Our business and operations are subject to a number of risks and uncertainties as
described below. However, the risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties that we are unaware of, or that
we may currently deem immaterial, may become important factors that could harm our
business, financial condition or results of operations. If any of the following risks
actually occur, our business, financial condition or results of operations could
suffer.
Our review of our strategic alternatives may result in a complete transformation of our Company and we may not be successful in this new venture.
We are currently considering potential pursuit of new business ventures and other strategic alternatives. We have significantly reduced our video game publishing and development activities. We may (although we have no current arrangements in place) invest in a totally unrelated business or businesses. Such an action may result in a change in our board of directors, management, or financial structure and may lead to substantial reduction in our cash balances or substantial dilution to existing shareholders should we utilize our shares for acquisition. Despite our best efforts, we may not be successful in financing and/or operating any new venture.
Our financial resources are limited and we will need to raise additional capital in the future to continue our business.
We do not expect to generate the level of revenues going forward that we have achieved in prior years from our video game business. This significantly reduced revenue will impact our needs for future capital. We cannot ensure that additional funding will be available or, if it is available, that it can be obtained on terms and conditions we will deem acceptable. Any additional funding derived from the sale of equity securities is likely to result in significant dilution to our existing stockholders. These matters involve risks and uncertainties that may prevent us from raising additional capital or may cause the terms upon which we raise additional capital, if additional capital is available, to be less favorable to us than would otherwise be the case. If we reach a point where we are unable to raise needed additional funds to continue as a going concern, we will be forced to cease our business activities and dissolve the Company. In such an event, we will need to satisfy various severances, contract termination, and other dissolution-related obligations.
If we make a significant acquisition that requires the issuance of our shares we may be required to reapply for NASDAQ listing.
Reapplying for NASDAQ listing may require us to satisfy the more stringent original listing standards of the NASDAQ Capital Market, which has substantially higher standards than the continuing listing standards. If any such application is not approved, our shares of common stock could be delisted from the NASDAQ Capital Market.
We have experienced recent net losses and we may incur future net losses, which may
cause a decrease in our stock price.
We incurred net losses of $3.8 million in fiscal 2015 and $16.2 million in fiscal 2014. Additionally, we incurred net losses of $1.7 million and $2.8 million for the six months ended April 30, 2016 and 2015, respectively. We may not be able to generate revenues sufficient to offset our costs and may sustain net losses in future periods. Any such losses may have an adverse effect on our future operating prospects, liquidity and stock price.
We have experienced volatility in the price of our stock and are subject to volatility in the future.
The price of our common stock has experienced significant volatility. The high and low bid quotations for our common stock, as reported by the NASDAQ Capital Market, ranged between a high of $2.90 and a low of $0.55 during the past two fiscal years. The historic market price of our common stock may be higher or lower than the price paid for our shares and may not be indicative of future market prices, depending on many factors, some of which are beyond our control. In addition, as we have significantly reduced our video game operations, and are seeking strategic alternatives, we cannot predict the performance of our stock. The price of our stock may change dramatically in response to our success or failure to consummate a strategic transaction.
Substantial future sales of our common stock by us or by our existing stockholders could cause our stock price to fall.
Additional equity financings or other share issuances by us, including shares issued in connection with strategic alliances and corporate partnering transactions, could adversely affect the market price of our common stock. Sales by existing stockholders of a large number of shares of our common stock in the public market or the perception that additional sales could occur could cause the market price of our common stock to drop.
We may not be able to maintain our listing on the NASDAQ Capital Market.
Our common stock currently trades on the NASDAQ Capital Market. This market has continued listing requirements that we must continue to maintain to avoid delisting. The standards include, among others, a minimum bid price requirement of $1.00 per share and any of: (i) a minimum stockholders’ equity of $2.5 million; (ii) a market value of listed securities of $35 million; or (iii) net income from continuing operations of $500,000 in the most recently completed fiscal year or in the two of the last three fiscal years. Our results of operations and our fluctuating stock price directly impact our ability to satisfy these listing standards. In the event we are unable to maintain these listing standards, we may be subject to delisting.
A delisting from NASDAQ would result in our common stock being eligible for quotation on the Over-The-Counter market which is generally considered to be a less efficient system than listing on markets such as NASDAQ or other national exchanges because of lower trading volumes, transaction delays and reduced security analyst and news media coverage. These factors could contribute to lower prices and larger spreads in the bid and ask prices for our common stock. Additionally, trading of our common stock on the OTCBB may make us less desirable to institutional investors and may, therefore, limit our future equity funding options and could negatively affect the liquidity of our stock.
The rights of our common stockholders are limited by and subordinate to the rights of the holders of Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock and Series D Convertible Preferred Stock; these rights may have a negative effect on the value of shares of our common stock.
The holders of our outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock have rights and preferences generally superior to those of the holders of common stock. The existence of these superior rights and preferences may have a negative effect on the value of shares of our common stock. These rights are more fully set forth in the certificates of designations governing these instruments, and include, but are not limited to:
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●
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the right to receive a liquidation preference, prior to any distribution of our assets to the holders of our common stock; and
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|
●
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the right to convert into shares of our common stock at the conversion price set forth in the certificates of designations governing the respective preferred stock, which may be adjusted as set forth therein.
