Annual report pursuant to Section 13 and 15(d)

Shareholders' Equity

v3.6.0.2
Shareholders' Equity
12 Months Ended
Dec. 31, 2016
Shareholders' Equity [Abstract]  
SHAREHOLDERS' EQUITY
7. SHAREHOLDERS’ EQUITY

 

On October 29, 2015, the Company effected a 1-for-40 reverse split of its common stock. The reverse split has been applied retroactively for disclosure purposes.

 

For the year ended December 31, 2016

 

The Company issued a total of 3,556,635 shares of common stock during the year ended December 31, 2016, as described below:

 

The Company issued 2,500 shares of common stock pursuant to conversions of an aggregate of 1,000 shares of Series A preferred stock.

 

The Company issued 183,468 shares of common stock pursuant to conversions of an aggregate of 73,387 shares of Series C preferred stock.

 

The Company issued 50,000 shares of common stock pursuant to conversions of an aggregate of 2,000,000 shares of Series D preferred stock.

 

The Company issued 50,000 shares of common stock pursuant to conversions of an aggregate of 1,999,998 shares of Series F preferred stock.

 

The Company issued 50,000 shares of common stock pursuant to conversions of an aggregate of 2,000,000 shares of Series G preferred stock.

 

The Company issued 50,000 shares of common stock to AFI, as discussed above in Note 4 – Intangible Assets, after all milestones had been met as a requirement of the terms of the Escrow Agreement because the value of the escrowed shares fell below $1,400,000 and triggered a “make whole” provision. A gain of $11,000 was recognized since the fair value of $150,500 on the date of issuance was less than the original accrual.

 

The Company issued 100,000 shares of common stock with monthly vesting provisions to a newly-appointed director, Lt. Gen. Michael T. Flynn, for 24 months of services. Lt. Gen. Flynn could earn a pro rata portion of the shares, calculated based on the twenty four-month vesting schedule. Lt. General Flynn resigned as a director on December 31, 2016 due to his appointment as National Security Advisor to President Donald Trump. Lt. General Flynn forfeited 66,667 unvested shares and disclaimed 33,333 vested shares. The Company recorded $97,000 in stock based compensation related to General Flynn’s board service which could not be reversed upon his disclaimer due to ASC 718-20-35-3 which stipulated that once an award vested, the compensation cost could not be reversed.

 

The Company issued an aggregate of 1,150,000 shares of common stock outside of the 2015 Equity Plan to Jay Nussbaum, Felicia Hess, Daniyel Erdberg, Kendall Carpenter, and Kevin Hess pursuant to Stock Award Agreements. The shares will vest upon consummation of a significant equity and/or debt financing at least equal to the November 2015 financing which raised $3,725,000 provided that the holder remains engaged by the Company through the vesting date. Stock based compensation of $3,346,615 was recognized during the year ended December 31, 2016 as the shares became fully vested on September 29, 2016 by resolution of the Board of Directors that the issuance of the Convertible Promissory Notes Series 2016 due October 1, 2017 qualified as such a significant financing.

 

On September 26, 2016, the Company issued 1,339,000 shares of common stock outside of the 2015 Equity Plan to Jay Nussbaum, Felicia Hess, Daniyel Erdberg, Kendall Carpenter, Mike Silverman and Lt. Gen. Michael Flynn pursuant to Stock Award Agreements. The shares will vest upon consummation of a significant equity and/or debt financing from which the Company receives gross proceeds of at least $5,000,000 provided that the holder remains engaged by the Company through the vesting date. Lt. General Flynn resigned as a director on December 31, 2016 due to his appointment as National Security Advisor to President Donald Trump. Lt. General Flynn forfeited 25,000 unvested shares. The Company did not recognize any expense for these 25,000 cancelled shares for the year ended December 31, 2016. Stock based compensation of $508,940 was recognized during the year ended December 31, 2016.

 

The Company issued 150,000 shares of common stock with monthly vesting provisions to Strategic Advisory Board members, Dr. Philip Frost and Steven Rubin, for 12 months of services. The advisors can earn a pro rata portion of the shares, calculated based on the twelve-month vesting period, in the event the service agreements are terminated prior to the expiration date as described in the agreements. The Company recognized a total of $284,000 expense for the pro rata portion of shares earned by the two members during the year ended December 31, 2016.

 

On September 26, 2016, the Company issued 35,000 shares of common stock outside the 2015 Equity Plan to Reginald Brown, Jr. pursuant to Stock Award Agreement for consulting services. The shares will vest upon consummation of a significant equity and/or debt financing from which the Company receives gross proceeds of at least $5,000,000 provided that the holder remains engaged by the Company through the vesting date. Stock based compensation of $11,065 was recognized during the year ended December 31, 2016.

 

The Company issued 25,000 shares of common stock to a member of the Strategic Advisory Board for services which were immediately vested and recorded at the fair market value of $82,722.

