DEF 14A 1 bioptix_def14a-17.htm DEFINITIVE 14A
 
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
 
 
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
Check the appropriate box:
☐   Preliminary Proxy Statement
☐   Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
☒  Definitive Proxy Statement
☐  Definitive Additional Materials
☐  Soliciting Material Pursuant to Rule 14a-11(c) or rule 14a-12

BIOPTIX, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
(1)
Title of each class of securities to which transaction applies:
 
(2)
Aggregate number of securities to which transaction applies:
 
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11:
 
(4)
Proposed maximum aggregate value of transaction:
 
(5)
Total fee paid:
Fee paid previously with preliminary materials:
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously.  Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
 
(1)
Amount previously paid:
 
(2)
Form, Schedule or Registration Statement no.:
 
(3)
Filing Party:
 
(4)
Date Filed:
 
 
 


 



July 10, 2017

To Our Shareholders:

You are cordially invited to a Special Meeting of Shareholders (the "Meeting") of Bioptix, Inc. (the "Company") to be held at Boca Raton Resort and Club, 501 East Camino Real, Boca Raton, FL 33422 on Monday, August 21, 2017, beginning at 10:00 AM local time.
The formal Notice of the Meeting and proxy statement describing the matters to be acted upon at the Meeting are attached to this letter.  Shareholders also are entitled to vote on any other matters which properly come before the Meeting.
Also attached is a proxy which will enable you to vote your shares on the matters to be considered at the Meeting even if you are unable to attend the Meeting.  Please mark the proxy to indicate your vote, date and sign the proxy and return it as soon as possible for receipt prior to the Meeting.
WHETHER YOU OWN FEW OR MANY SHARES OF STOCK, PLEASE BE SURE YOU ARE REPRESENTED AT THE MEETING EITHER BY ATTENDING IN PERSON OR BY RETURNING YOUR PROXY AS SOON AS POSSIBLE.
Sincerely,

/s/ Michael M. Beeghley
Michael M. Beeghley,
Chief Executive Officer
 
 
 

 

BIOPTIX, INC.
834-F South Perry Street, Suite 443
Castle Rock, CO 80104
(303) 794-2000

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 21, 2017

July 10, 2017

To the Shareholders of Bioptix, Inc.:

A Special Meeting of Shareholders (the "Meeting") of Bioptix, Inc., a Colorado corporation (the "Company") will be held at Boca Raton Resort and Club, 501 East Camino Real, Boca Raton, FL 33422 on Monday, August 21, 2017, beginning at 10:00 AM local time, for the purpose of considering and voting upon the following matters:
 
1.
To approve a change in the state of incorporation of the Company to Nevada from Colorado;
 
 
2.
To approve an amendment to the Company's Articles of Incorporation to increase the number of shares of common stock authorized for issuance from 60,000,000 to 170,000,000;
 
 
3.
To approve an amendment to the Company's Articles of Incorporation to authorize 15,000,000 shares of "blank check" preferred stock;
     
 
4.
To approve the issuance of securities in one or more non-public offerings where the maximum discount at which securities will be offered will be equivalent to a discount of 30% below the market price of our common stock, as required by and in accordance with Nasdaq Marketplace Rule 5635(d);
 
 
5.
To approve the issuance of securities in one or more non-public offerings where the maximum discount at which securities will be offered will be equivalent to a discount of 20% below the market price of our common stock, as required by and in accordance with Nasdaq Marketplace Rule 5635(d);
 
 
6.
To approve the participation of officers, directors and employees of the Company in the below market offerings approved pursuant to Proposal 4 or Proposal 5, as required by and in accordance with NASDAQ Marketplace Rule 5635(c);
     
 
7.
To approve the Company's 2017 Equity Incentive Plan, including the reservation of 895,000 shares of common stock thereunder;
     
 
8.
To approve the issuance of $4.75 million of convertible promissory notes, warrants to purchase up to 1,900,000 shares of common stock, shares of Series A Convertible Preferred Stock (when exchanged for the convertible promissory notes), and the shares of the common stock issuable upon conversion or exercise of the aforementioned securities, issued by the Company in a private placement that closed on March 16, 2017, as required by and in order to satisfy the requirements of The Nasdaq Capital Market, including without limitation, Marketplace Rule 5635(d);
     
 
9.
To grant the Board of Directors, in its discretion, the ability to issue up to $8,500,000 of common stock upon exercise of warrants to purchase shares of our common stock that were issued in private placements on March 10, 2017 and March 16, 2017, at an amended exercise price of $3.00, including amendment of the exercise price and issuance of such shares of common stock in accordance with the requirements of the Nasdaq Capital Market, including without limitation, Marketplace Rule 5635(d); and
     
 
10.
To authorize the transaction of such other business as may lawfully come before the Meeting or any adjournment(s) thereof.
 
 
 
i

 
The Board of Directors is not aware of any other business to come before the Meeting.  Pursuant to the Company's Bylaws, the Board of Directors has fixed the close of business on July 3, 2017 as the record date (the "Record Date") for determination of the shareholders entitled to vote at the Meeting and any adjournments thereof.
You are requested to complete and sign the enclosed proxy which is solicited by the Board of Directors and to return it promptly in the enclosed envelope.  The proxy will not be used if you attend the Meeting and vote in person.
This proxy statement is available online at:  www.venaxis.com.
EACH SHAREHOLDER, WHETHER OR NOT HE OR SHE PLANS TO ATTEND THE MEETING, IS REQUESTED TO COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD.  ANY PROXY GIVEN BY A SHAREHOLDER MAY BE REVOKED BY FILING WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION OR A DULY EXECUTED PROXY BEARING A LATER DATE.  ANY SHAREHOLDER PRESENT AT THE MEETING MAY REVOKE HIS OR HER PROXY AND VOTE IN PERSON ON EACH MATTER BROUGHT BEFORE THE MEETING.  HOWEVER, IF YOU ARE A SHAREHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER TO VOTE IN PERSON AT THE MEETING.
BY ORDER OF THE BOARD OF DIRECTORS,

/s/ Michael M. Beeghley
Michael M. Beeghley,
Chair of the Board of Directors

 
 
 
 
ii

BIOPTIX, INC.
834-F South Perry Street, Suite 443
Castle Rock, CO 80104
(303) 794-2000

PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
July 10, 2017

To Our Shareholders:

This proxy statement is furnished in connection with the solicitation by the Board of Directors of Bioptix, Inc. (the "Company") of proxies to be used at a Special Meeting of Shareholders (the "Meeting") to be held at Boca Raton Resort and Club, 501 East Camino Real, Boca Raton, FL 33422 on Monday, August 21, 2017, beginning at 10:00 AM local time, and at any adjournments or postponements thereof.  The Meeting is being held for the purposes set forth in the accompanying Notice of Special Meeting of Shareholders.  This proxy statement, the accompanying proxy card and the Notice of Meeting of Shareholders (collectively, the "Proxy Materials") are first being mailed to shareholders beginning on or about July 10, 2017.
TABLE OF CONTENTS

GENERAL INFORMATION
2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
8
EXECUTIVE COMPENSATION
9
COMPENSATION COMMITTEE
13
COMPENSATION COMMITTEE REPORT
14
PROPOSALS TO BE ACTED UPON AT THE MEETING
15
PROPOSAL NO. 1
APPROVAL OF THE CHANGE IN THE STATE OF INCORPORATION OF THE COMPANY TO NEVADA FROM COLORADO
15
PROPOSAL NO. 2
APPROVAL OF AN AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE FROM 60,000,000 TO 170,000,000
26
 PROPOSAL NO. 3
APPROVAL OF AN AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO AUTHORIZE 15,000,000 SHARES OF "BLANK CHECK" PREFERRED STOCK
27 
PROPOSAL NO. 4
APPROVAL OF ISSUANCE OF SECURITIES IN ONE OR MORE NON-PUBLIC OFFERINGS WHERE THE MAXIMUM DISCOUNT AT WHICH SECURITIES WILL BE OFFERED WILL BE EQUIVALENT TO A DISCOUNT OF 30% BELOW THE MARKET PRICE OF OUR COMMON STOCK IN ACCORDANCE WITH NASDAQ MARKETPLACE RULE 5635(d)
28
PROPOSAL NO. 5
APPROVAL OF ISSUANCE OF SECURITIES IN ONE OR MORE NON-PUBLIC OFFERINGS WHERE THE MAXIMUM DISCOUNT AT WHICH SECURITIES WILL BE OFFERED WILL BE EQUIVALENT TO A DISCOUNT OF 20% BELOW THE MARKET PRICE OF OUR COMMON STOCK IN ACCORDANCE WITH NASDAQ MARKETPLACE RULE 5635(d)
 30
 
 
1

 
 
 
PROPOSAL NO. 6
APPROVAL OF THE PARTICIPATION OF OFFICERS, DIRECTORS AND EMPLOYEES OF THE COMPANY TO PARTICIPATE IN THE BELOW MARKET OFFERINGS APPROVED PURSUANT TO PROPOSAL 4 OR PROPOSAL 5 IN ACCORDANCE WITH NASDAQ MARKETPLACE RULE 5635(c)
32
PROPOSAL NO. 7
APPROVAL OF THE 2017 EQUITY INCENTIVE PLAN AND THE RESERVATION OF 895,000 SHARES OF COMMON STOCK FOR ISSUANCE THEREUNDER.
33
PROPOSAL NO. 8
APPROVAL OF THE ISSUANCE OF $4.75 MILLION OF CONVERTIBLE PROMISSORY NOTES, WARRANTS TO PURCHASE UP TO 1,900,000 SHARES OF COMMON STOCK, SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK (WHEN EXCHANGED FOR THE CONVERTIBLE PROMISSORY NOTES), AND THE SHARES OF THE COMMON STOCK ISSUABLE UPON CONVERSION OR EXERCISE OF THE AFOREMENTIONED SECURITIES, ISSUED BY THE COMPANY IN A PRIVATE PLACEMENT THAT CLOSED ON MARCH 16, 2017, AS REQUIRED BY AND IN ORDER TO SATISFY THE REQUIREMENTS OF THE NASDAQ CAPITAL MARKET, INCLUDING WITHOUT LIMITATION, MARKETPLACE RULE 5635(D)
39
PROPOSAL NO. 9
APPROVAL OF THE GRANT TO THE BOARD OF DIRECTORS, IN ITS DISCRETION, THE ABILITY TO ISSUE UP TO $8,500,000 OF COMMON STOCK UPON EXERCISE OF WARRANTS TO PURCHASE SHARES OF OUR COMMON STOCK THAT WERE ISSUED IN PRIVATE PLACEMENTS ON MARCH 10, 2017 AND MARCH 16, 2017, AT AN AMENDED EXERCISE PRICE OF $3.00, INCLUDING AMENDMENT OF THE EXERCISE PRICE AND ISSUANCE OF SUCH SHARES OF COMMON STOCK IN ACCORDANCE WITH THE REQUIREMENTS OF THE NASDAQ CAPITAL MARKET, INCLUDING WITHOUT LIMITATION, MARKETPLACE RULE 5635(D)
43
FINANCIAL AND OTHER INFORMATION  45
OTHER MATTERS  100

