Annual report pursuant to Section 13 and 15(d)

STOCKHOLDERS' EQUITY

v3.3.1.900
STOCKHOLDERS' EQUITY
 12 Months Ended
Sep. 30, 2015
Stockholders' Equity Note [Abstract]  
Stockholders' Equity Note Disclosure [Text Block]
11.
STOCKHOLDERS’ EQUITY
 
Authorized Capital
 
FTE is currently authorized to issue up to 70,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of convertible preferred stock, par value $0.01 per share, of which the following series have been designated: 4,500 shares of Series A, 1,000 shares of Series A-1, 4,000 shares of Series B, 400 shares of Series C-1, 2,000 shares of Series C-2, 110 shares of Series C-3 and 2,000,000 shares of Series D. See Note 13 – Subsequent Events regarding designation of Series F convertible preferred stock.
 
Beacon Solutions 2008 Long Term Incentive Plan
 
The Beacon Solutions 2008 Long Term Incentive Plan (“the 2008 Plan”) was approved by stockholders on April 16, 2009. The 2008 Plan initially provided for 1,000,000 shares of common stock to be reserved under the plan. On May 26, 2011 a majority of the Company’s stockholders approved a resolution to reserve and authorized an additional 1,000,000 shares of the Company’s common stock under the 2008 Plan. On September 30, 2012, there were 1,025,000 options outstanding under the 2008 Plan. These options expired during the year ended September 30, 2013. There were no equity awards outstanding under the 2008 Plan as of September 30, 2015 or 2014.
 
Common Stock
 
The Company is presently authorized to issue up to 70,000,000 shares of common stock, $0.001 par value per share, of which 45,333,475 and 39,987,080 shares of common stock are presently issued and outstanding as of September 30, 2015 and 2014, respectively. The holders of the Company’s common stock are entitled to receive dividends equally when, as and if declared by the board of directors, out of funds legally available therefor.
  
The holders of the Company’s common stock have sole voting rights, one vote for each share held of record, and are entitled upon liquidation of the Company to share ratably in the net assets of the Company available for distribution after payment of all obligations of the Company and after provision has been made with respect to each class of stock, if any, having preference over the common stock, currently including the Company’s preferred stock. Shares of the Company’s common stock do not have cumulative voting rights and vote together with the Company’s preferred stock on all matters requiring stockholder approval. Therefore, the holders of a majority of the voting rights of the Company’s common stock are the Series D preferred shareholders and collectively they may elect all of the directors of the Company, control its affairs and day-to-day operations. The shares of common stock are not redeemable and have no preemptive or similar rights. All outstanding shares of the Company’s common stock are validly issued, fully paid for and non-assessable.
 
Common Stock Transactions
 
On April 17, 2015, the Company issued 5,115,562 shares of its common stock with a grant date value of $51,156 to eighty-two (82) Senior Secured Note holders as an incentive for executing amended forbearance agreements on their respective notes.
 
The value of the common stock was revised from the $1,023,112 amount previously reported in the financial statements for the three and nine months ended June 30, 2015, due to a change in the valuation of the common stock issued. Management has evaluated the effect of the change in the valuation and determined that the non-cash adjustment is qualitatively immaterial to the Company’s financial position and results of operations for the three and nine months ended June 30, 2015. However, if the adjustments to reflect the change in valuation are recorded in the third quarter of 2015, management believes that the impact would have been significant to the third quarter and would impact comparisons to prior periods. In accordance with guidelines issued in Staff Accounting Bulletin No. 108, the Company has impacted the financial statements included herein to record adjustments to forbearance expense and additional paid in capital to include the effect of the change in valuation in the third quarter of 2015. The Company will present the revised comparative financial statements when it files its Form 10-Q for the three and nine months ended June 30, 2016.
 
Since inception, the Company has not paid any cash dividends on its common stock.
 
Preferred Stock
 
The Company is authorized to issue a total of 5,000,000 shares of convertible preferred stock with such designations, rights, preferences and/or limitations as may be determined by the Board, and as expressed in a resolution thereof. Each share of Series D Preferred stock is (a) entitled to vote alongside the common stockholders and has 20 votes; and (b) is mandatorily convertible into 400 shares of common stock (equal to 20 shares of common stock on a post-split basis) upon an increase in the number of common shares authorized, and the implementation of a 1-for-20 reverse stock split.
 
