SUBSEQUENT EVENTS

12 Months Ended

Dec. 31, 2015

Subsequent Events

SUBSEQUENT EVENTS

NASDAQ Compliance

On January 6, 2016, the Company received a letter from The Nasdaq Stock Market (“Nasdaq”) that, as a result of the Company’s failure to hold an annual meeting of stockholders no later than one year after the end of its fiscal year as required by Nasdaq Listing Rule 5620(a), and the Company’s failure to meet the minimum $2.5 million stockholders’ equity requirement set forth in Nasdaq Listing Rule 5550(b)(1), Nasdaq had determined to initiate procedures to delist the Company’s securities from The Nasdaq Stock Market.  The Company was advised that, unless the Company requested an appeal of this determination, trading in the Company’s common stock would be suspended at the opening of business on January 15, 2016 and a Form 25-NSE would be filed with the Securities and Exchange Commission to remove the Company’s securities from listing and registration on Nasdaq.  The Company appealed Nasdaq’s determination. The suspension of trading was stayed during the pendency of such appeal.  

On March 9, 2016, the Company was informed that the Nasdaq Listing Panel (“the Panel”) determined to grant our request to remain listed on the Nasdaq Stock Market, subject to the following conditions:

· On or before May 31, 2016, the Company shall have its Annual Shareholder Meeting for fiscal year ended 2015.

· On or before July 5, 2016, the Company shall publicly announce and inform the Panel that it has stockholders’ equity above $2.5 million.

· The Company shall also, by that date, provide the Panel with updated projections demonstrating its ability to maintain its stockholders’ equity above $2.5 million through June 30, 2017. These projections shall detail the underlying assumptions, including any required capital raises or conversions of debt or preferred to common stock. The Panel will consider at that time whether a Panel Monitor is appropriate.

The Company was advised that July 5, 2016 represents the full extent of the Panel’s discretion to grant continued listing while it is non-compliant. Should the Company fail to demonstrate compliance with that rule by that date, the Panel will issue a final delist determination and the Company will be suspended from trading on the Nasdaq Stock Market. In order to fully comply with the terms of this exception, the Company must be able to demonstrate compliance with all requirements for continued listing on The Nasdaq Stock Market. In the event the Company is unable to do so, its securities may be delisted from The Nasdaq Stock Market. It is a requirement during the exception period that the Company provide prompt notification of any significant events that occur during this time. This includes, but is not limited to, any event that may call into question the Company’s historical financial information or that may impact the Company’s ability to maintain compliance with any Nasdaq listing requirement or exception deadline. The Panel reserves the right to reconsider the terms of this exception based on any event, condition or circumstance that exists or develops that would, in the opinion of the Panel, make continued listing of the Company’s securities on The Nasdaq Stock Market inadvisable or unwarranted. In addition, any compliance document will be subject to review by the Panel, which may, in its discretion, request additional information before determining that the Company has complied with the terms of the exception.

There can be no assurances whether the Company will be able to regain or maintain compliance with the Nasdaq listing rules.  In the event of delisting, the Company expects that its stock would trade on the OTC Markets.

Secured Convertible Note Financing

        On January 29, 2016, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional and other accredited investors (the “Investors”) pursuant to which the Company agreed to issue up to $5,145,000 principal amount of 10% senior secured convertible notes of the Company (the “Notes”) and related common stock purchase warrants (the “Warrants”) in two tranches.  The Notes are secured by substantially all of the assets of the Company pursuant to a Security Agreement, dated January 29, 2016 (the “Security Agreement”).  The initial closing of $1,787,000 occurred on January 29, 2016.  Bridge notes in the principal amount of $680,000 were surrendered to the Company as payment by certain Investors. Fees aggregating approximately $275,000 were paid out of the proceeds of the initial closing to the placement agent and others.  Additional fees will be paid, primarily to the placement agent, for the second closing when funded. The second closing of $3,358,000 is subject to the Company obtaining shareholder approval at a Special Shareholders Meeting to be held on April 14, 2016.  The Notes are initially convertible into 1,191,333 shares of common stock, par value $.01 per share, of the Company (the “Common Stock”), at $1.50 per share. The Company has the right to redeem the Notes under certain circumstances.  Interest is payable quarterly or, subject to receipt of stockholder approval, at the Company’s option, in shares of Common Stock.  In connection with the initial closing, the Company issued five-year Warrants to purchase 1,191,333 shares of Common Stock at an exercise price of $1.50 per share, which are not exercisable for six months. Upon receipt of shareholder approval to be obtained at special meeting of our shareholders to be held on April 14, 2016, the Company expects to issue Notes in an aggregate principal amount of $3,358,000 initially convertible into 2,238,667 shares of Common Stock at $1.50 per share and 1-1/2 year warrants to purchase 2,238,667 shares of Common Stock at $1.50 per share.  The Notes and Warrants are subject to customary antidilution provisions.  If stockholder approval is obtained, the conversion price for the Notes is subject to a reset to eighty percent (80%) of the average of the ten lowest closing prices of the Common Stock less than $1.50 (subject to equitable adjustment), if any, as reported by Bloomberg LP for the principal market on which the Common Stock then trades during the ninety (90) days following the first effective date of a registration statement filed pursuant to the Registration Rights Agreement, but in no event less than $.80, subject to equitable adjustment.