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A significant portion of our revenue has been generated from games based on the
Zumba Fitness
property.
A significant portion of our revenue since fiscal 2010 was generated from the
Zumba Fitness
series of games. We license the rights to publish these games from a third party. In November 2011, we released the sequels
Zumba Fitness 2
and
Zumba Fitness Rush
for the Wii and Kinect platforms, respectively. In November 2012, we released the sequel
Zumba Fitness Core
for the Wii and Kinect platforms. In November 2013, we released the sequel
Zumba Fitness World Party
for the Wii and Kinect platforms. We do not expect to release any new Zumba games in the future.
A decrease in the popularity of our licensed brands and, correspondingly, the video games we publish based on those brands could negatively impact our revenues and financial position.
Certain games released in 2014 and 2015 were based upon popular licensed brands. A decrease in the popularity of our licensed properties would negatively impact our ability to sell games based upon such licenses and could lead to lower net sales, profitability, and/or an impairment of our licenses, which would negatively impact our profitability.
A weak global economic environment could result in increased volatility in our stock price.
Current uncertainty in global economic conditions poses a risk to the overall economy as consumers and retailers may defer or choose not to make purchases in response to tighter credit and negative financial news, which could negatively affect demand for our products. Additionally, due to the weak economic conditions and tightened credit environment, some of our retailers and customers may not have the same purchasing power, leading to lower purchases of our games for placement into distribution channels. Reduced consumer demand for our products could materially impact our operating results.
Termination or modification of our agreements with platform hardware manufacturers may
adversely affect our business.
We are required to obtain a license in order to develop and distribute software for each of the manufacturers of video game hardware. We currently have licenses from: (i) Sony to develop products for PlayStation, PlayStation 2, PlayStation 3 and PlayStation 4; (ii) from Nintendo to develop products for the DS, DSi, 3DS, Wii and WiiU; and (iii) from Microsoft to develop products for the Xbox, Xbox 360 and Xbox One. These licenses must be periodically renewed, and if they are not, or if any of our licenses are terminated or adversely modified, we may not be able to distribute any of our games on that platform or we may be required to do so on less attractive terms.
Our platform licensors control the fee structures for online distribution of our games on their platforms.
Pursuant to the terms of certain publisher license agreements, platform licensors retain sole discretion to determine the fees to be charged for both base level and premium online services available via their online platforms. Each licensor’s ability to set royalty rates makes it challenging for us to predict our costs, and increased costs may negatively impact our operating margins. As a result of such varying fee structures, we may be unable to distribute our games in a cost-effective manner through such distribution channels.
Intellectual property claims may increase our costs or require us to cease selling affected products, which could adversely affect our financial condition and results of operations.
Development of original content, including publication and distribution, sometimes results in claims of intellectual property infringement. Although we make efforts to ensure our products do not violate the intellectual property rights of others, it is possible that third parties may still allege infringement. These claims and any litigation resulting from these claims may result in damage awards payable by us; could prevent us from selling the affected product; or require us to redesign the affected product to avoid infringement or obtain a license for future sales of the affected product.
Any of the foregoing could have an adverse effect on our financial condition and results of operations. Any litigation resulting from these claims could require us to incur substantial costs.
A reduced workforce presents additional risk to the effectiveness of our internal controls.
We have significantly reduced our workforce. A smaller workforce impacts our ability to continue to undertake our historic business which could have an impact on our ability to maintain internal controls including over financial reporting, and can affect the adequacy of our controls. We cannot be certain that our internal controls over financial reporting are or will remain effective. If we cannot adequately maintain the effectiveness of our internal controls over financial reporting, we may be subject to liability and/or sanctions or investigation by regulatory authorities, such as the SEC. Any such action could adversely affect our financial results and the market price of our common stock.
Our reputation with consumers is critical to our success. Negative consumer perceptions about our brands, games, services and/or business practices may damage our business and any costs incurred in addressing consumer concerns may increase our operating expenses.
Individual consumers form our ultimate customer base, and consumer expectations regarding the quality, performance and integrity of our products and services are high. Consumers may be critical of our brands, games, services and/or business practices for a wide variety of reasons. These negative consumer reactions may not be foreseeable or within our control to manage effectively. Actions we take to address consumer concerns may be costly and, in any case, may not be successful. In addition, negative consumer sentiment about our business practices may result in inquiries or investigations from regulatory agencies and consumer groups, as well as litigation, which, regardless of their outcome, may be damaging to our reputation. Any of these may have a negative impact on our business.
If our games and services do not function as consumers expect, it may have a negative impact on our business.
If our games and services do not function as consumers expect, whether because they fail to function as advertised or otherwise, our sales may suffer. If our games and services do not function as consumers expect, it may negatively impact our business.
If we are unable to sustain traditional pricing levels for our titles, our business, financial condition, results of operations, profitability, cash flows or liquidity could suffer materially.