 

On September 29, 2016, the Company issued 496,667 shares of common stock to twelve investors, including 406,666 shares to four affiliate investors that were party to the November 2015 private placement, pursuant to the purchase agreement for such private placement. These investors purchased stock at $5.00 per share and under the purchase agreement received twelve months of price protection. The Convertible Promissory Notes Series 2016 due October 1, 2017 included a $3.00 per share conversion factor, thereby triggering the price protection feature. The value of the shares that were issued, based upon the closing stock price on the date of issuance, was $1,641,484 and was treated as a deemed dividend.

 

As of December 31, 2016, the Company had unamortized stock compensation of $230,335 for non-employees and $3,946,330 for employees and directors.

 

For the year ended December 31, 2015

 

The Company issued a total of 4,198,632 common shares during the 2015, adjusted for the October 29, 2015 1:40 reverse split, described further as follows:

 

The Company issued 739,125 shares of common stock between January 1 and December 31, 2015 pursuant to conversions of an aggregate of 295,650 shares of Series A preferred stock.

  

The Company issued 8,117 share of common stock between July 1 and December 31, 2015 pursuant to conversions of an aggregate of 324,671 shares of Series B preferred stock.

 

The Company issued 680,033 shares of common stock between April 1 and December 31, 2015 pursuant to conversions of an aggregate of 272,013 shares of Series C preferred stock.

 

The Company issued 851,250 shares of common stock between April 1 and December 31, 2015 pursuant to conversions of an aggregate of 34,050,000 shares of Series D preferred stock.

 

The Company issued 135,000 shares of common stock between July 1 and December 31, 2015 pursuant to conversions of an aggregate of 5,400,000 shares of Series E preferred stock, including 2,700,000 additional shares issued on June 2, 2015 due to the Most Favored Nations provision associated with their initial investment.

 

The Company issued 32,525 shares of common stock between October 1 and December 31, 2015 pursuant to conversions of an aggregate of 1,301,000 shares of Series F preferred stock

 

The Company issued 50,000 shares of common stock between October 1 and December 31, 2015 pursuant to conversions of an aggregate of 2,000,000 shares of Series G preferred stock

 

On June 1, 2015, the Company issued 50,000 shares of common stock with monthly vesting provisions to the Chairman of the Board for twenty-four months services pursuant to a Director Agreement. The Chairman can earn a pro rata portion of the shares, calculated on a twenty-four month vesting period, in the event the Chairman relinquishes his position and board seat prior to the expiration date of the Director Agreement. The Company recognized a total of $270,000 and $157,500 expense for the pro rata portion of shares earned by the Chairman during 2016 and 2015, respectively.

 

On August 27, 2014, the Company issued 50,000 shares of common stock with monthly vesting provisions to two members of its Strategic Advisory Board for twelve months services. The advisors can earn a pro rata portion of the shares, calculated based on the twelve-month vesting period, in the event the service agreements are terminated prior to the expiration date as described in the agreements. The Company recognized a total of $213,333 expense for the pro rata portion of shares earned by the two advisors during 2015 and has recognized a total of $340,000 since August 27, 2014. The shares became fully vested on August 27, 2015.

 

On July 20, 2015, the Company issued 150,000 shares of common stock valued at $1,260,000 to acquire assets from Adaptive Flight, Inc. as described above.

 

On September 4, 2015, the Company issued 450,000 shares of common stock to four management employees and one director pursuant to stock award agreements. The vesting condition of the shares was for consummation of a $4,000,000 equity or debt financing provided that the holder remains engaged by the Company through the vesting date. On February 4, 2016, the Board deemed that vesting had occurred. Stock based compensation of $604,440 and $2,417,760 was recognized in 2016 and 2015, respectively.

 

On November 17 and 19, 2015, the Company sold an aggregate of 745,000 shares of common stock for a purchase price of $5.00 per share in a Private Placement for cash proceeds of $3,484,750 net of $240,250 financing fees. In connection with this sale, the Company issued an aggregate of 70,000 additional shares of common stock to holders of Series E preferred stock pursuant to the ‘most favored nations’ provisions governing the Series E preferred stock. Additionally, pursuant to the terms of the Series F preferred stock and Series G preferred stock, the Company was required to obtain consent to issue securities at a per share purchase price less than the purchase price of the Series F and Series G. In consideration for the consents, the company issued an aggregate of 182,525 shares of common stock to the holders of Series F and Series G preferred stock.

 

On November 20, 2015, the Company entered into an Exchange Agreement with the holder of its outstanding shares of Series B-1 preferred stock pursuant to which the holder exchanged 68,731 shares of Series B-1 preferred stock for 55,000 shares of common stock.

 

On October 29, 2015, the Company issued an aggregate of 57 shares of common stock to various investors due to rounding factors associated with implementing the 1:40 reverse split.