Stockholders' Equity and Redeemable Convertible Preferred Stock

12 Months Ended

Dec. 31, 2016

Stockholders' Equity Note [Abstract]

Stockholders' Equity and Redeemable Convertible Preferred Stock

Note 8. Stockholders’ Equity and Redeemable Convertible Preferred Stock

Amended and Restated Certificate of Incorporation

On March 4, 2016, the Company implemented a Reverse Stock Split with a ratio of 1-for-19. The par value and other terms of the common stock were not affected by the Reverse Stock Split. In addition, the amendment to the Company’s certificate of incorporation that effected the Reverse Stock Split simultaneously reduced the number of authorized shares of Common Stock from 200,000,000 to 100,000,000 (see Note 1).

Common Stock

2016 activity

On August 8, 2016, the Company closed on an underwritten public offering of 1,592,357 shares of the Company’s common stock at a price to the public of $1.57 per share. Under the terms of the Underwriting Agreement, the Company granted the representative of the underwriters a 30-day option to purchase up to 231,349 additional shares of its common stock (the 30-day underwriters option expired unexercised). The net proceeds to the Company were $2.1 million, after deducting the underwriting discount and other estimated offering expenses payable by the Company.

2015 activity

On July 15, 2015, the Company entered into a placement agency agreement with Chardan Capital Markets, LLC as placement agent (the “Placement Agent”), relating to the July 2015 Financing, which was a registered direct offering to select institutional Investors of 301,026 shares of the Company’s Common Stock, $0.0001 par value per share, and Common Stock Purchase Warrants to purchase up to an aggregate of 370,263 shares of Common Stock.

Pursuant to the Placement Agency Agreement, the Company paid the Placement Agent a cash fee of 8.0% of the gross proceeds from the July 2015 Financing and $25,000 for its expenses related to the offering. The Placement Agent had no commitment to purchase any of the shares of Common Stock or Warrants and was acting only as an agent in obtaining indications of interest from investors who purchased the shares of Common Stock and Warrants directly from the Company. 

In addition, on July 15, 2015, the Company and the investors in the July 2015 Financing entered into a securities purchase agreement (the “Securities Purchase Agreement”) relating to the issuance and sale of the offered shares and the warrants. The offered shares and warrants were sold in units, with each unit consisting of one-nineteenth of an Offered Share and a warrant to purchase 0.06 shares of Common Stock. The purchase price per unit was $4.864. The warrants provide for an exercise price of $8.17 per share and became exercisable on January 22, 2016 and have a term of five years thereafter. The exercise price of the Warrants will also be adjusted in the event of stock splits and reverse stock splits. Except upon at least 61 days’ prior notice from the holder to the Company, the holder will not have the right to exercise any portion of the Warrant if the holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of the Company’s common stock (including securities convertible into common stock) outstanding immediately after the exercise; provided, however, that the holder may not increase this limitation at any time in excess of 9.99%.

The Securities Purchase Agreement further provides that, subject to certain exceptions, until the warrants issued in the July 2015 Financing are no longer outstanding, the Company will not affect or enter into a variable rate transaction. The Securities Purchase Agreement also provides the investors an 18-month right of participation for an amount up to 100% of such subsequent financing common stock (or common stock equivalents or a combination thereof), on the same terms and conditions of such transaction.

The net proceeds to the Company from the July 2015 Financing, after deducting Placement Agent fees and the Company’s estimated offering expenses, and excluding the proceeds, if any, from the exercise of the Warrants, were approximately $1.3 million. The July 2015 Financing closed on July 21, 2015. As disclosed in Note 6, the warrants issued in the July 2015 Financing were required to be accounted for as derivative liabilities as a result certain net cash settlement provisions in control of the holder. As a result, of the total net proceeds received, $985,000 was allocated to the warrants on the closing date of the July 2015 Financing.

On December 2, 2015, the Company entered into a purchase agreement with investors to sell an aggregate of 13.8 million Class A Units (consisting of one-nineteenth of a share of Common Stock, a Series A Warrant and a Series B). Included in the sale were 1,240 Class B Units issuable to those investors whose purchase of Class A Units in this offering would otherwise result in such investor beneficially owning more than 4.99% of the Company’s outstanding Common Stock immediately following the consummation of the December 2015 Offering. Each Class B Unit consisted of one share of Series K Preferred Stock, with a stated value of $1,000 per share and convertible into shares of Common Stock (on a 1 for 263 basis) at the public offering price of the Class A Units, together with the equivalent number of Series A warrants and Series B warrants as would have been issued to such purchaser if they had purchased Class A Units based on the public offering price.

The Company received net proceeds of approximately $3.4 million from the December 2015 Offering after deducting placement agent fees and offering expenses. The December 2015 Offering closed on December 7, 2015. Of the total proceeds received, $2.2 million were allocated to the fair value of the warrants issued on the grant date.