GENERAL INFORMATION

This proxy statement, along with the accompanying notice of the Special Meeting of Stockholders, contains information about the Special Meeting of Stockholders of Bioptix, Inc., including any adjournments or postponements thereof (referred to herein as the "Meeting"). We are holding the Meeting at 10:00 AM (local time) on Monday, August 21, 2017, at Boca Raton Resort and Club, 501 East Camino Real, Boca Raton, FL 33422, or such later date or dates as such Meeting date may be adjourned.
 
In this proxy statement, we refer to Bioptix, Inc. as "Bioptix," the "Company," "we," "us" or "our."
 
Why Did You Send Me This Proxy Statement?
 
We sent you this proxy statement in connection with the solicitation by the Board of Directors of the Company (referred to herein as the "Board of Directors" or the "Board") of proxies, in the accompanying form, to be used at the Meeting to be held at 10:00 AM (local time) on August 21, 2017, at Boca Raton Resort and Club, 501 East Camino Real, Boca Raton, FL 33422, or such later date or dates as such Meeting date may be adjourned. This proxy statement along with the accompanying Notice of Meeting of Stockholders summarizes the purposes of the Meeting and the information you need to know to vote at the Meeting.
 
2

 
 
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on August 21, 2017: The proxy statement is available at www.venaxis.com.
 
This proxy statement is being mailed on or about July 10, 2017 to all stockholders entitled to notice of and to vote at the meeting. You can also find a copy through the "Investors" section of our website at www.venaxis.com.

Who Can Vote?
 
Stockholders who owned common stock at the close of business on July 3, 2017 (the "Record Date"), are entitled to vote at the Meeting. On the Record Date there were 5,371,170 shares of common stock outstanding and entitled to vote.  
 
   You do not need to attend the Meeting to vote your shares. Shares represented by valid proxies, received in time for the Meeting and not revoked prior to the Meeting, will be voted at the Meeting. A stockholder may revoke a proxy before the proxy is voted by delivering to our Secretary a signed statement of revocation or a duly executed proxy card bearing a later date. Any stockholder who has executed a proxy card but attends the Meeting in person may revoke the proxy and vote at the Meeting.
 
How Many Votes Do I Have?
 
    Each share of common stock that you own entitles you to one vote.  
 
How Do I Vote?
 
    Whether you plan to attend the Meeting or not, we urge you to vote by proxy. All shares represented by valid proxies that we receive through this solicitation, and that are not revoked, will be voted in accordance with your instructions on the proxy card or as instructed via Internet or telephone. You may specify whether your shares should be voted for or against each nominee for director, and whether your shares should be voted for, against or abstain with respect to each of the other proposals. Except as set forth below, if you properly submit a proxy without giving specific voting instructions, your shares will be voted in accordance with the Board's recommendations as noted below. Voting by proxy will not affect your right to attend the Meeting. If your shares are registered directly in your name through our stock transfer agent, Corporate Stock Transfer, Inc., or you have stock certificates, you may vote:

 
By Internet or by telephone.   You may vote by proxy via the Internet by following the instructions provided in the proxy materials or by calling the toll free number.
     
 
By mail.   Complete and mail the enclosed proxy card in the enclosed postage prepaid envelope. Your proxy will be voted in accordance with your instructions. If you sign the proxy card but do not specify how you want your shares voted, they will be voted as recommended by the Board.
 
 
In person at the Meeting.   If you attend the Meeting, you may deliver your completed proxy card in person or you may vote by completing a ballot, which will be available at the Meeting.
 
    If your shares are held in "street name" (held in the name of a bank, broker or other nominee), you must provide the bank, broker or other nominee with instructions on how to vote your shares and can do so as follows:

 
By Internet or by telephone.   Follow the instructions you receive from your broker to vote by Internet or telephone.

 
By mail.   You will receive instructions from your broker or other nominee explaining how to vote your shares.

 
In person at the Meeting.   Contact the broker or other nominee who holds your shares to obtain a broker's proxy card and bring it with you to the Meeting. You will not be able to attend the Meeting unless you have a proxy card from your broker.
 
 
3

 
 
How Does The Board Recommend That I Vote On The Proposals?
 
    The Board recommends that you vote as follows:

 
"FOR" the reincorporation of the Company to the State of Nevada from the State of Colorado;
 
 
"FOR" an amendment to the Company's Articles of Incorporation to increase the number of shares of common stock authorized for issuance from 60,000,000 to 170,000,000;
 
 
"FOR" an amendment to the Company's Articles of Incorporation to authorize 15,000,000 shares of "blank check" preferred stock;
 
 
"FOR" the issuance of securities in one or more non-public offerings where the maximum discount at which securities will be offered will be equivalent to a discount of 30% below the market price of the Company's common stock;
 
 
"FOR" the issuance of securities in one or more non-public offerings where the maximum discount at which securities will be offered will be equivalent to a discount of 20% below the market price of the Company's common stock;
 
 
 
"FOR" the approval of the participation of officers, directors and employees of the Company in the below market offerings approved pursuant to Proposal 4 or Proposal 5, as required by and in accordance with NASDAQ Marketplace Rule 5635(c);
 
 
 
"FOR" the approval of the Company's 2017 Equity Incentive Plan, including the reservation of 895,000 shares of common stock thereunder;
 
 
 
"FOR" the issuance of $4.75 million of convertible promissory notes, warrants to purchase up to 1,900,000 shares of common stock, shares of Series A Convertible Preferred Stock (when exchanged for the convertible promissory notes), and the shares of the common stock issuable upon conversion or exercise of the aforementioned securities, issued by the Company in a private placement that closed on March 16, 2017, as required by and in order to satisfy the requirements of The Nasdaq Capital Market, including without limitation, Marketplace Rule 5635(d); and
 
 
 
"FOR" the grant to the Board of Directors, in its discretion, the ability to issue up to $8,500,000 of common stock upon exercise of warrants to purchase shares of our common stock that were issued in private placements on March 10, 2017 and March 16, 2017, at an amended exercise price of $3.00, including amendment of the exercise price and issuance of such shares of common stock in accordance with the requirements of the Nasdaq Capital Market, including without limitation, Marketplace Rule 5635(d).
 
If any other matter is presented, the proxy card provides that your shares will be voted by the proxy holder listed on the proxy card in accordance with his or her best judgment. At the time this proxy statement was printed, we knew of no matters that needed to be acted on at the Meeting, other than those discussed in this proxy statement.

May I Change or Revoke My Proxy?
 
    If you give us your proxy, you may change or revoke it at any time before the Meeting. You may change or revoke your proxy in any one of the following ways:

 
signing a new proxy card and submitting it as instructed above;
 
 
if your shares are held in street name, re-voting by Internet or by telephone as instructed above — only your latest Internet or telephone vote will be counted;
 
 
if your shares are registered in your name, notifying Secretary in writing before the Meeting that you have revoked your proxy; or
 
 
attending the Meeting in person and voting in person. Attending the Meeting in person will not in and of itself revoke a previously submitted proxy unless you specifically request it.
 
 
 
4

 
 
What If I Receive More Than One Proxy Card?
 
You may receive more than one proxy card or voting instruction form if you hold shares of our common stock in more than one account, which may be in registered form or held in street name. Please vote in the manner described under "How Do I Vote?" on the proxy card for each account to ensure that all of your shares are voted.

Will My Shares Be Voted If I Do Not Return My Proxy Card?
 
If your shares are registered in your name or if you have stock certificates, they will not be voted if you do not return your proxy card or vote at the Meeting as described above under "How Do I Vote?" If your broker cannot vote your shares on a particular matter because it has not received instructions from you and does not have discretionary voting authority on that matter, or because your broker chooses not to vote on a matter for which it does have discretionary voting authority, this is referred to as a "broker non-vote."  The New York Stock Exchange ("NYSE") has rules that govern brokers who have record ownership of listed company stock (including stock such as ours that is listed on The Nasdaq Capital Market, or NASDAQ) held in brokerage accounts for their clients who beneficially own the shares. Under these rules, brokers who do not receive voting instructions from their clients have the discretion to vote uninstructed shares on certain matters ("routine matters"), but do not have the discretion to vote uninstructed shares as to certain other matters ("non-routine matters").  Such broker non-votes will have no effect on the results of the vote.
 