Dividend charges recorded during the years ended September 30, 2015 and 2014 are as follows:
 
 
 
For The Years Ended
 
 
 
September 30,
 
 
 
2015
 
2014
 
Series
 
 
 
 
 
 
 
A
 
$
50,038
 
$
50,038
 
A-1
 
 
29,523
 
 
29,523
 
B
 
 
-
 
 
-
 
C-1
 
 
-
 
 
-
 
C-2
 
 
-
 
 
-
 
C-3
 
 
-
 
 
-
 
Total
 
$
79,561
 
$
79,561
 
 
Accrued dividends payable at September 30, 2015 and 2014 are comprised of the following:
 
 
 
September 30,
 
 
 
2015
 
2014
 
Series
 
 
 
 
 
 
 
A
 
$
247,136
 
$
197,098
 
A-1
 
 
184,107
 
 
154,583
 
B
 
 
-
 
 
187,197
[1]
C-1
 
 
-
 
 
56,743
[2]
C-2
 
 
-
 
 
13,962
[2]
C-3
 
 
-
 
 
15,834
[2]
Total
 
$
431,243
 
$
625,417
 
 
[1] – Prior to conversion to Series D.
[2] – Prior to conversion to common stock.
 
Series A and Series A-1 Convertible Preferred Stock
 
The Company has designated 4,500 shares of Series A Convertible Preferred Stock (“Series A”) and 1,000 shares of Series A-1 Convertible Preferred Stock (“Series A-1”), of which 500 and 295 shares, respectively, are currently issued and outstanding. Holders of the Series A and Series A-1 are entitled to receive contractual cumulative dividends in preference to any dividend on the common stock at the rate of 10% per annum on the initial investment amount commencing on the date of issue. Such dividends are payable on January 1, April 1, July 1 and October 1 of each year, upon the declaration of payment by the Board of Directors.
   
The Series A and Series A-1 shares also contain a right of redemption in the event of liquidation or a change in control. The redemption feature provides for payment of a liquidation fee of 110% of the face value of the Series A shares and 125% of the face value of the series A-1 shares plus any accrued unpaid dividends in the event of bankruptcy, change of control, or any actions to take the Company private.
 
Series B Convertible Preferred Stock
 
The Company has designated 4,000 shares of Series B Convertible Preferred Stock (“Series B”), of which 0 shares are currently issued and outstanding. Holders of Series B are entitled to receive contractual cumulative dividends in preference to any dividend on the common stock (but subject to the rights of the previously issued series of preferred stock) at the rate of 6% per annum on the initial investment amount, commencing on the date of issue. Such dividends are payable on January 1, April 1, July 1 and October 1 of each year upon the declaration of payment by the Board of Directors. The Series B shares also contain a right of redemption in the event of liquidation or a change in control. The redemption feature provides for payment of a liquidation fee of 125% of the face value plus any accrued unpaid dividends in the event of bankruptcy, change of control, or any actions to take the Company private. There are no shares of Series B currently issued or outstanding.
 
Series C-1, Series C-2 and Series C-3 Convertible Preferred Stock
 
The Company has designated 400, 2,000 and 110 shares of Series C-1 Convertible Preferred Stock (“Series C-1”), Series C-2 Convertible Preferred Stock (“Series C-2”) and Series C-3 Convertible Preferred Stock (“Series C-3), respectively. There are no shares of Series C-1, Series C-2 or Series C-3 currently issued or outstanding.
 
Holders of Series C-1, C-2 and C-3 would be entitled to receive contractual cumulative dividends in preference to any dividend on the common stock (but subject to the rights of the previously issued series of preferred stock) at the rate of 6% per annum on the initial investment amount, commencing on the date of issue. Such dividends would be payable on January 1, April 1, July 1 and October 1 of each year upon the declaration of payment by the Board of Directors.
 
Series D Convertible Preferred Stock
 
The Company has designated 2,000,000 shares of Series D Convertible Preferred Stock (“Series D”), of which 1,830,759 and 1,693,981 shares are currently issued and outstanding as of September 30, 2015 and 2014, respectively. Each share of Series D is mandatorily convertible at a rate of 400 shares of common stock or 20 shares of common stock after the effect of a future 1-for-20 reverse stock split) for each share of preferred stock upon (a) a sufficient increase in the authorized common shares; and (b) a reverse split of the common shares.
 
