Item 3.01 Notice of Delisting or Failure to Satisfy a Continued
Listing Rule or Standard; Transfer of Listing.
On August 3, 2017, we received notice from the NYSE American (the “
Exchange
”) that the
Company is not in compliance with certain of the Exchange’s continued listing standards as set forth in Part 10 of the NYSE
American Company Guide (the “
Company Guide
”). Specifically, we are not in compliance with Sections 1003(a)(i)
through (iii) of the Company Guide in that we reported a stockholders’ deficit of $10.6 million as of March 31, 2017 and
net losses in our five most recent fiscal years then ended, meaning that we (i) had stockholders' equity of less than $2,000,000
and sustained losses from continuing operations and/or net losses in two of our three most recent fiscal years; (ii) had stockholders'
equity of less than $4,000,000 and sustained losses from continuing operations and/or net losses in three of our four most recent
fiscal years; and (iii) had stockholders' equity of less than $6,000,000 and sustained losses from continuing operations and/or
net losses in our five most recent fiscal years.
In order to maintain our listing on the Exchange,
the Exchange has requested that the Company submit a plan of compliance (the “
Plan
”) by September 5, 2017 addressing
how the Company intends to regain compliance with Sections 1003(a)(i), (ii) and (iii) of the Company Guide by August 3, 2018.
As of the date hereof, the Company’s management
is beginning its analysis regarding submission of a Plan to the Exchange by the September 5, 2017 deadline. If the Exchange
accepts the Company’s plan, the Company will be able to continue its listing during the plan period and will be subject to
continued periodic review by the Exchange staff. If the Plan is not accepted or is accepted but the Company does not
make progress consistent with the Plan during the plan period, the Company will be subject to delisting procedures as set forth
in the Company Guide. There can be no assurance that the Company will be able to achieve compliance with the Exchange’s continued
listing standards within the required time frame.
Item 3.02 Unregistered Sales of Equity Securities.
On April 6, 2016, we entered
into a Securities Purchase Agreement (the “
Securities Purchase Agreement
”) with an accredited institutional
investor (the “
Investor
”), pursuant to which we sold and issued, among other things, a warrant to initially
purchase 1,384,616 shares of common stock (subject to adjustment thereunder) at an exercise price equal to $3.25 per share (the
“
First Warrant
”).
On October 7, 2016, the
Investor exercised the First Warrant in full and was due 1,384,616 shares of common stock upon exercise thereof and an additional
2,542,735 shares of common stock in consideration for the conversion premium due thereon. A total of 810,000 shares were issued
to the Investor on October 7, 2016, with the remaining shares being held in abeyance until such time as it would not result in
the Investor exceeding its beneficial ownership limitation (4.99% of the Company’s outstanding common stock). Pursuant to
the terms of the First Warrant, the number of shares due in consideration for the conversion premium increases as the annual rate
of return under the First Warrant increases, including by 10% upon the occurrence of certain triggering events (which had occurred
by the October 7, 2016 date of exercise), to 17% per annum upon the exercise of the First Warrant. Additionally, as the conversion
rate for the conversion premium is currently 85% of the lowest daily volume weighted average price during the measuring period,
less $0.10 per share of common stock not to exceed 85% of the lowest sales prices on the last day of such period less $0.10 per
share, the number of shares issuable in connection with the conversion premium increases as the trading price of our common stock
decreases, and the trading price of our common stock has decreased since the date the First Warrant was exercised, triggering a
further reduction in the conversion price of the conversion premium and an increase in the number of shares due to the Investor
in connection with the conversion of the amount owed in connection with the conversion premium. Additionally, the measurement period
for the calculation of the lowest daily volume weighted average price currently continues indefinitely.