Under NYSE interpretations, Proposal 1 (reincorporation to the State of Nevada from the State of Colorado), Proposal 2 (amendment to the Company's articles of incorporation to increase the number of shares of common stock authorized), Proposal 3 (amendment to the Company's articles of incorporation to authorize 15,000,000 shares of "blank check" preferred stock), Proposal 4 (issuance of securities in one or more non-public offerings at a discount of 30% below the market price of the Company's common stock), Proposal 5 (issuance of securities in one or more non-public offerings at a discount of 20% below the market price of the Company's common stock), Proposal 6 (approval of the participation officers, directors and employees of the Company to in the below market offerings approved pursuant to Proposal 4 or Proposal 5, as required by and in accordance with NASDAQ Marketplace Rule 5635(c)), Proposal 7 (approval of the 2017 Equity Incentive Plan, including the reservation of 895,000 shares of common stock thereunder),Proposal 8 (the issuance of (a) $4.75 million of convertible promissory notes, (b) warrants to purchase up to 1,900,000 shares of common stock, (c) shares of Series A Convertible Preferred Stock (when exchanged for the convertible promissory notes), and (d) the shares of the common stock issuable upon conversion or exercise of the aforementioned securities, issued by the Company in a private placement that closed on March 16, 2017, as required by and in order to satisfy the requirements of The Nasdaq Capital Market, including without limitation, Marketplace Rule 5635(d)) and Proposal 9 (approval of the grant to the Board of Directors, in its discretion, the ability to issue of up to $8,500,000 of common stock upon exercise of warrants to purchase shares of our common stock that were issued in private placements on March 10, 2017 and March 16, 2017, at an amended exercise price of $3.00, including amendment of the exercise price and issuance of such shares of common stock in accordance with the requirements of the Nasdaq Capital Market, including without limitation, Marketplace Rule 5635(d)) are considered non-routine matters.  
 
If your shares are held in street name and you do not provide voting instructions to the bank, broker or other nominee that holds your shares as described above under "How Do I Vote?," the bank, broker or other nominee does not have the authority to vote your unvoted shares for Proposals 1 through 9.
 
 
5


What Vote is Required to Approve Each Proposal and How are Votes Counted?
 
 
 
Proposal 1: Reincorporation of the Company to the State of Nevada from the State of Colorado
 
The affirmative vote of the majority of the votes cast for this proposal is required to approve the reincorporation to the State of Nevada from the State of Colorado.
 
 
 
Proposal 2: Amendment to the Company's Articles of Incorporation to increase the number of shares of common stock authorized
 
The affirmative vote of a majority of the votes cast for this proposal is required to approve the amendment to the Company's articles of incorporation to increase the number of shares of common stock authorized.
     
Proposal 3: Amendment to the Company's Articles of Incorporation to authorize "blank check" preferred stock
 
The affirmative vote of a majority of the votes cast for this proposal is required to approve the amendment to the Company's articles of incorporation to authorize "blank check" preferred stock.
     
Proposal 4: Issuance of securities in non-public offering with a maximum discount of 30% below market price of the Company's common stock
 
The affirmative vote of a majority of the votes cast for this proposal is required to approve the issuance of securities in one or more non-public offerings, as required by and in accordance with Nasdaq Marketplace Rule 5635(d).
 
 
 
Proposal 5: Issuance of securities in non-public offering with a maximum discount of 20% below market price of the Company's common stock
 
The affirmative vote of a majority of the votes cast for this proposal is required to approve the issuance of securities in one or more non-public offerings, as required by and in accordance with Nasdaq Marketplace Rule 5635(d).
     
Proposal 6: Approval of the participation of officers, directors and employees of the Company in the below market offerings approved pursuant to Proposal 4 or Proposal 5, as required by and in accordance with NASDAQ Marketplace Rule 5635(c)
 
The affirmative vote of a majority of the votes cast for this proposal is required to approve of the participation of officers, directors and employees of the Company in the below market offerings approved pursuant to Proposal 4 or Proposal 5, as required by and in accordance with NASDAQ Marketplace Rule 5635(c).
 
 
 
Proposal 7: Approval of the Company's 2017 Equity Incentive Plan, including the reservation of 895,000  shares of common stock thereunder
 
The affirmative vote of a majority of the votes cast for this proposal is required to approve the 2017 Equity Incentive Plan.
     
Proposal 8: Approval of the issuance of $4.75 million of convertible promissory notes, warrants to purchase up to 1,900,000 shares of common stock, shares of Series A Convertible Preferred Stock (when exchanged for the convertible promissory notes), and the shares of the common stock issuable upon conversion or exercise of the aforementioned securities, issued by the Company in a private placement that closed on March 16, 2017, as required by and in order to satisfy the requirements of The Nasdaq Capital Market, including without limitation, Marketplace Rule 5635(d)
 
The affirmative vote of a majority of the votes cast for this proposal is required to approve the issuance of $4.75 million of convertible promissory notes, warrants to purchase up to 1,900,000 shares of common stock, shares of Series A Convertible Preferred Stock (when exchanged for the convertible promissory notes), and the shares of the common stock issuable upon conversion or exercise of the aforementioned securities, issued by the Company in a private placement that closed on March 16, 2017, as required by and in order to satisfy the requirements of The Nasdaq Capital Market, including without limitation, Marketplace Rule 5635(d).
     
Proposal 9: The grant to the Board of Directors, in its discretion, the ability to issue up to $8,500,000 of common stock upon exercise of warrants to purchase shares of our common stock that were issued in private placements on March 10, 2017 and March 16, 2017, at an amended exercise price of $3.00, including amendment of the exercise price and issuance of such shares of common stock in accordance with the requirements of the Nasdaq Capital Market, including without limitation, Marketplace Rule 5635(d)
 
The affirmative vote of a majority of the votes cast for this proposal is required to approve the grant to the Board of Directors, in its discretion, the ability to issue up to $8,500,000 of common stock upon exercise of warrants to purchase shares of our common stock that were issued in private placements on March 10, 2017 and March 16, 2017, at an amended exercise price of $3.00, including amendment of the exercise price and issuance of such shares of common stock in accordance with the requirements of the Nasdaq Capital Market, including without limitation, Marketplace Rule 5635(d).
 
 
 
6


 
What Constitutes a Quorum for the Meeting?
 
    The presence, in person or by proxy, of holders of one-third of the shares outstanding as of the Record Date constitutes a quorum for the transaction of business at the Meeting.  In the event there are not sufficient shares represented for a quorum or votes to approve any proposals at the time of the Meeting, the Meeting may be adjourned in order to permit further solicitation of proxies.  Abstentions will count towards quorum requirements.
 
Will Any Proposal Impact the Company's Recent Developments and Determination to Exit the Business of Its Subsidiary?

As previously disclosed, effective in January 2017, the Company adopted a plan to exit the acquired business of the Company's wholly owned subsidiary, BiOptix Diagnostics, Inc. ("BDI") and commenced a significant reduction in the workforce, after which the Board began to and continues to review possible strategic alternatives relative to the business to maximize shareholder value. The reincorporation set forth in Proposal 1 will not impact the Company's business operations or, specifically, its plan to evaluate future strategic developments. As well, with respect to the potential increase in shares set forth in Proposal 2, the Company has no present intention to use the shares made available upon approval and adoption of Proposal 2 for the Company's plan to exit the acquired business of the Company's wholly owned subsidiary BDI or any specific possible strategic alternatives relative to the business that the Board may currently be considering.  No other proposal has any impact on the Company's strategy.
 
Householding of Annual Disclosure Documents
 
    The Securities and Exchange Commission (the "SEC") previously adopted a rule concerning the delivery of annual disclosure documents. The rule allows us or brokers holding our shares on your behalf to send a single set of the proxy statement to any household at which two or more of our stockholders reside, if either we or the brokers believe that the stockholders are members of the same family. This practice, referred to as "householding," benefits both stockholders and us. It reduces the volume of duplicate information received by you and helps to reduce our expenses. The rule applies to our annual reports, proxy statements and information statements. Once stockholders receive notice from their brokers or from us that communications to their addresses will be "householded," the practice will continue until stockholders are otherwise notified or until they revoke their consent to the practice. Each stockholder will continue to receive a separate proxy card or voting instruction card.
 
    Those stockholders who either (i) do not wish to participate in "householding" and would like to receive their own sets of our annual disclosure documents in future years or (ii) who share an address with another one of our stockholders and who would like to receive only a single set of our annual disclosure documents should follow the instructions described below:

 
stockholders whose shares are registered in their own name should contact our transfer agent, Corporate Stock Transfer, Inc., and inform them of their request by calling them at (303) 282-4800 or writing them at 3200 Cherry Creek S Dr # 430, Denver, CO 80209.

 
stockholders whose shares are held by a broker or other nominee should contact such broker or other nominee directly and inform them of their request, stockholders should be sure to include their name, the name of their brokerage firm and their account number.

7

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


The number of shares of the Company's common stock outstanding at the close of business on July 3, 2017 was 5,371,170.  The following table sets forth the beneficial ownership of the Company's common stock as of July 3, 2017 by each Company director, director nominee and each executive officer then serving, by all directors, director nominees and executive officers as a group, and by each person who owned of record, or was known to own beneficially, more than 5% of the outstanding shares of common stock.  Beneficial ownership is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended.  In computing the number of shares beneficially owned by a person or a group and the percentage ownership of that person or group, shares of our common stock subject to options and warrants currently exercisable or exercisable within 60 days after July 3, 2017 are deemed outstanding, but are not deemed outstanding for the purpose of computing the percentage ownership of any other person.  To the knowledge of the directors, director nominees and executive officers of the Company, as of July 3, 2017, there are no persons and/or companies who or which beneficially own, directly or indirectly, shares carrying more than 5% of the voting rights attached to all outstanding shares of the Company, other than as set forth below.  Unless otherwise indicated, the address of each individual named below is the address of the Company, 834-F South Perry Street, Suite 443, Castle Rock, CO 80104.
 
