Quarterly report pursuant to Section 13 or 15(d)

STOCKHOLDERS' EQUITY

v3.4.0.3
STOCKHOLDERS' EQUITY
 3 Months Ended
Mar. 31, 2016
Stockholders' Equity Note [Abstract]  
Stockholders' Equity Note Disclosure [Text Block]
9.
STOCKHOLDERS’ EQUITY
 
Preferred Stock
 
On February 23, 2016, the Company issued 53,312 shares of its Preferred Series F stock with a grant date value of $35,186 to one of its investors as an incentive.
   
Dividends
 
Dividend charges recorded during the three months ended March 31, 2016 and 2015 are as follows:
 
 
 
For the Three Months Ended
 
 
 
March 31,
 
 
 
2016
 
2015
 
 
 
 
 
 
 
Series
 
 
 
 
 
 
 
A
 
$
12,510
 
 
12,510
 
A-1
 
 
7,380
 
 
7,381
 
B
 
 
-
 
 
-
 
C-1
 
 
-
 
 
-
 
C-2
 
 
-
 
 
-
 
C-3
 
 
-
 
 
-
 
Total
 
$
19,890
 
$
19,891
 
 
Accrued dividends payable at March 31, 2016 and December 31, 2015 are comprised of the following:
 
 
 
 
 
December
 
 
 
March 31,
 
31,
 
 
 
2016
 
2015
 
Series
 
 
 
 
 
 
 
A
 
$
272,156
 
$
259,646
 
A-1
 
 
198,867
 
 
191,487
 
B
 
 
-
 
 
-
 
C-1
 
 
-
 
 
-
 
C-2
 
 
-
 
 
-
 
C-3
 
 
-
 
 
-
 
Total
 
$
471,023
 
$
451,133
 
 
Warrants
 
There were no warrants issued during the three months ended March 31, 2016.
 
A summary of the warrant activity during the three months ended March 31, 2016 is presented below:
   
 
 
 
 
Weighted
 
Weighted
 
 
 
 
 
 
 
Average
 
Average
 
 
 
 
 
Number of
 
Exercise
 
Remaining
 
Intrinsic
 
 
 
Warrants
 
Price
 
Life in Years
 
Value
 
Outstanding, December 31, 2015
 
 
437,335
 
$
0.60
 
 
 
 
 
 
 
Issued
 
 
-
 
 
-
 
 
 
 
 
 
 
Exercised
 
 
-
 
 
-
 
 
 
 
 
 
 
Expired
 
 
(437,335)
 
 
0.60
 
 
 
 
 
 
 
Outstanding, March 31, 2016
 
 
-
 
$
-
 
 
-
 
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercisable, March 31, 2016
 
 
-
 
$
0.00
 
 
0.00
 
 
-
 
   
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.
 
Reverse Split
 
On December 23, 2015, the Board unanimously authorized and approved an amendment to our Articles of Incorporation to effect a reverse stock split of our Common Stock at a 1-for-20 ratio (the “Reverse Split”) and increase our common shares authorized to 200,000,000. On December 30, 2015, stockholders holding a majority of our voting power approved by written consent the amendment to our Articles of Incorporation, which would affect the Reverse Split. The Reverse Split will reduce the number of outstanding shares of our Common Stock by reclassifying and converting all outstanding shares of our Common Stock into a proportionately fewer number of shares of Common Stock. The reverse stock split is pending approval by the Financial Industry Regulatory Authority (“FINRA”).