunction with this private placement. The purchasers in
the initial tranche of the private placement consisted of certain existing and new investors in the Company as well as all of
the members of the Company’s Board of Directors.
From
the date of issuance of any shares of Series K Convertible Preferred Stock and until the earlier of the first anniversary of such
date, the voluntary conversion of any shares of Series K Convertible Preferred Stock, or the date of any mandatory conversion
(solely under the Company’s control based upon certain triggering events) of the Series K Convertible Preferred Stock, dividends
will accrue on each share of Series K Convertible Preferred Stock at an annual rate of (i) four percent (4%) of the Purchase Price
on those shares of Series K Convertible Preferred Stock purchased from the Company pursuant to the Securities Purchase Agreement
by an individual purchaser who purchased from the Company shares of Series K Convertible Preferred Stock with an aggregate Purchase
Price of less than $100,000, and (ii) six percent (6%) of the Purchase Price on those shares of Series K Convertible Preferred
Stock purchased from the Company pursuant to the Securities Purchase Agreement by an individual purchaser who purchased shares
of Series K Convertible Preferred Stock with an aggregate purchase price of at least $100,000. Dividends accruing on the Series
K Convertible Preferred Stock shall accrue from day to day until the earlier of the first anniversary of the date of issuance
of such shares of Series K Convertible Stock, the voluntary conversion of any shares of Series K Convertible Preferred Stock,
or the date of any mandatory conversion of the Series K Convertible Preferred Stock, and shall be paid, as applicable, within
fifteen (15) days of the first anniversary of the original issue date of the Series K Convertible Preferred Stock, within five
(5) days of the voluntary conversion of shares of the Series K Convertible Preferred Stock, or within five (5) days of the mandatory
conversion of shares of the Series K Convertible Preferred Stock. The Company may pay accrued dividends on the Series K Convertible
Preferred Stock in cash or, in the sole discretion of the Board of Directors of the Company, in shares of its common stock in
accordance with a specified formula.
Each
share of Series K Convertible Preferred Stock is convertible into 1,000 shares of common stock at the option of the holder on
or after the six-month anniversary of the issuance of such share, subject to adjustment for stock splits, stock dividends, recapitalizations
and similar transactions (the “Conversion Ratio”). Unless waived under certain circumstances by the holder of Series
K Convertible Preferred Stock, such holder’s shares of Series K Convertible Preferred Stock may not be converted if upon
such conversion the holder’s beneficial ownership would exceed certain thresholds.
At
the election of the Company and upon required advance notice, each share of Series K Convertible Preferred Stock will automatically
be converted into shares of common stock at the Conversion Ratio then in effect: (i) on or after the six-month anniversary of
the original issuance date of the Series K Convertible Preferred Stock, the common stock trades on the OTC QB Market (or other
primary trading market or exchange on which the common stock is then traded) at a price per share equal to at least $0.80 for
7 out of 10 consecutive trading days with average daily trading volume of at least 50,000 shares, (ii) on the first anniversary
of the original issuance date of the Series K Convertible Preferred Stock or (iii) within three days of the completion of a firm-commitment
underwritten registered public offering by the Company at a per share price equal to at least $0.80, with aggregate gross proceeds
to the Company of not less than $2.5 million. Unless waived under certain circumstances by the holder of the Series K Convertible
Preferred Stock, such holder’s Series K Convertible Preferred Stock may not be converted if upon such conversion the holder’s
beneficial ownership would exceed certain thresholds.
The
proceeds from the sale of each Series K Unit were allocated between the Series K Convertible Preferred Stock and the Series K
Warrants based on the relative fair value method. The estimated fair value of the Series K Warrants was determined using a Black-Scholes
formula, resulting in an allocation of the gross proceeds of $271,422 to the total warrants issued. The allocation of the gross
proceeds to the Series K Convertible Preferred Stock was $685,245, net of $43,334 in fees. In accordance with the provisions of
ASC 470-20, an additional adjustment in the aggregate between Additional Paid in Capital and Accumulated Deficit of $1,495,415
was recorded for all tranches of Series K to reflect an implicit, deemed non-cash dividend related to the allocation of proceeds
between the stock and warrants issued. The $1,495,415 represents the aggregate value of the adjustment to additional paid in capital
related to the beneficial conversion feature of the Series K Convertible Preferred Stock. The value adjustment was calculated
by subtracting the fair market value of the underlying common stock on the closing dates issuable upon conversion of the Series
K Convertible Preferred Stock from the fair market value of the Series K Convertible Preferred Stock as determined when the Company
performed a fair market value allocation of the proceeds to the Series K Convertible Preferred Stock and warrants.