Beneficial Conversion Feature

In the December 2015 Offering, the Company issued 1,240 shares of Series K Preferred Stock, together with Series A warrants for the purchase of 326,313 shares of Common Stock and Series B warrants for the purchase of 261,051 shares of Common Stock contained in the Class B Units (the “Class B Unit Warrants”). Series A Warrants have an exercise price of $3.80 per share and are exercisable at any time between December 7, 2015 and May 6, 2016. Series B Warrants have an exercise price of $4.75 per share and are exercisable at any time between December 7, 2015 and December 6, 2020.

The Company assessed the Series K Preferred Stock under ASC Topic 480, “Distinguishing Liabilities from Equity” (“ASC 480”), ASC Topic 815, “Derivatives and Hedging” (“ASC 815”), and ASC Topic 470, “Debt” (“ASC 470”). The preferred stock contains an embedded feature allowing an optional conversion by the holder into common stock which meets the definition of a derivative. However, the Company determined that the Series K Preferred Stock is an “equity host” (as described by ASC 815) for purposes of assessing the embedded derivative for potential bifurcation and that the optional conversion feature is clearly and closely associated to the preferred stock host; therefore, the embedded derivative does not require bifurcation and separate recognition under ASC 815. The Company determined there to be a beneficial conversion feature (“BCF”) requiring recognition at its intrinsic value. Since the conversion option of the preferred stock was immediately exercisable, the amount allocated to the BCF was immediately accreted to preferred dividends, resulting in an increase in the carrying value of the preferred stock.

As of December 31, 2015 the Company recorded a deemed dividend of approximately $323,000 related to the beneficial conversion feature with the issuance of the Series K Preferred Stock in the consolidated statements of operations.

Preferred Stock

On April 23, 2014, the Company filed a Certificate of Elimination with the Secretary of State of the State of Delaware eliminating its Series B Convertible Preferred Stock, Series E Convertible Preferred Stock and Series F Convertible Preferred Stock and returning them to authorized but undesignated shares of preferred stock. No shares of the foregoing series of preferred stock were outstanding. On May 28, 2014, the Company designated 20,000,000 shares of preferred stock as Series J Convertible Preferred Stock (“Series J Preferred Stock”). On December 2, 2015, the Company designated 1,240 shares of preferred stock as Series K Convertible Preferred Stock (“Series K Preferred Stock”).

The Company had designated separate series of its capital stock as of December 31, 2016 and December 31, 2015 as summarized below:

	Number of Shares Issued
	and Outstanding as of
	December 31, 2016		December 31, 2015		Par Value		Conversion Ratio
Series "A"		-		-	$	0.0001	N/A
Series "C"		-		-		0.0001	0.05:1
Series “D"		4,725		4,725		0.0001	0.53:1
Series “D-1"		834		834		0.0001	0.53:1
Series “F-1"		-		-		0.0001	0.05:1
Series “H"		-		381,967		0.0001	0.53:1
Series “I”		-		-		0.0001	1.05:1
Series “J”		-		-		0.0001	0.05:1
Series “K”		-		1,240		0.0001	263.16:1

Series A Participating Preferred Stock

The Company’s board of directors has designated 500,000 shares of its preferred stock as Series A Participating Preferred Stock (“Series A Preferred Stock”).

On January 1, 2013, the Company adopted a stockholder rights plan in which rights to purchase shares of Series A Preferred Stock were distributed as a dividend at the rate of one right for each share of common stock.  The rights are designed to guard against partial tender offers and other abusive and coercive tactics that might be used in an attempt to gain control of the Company or to deprive its stockholders of their interest in the long-term value of the Company.  These rights seek to achieve these goals by forcing a potential acquirer to negotiate with the board of directors (or to go to court to try to force the board of directors to redeem the rights), because only the board of directors can redeem the rights and allow the potential acquirer to acquire the Company’s shares without suffering very significant dilution.  However, these rights also could deter or prevent transactions that stockholders deem to be in their interests, and could reduce the price that investors or an acquirer might be willing to pay in the future for shares of the Company’s common stock.

Each right entitles the registered holder to purchase nineteen one-hundredths of a share (a “Unit”) of the Company’s Series A Preferred Stock.  Each Unit of Series A Preferred Stock will be entitled to an aggregate dividend of 100 times the dividend declared per share of common stock.  In the event of liquidation, the holders of the Units of Series A Preferred Stock will be entitled to an aggregate payment of 100 times the payment made per share of common stock.  Each Unit of Series A Preferred Stock will have 100 votes, voting together with the common stock.  Finally, in the event of any merger, consolidation or other transaction in which shares of common stock are exchanged, each Unit of Series A Preferred Stock will be entitled to receive 100 times the amount received per share of common stock.  These rights are protected by customary anti-dilution provisions.

