Stockholders' Equity

12 Months Ended

Dec. 31, 2019

Equity [Abstract]

Stockholders' Equity

NOTE 15 – STOCKHOLDERS’ EQUITY

PREFERRED STOCK

Series A

As of December 31, 2019 and 2018, there were 1,000,000 Series A preferred shares designated and 0 Series A preferred shares outstanding. The board of directors had previously set the voting rights for the preferred stock at 1 share of preferred to 13 common shares.

Series B

As of December 31, 2019 and 2018, there was 1 preferred share designated and 0 preferred shares outstanding.

Series C

As of December 31, 2019 and 2018, there were 15,000,000 Series C Preferred Shares authorized with 4,828,530 issued and outstanding. The series C preferred shares have preferential rights above common shares and the Series B Preferred Shares and is entitled to receive a quarterly dividend at a rate of $0.06 per share per annum and have a liquidation preference of $1 per share. As part of several debt settlement agreements effective December 30, 2017, 1,685,000 shares of Series C Preferred Stock were issued, with the caveat that the shares will not pay and will not accrue dividends for a 24-month period or any time prior to March 1, 2020. Series C preferred shares outstanding are convertible into common stock at the rate of 20 preferred shares to one share of common stock. As of December 31, 2019 and 2018, the accrued dividends on the Series C Preferred Stock was $344 thousand and $478 thousand, respectively.

The Series C Preferred Stock has a liquidation value and conversion price of $1.00 per share ($20.00 per 20 shares of preferred stock which convert to one share of common stock) and automatically converts into Common Stock at $1.00 per share ($20.00 per 20 shares of preferred stock which convert to one share of common stock) in the event that the Company’s common stock has a closing price of $30 per share for 20 consecutive trading days.

COMMON STOCK

Effective November 11, 2019, the Company implemented a one-for-20 reverse stock split of the Company’s common stock. The par value of common stock and the number of authorized shares were not adjusted as a result of the reverse stock split. All share and per share amounts in the financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this reverse stock split, including reclassifying an amount equal to the reduction in par value of common stock to additional paid-in capital.

On September 30, 2019, and in accordance with the terms of the Convertible Promissory Note, Walefar and Campbeltown each exercised the right to convert $75 thousand in unpaid principal balance into fully paid and non-assessable shares of the Company’s common stock at a conversion price of $0.236. Accordingly, the Company issued 317,796 shares to each of Walefar and Campbeltown.

On September 5, 2019, the Company entered into a letter agreement with Shai Lustgarten, the Company’s Chief Executive Officer, pursuant to which the Company and Mr. Lustgarten agreed to extend the term of Mr. Lustgarten’s employment agreement for an additional two (2) years. As consideration and in light of the Company’s achievements under the leadership of Mr. Lustgarten, the Company, pursuant to its 2018 Equity Incentive Plan, issued to Mr. Lustgarten 50,000 shares of the Company’s common stock valued at $250 thousand.

On September 5, 2019, the Company entered into a letter agreement with Mr. Carlos J. Nissensohn and/or an entity under his control, a consultant to the Company and principal stockholder, pursuant to which they agreed to extend the term of Mr. Nissensohn’s and/or an entity under his control’s consulting agreement for an additional two (2) years. As consideration and in light of Mr. Nissensohn’s and/or an entity under his control’s past consulting services which the Company believes were essential to its recent achievements, the Company, pursuant to the 2018 Equity Incentive Plan, issued to Mr. Nissensohn and/or an entity under his control 27,500 shares of the Company’s common stock, valued at $138 thousand.

