Transition report pursuant to Rule 13a-10 or 15d-10

STOCKHOLDERS' EQUITY

v3.3.1.900
STOCKHOLDERS' EQUITY
 3 Months Ended
Dec. 31, 2015
Stockholders' Equity Note [Abstract]  
Stockholders' Equity Note Disclosure [Text Block]
9.
STOCKHOLDERS’ EQUITY
 
Preferred Stock
 
On October 2, 2015, the Company received $145,000 from its investor from the stock subscription receivable.
 
On November 2, 2015, the Company issued 163,441 shares of its Series D preferred stock with a grant date value of $126,840, under the terms of the Company’s new senior credit facility.
 
On November 2, 2015, the Company issued 391,903 shares of its Series F preferred stock with a grant date value of $310,540, under the terms of the Company’s new senior credit facility.
 
On December 18, 2015, the Company issued 6,250 shares of its Series F preferred stock with a grant date value of $25,000 in settlement for investor relations services.
 
On December 21, 2015 the Company issued 519,308 shares of its Series F preferred stock with a grant date value of $342,743 to various employees under the terms of their employment agreements.
 
Common Stock
 
On November 5, 2015, the Company issued 539,925 shares of its common stock with a grant date value of $139,701 as a settlement with one of the Company’s vendors.
 
On December 4, 2015, the Company issued 512,820 shares of its common stock with a grant date value of $5,120 as part of a legal settlement agreement.
 
On April 7, 2016, the Company issued 200,000 shares of its common stock with a grant date value of $2,000 to several employees under the terms of their employment agreements.
 
Dividends
 
Dividend charges recorded during the three months ended December 31, 2015 and 2014 are as follows:
 
 
 
For the Three Months Ended
 
 
 
December 31,
 
 
 
2015
 
 
2014
 
Series
 
 
 
 
 
 
 
 
A
 
$
12,510
 
 
 
12,510
 
A-1
 
 
7,380
 
 
 
7,380
 
B
 
 
-
 
 
 
-
 
C-1
 
 
-
 
 
 
-
 
C-2
 
 
-
 
 
 
-
 
C-3
 
 
-
 
 
 
-
 
Total
 
$
19,890
 
 
$
19,890
 
 
Accrued dividends payable at December 31, 2015 and September 30, 2015 are comprised of the following:
 
 
 
December  31,
 
 
September 30,
 
 
 
2015
 
 
2015
 
Series
 
 
 
 
 
 
 
 
A
 
$
259,646
 
 
$
247,136
 
A-1
 
 
191,487
 
 
 
184,107
 
B
 
 
-
 
 
 
-
 
C-1
 
 
-
 
 
 
-
 
C-2
 
 
-
 
 
 
-
 
C-3
 
 
-
 
 
 
-
 
Total
 
$
451,133
 
 
$
431,243
 
 
 
 
 
 
 
 
 
 
 
Warrants
 
There were no warrants issued during the three months ended December 31, 2015.
 
A summary of the warrant activity during the three months ended December 31, 2015 is presented below:
   
 
 
 
 
 
Weighted
 
 
Weighted
 
 
 
 
 
 
 
 
 
Average
 
 
Average
 
 
 
 
 
 
Number of
 
 
Exercise
 
 
Remaining
 
 
Intrinsic
 
 
 
Warrants
 
 
Price
 
 
Life in Years
 
 
Value
 
Outstanding, September 30, 2015
 
 
2,918,254
 
 
$
0.89
 
 
 
 
 
 
 
 
 
Issued
 
 
-
 
 
 
-
 
 
 
 
 
 
 
 
 
Exercised
 
 
-
 
 
 
-
 
 
 
 
 
 
 
 
 
Expired
 
 
(2,480,919
)
 
 
1.00
 
 
 
 
 
 
 
 
 
Outstanding, December 31, 2015
 
 
437,335
 
 
$
0.60
 
 
 
0.17
 
 
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercisable, December 31, 2015
 
 
437,335
 
 
$
0.60
 
 
 
0.17
 
 
 
-
 
   
The following table presents information related to stock warrants at December 31, 2015:
 
Warrants Outstanding
 
 
Warrants Exercisable
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
Outstanding
 
 
Average
 
 
Exercisable
 
Exercise
 
 
Number of
 
 
Remaining
 
 
Number of
 
Price
 
 
Warrants
 
 
Life in Years
 
 
Warrants
 
 
 
 
 
 
 
 
 
 
 
 
$
0.40
 
 
 
217,335
 
 
 
0.11
 
 
 
217,335
 
$
0.75
 
 
 
175,000
 
 
 
0.24
 
 
 
175,000
 
$
1.00
 
 
 
45,000
 
 
 
0.16
 
 
 
45,000
 
 
 
 
 
 
437,335
 
 
 
0.17
 
 
 
437,335
 
 
Series F Convertible Preferred Stock
 
On October 28, 2015, the Company’s Board of Directors approved the Certificate of Designation for Series F Convertible Preferred Stock. The shares authorized under this certificate was 1,980,000 at a par value of $.01 and a stated value of $4.00 per share. The rights of the Series F is subordinated to existing shares of Preferred Series A, Preferred Series A-1, and Preferred Series D. The Preferred Series F grants voting rights of 20 votes for each share of preferred owned. The shares are convertible into 20 shares of common stock for each share of preferred owned. The shares are mandatorily convertible on the first date following the successful completion of a common stock reverse split. The liquidation value of each share is the stated value of $4.00 per share. As of December 31, 2015, there were 917,461 shares issued and outstanding.
 
Temporary Equity
 
In conjunction with the Lateral senior credit agreement dated October 28, 2015, the Company also entered into a Redemption Rights Agreement (“agreement”). Contained in this agreement is a put provision related to the preferred shares of stock issued as a condition of the transaction. The Redemption Rights may be exercised at any time on or after October 28, 2017, provided the following conditions are met:
 
(i)
the Company’s market capitalization on such date is equal to or greater than $25,000,000, or (ii) the last twelve months earnings before interest, taxes depreciation, and amortization ending on the last day of the month preceding such date is greater than $3,000,000.
 
Further, the Redemption Rights are barred from being exercised if the exercise of such Redemption Rights would, in good faith, prevent the Company from continuing as a going concern.
 
The Redeemable Shares are redeemable at the per share price implied by 10 multiplied by the Company’s LTM EBITDA, multiplied by the Ownership Percentage, divided by the number of Redeemable shares then held.
 
An analysis was performed, under ASC 480-10-25-7 to determine if the redeemable shares should be classified as debt or equity. The results of this analysis determined the redeemable shares did not fall under the definition of mandatorily redeemable financial instruments and therefore should not be classified as debt.
 
Pursuant to ASC 480-10-S99, preferred stock redeemable for cash or other assets are to be classified outside of permanent equity if it is redeemable with any one of the following characteristics:
 
•
At a fixed or determinable price on a fixed or determinable date,
 
•
At the option of the shareholder, or
 
•
Upon the occurrence of an event that is not solely within the control of the reporting entity.
 
The Redeemable Shares are redeemable upon the occurrence of certain events that are not solely within the control of the reporting entity. In the natural course of pursuing the fulfillment of its required fiduciary duties, the Company may meet the conditions upon which the shares would become redeemable (i.e. market capitalization and/or EBITDA, along with going concern status), and would be thus unable to control the events leading to redemption. As a result of the evaluation, the Company has concluded that the Redeemable Shares are appropriately classified outside of permanent equity as temporary equity.