If we are unable to sustain traditional pricing levels for our titles, whether due to competitive pressure, because retailers elect to price these products at a lower price or otherwise, it could have a negative impact on our business. Further, we make provisions for retail inventory price protection based upon certain assumed lowest prices and if competitive pressures force us to lower our prices below those levels, it could similarly have a negative impact on our business.
Our industry is subject to rapid technological change, and if we do not adapt to, and appropriately allocate our new resources among, emerging technologies and business models, our business may be negatively impacted.
Technology changes rapidly in the interactive entertainment industry. We must continually anticipate and adapt our products to emerging technologies, delivery platforms and business models in order to stay competitive. When we choose to incorporate a new technology into a product or to develop a product for a new platform, operating system or media format, we often are required to make a substantial investment prior to the introduction of the product. If we invest in the development of interactive entertainment products incorporating a new technology or for a new platform that does not achieve significant commercial success, our revenues from those products likely will be lower than we anticipated and may not cover our development costs. Further, our competitors may adapt to an emerging technology or business model more quickly or effectively than we do, creating products that are technologically superior to ours, more appealing to consumers, or both. If, on the other hand, we elect not to pursue the development of products incorporating a new technology or for new platforms, or otherwise elect not to pursue a new business model, that achieves significant commercial success, it may have adverse consequences. It may take significant time and resources to shift product development resources to that technology, platform or business model, as the case may be, and may be more difficult to compete against existing products incorporating that technology or for that platform or against companies using that business model. Any failure to successfully adapt to, and appropriately allocate resources among, emerging technologies could negatively impact our business.
Competition within, and to, the interactive entertainment industry is intense, and competitors may succeed in reducing our sales.
Within the interactive entertainment industry, we compete with other publishers of interactive entertainment software developed for use on the PC, video game consoles and handheld, mobile and tablet devices or social networking sites, both within the United States and, increasingly, in international jurisdictions. Our competitors include very large corporations with significantly greater financial, marketing and product development resources than we have. A relatively small number of titles account for a significant portion of net revenues, and an even greater portion of net profit, in the interactive entertainment industry, and the availability of significant financial resources is a major competitive factor in the production of high-quality products and in the marketing of products that are ultimately well-received. Our larger competitors may be able to leverage their greater financial, technical, personnel and other resources to finance larger budgets for development and marketing and make higher offers to licensors and developers for commercially desirable properties as well as adopt more aggressive pricing policies to develop more commercially successful products for the PC or video game platforms than we do. In addition, competitors with large product lines and popular titles typically have greater leverage with retailers, distributors and other customers, who may be willing to promote titles with less consumer appeal in return for access to those competitors' more popular titles.
Increased consumer acceptance and availability of interactive entertainment developed for use by consumers on handheld, mobile and tablet devices or social networking sites or other online games, consumer acceptance and availability of technology which allows users to play games on televisions without consoles, or technological advances in online game software or the Internet could result in a decline in sales of our platform-based software.
Additionally, we compete with other forms of entertainment and leisure activities. For example, the overall growth in the use of the Internet and online services such as social networking sites by consumers may pose a competitive threat if consumers and potential consumers spend less of their available time using interactive entertainment software and more using the Internet, including those online services. Further, it is difficult to predict and prepare for rapid changes in consumer demand that could materially alter public preferences for different forms of entertainment and leisure activities. Failure to adequately identify and adapt to the competitive pressures described herein could negatively impact our business.
We are exposed to seasonality in the sale of our products.
The interactive entertainment industry is highly seasonal, with the highest levels of consumer demand occurring during the year-end holiday buying season in the fourth quarter of the year. Receivables and credit risk are likewise higher during the second half of the year, as retailers increase their purchases of our products in anticipation of the holiday season. Delays in development, licensor approvals or manufacturing can affect the timing of the release of products, causing us to miss key selling periods such as the year-end holiday buying season.
We may be involved in legal proceedings that may result in material adverse outcomes.
From time to time, we may be involved in claims, suits, government investigations, audits and proceedings arising from the ordinary course of our business, including actions with respect to intellectual property, competition and antitrust matters, privacy matters, tax matters, labor and employment matters, unclaimed property matters, compliance and commercial claims. Such claims, suits, government investigations, audits and proceedings are inherently uncertain and their results cannot be predicted with certainty. Regardless of the outcome, such legal proceedings can have an adverse impact on us because of legal costs, diversion of management resources and other factors. In addition, it is possible that a resolution of one or more such proceedings could result in substantial fines and penalties, criminal sanctions, consent decrees or orders preventing us from offering certain features, functionalities, products or services, requiring us to change our development process or other business practices.
Our products are subject to ratings by the Entertainment Software Rating Board in the U.S. and similar agencies in international jurisdictions. Our failure to obtain our target ratings for our products could negatively impact our business.