On
January 29, 2014, the Company entered into a Securities Purchase Agreement with various accredited investors, pursuant to which
the Company sold an aggregate of 4,875 units for a purchase price of $250.00 per unit or an aggregate Purchase Price of $1,218,750.
This was the second tranche of a $1.5 million private placement previously disclosed by the Company in its Current Report on Form
8-K filed with the Securities and Exchange Commission on December 12, 2013, which is incorporated by reference herein. The Purchasers
in the second tranche of the Private Placement consisted of certain existing and new investors in the Company, as well as all
of the members of the Company’s board of directors.
Each
unit purchased in the second tranche consists of (i) one share of Series K Convertible Preferred Stock, par value $0.01 per share,
convertible into 1,000 shares of the Company’s common stock, par value $0.01 per share and (ii) a warrant to purchase 500
shares of common stock at an exercise price equal to $0.3125 per share, with a term expiring on January 29, 2017.
On
February 28, 2014, the Company entered into a Securities Purchase Agreement with various accredited investors, pursuant to which
the Company sold an aggregate of 1,854 units for a purchase price of $340.00 per unit or an aggregate Purchase Price of $630,360.
This was the third tranche of a $1.5 million private placement previously disclosed by the Company in its Current Report on Form
8-K filed with the Securities and Exchange Commission on December 12, 2013, which is incorporated by reference herein. The Purchasers
in the third tranche of the Private Placement consisted of certain existing and new investors in the Company.
Each
unit purchased in the third tranche consists of (i) one share of Series K Convertible Preferred Stock, par value $0.01 per share
convertible into 1,000 shares of the Company’s common stock, par value $0.01 per share and (ii) a warrant to purchase 500
shares of common stock at an exercise price equal to $0.425 per share, with a term expiring on February 28, 2017.
On
June 30, 2014, the Company entered into a Securities Purchase Agreement with various accredited investors, pursuant to which the
Company sold an aggregate of 734 units for a purchase price of $300.00 per unit or an aggregate Purchase Price of $220,000. This
was the fourth tranche of a $1.5 million private placement previously disclosed by the Company in its Current Report on Form 8-K
filed with the Securities and Exchange Commission on December 12, 2013, which is incorporated by reference herein. The Purchasers
in the fourth tranche of the Private Placement consisted of certain existing and new investors in the Company.
Each
unit purchased in the fourth tranche consists of (i) one share of Series K Convertible Preferred Stock, par value $0.01 per share
convertible into 1,000 shares of the Company’s common stock, par value $0.01 per share and (ii) a warrant to purchase 500
shares of common stock at an exercise price equal to $0.375 per share, with a term expiring on June 30, 2017.
On
November 12, 2014, the Company entered into a Securities Purchase Agreement with various accredited investors, pursuant to which
the Company sold an aggregate of 1,052 units for a purchase price of $250.00 per unit or an aggregate Purchase Price of $263,000.
This was the fifth tranche of a $1.5 million private placement previously disclosed by the Company in its Current Report on Form
8-K filed with the Securities and Exchange Commission on December 12, 2013, which is incorporated by reference herein. The Purchasers
in the fourth tranche of the Private Placement consisted of certain existing and new investors in the Company.
Each
unit purchased in the fifth tranche consists of (i) one share of Series K Convertible Preferred Stock, par value $0.01 per share
convertible into 1,000 shares of the Company’s common stock, par value $0.01 per share and (ii) a warrant to purchase 500
shares of common stock at an exercise price equal to $0.3125 per share, with a term expiring on November 12, 2017.