Beneficial Ownership Table

Name and Address
 
Number of Shares
   
Percent
 
Directors:
           
  Michael M. Beeghley (1)
   
62,750
     
1.16
 %
  John R. O'Rourke (2)
   
30,592
     
*
 
  Mike Dai (3)
   
4,167
     
*
 
  Andrew J. Kaplan(4)
   
500
     
*
 
Other Executive Officers:
               
  Jeffrey G. McGonegal (5)
   
89,035
     
1.63
%
All Directors and Officers as a Group (5 persons) (6)
   
187,044
     
3.42
%
More than 5% Shareholders:
               
  Barry C. Honig (7)
   
509,185
     
9.48
%
  Catherine Johanna DeFrancesco (8)
   
515,777
     
9.60
%
  E. Jeffrey Peierls (9)
   
357,744
     
6.65
%
  Northurst, Inc. (10)      400,000        7.45 %
____________________
* Holds less than 1%

(1)
Includes (i) options currently exercisable or exercisable within 60 days to purchase an aggregate of 2,333 shares at an exercise price of $3.00 per share, (ii) 14,583 vested shares pursuant to a restricted stock award of an aggregate of 70,000 shares under 2002 Stock Incentive Plan (Amended and Restated November 30, 2016), as amended (the "Plan"), which vest in 24 equal monthly installments over a two year period, beginning on the one month anniversary of February 3, 2017, (iii) options currently exercisable or exercisable within 60 days to purchase an aggregate of 3,334 shares pursuant to the Plan, out of a total of 20,000 which vests in 24 equal monthly installments over a two year period, beginning on the one month anniversary of April 7, 2017, and (iv) 42,500 shares of common stock held by Applied Economics LLC Profit Sharing Plan ("Applied Economics"), for which Mr. Beeghley is the trustee and in such capacity has voting and dispositive power over the securities held by Applied Economics. Mr. Beeghley serves as the Company's Chief Executive Officer and Chairman of the Board of Directors.
(2)
Includes (i) 7,292 vested shares pursuant to a restricted stock award of an aggregate of 35,000 shares pursuant to the Plan which vest in 24 equal monthly installments over a two year period, beginning on the one month anniversary of February 3, 2017 and (ii) an aggregate of 23,300 shares held by ATG Capital LLC ("ATG"), for which Mr. O'Rourke is the managing member and sole beneficiary and in such capacity holds voting and dispositive power over the securities held by ATG.
(3)
Includes 4,167 vested shares pursuant to a restricted stock award of an aggregate of 20,000 shares pursuant to the Plan which shall vest in 24 equal monthly installments over a two year period, beginning on the one month anniversary of February 3, 2017.
(4)
Includes 500 vested shares pursuant to a restricted stock award of an aggregate of 12,000 shares under the Plan, which vest in 24 equal monthly installments over a two year period, beginning on the one month anniversary of May 5, 2017.
(5)
Includes 1,009 shares directly owned and 63 shares held in Mr. McGonegal's IRA. Includes options currently exercisable or exercisable within 60 days to purchase an aggregate of 87,963 shares at exercise prices ranging from $2.89 per share to $1,591.20 per share.
(6)
Includes the information in footnotes (1) through (5).

 
8

 
(7)
Includes (i) 35,000 shares of common stock, (ii) 443,585 shares of common stock held by GRQ Consultants, Inc. 401K ("401K") and (iii) 30,600 shares of common stock held by GRQ Consultants, Inc. Roth 401K FBO Barry Honig ("Roth 401K"). Mr. Honig is the trustee of 401K and Roth 401K in such capacity holds voting and dispositive power over the securities held by such entities.  Does not include (i) 200,000 shares of common stock issuable upon exercise of outstanding warrants held by Mr. Honig, (ii) 206,017 shares of common stock issuable upon conversion of outstanding convertible promissory notes held by Mr. Honig, (iii) 500,000 shares of common stock issuable upon exercise of outstanding warrants held by Roth 401K, and (iv) 515,042 shares of common stock issuable upon conversion of outstanding convertible promissory notes held by Roth 401K, all of which are not exercisable or convertible within 60 days. The address for this shareholder is 555 South Federal Highway, #450, Boca Raton, FL 33432.
(8)
Information is based upon holdings reported on Schedule 13D filing and amendments, the most recent filed on January 10, 2017.  The address for this shareholder is 365 Bay St., Suite 840, Toronto, ON M5H 2V1, Canada.  Includes shares reported as beneficially owned by Mrs. DeFrancesco and held by DSB Capital, Ltd., a Turks & Caicos company where Ms. DeFrancesco serves as Trustee (75,000 shares), DeFrancesco Motorsports, Inc., an Ontario corporation where Ms. DeFrancesco serves as President (59,701 shares), Delavalco Holdings, Inc., an Ontario corporation where Ms. DeFrancesco serves as President (112,000 shares), Delavalco Holdings, Inc., a Florida corporation where Ms. DeFrancesco serves as President (85,466 shares), Marcandy Investments Corp., an Ontario corporation where Ms. DeFrancesco serves as President (85,000 shares), and Namaste Gorgie, Inc., an Ontario corporation where Ms. DeFrancesco serves as President (98,610 shares).
(9)
Information is based upon holdings reported on a Schedule 13G filed on February 10, 2017 by E. Jeffrey Peierls and Brian Eliot Peierls.  Brian Eliot Peierls may be deemed the beneficial owner of securities held by trusts of which Brian Eliot Peierls is a fiduciary. E. Jeffrey Peierls and Brian Eliot Peierls may be deemed to share indirect beneficial ownership of securities held by The Peierls Foundation, Inc. The address for the shareholder is 73 South Holman Way, Golden, CO 80401.  Includes (i) 273,742 shares of common stock and (ii) 5,002 shares of common stock issuable upon exercise of warrants. Also includes 48,231 shares of common stock and warrants exercisable to purchase 2,084 shares of common stock owned by The Peierls Foundation, Inc. as to which Mr. Peierls disclaims beneficial ownership for purposes of Section 16 of the Securities and Exchange Act of 1934, as amended.
(10)
Includes 400,000 shares of common stock.  Excludes 400,000 shares of common stock issuable upon exercise of outstanding warrants which are not exercisable within 60 days.  Jake Malczewski is the President of Northurst, Inc. and in such capacity holds voting and dispositive power over the securities held by such entity.  The address for this shareholder is 118 Cragmore Avenue, Pointe-Claire, Quebec, Canada H9R 5M1.
 
CHANGE IN CONTROL

Effective January 6, 2017, after the beginning of the Company's most recent fiscal year, three (3) members of the Board (Gail S. Schoettler, Susan A. Evans and David E. Welch) resigned from the Board and two (2) new director candidates (John O'Rourke and Mike Dai) were appointed.  Further, Michael Beeghley, who was elected to the Board by the Company's shareholders at the 2016 annual meeting held on November 30, 2016, was appointed as Chief Executive Officer by the Board on April 6, 2017 to fill the vacancy created by the prior Chief Executive Officer's resignation.
 
The changes in the composition of the Board and management of the Company was the culmination of efforts by Barry Honig and Catherine DeFrancesco, on their own behalf and on behalf of certain of their affiliates as investors in the Company, to call a special meeting of shareholders under Colorado law for the purposes set forth in a series of notices and letters submitted to the Company commencing in September 2016 seeking changes in management and diversification of the Board of Directors.  Each of Mr. Beeghley, Mr. O'Rourke and Mr. Dai were introduced to the Company as a result of these efforts.  On December 21, 2016, following the filing of an Application for Court Ordered Special Meeting of Shareholders by Mr. Honig, an Order granting Mr. Honig's application was issued by the District Court, Douglas County, Colorado (Case No. 2016CV31207).  In response to Mr. Honig and Ms. DeFrancesco's efforts, the Company's selection of Mr. Beeghley as a nominee for the position of director to stand at the 2016 Annual Meeting of Shareholders called by the Company and subsequent appointments of Mr. O'Rourke and Mr. Dai upon the resignation of Ms. Schoettler, Ms. Evans and Mr. Welch are connected with the settlement of the foregoing litigation against the Company.  In connection with the resignations, the shareholders agreed to withdraw their demand for a special meeting and entered into a stipulation dismissing the litigation, as more fully described in the Company's Current Report on Form 8-K filed with the SEC on January 20, 2017 (File No. 001-33675).  Mr. Honig and Ms. DeFrancesco continue to hold significant stock holdings of the Company as more fully set forth under "Security Ownership of Certain Beneficial Owners and Management" and in this regard such persons may influence the business and affairs of the Company through such ownership interests and as a result of their access to the Company's management, including actions that could result in presentation of their ideas and opportunities for acquisitions or changes in the business or investments in the Company in pursuit of the changes sought as set forth in letters to the Company during 2016.  The foregoing summary of the letters is incomplete and reference is made to the actual text of such letters attached to Beneficial Ownership Reports on Schedule 13D, as amended, as filed by Mr. Honig with the SEC (File No. 005-79102).
 
EXECUTIVE COMPENSATION
Summary Compensation Table
This table provides disclosure, for fiscal years 2016 and 2015 for the Named Executive Officers, who are the Chief Executive Officer and the Chief Financial Officer.
Named Executive Officer
and Principal Position
 
Year
 
Salary
($)
 
Option Awards
(3)($)
 
Non-Equity Incentive Plan Compensation
(4)($)
 
All Other
Compensation
($)
 
Total
($)
 
 
 
 
 
 
 
 
 
 
 
 
 
Stephen T. Lundy,
2016
382,525
183,273
191,263
61,098
818,159
Chief Executive Officer and President (1)
2015
382,525
572,670
154,951
44,006
1,154,152
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Jeffrey G. McGonegal,
2016
272,005
89,506
136,003
16,111
513,625
Chief Financial Officer (2)
2015
272,005
279,720
85,682
13,800
651.207
__________
(1)  Effective January 1, 2015, Mr. Lundy's annual salary was increased to $382,525.  Mr. Lundy also served as a director of the Company; he did not receive additional compensation for serving in such role. Amounts included in "All Other Compensation" include: temporary living and travel accommodations he was provided at a total cost of $42,872 and $33,873 in 2016 and 2015, respectively, and coverage under the Company's group medical plan at a total cost of $18,226 and $10,133 in 2016 and 2015, respectively. Mr. Lundy resigned as Chief Executive Officer and President on April 6, 2017.
9