The rights will be exercisable only if a person or group acquires 10% or more of the Company’s common stock (subject to certain exceptions stated in the plan) or announces a tender offer the consummation of which would result in ownership by a person or group of 10% or more of the Company’s common stock.  The board of directors may redeem the rights at a price of $0.001 per right.  The rights will expire at the close of business on December 31, 2017 unless the expiration date is extended or unless the rights are earlier redeemed or exchanged by the Company. As of December 31, 2016 and 2015, no shares of Series A Preferred Stock were issued and outstanding.

Series C Convertible Preferred Stock

On March 6, 2013, the Company and certain investors that participated in the Company’s November 2012 private placement transaction entered into separate Warrant Exchange Agreements pursuant to which those investors exchanged common stock purchase warrants for 229,337 shares of the Company’s Series C Convertible Preferred Stock (“Series C Preferred Stock”).  Each share of Series C Preferred Stock is convertible into one-nineteenth of a share of Common Stock at the option of the holder.  The Series C Preferred Stock was established on March 5, 2013 by the filing in the State of Delaware of a Certificate of Designation of Preferences, Rights and Limitations of Series C Preferred Stock.  In December 2015, the one remaining share of Series C Preferred Stock was surrendered by the stockholder for cancellation. As of December 31, 2016 and 2015, no shares of Series of Series C Preferred Stock remained issued and outstanding, respectively.

Series D Convertible Preferred Stock

In connection with the acquisition of North South’s patent portfolio in September 2013, the Company issued 1,379,685 shares of its Series D Convertible Preferred Stock (“Series D Preferred Stock”) to the stockholders of North South.  Each share of Series D Preferred Stock has a stated value of $0.0001 per share and is convertible into ten-nineteenths of a share of Common Stock.  Upon the liquidation, dissolution or winding up of the Company’s business, each holder of Series D Preferred Stock shall be entitled to receive, for each share of Series D Preferred Stock held, a preferential amount in cash equal to the greater of (i) the stated value or (ii) the amount the holder would receive as a holder of Common Stock on an “as converted” basis.  Each holder of Series D Preferred Stock shall be entitled to vote on all matters submitted to its stockholders and shall be entitled to such number of votes equal to the number of shares of Common Stock such shares of Series D Preferred Stock are convertible into at such time, taking into account the beneficial ownership limitations set forth in the governing Certificate of Designation and the conversion limitations described below.  At no time may shares of Series D Preferred Stock be converted if such conversion would cause the holder to hold in excess of 4.99% of issued and outstanding Common Stock, subject to an increase in such limitation up to 9.99% of the issued and outstanding Common Stock on 61 days’ written notice to the Company.  The conversion ratio of the Series D Preferred Stock is subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions.

As of December 31, 2016 and 2015, 4,725 shares of Series D Preferred Stock remained issued and outstanding.

Series D-1 Convertible Preferred Stock

The Company’s Series D-1 Convertible Preferred Stock (“Series D-1 Preferred Stock”) was established on November 22, 2013. Each share of Series D-1 Preferred Stock has a stated value of $0.0001 per share and is convertible into ten- nineteenths of a share of Common Stock.  Upon the liquidation, dissolution or winding up of the Company’s business, each holder of Series D-1 Preferred Stock shall be entitled to receive, for each share of Series D-1 Preferred Stock held, a preferential amount in cash equal to the greater of (i) the stated value or (ii) the amount the holder would receive as a holder of Common Stock on an “as converted” basis.  Each holder of Series D-1 Preferred Stock shall be entitled to vote on all matters submitted to the Company’s stockholders and shall be entitled to such number of votes equal to the number of shares of Common Stock such shares of Series D-1 Preferred Stock are convertible into at such time, taking into account the beneficial ownership limitations set forth in the governing Certificate of Designation.  At no time may shares of Series D-1 Preferred Stock be converted if such conversion would cause the holder to hold in excess of 9.99% of issued and outstanding Common Stock. The conversion ratio of the Series D-1 Preferred Stock is subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions.  The Company commenced an exchange with holders of Series D Convertible Preferred Stock pursuant to which the holders of the Company’s outstanding shares of Series D Preferred Stock acquired in the Merger could exchange such shares for shares of the Company’s Series D-1 Preferred Stock on a one-for-one basis.

As of December 31, 2016 and 2015, 834 shares of Series D-1 Preferred Stock remained issued and outstanding.