The
Private Placement was originally expected to raise $1.5 million and close on or before January 31, 2014. On January 29, 2014,
the Company’s Board of Directors voted to increase the subscription amount of the Private Placement by $718,750. The Board
of Directors also voted to extend the Private Placement until February 28, 2014. On February 28, 2014 the Company’s Board
of Directors voted to increase the subscription amount once again to a total of $3.5 million and extended the closing to April
4, 2014. On April 13, 2014 the Company’s Board of Directors voted to increase the subscription amount by $1 million, to
a total of $4.5 million, and extended the closing to May 31, 2014. On July 7, 2014 the Company’s Board of Directors voted
to extend the closing to August 15, 2014. Together with the initial tranche of $1,000,000 that closed on December 12, 2013, the
second tranche of $1,218,750 that closed January 29, 2014, the third tranche of $630,360 that closed February 28, 2014, the fourth
tranche of $220,000 that closed June 30, 2014, and the fifth tranche of $263,000 that closed November 12, 2014,the total consideration
received by the Company in the Private Placement is $3,332,110, which is comprised of $2,511,404 in cash and $820,706 from the
conversion of outstanding indebtedness and Board of Director fees. The placement was closed after the November 12, 2014 round.
On
September 22, 2014 the Company issued 64,000 shares of common stock for the conversion of 64 shares of Series K Preferred Convertible
Stock.
In
connection with the Series K Warrants, we calculated the fair value of the warrants received as described above using the Black-
Scholes formula with the below assumptions:
Assumptions
|
|
Series
K
Warrants
December 12, 2013
|
|
|
Series
K
Warrants
January
29, 2014
|
|
|
Series
K
Warrants
February
28, 2014
|
|
|
Series
K
Warrants
June
30, 2014
|
|
|
Series
K
Warrants
November
12, 2014
|
|
Contractual life (in months)
|
|
|
36
|
|
|
|
36
|
|
|
|
36
|
|
|
|
36
|
|
|
|
36
|
|
Expected volatility
|
|
|
136.1
|
|
|
|
152.4
|
|
|
|
152.7
|
|
|
|
153.9
|
|
|
|
153.9
|
|
Risk-free interest rate
|
|
|
0.39
|
%
|
|
|
0.39
|
%
|
|
|
0.39
|
%
|
|
|
0.90
|
%
|
|
|
0.90
|
%
|
Exercise price
|
|
$
|
0.3125
|
|
|
$
|
0.3125
|
|
|
$
|
0.425
|
|
|
$
|
0.375
|
|
|
$
|
0.3125
|
|
Fair value per warrant
|
|
$
|
0.20
|
|
|
$
|
0.30
|
|
|
$
|
0.37
|
|
|
$
|
0.29
|
|
|
$
|
0.23
|
|
The
holders of Series K Convertible Preferred Stock are not entitled to vote on any matters presented to the stockholders of the Company
for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu
of meeting), except as required by law. The Company accrued dividends of $23,194 and $143,771 for 2015 and 2014, respectively.
Series
K Warrants
The
warrants issued in the Private Placement have an exercise price equal to $0.3125 per share, for the December 12, 2013 and January
29, 2014 warrants, $0.425 per share for the February 28, 2014 warrants, $0.375 per share for the June 30, 2014 warrants and $0.3125
per share for the November 12, 2014 warrants, with a term expiring three years from the issuance date. The warrants also permit
the holder to conduct a “cashless exercise” at any time the holder of the warrant is an affiliate of the Company.
The exercise price and/or number of shares issuable upon exercise of the warrants will be subject to adjustment for stock dividends,
stock splits or similar capital reorganizations, as set forth in the warrant agreement.
Subject
to the terms and conditions of the warrants, at any time commencing six months from the closing date of the sale of Units under
the Securities Purchase Agreement the Company has the right to call the warrants for cancellation if the volume weighted average
price of its common stock on the OTC QB Market (or other primary trading market or exchange on which the common stock is then
traded) equals or exceeds three times the per share exercise price of the warrants for either (i) 10 consecutive trading days
or (ii) 15 out of 25 consecutive trading days.
