6. SHAREHOLDERS' EQUITY

6 Months Ended

Jun. 30, 2016

Equity [Abstract]

6. SHAREHOLDERS' EQUITY

Common Stock

The Company has authorized 75,000,000 shares of $0.025 par common stock. At June 30, 2016 and December 31, 2015 there were 25,634,411 and 21,038,650 shares issued and outstanding.

Treasury Stock

During 2014, the Company’s Board of Directors authorized a stock repurchase of 230,000 shares of its common stock for approximately $230,000 at an average price of $1.00 per share. At June 30, 2016 and December 31, 2015 the Company holds 230,000 shares of its common stock in its treasury.

Preferred Stock

The Company has authorized 5,000,000 shares of Preferred Stock, for which two classes have been designated to date. Series A has 51 shares issued and outstanding and Series B has 71,210 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively.

Each share of Series A Preferred Stock has no conversion rights, is senior to any other class or series of capital stock of the Company and has special voting rights. Each one (1) share of Series A Preferred Stock shall have voting rights equal to (x) 0.019607 multiplied by the total issued and outstanding Common Stock eligible to vote at the time of the respective vote (the “Numerator”), divided by (y) 0.49, minus (z) the Numerator.

Holders of Series B Preferred Stock shall be entitled to receive when and if declared by the Board of Directors cumulative dividends at the rate of twelve percent (12%) of the Original Issue Price. In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of Series B Preferred Stock shall be entitled to receive, immediately prior and in preference to any distribution to holders of the Company’s common stock, an amount per share equal to the sum of $100.00 and any accrued and unpaid dividends of the Series B Preferred Stock. Each share of Series B Preferred Stock may be converted at the option of the holder into the Company’s Common stock. The shares shall be converted using the “Conversion Formula”: divide the Original Issue Price by 75% of the average closing bid price of the Common Stock for the five (5) consecutive trading days ending on the trading day of the receipt by the Company of the notice of conversion.

At June 30, 2016 and December 31, 2015, the Company’s Series B Preferred Stock dividends in arrears on the 12% cumulative preferred stock were approximately $1,459,805 ($20.50 per share) and $1,033,000 ($14.50 per share), respectively.

Common Stock Transactions

During the six months ended June 30, 2016 and the year ended December 31, 2015, the Company issued, 4,595,761 and 11,075,232 shares of common stock, respectively. The fair values of the shares of common stock were based on the quoted trading price on the date of issuance. Of the 4,595,761 shares issued for the six months ended June 30, 2016, the Company:

1. Issued 517,188 of these shares were issued to vendors for services rendered generating a professional fees expense of $778,985;

2. Issued 2,000,000 of these shares to officers and employees as incentive compensation resulting in compensation expense of $3,100,000;

3. Issued 2,053,573 shares of common stock as part of a private placement offering to accredited investors for aggregate gross proceeds to the Company of $2,342,500. The Company capitalized certain issuance costs associated with this offering of $155,000, including the fair value of 25,000 common shares issued to the placement agent. These common shares include a top-off provision. Specifically, if a subscriber were to sell the common shares within a 1 year period from the subscription agreement and such sales proceeds do not equal the investment amount of the subscriber, a warrant will vest. The Company accounted for this top-off provision as a separate liability with a fair value of 0 at June 30, 2016.

The Company has issued and outstanding warrants of 2,019,036 common shares, as adjusted, with the current exercise price of $0.22, as adjusted, expiring December 31, 2023. A summary of the status of the Company’s outstanding common stock warrants as of March 31, 2016 and December 31, 2015, with changes during the years ending on those dates are as follows:

There were no outstanding warrants at June 30, 2015. A summary of the status of the Company's outstanding stock warrants for the period ended June 30, 2016 is as follows: 

	Number of Shares		Average Exercise Price		If Exercised		Expiration Date
Outstanding, December 31, 2015		1,673,559		-	$	449,518		-
Granted - Goldman Sachs due to dilution		345,477	$	0.220		-		-
Forfeited		-		-		-		-
Exercised		-		-		-		-
Outstanding, June 30, 2016		2,019,036	$	-	$	449,518
Warrants exercisable at June 30, 2016		2,019,036