Upon the declaration or distribution of any dividend to holders of common stock, holders of Series D are entitled to receive dividends equal to the amount of dividend that would have been payable to the holder had such holder converted the Series D to common on the record date for the determination of shareholders entitled to the distribution.
 
Preferred Stock Transactions
 
Non-cash preferred stock transactions were valued consistent with the valuations observed in cash transactions.
 
During the fourth quarter of the fiscal year ended September 30, 2014, the Company granted 29,170 shares of Series D preferred stock valued at $116,680 as compensation. Employees were granted 12,500 of the shares and the remaining 16,670 shares were granted to vendors in exchange for services.
 
During the year ended September 30, 2014, the Company sold an aggregate of 414,800 shares of Series D preferred stock to an investor for aggregate gross proceeds of $1,659,200, which resulted in aggregate net proceeds of $613,600 after deducting subscription receivables of $283,948 and issuance costs of $573,101.
 
During the first quarter of fiscal year 2015, the Company issued 195,918 shares of Series D preferred stock to an investor for aggregate gross proceeds of $783,672, which resulted in aggregate net proceeds of $430,683 used to pay accounts payable on behalf of the Company, after deducting a subscription receivable of $352,989.
 
On January 16, 2015, the Company granted 12,500 shares of its Series D preferred stock with a grant date value of $50,000, to an existing noteholder as incentive for forbearance on the note.
 
On May 1, 2015, the Company issued 12,500 shares of its Series D preferred stock with a grant date value of $50,000 in settlement of lease termination costs.
 
During the fourth quarter of fiscal 2015, the Company expensed the value of 118,332 shares of Series D preferred stock issued to vendors and others in recognition of favorable payments terms that were extended to the Company and recorded $473,328 of stock based compensation. The Company cancelled 201,672 shares of preferred stock that were previously issued where the parties never reached agreement on the issuance terms.
 
During the years ended September 30, 2015 and 2014, the Company accrued an additional $79,561 and $79,561 of preferred stock dividends, respectively.
 
Warrants
 
There were no common stock warrants issued during the years ended September 30, 2015 and 2014.
 
A summary of the activity related to warrants for the purchase of the Company’s common stock during the years ended September 30, 2015 and 2014 is presented below:
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
Weighted
 
Average
 
 
 
 
 
 
 
Average
 
Remaining
 
Aggregate
 
 
 
Number of
 
Exercise
 
Life
 
Intrinsic
 
 
 
Warrants
 
Price
 
In Years
 
Value
 
Outstanding, September 30, 2013
 
 
7,720,374
 
$
0.96
 
 
 
 
 
 
 
Issued
 
 
-
 
 
-
 
 
 
 
 
 
 
Exercised
 
 
-
 
 
-
 
 
 
 
 
 
 
Expired
 
 
(4,802,120)
 
 
1.00
 
 
 
 
 
 
 
Outstanding, September 30, 2014
 
 
2,918,254
 
$
0.89
 
 
 
 
 
 
 
Issued
 
 
-
 
 
-
 
 
 
 
 
 
 
Exercised
 
 
-
 
 
-
 
 
 
 
 
 
 
Expired
 
 
(2,173,255)
 
 
1.00
 
 
 
 
 
 
 
Outstanding, September 30, 2015
 
 
744,999
 
$
0.58
 
 
0.3
 
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercisable, September 30, 2015
 
 
744,999
 
$
0.58
 
 
0.3
 
$
-
 
 
The following table presents information related to common stock warrants at September 30, 2015:
 
Warrants Outstanding
 
Warrants Exercisable
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
 
 
 
Average
 
Exercisable
 
Exercise
 
Number of
 
Remaining Life
 
Number of
 
Price
 
Warrants
 
In Years
 
Warrants
 
 
 
 
 
 
 
 
 
 
 
 
 
$
0.40
 
 
449,999
 
 
0.3
 
 
449,999
 
 
0.75
 
 
175,000
 
 
0.5
 
 
175,000
 
 
1.00
 
 
120,000
 
 
0.3
 
 
120,000
 
 
 
 
 
744,999
 
 
 
 
 
744,999
 
 
In addition, warrants to purchase 98,492 shares of Series D convertible preferred stock at $4.00 per share, which are not included in the table above, were issued to a placement agent in fiscal 2015 in connection with the sale of Series D convertible preferred stock.