Registration
Rights Agreement
In
connection with the Private Placement, the Company has agreed that, if, at any time after February 1, 2014, the Company files
a Registration Statement relating to an offering of equity securities of the Company (the “Registration Statement”),
subject to certain exceptions, including a Registration Statement relating solely to an offering or sale of securities having
an aggregate public offering price of less than $5,000,000, the Company shall include in the Registration Statement the resale
of the shares of common stock underlying the warrants. Shares of common stock issued upon conversion of Series K Convertible Preferred
Stock or in payment of the dividend on the Series K Convertible Preferred Stock will not be registered and will not be subject
to registration rights. This right is subject to customary conditions and procedures.
Common
Stock
Stock
Options and Warrants
Our
stockholders approved our amended 2005 Equity Incentive Plan (the “
2005 Plan
”) pursuant to which an aggregate
of 1,800,000 shares of our common stock were reserved for issuance upon exercise of stock options or other equity awards made
under the 2005 Plan. Under the 2005 Plan, we may award stock options, shares of common stock, and other equity interests in the
Company to employees, officers, directors, consultants, and advisors, and to any other persons the Board of Directors deems appropriate.
As of December 31, 2015, options to acquire 1,395,750 shares were outstanding under the 2005 Plan with 344,250 shares available
for future grant under the Plan.
On
December 12, 2013 at the Company’s special meeting the shareholders approved the 2013 Equity Incentive Plan (the “
2013
Plan
”) pursuant to which 3,000,000 shares of our common stock were reserved for issuance upon exercise of stock options
or other equity awards under the 2013 Plan. Under the Plan, we may award stock options, shares of common stock, and other equity
interests in the Company to employees, officers, directors, consultants, and advisors, and to any other persons the Board of Directors
deems appropriate. As of December 31, 2015, options to acquire 2,107,500 shares were outstanding under the Plan with 892,500 shares
available for future grant under the 2013 Plan.
On
November 29, 2015 the Company’s Board of Directors adopted the 2015 Nonqualified Stock Option Plan (the “
2015 Plan
”)
pursuant to which 5,000,000 shares of our common stock were reserved for issuance upon exercise of non-qualified stock options
under the 2015 Plan. Under the Plan, we may award non-qualified stock options in the Company to employees, officers, directors,
consultants, and advisors, and to any other persons the Board of Directors deems appropriate. As of December 31, 2015, non-qualified
options to acquire 2,068,000 shares were outstanding under the Plan with 2,932,000 shares available
for
future grants under the 2015 Plan.
All
of the outstanding non-qualified options had an exercise price that was at or above the Company’s common stock share price
on December 31, 2015.
The
following tables summarize information concerning options and warrants outstanding and exercisable:
|
|
Stock
Options
|
|
|
Warrants
|
|
|
Total
|
|
|
|
Shares
|
|
|
Weighted
Average price per share
|
|
|
Shares
|
|
|
Weighted
Average price per share
|
|
|
Shares
|
|
|
Exercisable
|
|
Balance
outstanding, January 1, 2014
|
|
|
1,771,708
|
|
|
$
|
0.71
|
|
|
|
15,012,327
|
|
|
$
|
0.57
|
|
|
|
16,784,035
|
|
|
|
16,611,528
|
|
Granted
|
|
|
1,675,500
|
|
|
|
0.30
|
|
|
|
8,903,000
|
|
|
|
0.38
|
|
|
|
10,578,500
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,208,658
|
)
|
|
|
0.25
|
|
|
|
(4,208,658
|
)
|
|
|
|
|
Expired
|
|
|
(10,000
|
)
|
|
|
1.00
|
|
|
|
(524,468
|
)
|
|
|
0.74
|
|
|
|
(534,468
|
)
|
|
|
|
|
Forfeited
|
|
|
(30,958
|
)
|
|
|
0
.71
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(30,958
|
)
|
|
|
|
|
Balance
outstanding, December 31, 2014
|
|
|
3,406,250
|
|
|
$
|
0.51
|
|
|
|
19,182,201
|
|
|
$
|
0.49
|
|
|
|
22,588,451
|
|
|
|
20,858,111
|
|
Granted
|
|
|
2,500,000
|
|
|
|
0.40
|
|
|
|
10,837,141
|
|
|
|
0.40
|
|
|
|
13,401,426
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Expired
|
|
|
(205,000
|
)
|
|
|
1.00
|
|
|
|
(791,678
|
)
|
|
|
0.31
|
|
|
|
(996,678
|
)
|
|
|
|
|
Forfeited
|
|
|
(130,000
|
)
|
|
|
0.70
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(130,000
|
)
|
|
|
|
|
Balance
outstanding, December 31, 2015
|
|
|
5,571,250
|
|
|
$
|
0.44
|
|
|
|
29,227,664
|
|
|
$
|
0.44
|
|
|
|
34,863,199
|
|
|
|
31,664,469
|
|
The
weighted average fair value of options issued on their grant dates was $0.27 for the year ended December 31, 2015.