On April 4, 2019, the Company entered into a form of Securities Purchase Agreement (the “Securities Purchase Agreement”) with accredited investors (the “Purchasers”). Pursuant to the Securities Purchase Agreement, on April 9, 2019 (the “Closing Date”), the Company sold an aggregate, with the Conversions included, of $5.0 million of units (the “Units”) resulting in gross proceeds of $5.0 million, before deducting placement agent fees and offering expenses (the “Offering”). The individual Unit purchase price was $6.00. Each Unit is comprised of one share of the Company’s common stock, $0.001 par value per share (the “Common Stock”), and a warrant to purchase one share of Common Stock, and, as a result of the Offering, the Company issued 833,333 shares of Common Stock (the “Shares”) and warrants (the “Warrants”) to purchase 833,333 shares of Common Stock (the “Warrant Shares”) at an exercise price equal to $7.00 per Warrant Share, which Warrants are exercisable for a period of five and one-half years from the issuance date. Both Shai Lustgarten, the Company’s Chief Executive Officer, and Carlos J. Nissenson, a consultant to and principal stockholder of the Company, participated in the Offering by converting $200 thousand each of unpaid principal owed to them from the HTS acquisition (the “Conversions”), by the Company in exchange for Shares and Warrants on the same terms as all other Purchasers. With the Conversions included, the Offering resulted in gross proceeds of $5.0 million. As a result of the Conversions, a principal amount of $150 thousand is owed to each Walefar and Campbeltown respectively under the note issued to them as partial consideration in the sale of HTS Image Processing to the Company on October 5, 2018.

In March 2018 and pursuant to the Company’s 2018 Equity Incentive Plan, the Company granted 50,000 shares of the Company’s common stock valued at $119 thousand to the Company’s Chief Executive Officer Shai Lustgarten. The shares were valued at the fair market value of the Company’s common stock on the date of issuance.

During 2018, the Company issued 3,996 shares of the Company’s common stock, valued at $11 thousand, to employees of the Company as part of the Company’s 2018 Equity Incentive Plan. The shares were valued as of the date of grant at the fair value of the Company’s common stock.

During 2018, the Company issued 141,022 shares of the Company’s common stock for services rendered by independent third parties, the Company’s former CFO, and related party noteholders. The shares were valued at $395 thousand using the fair market value of the shares on the date of issuance.

During 2018, the Company issued 430,000 shares of the Company’s common stock at a fair value of $2.7 million for the conversion of principal and accrued interest of $1.2 million and $247 thousand, respectively, or $1.4 million. The difference of $1.2 million was record as interest expense in the consolidated statement of operations. The shares were valued using the fair value of the Company’s common stock as of the date of issuance.

On June 26, 2018, the Company issued 7,500 shares of common stock to Maren Life Reinsurance LTD as part of a debt settlement agreement.

In October 2018, and as partial consideration of the acquisition of HTS, the Company issued 1,122,648 shares of the Company’s common stock to the previous owners of HTS. These shares were valued at $5.3 million. See Note 4 – Acquisitions for further details.

In January 2016, the Company entered into a Stock Redemption Agreement whereby the Company would repurchase 25,354 shares of common stock for $230 thousand on an installment basis which was recorded as a note on the transaction date carrying interest at 9%. In March 2019, the Company made its last payment under the Stock Redemption Agreement and the 25,354 shares were cancelled.

Warrants and Stock Options

In connection with the April 4, 2019 Securities Purchase Agreement previously described in detail, the Company issued warrants to purchase 891,667 shares of Common Stock at an exercise price equal to $7.00 per Warrant Share, which Warrants are exercisable for a period of five and one-half years from the issuance date. The warrants were valued at $2.9 million. Also during 2019, the Company issued options to purchase 128 thousand shares valued at $564 thousand.

These options and warrants were valued at the grant date using the Black-Scholes valuation methodology. The Company determines the assumptions used in the valuation of warrants and option awards as of the date of grant. Differences in the expected stock price volatility, expected term or risk-free interest rate may necessitate distinct valuation assumptions at those grant dates. As such, the Company may use different assumptions for options and warrants granted throughout the year. The valuation assumptions used to determine the fair value of each option/warrants award on the date of grant were: expected stock price volatility 156.0% - 157.0%; expected term in years 4.0-5.5; and risk-free interest rate 1.40% - 2.31%.

The following table summarizes information about warrants granted during the years ended December 31,:

	2019				2018
	Number of warrants		Weighted Average Exercise Price		Number of warrants		Weighted Average Exercise Price
Balance, beginning of year		275,000	$	4.55		295,250	$	5.00
Warrants granted		891,667		7.00		50,000		9.72
Warrants expired		-		-		70,250		10.40
Warrants cancelled, forfeited		-		-		-		-
Warrants exercised		-		-		-		-
Balance, end of year		1,166,667		6.42		275,000		4.55
Exercisable warrants		1,166,667	$	6.42		275,000	$	4.55

Outstanding warrants as of December 31, 2019 are as follows:

Range of Exercise Prices	Weighted Average residual life span (in years)		Outstanding Warrants		Weighted Average Exercise Price		Exercisable Warrants		Weighted Average Exercise Price
2.20		1.59		75,000	$	2.20		75,000	$	2.20
4.00		1.00		150,000		4.00		150,000		4.00
5.60		0.49		10,000		5.60		10,000		5.60
7.00		4.77		891,667		7.00		891,667		7.00
12.00		0.78		15,000		12.00		15,000		12.00
10.00		1.78		25,000		10.00		25,000		10.00
2.20 to 12.00		3.93		1,166,667	$	6.42		1,166,667	$	6.42

Warrants outstanding have the following expiry date and exercise prices as of the year ended December 31,:

Expiry Date	Exercise Prices		2019		2018
December 30, 2020	$	4.00		150,000		150,000
August 2, 2021		2.20		75,000		75,000
June 26, 2020		5.60		10,000		10,000
October 10, 2020		12.00		15,000		15,000
October 10, 2021		10.00		25,000		25,000
October 6, 2024		7.00		891,667		-
	$	6.42		1,166,667		275,000

Share Purchase Option Plan

The Company has a stock option plan whereby the Board of Directors, may grant to directors, officers, employees, or consultants of the Company options to acquire common shares. The Board of Directors of the Company has the authority to determine the terms, limits, restrictions and conditions of the grant of options, to interpret the plan and make all decisions relating thereto. The plan was adopted by the Company’s Board of Directors on November 17, 2014 in order to provide an inducement and serve as a long term incentive program. The maximum number of common shares that may be reserved for issuance was set at 500,000.

The option exercise price is established by the Board of Directors and may not be lower than the market price of the common shares at the time of grant. The options may be exercised during the option period determined by the Board of Directors, which may vary, but will not exceed ten years from the date of the grant. There are 500,000 of the Company’s common shares which may be issued pursuant to the exercise of share options granted under the Plan. As at December 31, 2017, the Company had issued options, allowing for the subscription of 481,250 common shares of its share capital.

Stock Options - The following table summarizes information about stock options granted during the years ended December 31, 2019 and 2018:

	2019				2018
	Number of stock options		Weighted Average Exercise Price		Number of stock options			Weighted Average Exercise Price
Balance, beginning of year		1,006,050	$	3.80		481,250		$	4.20
Stock options granted		127,500		5.00		592,000			3.40
Stock options expired		-		-		(1,800	)		-
Stock options cancelled, forfeited		-		-		(65,400	)		-
Stock options exercised		-		-		-			-
Balance, end of year		1,133,550		4.00		1,006,050			3.80
Exercisable stock options		952,425	$	3.94		792,050		$	3.80

During 2018, the Company canceled a total of 65,400 stock options.

Outstanding stock options as of December 31, 2019 are as follows:

Range of Exercise Prices	Weighted Average residual life span (in years)		Outstanding Stock Options		Weighted Average Exercise Price		Exercisable Stock Options		Weighted Average Exercise Price
1.50 to 1.80		2.13		114,050	$	1.70		114,050	$	1.70
2.20		1.59		175,000		2.20		175,000		2.20
5.00		3.58		127,500		5.00		31,875		5.00
10.00		4.89		125,000		10.00		125,000		10.00
2.40		3.18		340,000		2.40		297,500		2.40
4.40		3.84		108,250		4.40		81,188		4.40
5.40		3.92		143,750		5.40		127,813		5.40
0.075 to 0.50		3.22		1,133,550	$	4.00		952,425	$	3.94

Stock options outstanding at the end of the year have the following expiry date and exercise prices:

Expiry Date	Exercise Prices		December 31, 2019		December 31, 2018
August 2, 2021	$	2.20		175,000		175,000
February 17, 2022		1.70		114,050		114,050
March 05, 2023		2.40		340,000		340,000
July 31, 2023		5.00		127,500		-
October 31, 2023		4.40		108,250		108,250
November 30, 2023		5.40		143,750		143,750
November 20, 2024		10.00		125,000		125,000
	$	4.00		1,133,550		1,006,050

The Company recorded stock compensation expense relating to the vesting of stock options and warrants as follows for the years ended December 31, 2019 and 2018;

	2019		2018
In thousands
Stock compensation	$	388	$	569
Stock Option vesting		879		1,818
Total	$	1,267	$	2,387