The Purchase Agreement contains customary representations, warranties and affirmative and negative covenants.  The Purchase Agreement also requires management and certain shareholders to lock-up certain of their shares for the earlier of six months after the effective date of a registration statement, the first anniversary of the initial closing (January 29, 2017), or the date, if applicable, such holder of securities is no longer an officer or directors of the Company, subject to certain exceptions.  In addition, for up to one year following the effective date of a registration statement, the Investors have the right to participate, on a pro rata basis, in certain subsequent financings by the Company, subject to certain limitations. In connection with the transaction, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) that requires the Company to file one or more registration statements in respect of the shares of Common Stock underlying the Notes and Warrants.  If the Company fails to make its filing deadlines or fails to maintain the registration statement for required periods of time, the Company will be subject to certain liquidated damages provisions. Newbridge Securities Corporation/Life Tech Capital (the “Placement Agent”) acted as the sole placement agent for the financing.  The Placement Agent will receive five-year warrants to purchase approximately 120,000 shares of Common Stock at $1.50 per share upon the completion of the full offering.

Bridge Note Financings

        On February 4, 2016, the Company issued a promissory note to Beijing Yi Tang Bio Science & Technology, Ltd. (BYT) in the aggregate principal amount of $300,000 in respect of a bridge loan made by such party.  The promissory note, which bears interest at the prime rate, may, at BYT’s option, be exchanged for securities issued in a subsequent financing by the Company, including the second tranche financing described above.

On February 11, 2016, the Company issued a promissory note to Platinum Partners Value Arbitrage Fund L.P. (PPVA) in the aggregate principal amount of $100,000 in respect of a bridge loan made by such party.  The promissory note, which bears interest at the prime rate, may, at PPVA’s option, be exchanged for securities issued in a subsequent financing by the Company, including the second tranche financing described above.

On March 21, 2016, the Company issued a promissory note to Platinum Partners Value Arbitrage Fund L.P. (PPVA) in the aggregate principal amount of $150,000 in respect of a bridge loan made by such party.  The promissory note, which bears interest at the prime rate, may, at PPVA’s option, be exchanged for securities issued in a subsequent financing by the Company, including the second tranche financing described above.

Issuance of Restricted Stock and Stock Options under the 2008 Incentive Stock Plan

On February 16, 2016, management issued an annual grant of stock options pursuant to the 2008 Plan to employees aggregating 320,500 shares at an exercise price of $0.90. Such options will vest over a three year period. In addition they received a special grant of stock options on the same date and exercise price aggregating 56,834, for allowing the Company additional time to pay them. Such options vest over a period of one year.

On March 3, 2016, the Compensation Committee of the Board of Directors approved an aggregate issuance of 280,000 shares of common stock: 150,000, 100,000, and 30,000 to each of our CEO, CFO, and VP of Operations and Product Development (VPOPD), respectively. Such shares shall vest over an eighteen month period. The grant was for deferring their pay over the last approximate six month period whilst the Company sought financing. The CEO and CFO are still owed a total of approximately $160,000. The CEO, CFO and VPOPD additionally received an annual grant of stock options to purchase common shares as follows: 175,000, 150,000, and 125,000 are exercisable at $1.12 to each of the CEO, CFO and VPOPD, respectively. Such options will vest over a two year period.

On March 1 2016, the Compensation Committee of the Board of Directors issued to non-employee board members pursuant to the 2008 Plan an annual grant of stock options to purchase an aggregate 450,000 shares of common stock, or 150,000 to each of the three directors at an exercise price of $1.12 for the Company’s new director, and $2.00 for the remaining directors. 150,000 of such options will vest over a one year period for the Company’s new director and over a two year period for the remaining directors.