(2)  The amounts included in "All Other Compensation" represents the amounts paid on his behalf in each year for group medical benefits.
(3)  The "Option Awards" columns reflect the grant date fair value for all stock option awards granted under the 2002 Stock Plan during 2016 and 2015.  These amounts are determined in accordance with FASB Accounting Standards Codification 718 (ASC 718), without regard to any estimate of forfeiture for service vesting.  Assumptions used in the calculation of the amounts in these columns for 2016 and 2015 are included in footnotes 1 and 7 to the Company's audited financial statements for the fiscal year ended December 31, 2016 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 (the "Annual Report").
(4)  The "Non-Equity Incentive Plan Compensation" column reflects the annual cash bonuses earned under the Company's Incentive Plan.  The bonus amounts listed were earned for the fiscal year reported, but paid in the subsequent year.  Amounts for 2016 reflect the payment of retention bonus amounts for each Named Executive Officer.
Outstanding Equity Awards at Fiscal Year End
The following table shows the outstanding equity awards held by the Named Executive Officers as of December 31, 2016:
 
 
Option Awards
 
Named Executive Officer
 
Number of Securities Underlying Unexercised Options Exercisable
(#)
   
Number of Securities Underlying Unexercised Options Unexercisable
(#)
   
Equity Incentive
Plan Awards:
Number of Securities Underlying Unexercised Unearned Options
(#)
   
Option
Exercise
Price
($)
   
Option
Expiration
Date
 
 
                             
Stephen T. Lundy (1)
   
883
     
-
     
-
     
547.20
     
3-24-2020
 
 
   
260
     
-
     
-
     
141.60
     
1-5-2021
 
 
   
1,400
     
-
     
-
     
163.20
     
7-8-2021
 
 
   
1,563
     
-
     
-
     
31.68
     
4-30-2022
 
 
   
12,417
     
-
     
-
     
16.80
     
12-11-2022
 
 
   
17,125
     
-
     
-
     
16.32
     
1-23-2023
 
 
   
22,250
     
-
     
-
     
18.16
     
1-06-2024
 
 
   
34,720
     
3,155
     
-
     
15.12
     
1-12-2025
 
     
43,000
     
43,000
             
2.89
     
5-9-2026
 
 
                                       
 Jeffrey G. McGonegal (2)
   
209
     
-
     
-
     
710.40
     
1-24-2017
 
 
   
167
     
-
     
-
     
1,591.20
     
1-17-2018
 
 
   
209
     
-
     
-
     
319.20
     
1-27-2019
 
 
   
209
     
-
     
-
     
528.00
     
1-19-2020
 
 
   
209
     
-
     
-
     
141.60
     
1-5-2021
 
 
   
834
     
-
     
-
     
31.68
     
4-30-2022
 
 
   
6,585
     
-
     
-
     
16.80
     
12-11-2022
 
 
   
8,375
     
-
     
-
     
16.32
     
1-23-2023
 
 
   
10,875
     
-
     
-
     
18.16
     
1-06-2024
 
 
   
16,959
     
1,541
     
-
     
15.12
     
1-12-2025
 
     
21,000
     
21,000
             
2.89
     
5-9-2016
 
__________
 
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(1)  Includes options to purchase: 883 shares at $547.20 per share granted on March 24, 2010; 260 shares at $141.60 per share granted on January 5, 2011; 1,400 shares at $163.20 per share granted on July 8, 2011; 1,563 shares at $31.68 per share granted on April 30, 2012; 12,417 shares at $16.80 per share granted on December 11, 2012; 17,125 shares at $16.32 per share granted on January 21, 2013; 22,250 shares at $18.16 per share granted on January 6, 2014, and 37,875 shares at $15.12 per share granted on January 12, 2015. The balance of options granted in 2015 fully vested in January 2017. The options granted in 2016 vested as to 50% of the award on the six month anniversary of the date of grant, and the remaining 50% of the award is scheduled to vest on the first anniversary of the grant date. Under the terms of a Separation Agreement with Mr. Lundy as of April 6, 2017, Mr. Lundy's equity rights were cancelled.
(2)   Includes options to purchase: 209 shares at $710.40 per share granted January 24, 2007; 167 shares at $1,591.20 per share granted January 17, 2008; 209 shares at $319.20 per share granted on January 27, 2009; 209 shares at $528.00 per share granted on January 19, 2010; 209 shares at $141.60 per share granted on January 5, 2011; 834 shares at $31.68 per share granted on April 30, 2012; 6,585 shares at $16.80 per share granted on December 11, 2012; 8,375 shares at $16.32 per share granted on January 23, 2013; 10,875 shares at $18.16 per share granted on January 6, 2014 and 18,500 shares at $15.12 per share granted on January 12, 2015. The balance of options granted in 2015 fully vested in January 2017. The options granted in 2016 vested as to 50% of the award on the six month anniversary of the date of grant, and the remaining 50% of the award is scheduled to vest on the first anniversary of the grant date.
Options Exercised and Stock Vested
Neither of the Named Executive Officers exercised stock options during the year ended December 31, 2016.
Employment Agreements
The Company has entered into employment agreements with, and provides post-employment benefits to, its Named Executive Officers as follows:
Stephen T. Lundy, Chief Executive Officer – On March 24, 2010, we entered into an employment agreement with Mr. Lundy which provides that he serves at the pleasure of the Board of Directors unless the agreement is terminated by either party as provided in the agreement. The agreement provides in the event that Mr. Lundy's employment is terminated by the Company for other than cause, or if such employment is terminated by the executive in the event of a change in control, severance payments based upon Mr. Lundy's salary will be made for twelve months.  In the event of death or disability, severance payments based upon Mr. Lundy's salary will be made for three months. Under the terms of a Separation Agreement with Mr. Lundy as of April 6, 2017, Mr. Lundy's post-employment benefits were terminated.
Jeffrey G. McGonegal, Chief Financial Officer – On February 2, 2009, we entered into an employment agreement with Mr. McGonegal which provides that he serves at the pleasure of the Board of Directors unless the agreement is terminated by either party as provided in the agreement. The agreement provides in the event that Mr. McGonegal's employment is terminated by the Company for other than cause, or if such employment is terminated by the executive in the event of a change in control, severance payments based upon Mr. McGonegal's salary will be made for six months.  In the event of death or disability, severance payments based upon Mr. McGonegal's salary will be made for six months.
Richard J. Whitcomb, Senior Vice President, Corporate Development – On September 14, 2016, we entered into an offer letter with Mr. Whitcomb, our Senior Vice President, Corporate Development.  Mr. Whitcomb had served as President and Chief Executive Officer of BiOptix Diagnostics, Inc., until its acquisition by the Company in September 2016.  His employment agreement provides that if Mr. Whitcomb is terminated without cause before the eight-month anniversary of his start date, he will receive severance equal to base salary as if his employment had been continued for one full year.  Thereafter, he is entitled to severance equal to four months of base salary if his employment is terminated without cause.  Under the terms of a Separation Agreement effective as of June 15, 2017, Mr. Whitcomb's employment with the Company was terminated.
 
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Post-Employment Benefits
The following table discloses the post-employment termination benefits that would have been received by the Named Executive Officers if a termination event had occurred on December 31, 2016:
Named Executive Officer
 
Benefit
 
Termination
without Cause
($)
 
Death or
Disability
($)
 
Change In Control
(Single Trigger)
($)  (1)
 
Change In Control
(Double Trigger)
($)
 
 
 
 
 
 
 
 
 
 
 
Stephen T. Lundy (2)
 
Severance
 
382,525
 
95,631
 
-
 
382,525
 
 
Options
 
-
 
-
 
81,700
 
81,700
 
 
Total
 
382,525
 
95,631
 
81,700
 
469,625
 
 
 
 
 
 
 
 
 
 
 
Jeffrey G. McGonegal
 
Severance
 
136,002
 
136,002
 
-
 
136,002
 
 
Options
 
-
 
-
 
19,950
 
19,950
 
 
Total
 
136,002
 
136,002
 
19,950
 
155,952
__________
(1)  Under the Change in Control Policy approved by the Board of Directors, upon consummation of a Change in Control (as defined in the 2002 Stock Plan) any unvested stock options held by a Named Executive Officer accelerate and vest upon the consummation of a Change in Control.  This column shows the value of unvested stock options that would have been received upon acceleration of unvested stock options as of December 31, 2016.  The closing price of the Company's common stock on December 30, 2016 was $3.84 per share.
(2)  Under the terms of a Separation Agreement with Mr. Lundy as of April 6, 2017, Mr. Lundy's post-employment benefits were terminated and his equity rights were cancelled.
Director Compensation
Since February 1, 2008, each non-employee director receives cash compensation of $1,000 per month.  Our non-employee directors typically receive a stock option award upon joining and additional options over time, generally annually.  The directors are also reimbursed for all expenses incurred by them in attending board and committee meetings.
Director compensation for the year ended December 31, 2016 was:
Name
 
Cash
Fees
($)
   
Option
Awards
($) (6)
   
Total
($)
 
 
 
 
 
 
 
 
 
 
 
Gail Schoettler (1)
 
 
24,000
 
 
 
44,753
 
 
 
68,753
 
Michael M. Beeghley (2)
 
 
1,000
 
 
 
36,717
 
 
 
37,717
 
David Welch  (3)
 
 
12,000
 
 
 
29,835
 
 
 
41,835
 
Susan Evans (4)
 
 
12,000
 
 
 
29,835
 
 
 
41,835
 
Michael W. Routh (5)
 
 
1,000
 
 
 
36,717
 
 
 
37,717
 
__________
 (1)  On May 9, 2016, Ms. Schoettler was granted options to purchase 21,000 shares of the Company's common stock at $2.89 per share, vesting in quarterly installments during 2016 and expiring in ten years.  As of December 31, 2016, Ms. Schoettler held a total of 49,130 options to purchase shares of our common stock. Resigned as a member of the board of directors on January 6, 2017.
 