As of August 10, 2017,
a total of 13,495,154 shares of common stock had been issued to the Investor in connection with the exercise of the First Warrant
of the approximately 36,112,243 shares which were alleged due (21,232,473 shares remain to be issued to the Investor, which shares
are currently held in abeyance until such time as it would not result in the Investor exceeding its beneficial ownership limitation
(4.99% of the Company’s outstanding common stock)) as of August 10, 2017 (subject to increases as the value of our common
stock decreases). The 13,495,154 shares of common stock issued in connection with the exercise of the First Warrant include (a)
810,000 shares of common stock issued in connection with a conversion notice dated on or around October 11, 2016; (b) 870,000
shares of common stock issued in connection with a conversion notice dated on or around October 20, 2016; (c) 920,000 shares of
common stock issued in connection with a conversion notice dated on or around October 28, 2016; (d) 480,000 shares of common stock
issued in connection with a conversion notice dated on or around November 15, 2016; (e) 990,000 shares of common stock issued
in connection with a conversion notice dated on or around November 17, 2016; (f) 930,000 shares of common stock issued in connection
with a conversion notice dated on or around December 1, 2016; (g) 1,453,154 shares of common stock issued in connection with a
conversion notice dated on or around April 26, 2017; (h) 1,572,000 shares of common stock issued in connection with a conversion
notice dated on or around May 4, 2017; (i) 1,650,000 shares of common stock issued in connection with a conversion notice dated
on or around June 30, 2017; (j) 1,740,000 shares of common stock issued in connection with a conversion notice dated on or around
July 18, 2017; (k) 1,000,000 shares of common stock issued in connection with a conversion notice dated on or around July 28,
2017; and (l) 1,080,000 shares of common stock issued in connection with a conversion notice dated on or around August 9, 2017.
The sales and issuances of the securities described
above have been determined to be exempt from registration under the Securities Act of 1933, as amended (the “
Securities
Act
”), in reliance on Sections 3(a)(9) and 4(a)(2) of the Securities Act, Rule 506 of Regulation D promulgated thereunder
and Regulation S promulgated thereunder, as transactions by an issuer not involving a public offering. The warrant holder has represented
that it is an accredited investor, as that term is defined in Regulation D, it is not a U.S. Person, and that it is acquiring the
securities for its own account.
As described in
Item 1.01
above, which
information is incorporated in this
Item 3.02
by reference, we granted Vantage the Vantage Warrants on August 2, 2017. If
exercised in full, Vantage would be due 1,600,000 shares of common stock.
In connection with the departure of Mr. Anthony
C. Schnur as Chief Executive Officer of the Company on June 2, 2017, Mr. Schnur entered into a Severance Agreement and Release
with the Company, whereby (i) his employment agreement with the Company was terminated, (ii) he entered into a mutual release with
the Company; (iii) he was granted 120,000 shares of unregistered common stock (to be issued in installments of 10,000 per month)(the
“
Schnur Shares
”) and a monthly cash payment of $14,000 for twelve months; and (iv) he was granted reimbursement
of the payment of his COBRA premiums through (a) the one year anniversary of the termination or (b) until he is eligible to participate
in the health insurance plan of another employer, whichever is sooner, and provided that the amount of such health benefits shall
reduce his monthly cash payment. To date we have not issued any of the Schnur Shares, of which 20,000 are due, which shares we
plan to issue shortly after the date of this filing, subject to NYSE
American listing approval.
We claim an exemption from registration for
the grant of the Vantage Warrants and will claim an exemption from registration for the issuance of the Schnur Shares, pursuant
to Section 4(a)(2) and/or Rule 506(b) of Regulation D of the Securities Act, since the foregoing grant/issuance did/will not involve
a public offering and the recipients are “
accredited investors
”, the recipients acquired/will acquire the securities
for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. The
securities were offered without any general solicitation by us or our representatives. No underwriters or agents were involved
in the foregoing and we paid no, and will not pay any, underwriting discounts or commissions. The securities are subject to transfer
restrictions, and the certificates evidencing the securities will contain an appropriate legend stating that such securities have
not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom.
The securities will not be registered under the Securities Act and such securities may not be offered or sold in the United States
absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.