Preferred Stock and Warrants

3 Months Ended

Mar. 31, 2016

Preferred Stock, Number of Shares, Par Value and Other Disclosures [Abstract]

Preferred Stock and Warrants

A summary of the Company’s preferred stock as of March 31, 2016 and December 31, 2015 is as follows.

	March 31,		December 31,
	2016		2015
	(unaudited)
	Shares Issued &		Shares Issued &
Offering	Outstanding		Outstanding
Series A convertible		47,250		47,250
Series B convertible, 10% cumulative dividend		93,750		93,750
Series C convertible, 10% cumulative dividend		38,333		38,333
Series E convertible, 10% cumulative dividend		19,022		19,022
Total Preferred Stock		198,355		198,355

As of March 31, 2016 and December 31, 2015, the Company had cumulative preferred undeclared and unpaid dividends. In accordance with the Financial Accounting Standard Board’s Accounting Standards Codification 260-10-45-11, “Earnings per Share”, these dividends were added to the net loss in the net loss per share calculation.

 Summary of Preferred Stock Terms

Series A Convertible Preferred Stock

Liquidation Value:	$4.50 per share, $212,625
Conversion Price:	$10,303 per share
Conversion Rate:	0.00044—Liquidation Value divided by Conversion Price ($4.50/$10,303)
Voting Rights:	None
Dividends:	None
Conversion Period:	Any time

Series B Convertible Preferred Stock

Liquidation Value:	$4.00 per share, $375,000
Conversion Price:	$1,000 per share
Conversion Rate:	0.0040—Liquidation Value divided by Conversion Price ($4.00/$1,000)
Voting Rights:	None
Dividends:	10%—Quarterly—Commencing March 31, 2001
Conversion Period:	Any time
Cumulative dividends in arrears at March 31, 2016 were $567,538

Series C Convertible Preferred Stock

Liquidation Value:	$3.00 per share, $115,000
Conversion Price:	$600 per share
Conversion Rate:	0.0050—Liquidation Value divided by Conversion Price ($3.00/$600)
Voting Rights:	None
Dividends:	10%—Quarterly—Commencing March 31, 2002
Conversion Period:	Any time
Cumulative dividends in arrears at March 31, 2016 were $165,788

Series D Convertible Preferred Stock

Liquidation Value:	$10.00 per share, $525,000
Conversion Price:	$1,000 per share
Conversion Rate:	.01—Liquidation Value divided by Conversion Price ($10.00/$1,000)
Voting Rights:	None
Dividends:	10%—Quarterly—Commencing April 30, 2002
Conversion Period:	Any time
Cumulative dividends in arrears at March 31, 2016 were $0

Series E Convertible Preferred Stock

Liquidation Value:	$22.00 per share, $418,488
Conversion Price:	$800.00 per share
Conversion Rate:	.0275—Liquidation Value divided by Conversion Price ($22.00/$800)
Voting Rights:	Equal in all respects to holders of common shares
Dividends:	10%—Quarterly—Commencing May 31, 2002
Conversion Period:	Any time
Cumulative dividends in arrears at March 31, 2016 were $610,484

Warrants outstanding

							Weighted
			Weighted				Average
			Average		Aggregate		Remaining
	Options and		Exercise		Intrinsic		Contractual
	Warrants		Price		Value		Life (Years)
Outstanding at December 31, 2015		400,808	$	2.29		—		5.18
Granted		250,000	$	0.80		—		5.00
Exercised		—		—		—		—
Expired		—		—		—		—
Outstanding at March 31, 2016		650,808	$	1.72		—		4.96

In connection with the secured promissory notes issued on December 31, 2015, as discussed in Note 5, the Company issued an aggregate of 250,000 warrants to purchase shares of common stock with a par value of $0.001 for $1.60 per shares.  The exercise price and number of warrants were subject to a change as defined in the agreement.  The warrants are exercisable for a period of five (5) years.  On March 15, 2016, the Board of Directors agreed to renegotiated terms with the warrant holders to remove the anti-dilution and price protection features in the warrant agreement and fixed the exercise price at $.80. The warrants issued with the Notes were increased from 250,000 to 500,000.  

At March 31, 2016 and December 31, 2015, the Company determined the fair value of the warrants issued with the secured promissory notes and renegotiated terms using the Black Scholes pricing model and the following assumptions: an interest free rate of 1.75%, volatility of 50% and a remaining term of 5 years. Based on information known at March 15, 2016 and December 31, 2015, the Company priced the warrants with an assumed stock and exercise price of $0.80.  At December 31, 2015, the fair value of the warrants initially issued with the secured promissory notes were determined to be approximately $90,000 which is presented as a discount on the related secured promissory notes and a liability which is included in accounts payable and accrued expenses on the consolidated balance sheets at December 31, 2015. The $90,000 was reclassified to additional paid-in capital on March 15, 2016 due to the renegotiated terms as discussed above. At March 31, 2016, the fair value of the additional warrants of $90,000 was recorded as a discount on the related secured promissory notes and additional paid-in capital. The aggregate fair value amount of $180,000 has been fully amortized into interest expense at March 31, 2016.