 
12

(2)  On November 30, 2016, Mr. Beeghley was granted options to purchase 16,233 shares of the Company's common stock at $3.00 per share, with 2,333 of the options vested upon grant and the balance vesting annually over three years in arrears and all expiring in ten years.  As of December 31, 2016, Mr. Beeghley held a total of 16,233 options to purchase shares of our common stock.
(3)  On May 9, 2016, Mr. Welch was granted options to purchase 14,000 shares of the Company's common stock at $2.89 per share, vesting in quarterly installments during 2016 and expiring in ten years.  As of December 31, 2016, Mr. Welch held a total of 33,547 options to purchase shares of our common stock. Resigned as a member of the board of directors on January 6, 2017.
(4)  On May 9, 2016, Dr. Evans was granted options to purchase 14,000 shares of the Company's common stock at $2.89 per share, vesting in quarterly installments during 2016 and expiring in ten years As of December 31, 2016, Dr. Evans held a total of 31,125 options to purchase shares of our common stock. Resigned as a member of the board of directors on January 6, 2017.
(5)  On November 30, 2016, Mr. Routh was granted options to purchase 16,233 shares of the Company's common stock at $3.00 per share, with 2,333 of the options vested upon grant and the balance vesting annually over three years in arrears and all expiring in ten years. As of December 31, 2016, Mr. Routh held a total of 16,233 options to purchase shares of our common stock. Resigned as a member of the board of directors on February 7, 2017.
(6)  The "Option Awards" columns reflect the grant date fair value for all stock option awards granted to non-employee directors under the Company's 2002 Stock Plan during 2016.  These amounts are determined in accordance with ASC 718, without regard to any estimate of forfeiture for service vesting. Assumptions used in the calculation of the amounts in this column are included in footnotes 1 and 7 to the Company's audited financial statements for the fiscal year ended December 31, 2016 included in the Annual Report.
COMPENSATION COMMITTEE

The Company's Compensation Committee is comprised of Mike Dai (who serves as Chair of the Compensation Committee), John O'Rourke and Andrew Kaplan, each of whom is an independent director.  The amended and restated Compensation Committee Charter is available on our website at www.venaxis.com.

The Compensation Committee held six meetings and took two actions by written consent during the year ended December 31, 2016.

Duties of the Compensation Committee include reviewing and making recommendations regarding compensation of executive officers and determining the need for and the appropriateness of employment agreements for senior executives.  This includes the responsibility: (1) to determine, review and recommend to the Board of Directors for approval on an annual basis the corporate goals and objectives with respect to compensation for the senior executives, and (2) to evaluate at least once a year the performance of the senior executives in light of the established goals and objectives and, based upon these evaluations, to determine and recommend to the Board of Directors for approval the annual compensation for each, including salary, bonus, incentive and equity compensation.  When evaluating the compensation of our executive officers, the Compensation Committee evaluates factors including the executive's responsibilities, experience and the competitive marketplace.  The Compensation Committee may also invite the senior executives and other members of management to participate in their deliberations, or to provide information to the Compensation Committee for its consideration with respect to such deliberations, except that the Chief Executive Officer may not be present for the deliberation of or the voting on compensation for the Chief Executive Officer.  The Chief Executive Officer may, however, be present for the deliberation of or the voting on compensation for any other officer.
 
 
 
13


 
The Compensation Committee has authority to retain such compensation consultants, outside counsel and other advisors as the Compensation Committee in its sole discretion deems appropriate.  The Compensation Committee did not retain any such advisor for 2016.

The Compensation Committee also has the authority and responsibility: (1) to review the fees paid to non-employee directors for service on the Board of Directors and its committees, and make recommendations to the Board of Directors with respect thereto; and (2) to review the Company's incentive compensation and other stock-based plans and recommend changes in such plans to the Board of Directors as needed.
COMPENSATION COMMITTEE REPORT

To the Board of Directors of Bioptix, Inc.
The Compensation Committee hereby reports to the Board of Directors that, in connection with this proxy statement we have:
 
·
reviewed and discussed with management the Compensation Discussion and Analysis disclosure; and
 
·
based on such review and discussion, we recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

Respectfully submitted,
The Compensation Committee of Bioptix, Inc.
 
 
 

14

PROPOSALS TO BE ACTED UPON AT THE MEETING
 
PROPOSAL NO. 1
 
APPROVAL OF THE CHANGE IN THE STATE OF INCORPORATION OF THE COMPANY TO NEVADA FROM COLORADO
 
 Our Board of Directors has adopted resolutions, subject to stockholder approval, to change the Company's state of incorporation to Nevada from Colorado. The Articles of Incorporation (the "Nevada Articles"), attached to this Proxy Statement as Appendix A, and Bylaws (the "Nevada Bylaws"), attached to this Proxy Statement as Appendix B, would became the Company's governing instruments and will differ in some respects from our current Articles of Incorporation and Bylaws, as more thoroughly discussed below.
 
Reasons for the Reincorporation
 
Nevada is a nationally-recognized leader in adopting and implementing comprehensive and flexible corporation laws that are frequently revised and updated to accommodate changing legal and business needs. In light of our growth, our Board of Directors believes that it will be beneficial to the Company and its stockholders to obtain the benefits of Nevada's corporation laws. Nevada courts have developed considerable expertise in dealing with corporate legal issues and have produced a substantial body of case law construing Nevada corporation laws. Because the judicial system is based largely on legal precedents, the abundance of Nevada case law should serve to enhance the relative clarity and predictability of many areas of corporation law, and allow our Board of Directors and management to make business decisions and take corporate actions with greater assurance as to the validity and consequences of such decisions and actions.
 
In addition, we anticipate that the reincorporation (the "Reincorporation") will result in reduced state tax obligations. Nevada currently imposes no corporate income or franchise tax. Nevada imposes a nominal amount of annual corporate fee on corporations.
 
Certain Effects of the Change in State of Incorporation
 
The Reincorporation will effect a change in our legal domicile; however, the Reincorporation will not result in any change in headquarters, business, jobs, management, location of any of offices or facilities, number of employees, assets, liabilities or net worth (other than as a result of the costs incident to the Reincorporation, which are immaterial). Management, including all directors and officers, will remain the same in connection with the Reincorporation. There will be no substantive change in the employment agreements for executive officers or in other direct or indirect interests of the current directors or executive officers as a result of the Reincorporation. Upon the effective time of the Reincorporation, each stockholder's shares of common stock will be converted into an equivalent number of shares of common stock of the Nevada corporation.
 
As previously noted, the new Nevada Articles and Nevada Bylaws will be the governing instruments of the Company, resulting in some changes from our current Articles of Incorporation and Bylaws. Some of these changes are purely procedural in nature, such as a change in our registered office and agent from an office and agent in Colorado to an office and agent in Nevada. Some changes, however, will be substantive in nature. There are also some differences between Colorado corporation laws and Nevada corporation laws. Certain substantive changes to our current Articles of Incorporation and Bylaws, as well as the material differences between Colorado and Nevada law are discussed below. Such summary does not purport to be complete and is qualified in its entirety by reference to Colorado and Nevada corporate laws and the Nevada Articles and Nevada Bylaws included with this Proxy Statement.
 
As disclosed in more detail under "Anti-Takeover Statutes" below, certain provisions of the Nevada Articles and Nevada Bylaws and applicable provisions of the Nevada Revised Statutes ("NRS") may have anti-takeover effects, making it more difficult for or preventing a third party from acquiring control of our Company or changing our Board of Directors and management. These provisions may also have the effect of deterring hostile takeovers or delaying changes in our Company's control or in our management.
 
 
 
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Change from Colorado Law to Nevada Law
 
         As a result of the Reincorporation, the Company will now be governed by Nevada corporation laws. The following summarizes some of the material differences between Colorado and Nevada corporation laws. This does not address each difference between Colorado law and Nevada law, but focuses on some of those differences which we believe are most relevant to the existing stockholders. This is not intended as an exhaustive list of all differences, and is qualified in its entirety by reference to Colorado law (the "Colorado Revised Statutes" or "CRS") and Nevada law.

Provision
Colorado Law and the Company's Colorado governing documents
 
Nevada Law and the Company's proposed Nevada governing documents
       
 
ELECTIONS; VOTING; PROCEDURAL MATTERS
   
       
Number of Directors
Colorado law provides that a corporation must have at least one director and the number of directors must be specified in the corporation's bylaws.
 
 
Nevada law provides that the board of directors of a Nevada corporation must have at least one director, and the articles of incorporation or the bylaws may provide for a fixed number of directors or a variable number of directors within a fixed minimum and maximum, and for the manner in which the number of directors may be changed.
       
 
The Company's articles of incorporation provided that the number of directors shall be fixed by the board of directors pursuant to the bylaws, with the number of directors being not less than one or more than nine.
 
 
The Nevada Bylaws provide that the number of directors shall be fixed from time to time by resolution of the Nevada board of directors.
       
Classified Board of Directors
Colorado law permits corporations to classify their boards of directors into two or three groups. At least one-third of the total number of directors of a Colorado corporation must be elected annually.
 
 
Nevada law permits a Nevada corporation to classify its board of directors either in its articles of incorporation or bylaws. At least one-fourth of the total number of directors of a Nevada corporation must be elected annually.
       
 
The Company does not have a classified board and its governing documents did not provide for any classification.
 
 
The Nevada Bylaws do not provide for a classified board of directors. Directors are elected at the annual meeting of stockholders.
       
Removal of Directors
Under Colorado law, any one or all of the directors of a corporation may be removed if the votes cast in favor of removal exceed the number cast against removal, unless cumulative voting is in effect, but only at a meeting called for such purpose. Removal can be with or without cause, unless the corporation's articles of incorporation provide that directors may be removed only for cause.
 
Under Nevada law, any one or all of the directors of a corporation may be removed, with or without cause, by the holders of not less than two-thirds of the voting power of a corporation's issued and outstanding stock. The articles of incorporation may require the concurrence of more than two-thirds of the voting power of the issued and outstanding stock entitled to vote in order to remove one or more directors from office.
 
 
 
 
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The Company's bylaws provided that the entire board of directors or any lesser number may be removed, with or without cause, at a meeting called for such purpose. A director may be removed only if the number of votes cast in favor of removal exceeds the number of votes cast against removal.
 
The Nevada Bylaws provide that any director or the entire board of directors may be removed, with or without cause, by the holders of two-thirds of shares entitled to vote at an election of directors.
       
