EQUITY

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

EQUITY

13.  EQUITY 

The Company’s Articles of Incorporation, as amended, authorize the issuance of two classes of stock to be designated “Common Stock” and “Preferred Stock”. The Preferred Stock may be divided into such number of series and with the rights, preferences, privileges and restrictions as the Board of Directors may determine. 

Series B Convertible Redeemable Preferred Stock 

The Company had 239,400 shares of Series B Convertible Redeemable Preferred Stock (“Series B Preferred”) outstanding as of December 31, 2015 and 2014. At December 31, 2015 and 2014, the Company had cumulative undeclared dividends of approximately $8,000 ($0.03 per share). There were no conversions of Series B Preferred into Common Stock during the years ended December 31, 2015, 2014 and 2013.

Series E Convertible Redeemable Preferred Stock

On January 29, 2015, the Company filed the Certificate of Designations of the Series E Preferred Stock  with the Delaware Secretary of State, designating 12,000 shares of the Company’s preferred stock, par value $0.01 per share, as Series E Preferred. Shares of Series E Preferred accrue dividends at a rate of 8% per annum if the Company chooses to pay accrued dividends in cash, and 10% per annum if the Company chooses to pay accrued dividends in shares of Common Stock. Each share of Series E Preferred has a liquidation preference of $1,000 per share and is convertible, at the option of the holder, into that number of shares of the Company’s Common Stock equal to the Liquidation Preference, divided by $1.90. The Series E Preferred shall be subordinate to and rank junior to the Company’s Series B Preferred and all indebtedness of the Company. Each holder of the Series E Preferred is entitled to vote on all matters, together with the holders of Common Stock, on an as converted basis.

Any time after the six-month period following the issuance date, the Company may redeem all or a portion of the Series E Preferred outstanding upon thirty (30) calendar days prior written notice (the “Company's Redemption Notice”) in cash at a price per share of Series E Preferred equal to 110% of the liquidation preference amount plus all accrued and unpaid dividends.  Also, simultaneous with the occurrence of a change of control transaction, the Company, at its option, shall have the right to redeem all or a portion of the outstanding Series E Preferred in cash at a price per share of Series E Preferred equal to 110% of the liquidation preference amount plus all accrued and unpaid dividends.

In February 2015, the Company consummated a registered direct offering conducted without an underwriter or placement agent. In connection therewith, the Company issued 12,000 shares of Series E Preferred to certain investors at a price of $1,000 per share, with each share convertible into 526.32 shares of the Company’s Common Stock at $1.90 per share.

The Company had 12,000 and 0 shares of Series E Preferred outstanding as of December 31, 2015 and December 31, 2014, respectively.  At December 31, 2015 and December 31, 2014, the Company had cumulative undeclared dividends of approximately $240,000 and $0, respectively.  There were no conversions of Series E Preferred into Common Stock during the twelve months ended December 31, 2015. For the twelve month period ended December 31, 2015, the Company issued the holders of Series E Preferred 478,664 shares of Common Stock as payment of dividends due through September 30, 2015 and accrued $240,000 for the period October 1, 2015 through December 31, 2015, to be paid in cash to holders of record as of December 31, 2015.

Common Stock

The following table summarizes outstanding Common Stock activity for the following periods:

	Common Stock
Shares outstanding at December 31, 2012		76,639,849
Shares issued pursuant to warrants exercised for cash		6,132,779
Shares issued pursuant to cashless warrants exercised		4,458,493
Conversion of related-party notes payable into Common Stock		18,182
Shares issued as compensation in lieu of cash		264,000
Shares issued pursuant to option exercises		35,310
Shares outstanding at December 31, 2013		87,548,613
Shares issued pursuant to warrants exercised for cash		4,742,632
Shares issued pursuant to cashless warrants exercised		868,565
Conversion of related-party notes payable into Common Stock		154,607
Shares issued as compensation in lieu of cash		94,116
Shares issued pursuant to option exercises		98,617
Shares outstanding at December 31, 2014		93,507,150
Shares issued pursuant to payment of stock dividend on Series E Preferred		478,664
Shares issued pursuant to cashless warrants exercised		45,376
Shares issued pursuant to option exercises		39,705
Shares outstanding at December 31, 2015		94,070,895

Warrants

As of December 31, 2015, warrants to purchase 450,000shares of Common Stock at prices ranging from $0.50 to $1.10 were outstanding. All warrants are exercisable as of December 31, 2015 and expire at various dates through December 2017, with the exception of an aggregate of 150,000 warrants, which become exercisable only upon the attainment of specified events.

The following table summarizes warrant activity for the following periods:

	Warrants			Weighted-  Average  Exercise Price
Balance at December 31, 2012		18,788,485		$	0.56
Granted		1,232,632		$	1.01
Expired / Canceled		(688,749	)	$	1.49
Exercised		(12,733,952	)	$	0.52
Balance at December 31, 2013		6,598,416		$	0.63
Granted		302,778		$	2.02
Expired / Canceled		(55,000	)	$	1.10
Exercised		(5,868,416	)	$	0.58
Balance at December 31, 2014		977,778		$	1.22
Granted		—		$	0.00
Expired / Canceled		(419,444	)	$	1.86
Exercised		(108,334	)	$	1.01
Balance at December 31, 2015		450,000		$	0.67

During the year ended December 31, 2015, the Company modified 200,00 warrants previously issued to a consultant by eliminating certain performance condition requirements resulting in such warrants vesting pursuant to the passage of time. The Company determined the modification date fair value of the vested warrants using the Black-Scholes option valuation model and recorded approximately $80,000 in expense for the year ended December 31, 2015. The Company used the following assumptions in the application of the Black-Scholes option valuation modes: an exercise price of $1.72, a term of 0.77 years, a risk free interest rate of 2.58%, a dividend yield of 0% and volatility of 64%. Such expense is recorded in the Company’s consolidated statement of operations as a component of sales and marketing expense.

During the year ended December 31, 2015, there were 108,334 warrants exercised pursuant to cashless transactions and 419,444 warrants expired. The Company issued 45,376 shares of its Common Stock pursuant to cashless warrant exercises. The intrinsic value of warrants outstanding as of December 31, 2015 was $285,000.

The following table summarizes information regarding the warrants outstanding as of December 31, 2015:

Exercise Price		Number Outstanding	Weighted—Average Remaining Life (Years)	Weighted—Average Exercise Price
$	0.50	250,000	1.0	$	0.50
$	0.80	150,000	3.0	$	0.80
$	1.10	50,000	1.1	$	1.10
		450,000	1.7	$	0.67