The Entertainment Software Rating Board (the "ESRB") is a self-regulatory body based in the United States that provides consumers of interactive entertainment software with ratings information, including information on the content in such software, such as violence, nudity or sexual content contained in software titles. The ESRB rating categories are "Early Childhood" (i.e., content is intended for young children), "Everyone" (i.e., content is generally suitable for all ages), "Everyone 10+" (i.e., content is generally suitable for ages 10 and up), "Teen" (i.e., content is generally suitable for ages 13 and up), "Mature" (i.e., content is generally suitable for ages 17 and up) and "Adults Only" (i.e., content is suitable for adults ages 18 and up). Certain countries other than the United States have also established content rating systems as prerequisites for product sales in those countries. In some countries, a company may be required to modify its products to comply with the requirements of the rating systems, which could delay or disrupt the release of any given product, or may prevent its sale altogether in certain territories. Further, if an agency re-rates one of our games for any reason, retailers could refuse to sell it and demand that we accept the return of any unsold or returned copies or consumers could demand a refund for copies purchased. If we are unable to obtain the ratings we have targeted for our products as a result of changes in a content rating organization's ratings standards or for other reasons, it could have a negative impact on our business.
Our business, products, and distribution are subject to increasing regulation of content in key territories. If we do not successfully respond to these regulations, our business, financial condition, results of operations, profitability, cash flows or liquidity could be materially adversely affected.
Legislation is continually being introduced, and litigation and regulatory enforcement actions are taking place, that may affect the way in which we, and other industry participants, may offer content and features, and distribute and advertise our products. For example, privacy laws and regulatory guidance in many countries impose various restrictions on online and mobile advertising, as well as the collection, storage and use of personally identifiable information. We may be required to modify certain of our product development processes or alter our marketing strategies to comply with such regulations, which could be costly or delay the release of our products. In addition, many foreign countries, such as China and Germany, have laws that permit governmental entities to restrict the content and/or advertising of interactive entertainment software or prohibit certain types of content. Further, legislation which attempts to restrict marketing or distribution of such products because of the content therein has been introduced at one time or another at the federal and state levels in the United States. There is on-going risk of enhanced regulation of interactive entertainment marketing, content or sales. These laws and regulations vary by territory and may be inconsistent with one another, imposing conflicting or uncertain restrictions. The adoption and enforcement of legislation which restricts the marketing, content or sales of our products in countries in which we do business may harm the sales of our products, as the products we are able to offer to our customers and the size of the potential market for our products may be limited. Failure to comply with any applicable legislation may also result in government-imposed fines or other penalties. Moreover, the increased public dialogue concerning interactive entertainment may have an adverse impact on our reputation and consumers' willingness to purchase our products.
The table below sets forth information concerning the resale of the shares of common stock by the selling stockholders. We will not receive any proceeds from the resale of the common stock by the selling stockholders. Assuming all the shares registered below are sold by the selling stockholders, none of the selling stockholders will continue to own any shares of our common stock. The following table sets forth the name of each person who is offering the resale of shares of common stock by this prospectus, the number of shares of common stock beneficially owned by each person, the number of shares of common stock that may be sold in this offering and the number of shares of common stock each person will own after the offering, assuming they sell all of the shares offered.
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Number of Shares of Common Stock Beneficially Owned Prior to Offering
|
|
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Percentage of Common Stock Beneficially Prior to Offering**
|
|
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Share of Common Stock Offered in this Offering
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|
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Shares of Common Stock Beneficially Owned After this Offering
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|
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Percentage of Common Stock Beneficially Owned After this Offering**
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Mohit Bhansali, Director
|
|
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381,375
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(1)
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2.3
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%
|
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99,667
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(2)
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|
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306,740
|
|
|
|
1.81
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%
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Michael Beeghley, Director
|
|
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88,687
|
(3)
|
|
|
*
|
|
|
|
71,017
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(4)
|
|
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62,500
|
|
|
|
*
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Michael Brauser, Co-Chairman
(5)
|
|
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1,398,044
|
(6)
|
|
|
7.89
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%
|
|
|
421,017
|
(7)
|
|
|
1,205,184
|
(6)
|
|
|
6.81
|
%
|
Barry Honig, CEO and Co-Chairman
(8)
|
|
|
1,693,402
|
(9)
|
|
|
9.57
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%
|
|
|
400,000
|
(10)
|
|
|
1,510,065
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(11)
|
|
|
8.53
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%
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Andrew Kaplan, Director
|
|
|
119,936
|
(12)
|
|
|
*
|
|
|
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71,017
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(13)
|
|
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87,500
|
|
|
|
*
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|
Edward Karr, Director
|
|
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232,436
|
(14)
|
|
|
1.39
|
%
|
|
|
71,017
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(15)
|
|
|
200,000
|
|
|
|
1.19
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%
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David Rector, Director
|
|
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206,993
|
(16)
|
|
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1.23
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%
|
|
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118,487
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(17)
|
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100,000
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|
|
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*
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John Stetson, CFO
(18)
|
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1,403,975
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(19)
|
|
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7.95
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%
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300,000
|
(20)
|
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1,266,475
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(21)