Board Action by Written Consent
Colorado law provides that, unless the bylaws provide otherwise, any action required or permitted to be taken at a meeting of the board of directors or of a committee thereof may be taken without a meeting if, before or after the action, a written consent thereto is signed by all the members of the board or committee.
 
 
Nevada law provides that, unless the articles of incorporation or bylaws provide otherwise, any action required or permitted to be taken at a meeting of the board of directors or of a committee thereof may be taken without a meeting if, before or after the action, a written consent thereto is signed by all the members of the board or committee.
       
 
The Company's articles of incorporation and the Company's bylaws did not change this statutory rule.
 
The Nevada Articles and Nevada Bylaws do not change this statutory rule.
       
Interested Party Transactions
Under Colorado law, a contract or transaction between a corporation and one or more of its directors, or between a corporation and any other corporation, partnership, association, or other organization in which one or more of its directors are directors or officers, or have a financial interest, is not void or voidable solely for that reason, or solely because of such relationship or interest, or solely because the interested director was present, participates or votes at the meeting of the board or committee that authorizes the contract or transaction, if the director's interest in the contract or transaction is known to the board of directors or stockholders and the transaction is approved or ratified by the board or stockholders in good faith by a vote sufficient for the purpose without counting the vote or votes of the interested director(s), or the contract or transaction is fair to the corporation at the time it is authorized or approved. Colorado law also includes a provision which repeals the above provisions as of the effective date of any federal law that would permit such conflicting interest transactions.
 
Under Nevada law, a contract or transaction between a corporation and one or more of its directors or officers, or between a corporation and any other corporation, firm, or association in which one or more of its directors or officers are directors or officers, or have a financial interest, is not void or voidable solely for that reason, or solely because of such relationship or interest, or solely because the interested director or officer was present, participates or votes at the meeting of the board or committee that authorizes the contract or transaction, if (i) the director's or officer's interest in the contract or transaction is known to the board of directors (or committee) or stockholders and the transaction is approved or ratified by the board (or committee) or stockholders in good faith, without counting the vote(s) of the common or interested director(s) in the former case and counting such vote(s) in the latter case, (ii) the fact of the common interest is not known to the interested director(s) or officer(s) at the time the transaction is brought before the board, or (iii) the contract or transaction is fair to the corporation at the time it is authorized or approved.
 
 
 
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The Company's articles of incorporation and bylaws do not place restrictions on interested party transactions in addition to those in the CRS.
 
The Company's articles of incorporation and bylaws did not place restrictions on interested party transactions in addition to those in the NRS.
       
Special Meetings of Shareholders
Colorado law provides that special meetings of stockholders are callable by the entire board of directors, a person or persons authorized by the bylaws to call a special meeting of shareholders, or written demand of shareholders holding at least 10% of the votes entitled to be cast on any issue proposed to be considered at the meeting.
 
Nevada law provides that, unless otherwise provided in the articles of incorporation or bylaws, the entire board of directors, any two directors, or the president may call for an annual or a special meeting of stockholders.
       
 
The Company's bylaws provide that special meetings of the shareholders may be called by the president or the board of directors, or upon receipt of one or more written demand from stockholders.
 
The Nevada Bylaws provide that special meetings of the stockholders may be called by: (i) the Chairman of the board of directors, (ii) the Chief Executive Officer, or (iii) the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors, and shall be held at such place, on such date, and at such time as the board of directors shall determine.
       
Failure to Hold an Annual Meeting of Shareholders
Colorado law provides that if a corporation fails to hold an annual meeting within the earlier of six months after the close of the corporation's fiscal year or 15 months after the last annual meeting, a Colorado district court may order an election upon the application of any shareholders entitled to participate in the annual meeting or on application of any person who participated in a call or demand for a special meeting, if notice was not provided pursuant to a lawful demand or the special meeting was not held in accordance with the notice.
 
Under Nevada law, if a corporation fails to elect directors within 18 months after the last election, a Nevada District Court may order an election upon the petition of one or more stockholders holding at least 15% of the corporation's voting power.
 
 
 
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The Company's articles of incorporation and the Company's bylaws do not change this statutory rule.
 
The Nevada Articles and Nevada Bylaws do not change this statutory rule.
       
Cumulative Voting
Colorado law provides that cumulative voting shall apply in the election of directors unless the articles of incorporation specifically deny the right to cumulate votes in the election of directors.
 
Under Nevada law, cumulative voting is permitted in the election of directors only if the articles of incorporation provide for cumulative voting and certain procedures for the exercise of cumulative voting are followed.
       
 
The Company has a provision denying cumulative voting rights in the election of its directors in its bylaws.
 
There is no provision granting cumulative voting rights in the election of its directors in the Nevada Articles.
       
Vacancies
All vacancies on the board of directors of a Colorado corporation may be filled by the shareholders, the board of directors, or by a majority of the remaining directors though less than a quorum, unless the articles of incorporation provide otherwise; subject to the proviso, however, that if a vacancy occurs in a directorship that was held by a director elected by a voting group of stockholders, then only the remaining directors elected by the same voting group or the shareholders in that voting group are entitled to vote to fill the vacancy.
 
All vacancies, including those caused by an increase in the number of directors, may be filled by a majority of the remaining directors, although less than a quorum, or by a sole remaining director, unless it is otherwise provided in the articles of incorporation.
       
 
The Company's bylaws state that any vacancy on the board of directors may be filled by the affirmative vote of a majority of the shareholders at a special meeting called for that purpose or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board, the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office.
 
The Nevada Bylaws provide that any vacancies may be filled by a majority vote of the remaining directors, even though less than a quorum of the board of directors, unless the board of directors determines by resolution to allow such vacancy to be filled by stockholder vote.
 
 
 
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Shareholder Voting Provisions
Under Colorado law, a majority of the voting power, which includes the voting power that is present in person or by proxy, generally constitutes a quorum for the transaction of business at a meeting of stockholders, subject to the proviso that a quorum shall not consist of fewer than one-third of the votes entitled to be cast on the matter by a voting group. Generally, action by the stockholders on a matter other than the election of directors is approved if the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the action, unless otherwise provided in Colorado law or the articles of incorporation. Generally, directors are elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on election of directors. Where a separate vote by a class or series is required, a majority of the voting power of the class or series that is present in person or represented by proxy generally constitutes a quorum for the transaction of business. Generally, an act by the stockholders of each class or series is approved if a majority of the voting power of a quorum of the class or series votes for the action.
 
Under Nevada law, a majority of the voting power, which includes the voting power that is present both in person or by proxy, regardless of whether the proxy has authority to vote on all matters, generally constitutes a quorum for the transaction of business at a meeting of stockholders and action by the stockholders on a matter other than the election of directors is approved if the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the action, unless otherwise provided in Nevada law or the corporation's articles of incorporation or bylaws. Generally, directors are elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on election of directors.
 
Where a separate vote by a class or series or classes or series is required, a majority of the voting power of the class or series that is present or by proxy, regardless of whether the proxy has authority to vote on all matters, generally constitutes a quorum for the transaction of business. Generally, an act by the stockholders of each class or series is approved if a majority of the voting power of a quorum of the class or series votes for the action.
       
 
The Company's articles of incorporation and the Company's bylaws do not change these statutory rules.
 
 
The Nevada Bylaws do not change the statutory rules regarding the above stockholder voting provisions.
Shareholder Action by Written Consent
Colorado law states that shareholders may act in lieu of a meeting by unanimous written consent, and, if expressly provided for in the articles of incorporation, permits that any action required or permitted to be taken at a meeting of the stockholders may be taken without a meeting if the holders of outstanding stock having at least the minimum number of votes that would be necessary to authorize or take such action at a meeting consent to the action in writing.
 
Nevada law provides that, unless the articles of incorporation or bylaws provide otherwise, any action required or permitted to be taken at a meeting of the stockholders may be taken without a meeting if the holders of outstanding stock having at least the minimum number of votes that would be necessary to authorize or take such action at a meeting consent to the action in writing.
       
 
The Company's bylaws provide that any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting if a written consent (or counterparts thereof) that sets forth the action so taken is signed by all of the shareholders entitled to vote with respect to the subject matter thereof and received by the corporation.
 
The Nevada Bylaws provide that any action required to be taken at any annual or special meeting of the stockholders, or any action that may be taken at any annual or special meeting of the stockholders or otherwise, may not be taken without a meeting, prior notice, and a vote, and stockholders may not act by written consent.
 
 
 
 
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Stockholder Vote for Mergers and Other Corporate Reorganizations
In general, Colorado requires authorization by an absolute majority of outstanding shares entitled to vote, as well as approval by the board of directors, with respect to the terms of a merger or a sale of substantially all of the assets of the corporation. So long as the surviving corporation is organized in Colorado, Colorado law does not generally require a shareholders vote of the surviving corporation in a merger if: (a) the plan of merger does not amend the existing articles of incorporation; (b) each share of stock of the surviving corporation outstanding immediately before the effective date of the merger is an identical outstanding share after the merger; (c) the number of voting shares outstanding immediately after the merger, plus the number of voting shares issued as a result of the merger, either by the conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger, will not exceed by more than 20 percent the total number of voting shares of the surviving domestic corporation outstanding immediately before the merger; and (d) the number of participating shares outstanding immediately after the merger, plus the number of participating shares issuable as a result of the merger, either by the conversion of securities issued pursuant to the merger or the exercise of rights and warrants issued pursuant to the merger, will not exceed by more than 20 percent the total number of participating shares outstanding immediately before the merger.
 
Under Nevada law, unless otherwise provided in the articles of incorporation, every corporation may, by action taken at any meeting of its board of directors, sell, lease, or exchange all of its property and assets, upon such terms and conditions as its board of directors may approve, when and as authorized by the affirmative vote of stockholders holding stock in the corporation entitling them to exercise at least a majority of the voting power, or such greater percentage as may be required by the corporation's articles of incorporation or bylaws.
 
With respect to a merger, Nevada law generally requires authorization by a majority of the voting power of the stockholders (or such greater percentage as may be required by the corporation's articles of incorporation or bylaws), as well as approval by the boards of directors.
 