Series F-1 Convertible Preferred Stock

The Company’s Series F-1 Convertible Preferred Stock (“Series F-1 Preferred Stock”) was established on November 22, 2013.  Each share of Series F-1 Preferred Stock was convertible, at the option of the holder at any time, into one-nineteenth of a share of Common Stock and had a stated value of $0.0001.  Such conversion ratio was subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions. Each share of Series F-1 Preferred Stock was entitled to 91% of the number of shares of Common Stock into which the Series F-1 was convertible (subject to beneficial ownership limitations) and voted together with holders of Common Stock.  The Company was prohibited from effecting the conversion of the Series F-1 Preferred Stock to the extent that, as a result of such conversion, the holder would beneficially own more than 9.99% in the aggregate of the issued and outstanding shares of Common Stock calculated immediately after giving effect to the issuance of shares of Common Stock upon the conversion of the Series F-1 Preferred Stock. 

As of December 31, 2016 and 2015, no shares of Series F-1 Preferred Stock remained issued and outstanding.

Series H Convertible Preferred Stock

On December 31, 2013, the Company designated 459,043 shares of preferred stock as Series H Preferred Stock. On December 31, 2013, the Company issued approximately $38.3 million of Series H Preferred Stock (or 459,043 shares) to Rockstar. Each share of Series H Preferred Stock is convertible into ten-nineteenths of a share of Common Stock and has a stated value of $83.50. The conversion ratio is subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions. The Company is prohibited from effecting the conversion of the Series H Preferred Stock to the extent that, as a result of such conversion, the holder beneficially owns more than 4.99% (which may be increased to 9.99% and subsequently to 19.99%, each upon 61 days’ written notice), in the aggregate, of issued and outstanding shares of Common Stock calculated immediately after giving effect to the issuance of shares of Common Stock upon the conversion of the Series H Preferred Stock. Holders of the Series H Preferred Stock shall be entitled to vote on all matters submitted to the Company’s stockholders and shall be entitled to the number of votes equal to the number of shares of Common Stock into which the shares of Series H Preferred Stock are convertible, subject to applicable beneficial ownership limitations. The Series H Preferred Stock provides a liquidation preference of $83.50 per share. The shares of Series H Preferred Stock were not immediately convertible and did not possess any voting rights until such a time as the Company had obtained stockholder approval of the issuance, pursuant to NASDAQ Listing Rule 5635. On April 16, 2014, the Company obtained the required stockholder approval and, as a result, all outstanding shares of Series H Preferred Stock are convertible and possess voting rights in accordance with its terms. On May 28, 2014, 20,000 shares of Series H Preferred Stock were converted into 10,526 shares of Common Stock.

In January 2015, Rockstar transferred its remaining outstanding Series H Preferred Stock to RPX Clearinghouse LLC, an affiliate of RPX.

According to the RPX License Agreement disclosed in Note 7, on November 23, 2015, RPX transferred to the Company for cancellation 57,076 shares of Series H Preferred Stock then held by RPX, having a total carrying amount of $4,765,846 at the time the stock was issued to Rockstar.

In connection with a second, separate, licensing agreement, on May 23, 2016, RPX transferred to the Company for cancellation of 100% of the remaining 381,967 shares of Series H Preferred Stock held by RPX, having a total carrying amount of $31,894,244 at the time the stock was issued to Rockstar (see Note 7 for further details).

As of December 31, 2016 and 2015, none and 381,967 shares of Series H Preferred Stock remained issued and outstanding, respectively.

Series I Redeemable Convertible Preferred Stock

On December 31, 2013, the Company designated 119,760 shares of preferred stock as Series I Preferred Stock.  On December 31, 2013, the Company issued approximately $20 million (or 119,760 shares) of Series I Preferred Stock to Rockstar.  Each share of Series I Preferred Stock was convertible into twenty-nineteenths of a share of Common Stock and had a stated value of $167.00.  The conversion ratio was subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions.  The holder was prohibited from converting the Series I Preferred Stock to the extent that, as a result of such conversion, the holder beneficially owned more than 4.99% (which may be increased to 9.99% and subsequently to 19.99%, each upon 61 days’ written notice), in the aggregate, of the Company’s issued and outstanding shares of Common Stock calculated immediately after giving effect to the issuance of shares of Common Stock upon the conversion of the Series I Preferred Stock.  Holders of the Series I Preferred Stock shall be entitled to vote on all matters submitted to its stockholders and shall be entitled to the number of votes equal to the number of shares of Common Stock into which the shares of Series I Preferred Stock were convertible, subject to applicable beneficial ownership limitations.  The Series I Preferred Stock provided for a liquidation preference of $167.00 per share.