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7.16
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%
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TOTAL
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-
|
|
|
|
-
|
|
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1,552,222
|
|
|
|
-
|
|
|
|
-
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*Less than 1%
**Based on 16,648,051 shares of common stock outstanding as of July 6, 2016.
(1) Includes (i) 6,740 shares of a restricted stock grant which is fully vested, (ii) 11,462 shares which represent the vested portion (including shares vesting within 60 days) of a 25,000 shares of restricted stock grant which vests at the end of each calendar month at a rate of 1/24 of such shares per month, (iii) an option to purchase
56,030 shares of common stock, (iv) an option to purchase 7,143 shares of common stock
, (v) an option to purchase 150,000 shares of common stock pursuant to the Company’s 2016 Equity Incentive Plan (the “2016 Plan”) and (vi) a restricted stock grant of 150,000 shares pursuant to the 2016 Plan. The option and restricted stock grant awarded pursuant to the 2016 Plan
shall vest 50% as of April 25, 2016 and 50% upon the occurrence of a Qualified Acquisition. Qualified Acquisition means one or more acquisitions by the Company of any business, assets, stock, licenses, interests or properties (including, without limitation, intellectual property rights) approved by the stockholders of the Company or any acquisition involving assets, shares of capital stock, any purchase, merger, consolidation, recapitalization, or reorganization or involving any licensing, royalties, sharing arrangement or otherwise which Qualified Acquisition requires the filing by the Company of a Current on Form 8-K with the inclusion of audited financial statements of the target company.
Excludes options to purchase 11,494 shares of common stock issued pursuant to the Company’s 2014 Equity Incentive Plan (the “2014 Plan”) at an exercise price of $0.87 per share which are not exercisable within 60 days.
(2) Represents (i) a restricted stock grant of 25,000 shares which vests in 24 equal monthly installments beginning September 30, 2015, (ii) 56,030 shares of common stock underlying options with an exercise price of $0.68 per share which are vested in full, (iii) 7,143 shares of common stock underlying options with an exercise price of $1.40 which are vested in full and (iv) 11,494 shares of common stock underlying options with an exercise price of $0.87 which shall vest in full on December, 2016.
(3) Includes (i) 16,664 shares of stock, which represents the vested portion (including shares vesting within 60 days) of a 50,000 share restricted stock award granted which vests at a rate of 1/24 of such award shares per month, (ii) 9,523 shares of common stock underlying options with an exercise price of $1.05 per share which are fully vested, (iii) an option to purchase 31,250 shares of common stock pursuant to the 2016 Plan and (iv) a restricted stock grant of 31,250 shares pursuant to the 2016. The option and restricted stock grant awarded pursuant to the 2016 Plan
shall vest 50% as of April 25, 2016 and 50% upon the occurrence of a Qualified Acquisition.
Excludes options to purchase 11,494 shares of common stock issued pursuant to the 2014 Plan at an exercise price of $0.87 per share which are not exercisable within 60 days.
(4) Represents (i) a restricted stock grant of 50,000 shares which vests in 24 equal monthly installments beginning September 30, 2015, (ii) 9,523 shares of common stock underlying options with an exercise price of $1.05 per share which are vested in full and (iii) 11,494 shares of common stock underlying options with an exercise price of $0.87 which shall vest in full on December, 2016.
(5)
Michael Brauser is Chairman of the Betsy & Michael Brauser Charitable Family Foundation, Trustee of Grander Holdings, Inc. 401K and a Manager of Marlin Capital Investments, LLC (“Marlin”). In such capacities he is deemed to hold voting and dispositive power over the securities held by such entities.
(6) Includes (i) 183,337 shares stock held by Michael Brauser, which represents the vested portion (including shares vesting within 60 days) of a 400,000 share restricted stock award, which vests at a rate of 1/24 of such award shares per month, (ii) 9,523 shares of common stock underlying options with an exercise price of $1.05 per share, which fully vest on June 17, 2016 (iii) 125,000 shares of common stock held by Betsy & Michael Brauser Charitable Family Foundation, (iv) 30,184 shares of common stock held by Grander Holdings, Inc. 401K, (v) an option to purchase 525,000 shares of common stock pursuant to the 2016 Plan and (vi) a restricted stock grant of 525,000 shares pursuant to the 2016 Plan.
The option and restricted stock grant awarded pursuant to the 2016 Plan
shall vest 50% as of April 25, 2016 and 50% upon the occurrence of a Qualified Acquisition.
Excludes (i) options to purchase 11,494 shares of common stock issued pursuant to the 2014 Plan at an exercise price of $0.87 per share which are not exercisable within 60 days
, (ii) 2,205,883 shares of common stock underlying Series A Convertible Preferred Stock held by Michael Brauser, (iii) 117,648 shares of common stock underlying Series A Convertible Preferred Stock held by Marlin, (iv) 1,575,630 shares of common stock underlying shares of Series B Convertible Preferred Stock held by Michael Brauser, (v) 84,034 shares of common stock underlying shares of Series B Convertible Preferred Stock held by Marlin, (vi) 50,000 shares of common stock underlying shares of Series D Convertible Preferred Stock held by Betsy & Michael Brauser Charitable Family Foundation and (vii) 216,670 shares of common stock underlying shares of Series D Convertible Preferred Stock held by Grander Holdings, Inc. 401K. Each of the forgoing classes of preferred stock contains an ownership limitation such that the holder may not convert any of such securities to the extent that such conversion would result in the holder’s beneficial ownership being in excess of 4.99% of the Company’s issued and outstanding common stock together with all shares owned by the holder and its affiliates.
