COMMON STOCK

3 Months Ended

Mar. 31, 2014

Notes to Financial Statements

Note 8. COMMON STOCK

The Company has authorized 150,000,000 shares of Common Stock, of which 11,967,414 and 11,776,578 shares were issued and outstanding as of March 31, 2014 and December 31, 2013, respectively.

January 2013 Financing

On January 31, 2013 and February 1, 2013, the Company entered into underwriting agreements (collectively, the “Underwriting Agreements”) with Aegis Capital Corp. (“Aegis”), as a representative of several underwriters, with respect to the issuance and sale in an underwritten public offering by the Company of an aggregate of 1,567,855 shares of the Company’s Common Stock (including 204,500 shares sold pursuant to the over-allotment option), at a price to the public of $7.50 per share.  The net proceeds to the Company, after deducting the underwriting discount and other offering expenses payable by the Company, from the sale of the shares in the offering were approximately $10,626,000.  Subsequent to the offering, the Company used a portion of the net proceeds of the offering to pay off the Note issued to Montaur in connection with the $20 million non-revolving draw credit facility.  The Note will mature on August 31, 2017.  As of March 1, 2013, the entire balance under the note that was paid off was $3,113,366, which included $3,000,000 of principal and $113,366 of accrued and unpaid interest (see Note 5).

December 2013 Financing

On December 10, 2013, in connection with a licensing transaction, the Company entered into (i) a Securities Purchase Agreement with Platinum Partners Value Arbitrage Fund L.P. (“Platinum Value”) and Platinum Partners Liquid Opportunity Master Fund L.P. (“Platinum Liquid”, and together with Platinum Value, the “Platinum Partners”) (the “Platinum Securities Purchase Agreement”) and (ii) a Securities Purchase Agreement with MTIA and Beijing Sino Tau Shang Pin Tech and Development Corp. (“MTIA Affiliate”, and together with MTIA, the “China Purchasers”) (the “MTIA Securities Purchase Agreement”, and together with the Platinum Securities Purchase Agreement, the “Securities Purchase Agreements”).

Pursuant to the Platinum Securities Purchase Agreement, the Platinum Partners purchased an aggregate of 1,818,182 of the Company’s capital stock.  Of that total, Platinum Partners purchased 69,569 shares of the Company’s Common Stock at $2.75 per share, being a premium to the NASDAQ closing price of $2.71 per share on December 9, 2013.  In addition, the Platinum Partners purchased a total of 1,748,613 shares of Series E Preferred Stock (“Preferred Stock”) at a purchase price of $2.75 per share, which, under certain conditions, are exchangeable into shares of the Company’s Common Stock on a one-for-one basis.  The conversion of Preferred Stock into shares of Common Stock, however, is subject to a restriction, which prohibits the conversion of shares of Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by the Platinum Partners and their affiliates at such time, the number of shares of Common Stock which would result in Platinum Partners and their affiliates beneficially owning in excess of 19.99% of all of the Company’s Common Stock outstanding at such time.  Under the terms of the Platinum Securities Purchase Agreement, the Platinum Partners also received 181,818 warrants, having a five-year term and an exercise price of $2.75 per warrant.  The warrants are exercisable six months and one day following the issuance date thereof.  Under the terms of the Platinum Securities Purchase Agreement, the Company has, at the request of the Platinum Partners, agreed to prepare a proxy statement and seek shareholder approval of the issuance of the Common Stock underlying the Preferred Stock and the warrants.  The Company received gross proceeds of $5,000,000 from the sale of the securities to the Platinum Partners on December 10, 2013 and incurred issuance costs of $100,000.

In connection with the issuance of this Series E Preferred Stock, the conversion feature of Series E Stock was considered beneficial, or “in the money”, at issuance due to a conversion rate that allows the investor to obtain the Common Stock at below market price. The Company recorded a deemed dividend on the beneficial conversion feature equal to its relative fair value resulting from the offering of $371,140 in the fourth quarter of the year ended December 31, 2013.

Under the MTIA Securities Purchase Agreement, the China Purchasers agreed to purchase a total of 1,818,182 shares of the Company’s Common Stock also at $2.75 per share.  The China Purchasers also will receive 181,818 warrants, having a five-year term and an exercise price of $2.75.  The warrants to be issued to the China Purchasers are also exercisable six months and one day following the issue date.

As of March 31, 2014, the Company had not received the full proceeds of the sale of the securities from the China Purchasers due to administrative issues that the China Purchasers encountered in transferring funds to the Company and the parties have extended the due date of receipt of all such proceeds past December 12, 2013.  The Company did not receive the proceeds by the extended due date and, accordingly, the Company has the right to terminate the MTIA Securities Purchase Agreement and the related license, development and commercialization agreement, unless such date is extended again by mutual written consent.  Due to the contingent nature of this transaction, the Company has not issued all of the shares or recorded all of the MTIA transaction.  As of March 31, 2014, the Company has issued 181,818 shares of Common Stock and warrants to purchase 18,182 shares of Common Stock in exchange for $500,000 in proceeds, and has recorded Common Stock subscription of $1,500,000 in stockholders’ equity pending the issuance of the related stock and warrants. The fair value of warrants issued to MTIA to purchase 18,182 shares of Common Stock was determined to be approximately $48,000 and was recorded as a debit and a credit to Additional Paid in Capital as stock issuance costs.  Through May 9, 2014, the Company has received $2,400,000 of MTIA’s $5,000,000 in proceeds in accordance with the MTIA Securities Purchase Agreement. An additional $2,600,000 in proceeds remains to be received from this transaction.

Stock Issued in Exchange for Services

During the three months ended March 31, 2014 and 2013, the Company issued 2,636 and 7,450 shares, respectively, of Common Stock with a fair value of $8,404 and $92,745, respectively, to vendors in exchange for their services.  The Company recorded expense related to these issuances, which represents the fair value of the related stock at the time of issuance, to Selling, General and Administrative expense.