The Series I Preferred Stock contained a mandatory redemption date of December 31, 2015 as to 100% of the Series I Preferred Stock then outstanding, requiring a minimum of 25% of the total number of shares of Series I Preferred Stock issued to be redeemed (less the amount of any conversions occurring prior thereto) on or prior to each of September 30, 2014, December 31, 2014, June 30, 2015 and December 31, 2015 (each, a “Partial Redemption Date” and each payment, a “Redemption Payment”).  On each Partial Redemption Date, the Company was required to pay the holder a Redemption Payment equal to the lesser of (i) such number of shares of Series I Preferred Stock as had a stated value of $5.0 million; or (ii) such number of shares of Series I Preferred Stock as should, together with all voluntary and mandatory redemptions and conversions to Common Stock occurring prior to the applicable Partial Redemption Date, had an aggregate stated value of $5.0 million; or (iii) the remaining shares of Series I Preferred Stock issued and outstanding if such shares had an aggregate stated value of less than $5.0 million, in an amount of cash equal to its stated value plus all accrued but unpaid dividends, distributions and interest thereon, unless such holder of Series I Preferred Stock, in its sole discretion, elected to waive such Redemption Payment or convert such shares of Series I Preferred Stock (or a portion thereof) into Common Stock.  No interest or dividends were payable on the Series I Preferred Stock unless the Company failed to make the first $5.0 million Partial Redemption Payment due September 30, 2014, then interest should accrue on the outstanding stated value of all outstanding shares of Series I Preferred Stock at a rate of 15% per annum from January 1, 2014.  The Company’s obligations to pay the Redemption Payments and any interest payments in connection therewith were secured pursuant to the terms of a Security Agreement under which the Rockstar patent portfolio serves as collateral security.  No action can be taken under the Security Agreement unless the Company had failed to make a second redemption payment of $5.0 million due December 31, 2014, which payment was made.  The Security Agreement contains additional usual and customary events of default under which the holder could take action, including a sale to a third party or reduction of secured amounts via transfer of the Rockstar patent portfolio to the holder.

Additionally, in the event the Company consummated a Fundamental Transaction (as defined below), the Company should be required to redeem such portion of the outstanding shares of Series I Preferred Stock as shall equal (i) 50% of the net proceeds of the Fundamental Transaction after deduction of the amount of net proceeds required to leave the Company with cash and cash equivalents on hand of $5.0 million and up until the net proceeds leave the Company with cash and cash equivalents on hand of $7.5 million and (ii) 100% of the net proceeds of the Fundamental Transaction thereafter. “Fundamental Transaction” means directly or indirectly, in one or more related transactions: (a) the Company of any subsidiary realizes net proceeds from any financing, recovery, sale, license fee or other revenue received by the Company (including on account of any intellectual property rights held by the Company and not just in respect of the patents) during any fiscal quarter in an amount which would cause the cash or cash equivalents of the Company to exceed $5,000,000, (b) the Company consolidates or merges with or into (whether or not the Company or any of its subsidiaries is the surviving corporation) any other person, or (c) the Company or any of its subsidiaries sells, leases, licenses, assigns, transfers, conveys or otherwise disposes of all or substantially all of its respective properties or assets to any other Person, provided that, in the event of a Fundamental Transaction under clause (b) or (c), neither such Fundamental Transaction may proceed without the consent of the holders holding a majority of the shares of Series I Preferred Stock unless (A) all shares of Series I Preferred Stock held by the holders are redeemed with interest upon closing of such Fundamental Transaction, and (B) all shares of Common Stock of the Company then held by the holders are redeemed or otherwise purchased for cash or freely tradable securities of a publicly traded company at a price at or above the then-current market value of such Common Stock.

The shares of Series I Preferred Stock were not immediately convertible and did not possess any voting rights until such a time as the Company had obtained stockholder approval of the issuance, pursuant to NASDAQ Listing Rule 5635.  On April 16, 2014, the Company obtained the required stockholder approval and, as a result, all outstanding shares of Series I Preferred Stock are convertible and possess voting rights in accordance with its terms.

In January 2015, Rockstar transferred its remaining outstanding Series I Preferred Stock, as well as its other stock in the Company to RPX Clearinghouse LLC.

In June 2015, the Company redeemed 5,601 shares of Series I Preferred Stock. In accordance with this redemption, the Company paid RPX $0.9 million.

On November 23, 2015, as per RPX License Agreement disclosed in Note 7, RPX transferred to the Company for cancellation all remaining 29,940 shares of Series I Preferred Stock, as to which a $5,000,000 mandatory redemption payment would have been due from the Company on or by December 31, 2015.

As of December 31, 2016 and 2015, no shares of Series I Preferred Stock remained issued and outstanding, respectively.

Series J Convertible Preferred Stock

On May 28, 2014, the Company designated 20,000,000 shares of preferred stock as Series J Preferred Stock. On May 28, 2014, the Company entered into a placement agency agreement with Laidlaw & Company (UK) Ltd., as the placement agent, which provided for the issuance and sale in a registered direct public offering (the “Series J Offering”) by the Company of 10,000,000 shares of Series J Preferred Stock which were convertible into a total of 526,315 shares of Common Stock. The Series J Preferred Stock in the Series J Offering was sold at a public offering price of $2.00 per share. The net offering proceeds to the Company from the sale of the shares were approximately $18.4 million, after deducting placement agent fees ($1.32 million), legal fees ($0.18 million) and escrow fee ($0.04 million). The sale of the Series J Preferred Stock was made pursuant to a subscription agreement between the Company and certain investors in the Series J Offering.