Disregarding the 4.99% beneficial ownership limitation, Michael Brauser would own (i) 5,631,242 shares of common stock on an “as converted” basis before this offering which represents 25.45% of common stock and (ii) 5,455,049 shares of common stock on an “as converted” basis after this offering which represents 24.85% of common stock
(7) Represents (i) a restricted stock grant of 400,000 shares which vests in 24 equal monthly installments beginning September 30, 2015, (ii) 9,523 shares of common stock underlying options with an exercise price of $1.05 per share which are vested in full and (iii)
11,494 shares of common stock underlying options with an exercise price of $0.87 which shall vest in full on December, 2016.
(8) Barry Honig is the Trustee of GRQ Consultants, Inc. 401K and GRQ Consultants, Inc. Roth 401K FBO Barry Honig (“Roth 401K”), and he is the managing member of Marlin. In such capacities he is deemed to hold voting and dispositive power over the securities held by such entities.
(9) Includes (i) 257,889 shares of common stock held by Barry Honig, (ii) 91,076 shares of common stock held by GRQ Consultants, Inc. 401K (iii) 183,337 shares stock held by Barry Honig, which represents the vested portion (including shares vesting within 60 days) of a 400,000 share restricted stock award, which vests at a rate of 1/24 of such award shares per month, (iv) 110,470 shares of common stock held by Roth 401K, (v) an option to purchase 525,000 shares of common stock pursuant to the 2016 Plan and (vi) a restricted stock grant of 525,000 shares pursuant to the 2016 Plan.
The option and restricted stock grant awarded pursuant to the 2016 Plan
shall vest 50% as of April 25, 2016 and 50% upon the occurrence of a Qualified Acquisition. Excludes (i) 2,205,883 shares of common stock underlying Series A Convertible Preferred Stock held by Mr. Honig, (ii) 154,657 shares of common stock underlying Series A Convertible Preferred Stock held by Roth 401K, (iii) 117,648 shares of common stock underlying Series A Convertible Preferred Stock held by Marlin, (iv) 1,575,630 shares of common stock underlying shares of Series B Convertible Preferred Stock held by Mr. Honig, (v) 84,034 shares of common stock underlying shares of Series B Convertible Preferred Stock held by Marlin
(vi) 833,334 shares of common stock underlying shares of Series C Convertible Preferred Stock held by 401K and (vii)
and (vi) 333,330 shares of common stock underlying shares of Series D Convertible Preferred Stock held by GRQ Consultants, Inc. 401K. Each of the forgoing classes of preferred stock contains an ownership limitation such that the holder may not convert any of such securities to the extent that such conversion would result in the holder’s beneficial ownership being in excess of 4.99% of the Company’s issued and outstanding common stock together with all shares owned by the holder and its affiliates.
Disregarding the 4.99% beneficial ownership limitation, Barry Honig would own (i) 6,980,621 shares of common stock on an “as converted” basis before this offering which represents 29.29% of common stock and (ii) 6,813,951 shares of common stock on an “as converted” basis after this offering which represents 29.62% of common stock.
(10) Represents a restricted stock grant of 400,000 shares which vests in 24 equal monthly installments beginning September 30, 2015.
(11) Includes (i) 257,889 shares of common stock held by Barry Honig, (ii) 91,076 shares of common stock held by GRQ Consultants, Inc. 401, (iii) 110,470 shares of common stock held by Roth 401K, (iv) an option to purchase 525,000 shares of common stock pursuant to the 2016 Plan and (v) a restricted stock grant of 525,000 shares pursuant to the 2016 Plan. Excludes (i) 2,205,883 shares of common stock underlying Series A Convertible Preferred Stock held by Mr. Honig, (ii) 154,657 shares of common stock underlying Series A Convertible Preferred Stock held by Roth 401K, (iii) 117,648 shares of common stock underlying Series A Convertible Preferred Stock held by Marlin, (iv) 1,575,630 shares of common stock underlying shares of Series B Convertible Preferred Stock held by Mr. Honig, (v) 84,034 shares of common stock underlying shares of Series B Convertible Preferred Stock held by Marlin
(vi) 833,334 shares of common stock underlying shares of Series C Convertible Preferred Stock held by 401K and (vii)
and (vi) 333,330 shares of common stock underlying shares of Series D Convertible Preferred Stock held by GRQ Consultants, Inc. 401K. Each of the forgoing classes of preferred stock contains an ownership limitation such that the holder may not convert any of such securities to the extent that such conversion would result in the holder’s beneficial ownership being in excess of 4.99% of the Company’s issued and outstanding common stock together with all shares owned by the holder and its affiliates.
(12) Includes (i) 22,913 shares which represent the vested portion (including shares vesting within 60 days) of a 50,000 shares of restricted stock grant which vests at the end of each calendar month at a rate of 1/24 of such shares per month, (ii) 9,523 shares of common stock underlying options with an exercise price of $1.05 per share which are vested in full, (iii) an option to purchase 43,750 shares of common stock pursuant to the 2016 Plan and (iv) a restricted stock grant of 43,750 shares pursuant to the 2016 Plan.