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
Weighted
Average
|
|
Range
of Exercise Prices
|
|
Number
of Options
|
|
|
Remaining
Contractual Life (Years)
|
|
|
Exercise
Price
|
|
|
Number
of Options
|
|
|
Remaining
Contractual Life (Years)
|
|
|
Exercise
Price
|
|
$0.30 - $0.39
|
|
|
1,675,500
|
|
|
|
8.7
|
|
|
$
|
0.30
|
|
|
|
986,612
|
|
|
|
8.7
|
|
|
$
|
0.30
|
|
0.40 - 0.49
|
|
|
2,811,000
|
|
|
|
9.7
|
|
|
|
0.40
|
|
|
|
311,000
|
|
|
|
7.4
|
|
|
|
0.40
|
|
0.50 - 0.59
|
|
|
226,250
|
|
|
|
6.6
|
|
|
|
0.50
|
|
|
|
226,250
|
|
|
|
6.6
|
|
|
|
0.50
|
|
0.60 - 0.69
|
|
|
402,500
|
|
|
|
4.1
|
|
|
|
0.60
|
|
|
|
392,658
|
|
|
|
4.1
|
|
|
|
0.60
|
|
0.70 - 1.25
|
|
|
456,000
|
|
|
|
2.1
|
|
|
|
1.00
|
|
|
|
456,000
|
|
|
|
2.1
|
|
|
|
1.00
|
|
$0.30 - $1.25
|
|
|
5,571,250
|
|
|
|
8.3
|
|
|
$
|
0.44
|
|
|
|
2,372,520
|
|
|
|
6.3
|
|
|
$
|
0.52
|
|
There
was $740,117 of total unrecognized compensation cost, net of estimated forfeitures, related to non-vested stock options granted
as of December 31, 2015. This cost is expected to be recognized over a period of 2.45 years, and will be adjusted for any future
changes in estimated forfeitures.
The
Series D Warrants issued in connection with the registered direct offering of Series D Convertible Preferred are measured at fair
value and liability-classified because the Series D Warrants contain “down-round protection” and therefore, do not
meet the scope exception for treatment as a derivative under ASC 815,
Derivatives and Hedging
, (“ASC 815”).
Since “down-round protection” is not an input into the calculation of the fair value of the warrants, the warrants
cannot be considered indexed to the Company’s own stock which is a requirement for the scope exception as outlined under
ASC 815. The estimated fair value of the warrants was determined using the binomial model, resulting in an allocation of the gross
proceeds $283,725 to the warrants issued in the Series D registered direct offering. The fair value will be affected by changes
in inputs to that model including our stock price, expected stock price volatility, the contractual term, and the risk-free interest
rate. We will continue to classify the fair value of the warrants as a liability until the warrants are exercised, expire or are
amended in a way that would no longer require these warrants to be classified as a liability, whichever comes first. The down-round
protection for the Series D Warrants survives for the life of the Series D Warrants, which ends in May 2017. During the year ended
December 31, 2014 a total of 596,658 warrants were exercised at an exercise price of $0.25 resulting in net proceeds to the Company
of $149,165.