The shares of Series J Preferred Stock carry a liquidation preference equal to the greater of (i) the stated value or (ii) the amount the holder would receive as a holder of Common Stock if such holder had converted the Series J Preferred Stock immediately prior to such liquidation, dissolution or winding up. Each holder of Series J Preferred Stock is entitled to vote on all matters submitted to stockholders of the Company and is entitled to a vote of 67.3% of the number of votes for each share of Common Stock into which the Series J Preferred Stock is convertible owned at the record date for the determination of stockholders entitled to vote on such matter. Subject to certain ownership limitations as described below, shares of Series J Preferred Stock are convertible at any time at the option of the holder into shares of Common Stock in an amount equal to one-nineteenths of a share of Common Stock for each one share of Series J Preferred Stock surrendered.  Subject to limited exceptions, holders of shares of Series J Preferred Stock do not have the right to convert any portion of their Series J Preferred Stock that would result in the holder, together with its affiliates, beneficially owning in excess of 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to its conversion; notwithstanding the foregoing, some Investors elected to have the 9.99% beneficial ownership limitation to initially be 4.99%.

As of December 31, 2016 and 2015, no shares of Series J Preferred Stock are issued and outstanding.

Series K Convertible Preferred Stock

On December 2, 2015, the Company designated 1,240 shares of preferred stock as Series K Preferred Stock.  On December 7, 2015, the Company issued 1,240 shares of Series K Preferred Stock in December 2015 Offering.  Each share of Series K Preferred Stock is convertible into five thousand-nineteenths of a share of Common Stock and has a stated value of $1,000.  The conversion ratio is subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions. The Series K Preferred do not generally have any voting rights but are convertible into shares of Common Stock. At no time may shares of Series K Preferred Stock be converted if such conversion would cause the holder to hold in excess of 4.99% of the issued and outstanding Common Stock, subject to an increase in such limitation up to 9.99% of the issued and outstanding Common Stock on 61 days’ written notice to the Company.  The conversion ratio of the Series K Preferred Stock is subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions.

Since January 1, 2016, stockholders have converted 1,240 shares of Series K Preferred Stock into 326,315 shares of Common Stock.

As of December 31, 2016 and 2015, none and 1,240 shares, respectively, of Series K Preferred Stock are issued and outstanding.

Warrants

A summary of warrant activity for year ended December 31, 2016 is presented below:

	Warrants			Weighted Average Exercise Price		Total Intrinsic Value		Weighted Average Remaining Contractual Life (in years)
Outstanding as of December 31, 2015		2,304,888		$	7.98	$	-		2.83
Exercised		(200,000	)		3.80
Expired		(854,577	)						-
Outstanding as of December 31, 2016		1,250,311		$	9.21				3.91
Exercisable as of December 31, 2016		1,250,311		$	9.21	$	-		3.91

Stock Options

2012 Plan

In late 2012, the Company adopted the 2012 Equity Incentive Plan (the “2012 Plan”) which permits issuance of incentive stock options, non-qualified stock options and restricted stock. The 2012 Plan replaced a prior incentive stock plan. At December 31, 2016, there were 282 fully vested options outstanding and 239 shares available for grant under the 2012 Plan.

2013 Plan

In April 2013, the Company’s board of directors adopted the Spherix Incorporated 2013 Equity Incentive Plan (the “2013 Plan”), an omnibus equity incentive plan pursuant to which the Company may grant equity and cash and equity-linked awards to certain management, directors, consultants and others.  The plan was approved by the Company’s stockholders in August 2013.

The 2013 Plan authorized approximately 15% of the Company’s fully-diluted Common Stock at the time approved (not to exceed 147,368 shares) be reserved for issuance under the Plan, after giving effect to the shares of the Company’s capital stock issuable under the Nuta Merger. 

At December 31, 2016, there were 105,610 fully vested options outstanding and 41,758 shares available for grant under the 2013 Plan.

2014 Plan and Option Grants

On January 28, 2014, the Company approved the adoption of a director compensation program (the “Program”) for non-employee directors pursuant to and subject to the available number of shares reserved under the Spherix Incorporated 2014 Equity Incentive Plan (the “2014 Plan”).

On February 26, 2016, the Company’s stockholders approved, and the Company adopted, an amendment to the 2014 Plan increasing the number of shares issuable thereunder from 219,046 shares of Common Stock to 434,210 shares of Common Stock.

At December 31, 2016, there were 207,092 options outstanding and 227,118 shares available for grant under the 2014 Plan.