The option and restricted stock grant awarded pursuant to the 2016 Plan
shall vest 50% as of April 25, 2016 and 50% upon the occurrence of a Qualified Acquisition.
Excludes options to purchase 11,494 shares of common stock issued pursuant to the 2014 Plan at an exercise price of $0.87 per share which are not exercisable within 60 days.
(13) Represents (i) a restricted stock grant of 50,000 shares which vests in 24 equal monthly installments beginning September 30, 2015, (ii) 9,523 shares of common stock underlying options with an exercise price of $1.05 per share which are vested in full and (iii) 11,494 shares of common stock underlying options with an exercise price of $0.87 which shall vest in full on December, 2016.
(14) Includes (i) 22,913 shares which represent the vested portion (including shares vesting within 60 days) of a 50,000 shares of restricted stock grant which vests at the end of each calendar month at a rate of 1/24 of such shares per month, (ii) 9,523 shares of common stock underlying options with an exercise price of $1.05 per share which are vested in full, (iii) an option to purchase 100,000 shares of common stock pursuant to the 2016 Plan and (iv) a restricted stock grant of 100,000 shares pursuant to the 2016 Plan.
The option and restricted stock grant awarded pursuant to the 2016 Plan
shall vest 50% as of April 25, 2016 and 50% upon the occurrence of a Qualified Acquisition.
Excludes options to purchase 11,494 shares of common stock issued pursuant to the 2014 Plan at an exercise price of $0.87 per share which are not exercisable within 60 days.
(15) Represents (i) a restricted stock grant of 50,000 shares which vests in 24 equal monthly installments beginning September 30, 2015, (ii) 9,523 shares of common stock underlying options with an exercise price of $1.05 per share which are vested in full and (iii) 11,494 shares of common stock underlying options with an exercise price of $0.87 which shall vest in full on December, 2016.
(16)
Represents (i) a restricted stock grant of 100,000 shares which are vested in full, (ii) 6,993 shares of common stock underlying options with an exercise price of $1.43 per share which are vested in full, (iii) an option to purchase 50,000 shares of common stock pursuant to the 2016 Plan and (iv) a restricted stock grant of 50,000 shares pursuant to the 2016 Plan.
The option and restricted stock grant awarded pursuant to the 2016 Plan
shall vest 50% as of April 25, 2016 and 50% upon the occurrence of a Qualified Acquisition.
Excludes options to purchase 11,494 shares of common stock issued pursuant to the 2014 Plan at an exercise price of $0.87 per share which are not exercisable within 60 days.
(17)
Represents (i) a restricted stock grant of 100,000 shares which are vested in full, (ii) 6,993 shares of common stock underlying options with an exercise price of $1.43 per share which are vested in full and (iii) 11,494 shares of common stock underlying options with an exercise price of $0.87 which shall vest in full on December, 2016.
(18)
John Stetson is President of Stetson Capital Investments, Inc. and Stetson Capital Investments, Inc. Retirement Plan. In such capacities he is deemed to hold voting and dispositive power over the securities held by such entities.
(19) Includes (i) 137,500 shares which represent the vested portion (including shares vesting within 60 days) of a 300,000 share restricted stock award which vests at a rate of 1/24 of such award shares per month, (ii) 49,807 shares of common stock, (iii) 83,334 shares of common stock held by Stetson Capital Investments, (iv) 83,334 shares of common stock held by Stetson Capital Investments, Inc. Retirement Plan, (v) an option to purchase 525,000 shares of common stock pursuant to the 2016 Plan and (vi) a restricted stock grant of 525,000 shares pursuant to the 2016 Plan. The option and restricted stock grant awarded pursuant to the 2016 Plan
shall vest 50% as of April 25, 2016 and 50% upon the occurrence of a Qualified Acquisition.
Excludes (i) 69,731 shares of common stock underlying shares of Series A Convertible Preferred Stock held by Mr. Stetson, (ii) 33,330 underlying shares of Series D Convertible Preferred Stock held by Stetson Capital Investments and (iii) 33,330 underlying shares of Series D Convertible Preferred Stock held by Stetson Capital Investments, Inc. Retirement Plan. Each of the forgoing classes of preferred stock contains an ownership limitation such that the holder may not convert any of such securities to the extent that such conversion would result in the holder’s beneficial ownership being in excess of 4.99% of the Company’s issued and outstanding common stock together with all shares owned by the holder and its affiliates. Disregarding the 4.99% beneficial ownership limitation, John Stetson would own (i) 1,527,866 shares of common stock on an “as converted” basis before this offering which represents 8.57% of common stock and (ii) 1,402,866 shares of common stock on an “as converted” basis after this offering which represents 7.87% of common stock
(20)
Represents a restricted stock grant of 300,000 shares which vests in 24 equal monthly installments beginning September 30, 2015.