In
connection with the senior secured convertible debentures issued in our still open private placement with closings in 2015, we
issued warrants to the lenders to purchase an aggregate 8,767,857 shares of the Common Stock, at an exercise price of $
0.40
per share, expiring five years after the issuance date. We also issued warrants to the placement agent to purchase an aggregate
1,689,286 shares of the Common Stock, at an exercise price of $0.40 per share, expiring five years after the issuance date.
We
extended the expiration dates to two more years on certain warrants related to bridge loans. These warrants were originally issued
with a three year expiration. The incremental value for the warrant extension was $69,627 which was recognized as interest expense.
We
recorded expense of $93,488 in 2015 relating to warrants issued in 2014 for services that were performed.
Common
Stock Issuances
With
respect to the convertible debenture for $223,000 signed by the Company on December 4, 2013, a lender, with the prior approval
of the Company, chose to convert a portion of the outstanding note balance into shares of the Company’s common stock, and
to extend the note for approximately 45 days after each conversion, as follows:
On
January 14, 2015 $25,000 was converted into 100,000 shares of the Company’s common stock.
On
February 25, 2015 $38,000 was converted into 140,741 shares of the Company’s common stock.
On
April 10, 2015 $35,000 was converted into 140,000 shares of the Company’s common stock.
On
May 29, 2015 $35,000 was converted into 140,000 shares of the Company’s common stock.
On
July 21, 2015 $20,000 was converted into 80,000 shares of the Company’s common stock.
On
August 13, 2015 $40,000 was converted into 160,000 shares of the Company’s common stock.
On
September 25, 2015 $30,000 was converted into 120,000 shares of the Company’s common stock.
For
each extension, the Company paid a fee of $13,000, $13,000, $10,000, and $8,000, respectively. This note was paid off in its entirety
on November 5, 2015.
During
the year ended December 31, 2015, the Company issued 1,755,091 shares with a fair value of $457,030 for consulting and investor
relation services.
On
August 14, 2015, the Company closed a Securities Exchange Agreement with Everest Investments Holdings of Warsaw, Poland under
which Everest purchased 1,000,000 shares of the Company’s restricted Common Stock at a purchase price of $0.50/share. In
exchange, the Company received 601,500 shares of Everest Investments (“Everest”), a publicly-traded company on the
Main Market of the Warsaw Stock Exchange. The shares of Everest were valued at approximately $400,000 as of the closing date.
With
respect to the convertible debenture for $150,000 signed by the Company on June 4, 2014, a lender, with prior approval of the
Company, chose to convert a portion of the outstanding note balance into shares of the Company’s common stock, and to extend
the note for approximately 30 days after each conversion, as follows:
On
February 18, 2015 $25,000 was converted into 100,000 shares of the Company’s common stock.
On
March 18, 2015 $22,500 was converted into 90,000 shares of the Company’s common stock.
On
March 31, 2015 $27,500 was converted into 110,000 shares of the Company’s common stock.
On
April 17, 2015 $30,000 was converted into 120,000 shares of the Company’s common stock.
With
respect to the convertible debenture for $75,000 signed by the Company on November 10, 2014, a lender, upon the request of the
Company, on June 8, 2015 agreed to extend the conversion date of the note until July 20, 2015. The lender received 40,000 shares
of the Company’s common stock in exchange for the extension. The Company recorded $10,000 to interest expense for this transaction.
This note was paid off in its entirety on July 24, 2015.
On
various dates in December 2015, $58,919 of existing convertible debt and interest was converted into 235,676 shares of the Company’s
common stock.
(11)
Subsequent Events
Since
January 1, 2016, the Company received $1,419,667 in net proceeds from the sale of convertible debentures and $256,660 in net proceeds
from short- term promissory notes.
On
various dates from January to March 2016 the Company issued 205,000 shares of restricted common stock to investor relations firms
for services rendered.
On
January 12, 2016 SCIEX, a global leader in life science analytical technologies (Framingham, MA) and a wholly-owned subsidiary
of Danaher Corporation (NYSE: DHR), announced an exclusive co-marketing agreement with PBI to improve protein quantification in
complex samples.