On April 3, 2014, pursuant to and subject to the available number of shares reserved under the Company’s 2014 Equity Incentive Plan, the Company issued 26,315 non-qualified options with a term of five years and an exercise price of $54.34 to Anthony Hayes, director and the Chief Executive Officer of the Company. 50% of the options vested immediately, and the remaining 50% vesting upon the Company’s receipt of gross proceeds of at least $30 million by April 3, 2015 from an offering of its securities (the “Performance Condition”). Since the Performance Condition was not satisfied by April 3, 2015, 13,157 options were forfeited. As a result, the Company reversed $0.4 million of option expense related to this grant in April 2015.

On May 24, 2015, 176 options granted on May 25, 2010 expired.

In August 2015, pursuant to and subject to the available number of shares reserved under the 2014 Plan, the Company issued 23,682 options to five of the Company’s directors. These stock options are vested within one year of the date of grant.

The grant date fair value of stock options granted during the year ended December 31, 2015 was approximately $69,000. The fair value of the Company’s common stock was based upon the publicly quoted price on the date that the final approval of the awards was obtained.  The Company does not expect to pay dividends in the foreseeable future so therefore the expected dividend yield is 0%.  The expected term for stock options granted with service conditions represents the average period the stock options are expected to remain outstanding and is based on the expected term calculated using the approach prescribed by the Securities and Exchange Commission's Staff Accounting Bulletin No. 110 for “plain vanilla” options.  The expected term for stock options granted with performance and/or market conditions represents the estimated period estimated by management by which the performance conditions will be met.  The Company obtained the risk-free interest rate from publicly available data published by the Federal Reserve.  During the third quarter of 2015, the Company adjusted its methodology in estimating its historical volatility percentage from a computation that was based on a comparison of average volatility rates of similar companies to a computation based on the standard deviation of the Company’s own underlying stock price's daily logarithmic returns.  

On November 14, 2016, 78 options granted on November 15, 2011 expired.

During the year ended December 31, 2016, pursuant to and subject to the available number of shares reserved under the 2014 Plan, the Company issued 23,682 options to five of the Company’s directors. The aggregate grant date fair value of these options was approximately $36,000.

The fair value of options granted in 2016 and 2015 was estimated using the following assumptions:

	For the Years Ended December 31,
	2016	2015
Exercise price	$1.42 - $1.98	$4.18 - $32.87
Expected stock price volatility	122.4% - 141.3%	117.2% - 130.4%
Risk-free rate of interest	0.96% - 1.15%	0.74% - 1.08%
Term (years)	4.34 - 9.65	1.9 - 3.0

A summary of option activity under the Company’s employee stock option plan for year ended December 31, 2016 is presented below:

	Number of Shares			Weighted Average Exercise Price		Total Intrinsic Value		Weighted Average Remaining Contractual Life (in years)
Outstanding as of December 31, 2015		286,487		$	89.07	$	-		5.0
Employee options granted		23,682			1.89		-		5.2
Employee options expired		(78	)		-
Outstanding as of December 31, 2016		310,091		$	82.25	$	-		4.1
Options vested and expected to vest		310,091		$	82.25	$	-		4.1
Options vested and exercisable		302,199		$	84.35	$	-		4.1

A summary of options that the Company granted to non-employees for the year ended December 31, 2016 is presented below:

	Number of Shares		Weighted Average Exercise Price		Total Intrinsic Value		Weighted Average Remaining Contractual Life (in years)
Outstanding as of December 31, 2015		2,893	$	98.07	$	-		5.4
Non-employee options granted		-		-		-		-
Outstanding as of December 31, 2016		2,893	$	98.07	$	-		4.4
Options vested and expected to vest		2,893	$	98.07	$	-		4.4
Options vested and exercisable		2,893	$	98.07	$	-		4.4

Stock-based compensation associated with the amortization of stock option expense was $35,000 and $0.2 million for the years ended December 31, 2016 and 2015, respectively.

Estimated future stock-based compensation expense relating to unvested stock options is approximately $5,000.

Restricted Stock Awards

2016 activity

On January 26, 2016, the Company issued 652 shares of restricted common stock to a third party for consulting services. The restricted stock award vested immediately. The grant date fair value of restricted stock was $1,487.

On February 4, 2016, the Company entered into a consulting agreement with a third party. The Company has agreed to pay the consultant three cash retainer payments for a total of $70,000, and granted $100,000 in shares of restricted stock. On February 4, 2016, the Company issued 42,445 restricted shares based on the average closing price for the 10 trading days immediately prior to February 4, 2016. The restricted stock award vested immediately.

On February 26, 2016, the Company granted each of two consultants 7,895 shares of restricted common stock for consulting services. The restricted stock award vested on March 31, 2016 based upon the closing price on February 26, 2016. The grant date fair value of each restricted stock award was $15,000, respectively.