(21) Includes (i) 49,807 shares of common stock, (ii) 83,334 shares of common stock held by Stetson Capital Investments, (iii) 83,334 shares of common stock held by Stetson Capital Investments, Inc. Retirement Plan, (iv) an option to purchase 525,000 shares of common stock pursuant to the 2016 Plan and (v) a restricted stock grant of 525,000 shares pursuant to the 2016 Plan
.
Excludes (i) 69,731 shares of common stock underlying shares of Series A Convertible Preferred Stock held by Mr. Stetson, (ii) 33,330 underlying shares of Series D Convertible Preferred Stock held by Stetson Capital Investments and (iii) 33,330 underlying shares of Series D Convertible Preferred Stock held by Stetson Capital Investments, Inc. Retirement Plan. Each of the forgoing classes of preferred stock contains an ownership limitation such that the holder may not convert any of such securities to the extent that such conversion would result in the holder’s beneficial ownership being in excess of 4.99% of the Company’s issued and outstanding common stock together with all shares owned by the holder and its affiliates.
Timing of Sales
The selling stockholders may offer and sell the shares covered by this prospectus at various times. The selling stockholders will act independently of our company in making decisions with respect to the timing, manner and size of each sale.
No Known Agreements to Resell the Shares
To our knowledge, no selling stockholder has any agreement or understanding, directly or indirectly, with any person to resell the common shares covered by this prospectus.
Offering Price
The sales price offered by the selling stockholders to the public may be:
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the market price prevailing at the time of sale;
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a price related to such prevailing market price; or
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such other price as the selling stockholders determine from time to time.
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Manner of Sale
The common shares may be sold by means of one or more of the following methods:
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a block trade in which the broker-dealer so engaged will attempt to sell the common shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;
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Purchases by a broker-dealer as principal and resale by that broker-dealer for its account pursuant to this prospectus;
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ordinary brokerage transactions in which the broker solicits purchasers;
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through options, swaps or derivatives;
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in transactions to cover short sales;
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privately negotiated transactions; or
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in a combination of any of the above methods.
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The selling stockholders may sell their common shares directly to purchasers or may use brokers, dealers, underwriters or agents to sell their common shares. Brokers or dealers engaged by the selling stockholders may arrange for other brokers or dealers to participate. Brokers or dealers may receive commissions, discounts or concessions from the selling stockholders, or, if any such broker-dealer acts as agent for the purchaser of common shares, from the purchaser in amounts to be negotiated immediately prior to the sale. The compensation received by brokers or dealers may, but is not expected to, exceed that which is customary for the types of transactions involved.
Broker-dealers may agree with a selling stockholder to sell a specified number of common shares at a stipulated price per common share, and, to the extent the broker-dealer is unable to do so acting as agent for a selling stockholder, to purchase as principal any unsold common shares at the price required to fulfill the broker-dealer commitment to the selling stockholder.
Broker-dealers who acquire common shares as principal may thereafter resell the common shares from time to time in transactions, which may involve block transactions and sales to and through other broker-dealers, including transactions of the nature described above, on The NASDAQ Capital Market or otherwise at prices and on terms then prevailing at the time of sale, at prices then related to the then-current market price or in negotiated transactions. In connection with resales of the common shares, broker-dealers may pay to or receive from the purchasers of shares commissions as described above.
If our selling stockholders enter into arrangements with brokers or dealers, as described above, we are obligated to file a post-effective amendment to this registration statement disclosing such arrangements, including the names of any broker-dealers acting as underwriters.
The selling stockholders and any broker-dealers or agents that participate with the selling stockholders in the sale of the common shares may be deemed to be “underwriters” within the meaning of the Securities Act. In that event, any commissions received by broker-dealers or agents and any profit on the resale of the common shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.
We will make copies of this prospectus available to the selling stockholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act.
Sales Pursuant to Rule 144
Any common shares covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than pursuant to this prospectus.
Accordingly, during such times as a selling stockholder may be deemed to be engaged in a distribution of the common stock, and therefore be considered to be an underwriter, the selling stockholder must comply with applicable law and, among other things:
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may not engage in any stabilization activities in connection with our common stock;
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may not cover short sales by purchasing shares while the distribution is taking place; and
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may not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities other than as permitted under the Exchange Act.
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The SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) of less than $4.00 per share or an exercise price of less than $4.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “institutional accredited investors.” The term “institutional accredited investor” refers generally to those accredited investors who are not natural persons and fall into one of the categories of accredited investor specified in subparagraphs (1), (2), (3), (7) or (8) of Rule 501 of Regulation D promulgated under the Securities Act, including institutions with assets in excess of $5,000,000.
The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form required by the Securities and Exchange Commission, obtain from the customer a signed and dated acknowledgement of receipt of the disclosure document and to wait two business days before effecting the transaction. The risk disclosure document provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account.
The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
Under the securities laws of some states, the common shares may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the common shares may not be sold unless the shares have been registered or qualified for sale in the state or an exemption from registration or qualification is available and is complied with.
We are bearing all costs relating to the registration of the common stock. These expenses are estimated to be $15,000, including, but not limited to, legal, accounting, printing and mailing fees. The selling stockholders, however, will pay any commissions or other fees payable to brokers or dealers in connection with any sale of the common stock.