Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

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Stockholders' Equity
 6 Months Ended
Jun. 30, 2016
Equity [Abstract]  
Stockholders' Equity

9. STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

Dividends

 

Dividend charges recorded during the three months and six months ended June 30, 2016 and 2015 are as follows:

 

    For the three Months Ended  
    June 30,  
    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  

 

    For the six Months Ended  
    June 30,  
    2016     2015  
             
Series                
A   $ 25,020       25,019  
A-1     14,761       14,760  
B     -       -  
C-1     -       -  
C-2     -       -  
C-3     -       -  
Total   $ 39,781     $ 39,779  

 

Accrued dividends payable at June 30, 2016 and December 31, 2015 are comprised of the following:

 

    June 30, 2016     December 31, 2015  
Series                
A   $ 284,666     $ 259,646  
A-1     206,247       191,487  
B     -       -  
C-1     -       -  
C-2     -       -  
C-3     -       -  
Total   $ 490,913     $ 451,133  

 

Warrants

 

There were no warrants issued during the six months ended June 30, 2016.

 

A summary of the warrant activity during the six months ended June 30, 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, June 30, 2016     -     $ -       -     $ -  
Exercisable, June 30, 2016     -     $ -       -     $ -  

 

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.

 

The Redeemable Shares originally issued with the transaction, 163,441 of Series D Preferred Convertible shares and 391,903 of Series F Preferred Convertible shares, were converted to 11,106,880 shares of the Company’s Common Stock on or around May 26, 2016. The conversion was completed due to the mandatory conversion feature of the preferred shares due to the reverse split of the Company’s Common Stock on May 26, 2016.

 

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 was approved by the Financial Industry Regulatory Authority (“FINRA”) on May 25, 2016 and effectuated on May 26, 2016. In conjunction with the Reverse Split approval, all of the Series D and Series F preferred convertible shares mandatorily converted to common shares at a 1-for-20 ratio.