On June 22, 2016, the Company granted two consultants 10,870 and 43,479 shares of restricted common stock for consulting services, respectively. The restricted stock award vested immediately. The grant date fair value of restricted stock was $25,000 and $100,000, respectively.

In December 2016, in accordance with the employment agreements, the Company determined to pay Mr. Reiner and Mr. Dotson an annual bonus of $60,000 and $91,255, respectively, in shares of common stock in respect of their performance for the 2016 fiscal year which, as of the closing price of December 21, 2016, would have constituted a total of 122,972 shares. The shares were issued on December 8, 2016. The fair value of the 122,972 shares issued was based upon the closing price as of December 8, 2016.

2015 activity

On June 10, 2015, the Company entered into a consulting agreement with a third party for three months of consulting services. The Company agreed to pay the consultant a monthly fee of $10,000, payable in shares of Common Stock for each month of the term. On August 6, 2015, the Company issued 822 and 1,350 common shares based on the closing price of Common Stock on June 10, 2015 and July 10, 2015, respectively. On October 6, 2015, the Company issued 2,193 common shares based on the closing price of Common Stock on August 9, 2015.

On June 15, 2015, the Company entered into a consulting agreement with a third party for public relations consulting services. The Company agreed to pay the consultant a monthly fee of $5,000 for three months commencing on June 15, 2015, and granted 2,368 shares of restricted stock. The restricted stock awards vested monthly for each of the three months following the grant date. On August 6, 2015, the Company issued 1,578 common shares and on October 6, 2015, the Company issued the remaining 789 shares of Common Stock. The Company recorded an approximately $28,000 of stock-based compensation expenses for this grant during the year ended December 31, 2015.

On August 10, 2015, the Company entered into a consulting agreement with Howard E. Goldberg, the Company’s director (see Note 9). In November 2015, the service expenses exceed the quarterly retainers, which is $20,400. As per consulting agreement, $1,487 of service expenses will be paid in shares. On January 26, 2016, 652 shares of restricted stock were issued based upon the closing price on that date.

In December 2015, the Company entered into a consulting agreement with a third party for consulting services. The Company agreed to pay the consultant a $50,000 of the Company’s common stock, which shall be issued in two equal parts. The first $25,000 should be issued at the closing price of December 22, 2015, and the second $25,000 will be issued six months later. On January 26, 2016, the Company granted 8,771 shares of restricted stock to the consultant for the first $25,000 service expenses, which were recorded during the year ended December 31, 2015.

In December 2015, in accordance with the employment agreements, the Company determined to pay each of Mr. Reiner and Mr. Dotson $60,000 in shares of common stock in respect of their performance for the 2015 fiscal year which, as of the closing price of December 21, 2015, would have constituted a total of 42,106 shares. The shares were issued in March 2016.

A summary of the restricted stock award activity for the year ended December 31, 2016 is as follows:

	Number of Units			Weighted Average Grant Day Fair Value
Nonvested at December 31, 2015		-		$	-
Granted		287,085			1.86
Vested		(287,085	)		1.86
Nonvested at December 31, 2016		-		$	-

Restricted Stock Units

On May 20, 2016, Mr. Hayes was granted an award of restricted stock units totaling 118,512 shares of common stock, which will vest upon the achievement of agreed upon performance conditions. One-half (1/2) of the RSU grant shall vest if as of December 31, 2016 the Company has pro-forma cash of at least five million dollars ($5,000,000) (cash plus any cash used for a Board-approved extraordinary acquisition or transaction reconstituting the Company’s core operations, less accrued bonuses) and one-half (1/2) shall vest if there is consummation by December 31, 2016 of a Board-approved extraordinary acquisition or transaction reconstituting the Company’s core operations. In addition, the RSU grant shall immediately vest in full if by December 31, 2016 there is (i) a “Change in Control Transaction” during the term of the Mr. Hayes’ employment and or (ii) a termination of his services hereunder by the Company other than for “Cause” or by Mr. Hayes for “Good Reason”.

A summary of the restricted stock award activity for the year ended December 31, 2016 is as follows:

	Number of Units			Weighted Average Grant Day Fair Value
Nonvested at December 31, 2015		-		$	-
Granted		118,512			1.08
Vested		(59,256	)		-
Forfeited		(59,256	)		-
Nonvested at December 31, 2016		-		$	-

As of December 31, 2016, the Company had unrecognized stock-based compensation expense related to restricted stock unit awards of approximately $0.

Stock-based Compensation Expense

Stock-based compensation expense for the year ended December 31, 2016 and 2015 was comprised of the following ($ in thousands):

	For the Years Ended December 31,
	2016		2015
Employee restricted stock units	$	121	$	-
Employee restricted stock awards		151		132
Employee stock option awards		35		155
Non-employee restricted stock awards		255		84
Total compensation expense	$	562	$	371