Notwithstanding the foregoing, so long as the surviving corporation is organized in Nevada, Nevada law does not generally require a stockholder vote of the surviving corporation in a merger if (i) the plan of merger does not amend the existing articles of incorporation; (ii) each share of stock of the surviving corporation outstanding immediately before the effective date of the merger is an identical outstanding share after the merger; (iii) the number of voting shares outstanding immediately after the merger, plus the number of voting shares issued or issuable as a result of the merger, either by the conversion of securities issued pursuant to the merger or the exercise of rights issued pursuant to the merger, will not exceed by more than 20% of the total number of voting shares of the surviving domestic corporation outstanding immediately before the merger; and (iv) the number of participating shares outstanding immediately after the merger, plus the number of participating shares issuable as a result of the merger, either by the conversion of securities issued pursuant to the merger or by the exercise of rights issued pursuant to the merger, will not exceed by more than 20% of the total number of participating shares outstanding immediately before the merger.
       
 
The Company's articles of incorporation and the Company's bylaws do not change these statutory rules.
 
The Nevada Articles and Nevada Bylaws do not change this statutory rule.
 
 
 
 
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Amendment or Repeal of Bylaws
Under the CRS, shareholders may amend the corporation's bylaws. Unless otherwise specified in the corporation's articles of incorporation, directors also are permitted to amend the bylaws, other than bylaws establishing greater quorums or voting requirements for shareholders or directors, unless prohibited by the bylaws. Directors may not amend the bylaws to change the quorum or voting requirements for shareholders, and directors may amend the bylaws to change the quorum or voting requirements for directors only if such provision was originally adopted by the directors or if such provision specifies that it may be amended by the directors.
 
Nevada law provides that, unless otherwise prohibited by any bylaws adopted by the stockholders, the board of directors may amend any bylaw, including any bylaw adopted by the stockholders. The articles of incorporation may grant the authority to adopt, amend, or repeal bylaws exclusively to the directors.
       
 
The Company's bylaws provide that the board of directors shall have power, to the maximum extent permitted by the CRS, to make, amend and repeal the bylaws of the corporation at any regular or special meeting of the board unless the shareholders, in making, amending or repealing a particular bylaw, expressly provide that the directors may not amend or repeal such bylaw. The shareholders also shall have the power to make, amend or repeal the bylaws of the corporation at any annual meeting or at any special meeting called for that purpose.
 
The Nevada Bylaws provide that the Nevada Bylaws may be amended by the board of directors or by the stockholders, except that any vote of the stockholders to amend the bylaws requires the affirmative vote of the holders of at least 66 2/3% of the outstanding voting power, voting together as a single class.
 
 
 
 
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Amendment or Repeal of Certificate or Articles of Incorporation
Under the CRS, amendments to the articles of incorporation, other than ministerial amendments authorized by the board of directors without shareholder action, may be proposed by the board of directors or by the holders of shares representing at least 10% of all of the shares entitled to vote upon the amendment. The board of directors must recommend the amendment to the shareholders unless the amendment is proposed by the shareholders or the board of directors determines that because of a conflict of interest or other special circumstances it should make no recommendation and communicates the basis for its determination to the shareholders with the amendment.
 
Nevada law requires the adoption of a resolution by the board of directors followed by the affirmative vote of the majority of voting power of the corporation to approve any amendment to the articles of incorporation unless a greater percentage vote is required by the articles of incorporation. If any proposed amendment would adversely alter or change any preference or any relative or other right given to any class or series of outstanding shares, then the amendment must be approved by the vote, in addition to the affirmative vote otherwise required, of the holders of shares representing a majority of the voting power of each class or series adversely affected by the amendment.
       
 
The Company's articles of incorporation do not contain provisions related to amendments thereof.
 
The Nevada Articles do not change this statutory rule.
       
 
INDEMNIFICATION OF OFFICERS AND DIRECTORS AND ADVANCEMENT OF EXPENSES; LIMITATION ON PERSONAL LIABILITY
   
       
Indemnification
A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her if such person met the Standard of Conduct (addressed below). With respect to actions by or in the right of the corporation, no indemnification shall be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation. In addition, no indemnification shall be made with respect to any matters as to which a director is adjudged liable on the basis the director derived an improper personal benefit. A director or officer who is successful, on the merits or otherwise, in defense of any proceeding subject to the Colorado corporate statutes' indemnification provisions must be indemnified by the corporation for reasonable expenses incurred in connection therewith. The CRS also allows a corporation to indemnify an indemnitee who is not a director to a greater extent than specified in the CRS, if not inconsistent with public policy. However, a corporation may only indemnify a director as specified in the CRS. The CRS requires a corporation to provide its shareholders with written notice of any indemnification payments or expense advancements paid to a director on or before the notice of the next shareholder's meeting after making such payments.
 
Non-derivative suits: a corporation may indemnify a director, officer, or other agent against fees, expenses and liabilities incurred by such person in connection with any suit or action if such agent either: (i) is not liable under the codification of the business judgment rule set forth in NRS §78.138; or (ii) acted in good faith, in a manner reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to criminal actions, had no reason to believe such conduct was unlawful.
 
Derivative suits: With respect to a suit or action by or in the right of the corporation, no indemnification may be made with respect to any claim as to which such agent has been judged liable to the corporation, unless a court determines that such agent is fairly and reasonably entitled to indemnity.
 
Mandatory Indemnification: Nevada law requires a director or officer who has been successful on the merits or otherwise in defense of any suit or action referred to above to be indemnified by the corporation for reasonable expenses incurred in connection therewith, including attorneys' fees.
 
 
 
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The Company's articles of incorporation and the Company's bylaws did not change these statutory rules.
 
The Nevada Articles and Nevada Bylaws provide that the corporation shall, to the maximum extent and in the manner permitted by the NRS, indemnify each of its directors, officers, employees, or agents against expenses (including attorneys' fees), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation.
       
Limitation on Personal Liability of Directors
If the articles of incorporation so provide, a director of a Colorado corporation cannot be held personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty except where the director breached the duty of loyalty, or engaged in acts or omissions not in good faith or involving intentional misconduct or a knowing violation of law, or authorized distributions not permitted under applicable law, or where the director directly or indirectly obtained an improper personal benefit.
 
Nevada law provides that, unless the articles of incorporation provide for greater individual liability, a director or officer will not be individually liable to the corporation or its stockholders for any damages as a result of any act or failure to act in his capacity as a director or office unless it is proven that (i) his act or failure to act constituted a breach of his fiduciary duties as a director or officer and (ii) his breach of those duties involved intentional misconduct, fraud or a knowing violation of law.
       
 
The Company's articles of incorporation provided for elimination of director liability for monetary damages for breach of fiduciary duty except where the director breached the duty of loyalty, or engaged in acts or omissions not in good faith or involving intentional misconduct or a knowing violation of law, authorized distributions not permitted under applicable law, or where the director directly or indirectly obtained an improper personal benefit.
 
The Nevada Articles and Nevada Bylaws do not change this statutory rule.
       
 
DIVIDENDS AND ISSUER REPURCHASES
   
       
Declaration and Payment of Dividends
Under Colorado law, a corporation may make distributions to its stockholders, including by the payment of dividends, provided that, after giving effect to the distribution, the corporation would be able to pay its debts as they become due in the usual course of business and the corporation's total assets would not be less than the sum of its total liabilities plus (unless the articles of incorporation otherwise provide) any amount needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights of stockholders whose rights are superior to those receiving the distribution.
 
Except as otherwise provided in the articles of incorporation, a board of directors may authorize and the corporation may make distributions to its stockholders, including distributions on shares that are partially paid. However, no distribution shall be made if following said distribution: (i) the corporation would be unable to pay its debts as they become due in the usual course of business, or (ii) the distribution would leave the corporation with assets less than the sum of total liabilities (plus any amounts necessary to satisfy any preferential rights).
       
 
The CRS no longer includes par value or statutory definitions of capital and surplus. The CRS does not contain any other provisions concerning redemptions or repurchases by the corporation. The Company's articles of incorporation and The Company's bylaws did not change these statutory provisions.
 
The Nevada Articles and Nevada Bylaws do not change this statutory rule.
 
 
 
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ANTI-TAKEOVER STATUTES
   
       
Control Share Acquisitions
The CRS does not contain provisions designed to deter takeovers of public companies, such as a "fair price" statute, "business combination" statute, "control share acquisition" statute or "cash-out" statute.
 
Nevada's "Acquisition of Controlling Interest" statute applies to Nevada corporations that do business in the State of Nevada directly or through an affiliate and have 200 or more stockholders of record (at least 100 of which have record addresses in Nevada), unless the articles of incorporation or bylaws specifically provide otherwise. If applicable, this statute generally provides that any person acquiring certain statutorily defined "control" percentages (20%, 33.3%, or 51%) of a corporation's outstanding shares in the secondary market is not entitled to vote those "control shares" unless a majority of the other stockholders elects to restore such voting rights in whole or in part.
       
Business Combination Statute
The CRS does not contain provisions designed to deter takeovers of public companies, such as a "fair price" statute, "business combination" statute, "control share acquisition" statute or "cash-out" statute.
 
Nevada law prohibits a Nevada corporation from engaging in any business combination with any interested stockholder (any entity or person beneficially owning, directly or indirectly, 10% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by any of these entities or persons) for a period of two years following the date that the stockholder became an interested stockholder, unless prior to that date: (i) the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder, or (ii) on or subsequent to the date the person became an interested stockholder, the business combination is authorized by the board of directors and a supermajority of the stockholder other than the interested stockholder.
 
 
       
     
Nevada law also provides that business combinations after the two-year period following the date that the stockholder became an interested stockholder may also be prohibited unless approved by the corporation's directors or other stockholders or unless the price and terms of the transaction meet the criteria set forth in the statute.
       
Vote Required
 
The affirmative vote of the majority of votes cast for this proposal is required to approve the change in the state of incorporation of the Company from Colorado to Nevada. 
 
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE CHANGE IN THE STATE OF INCORPORATION OF THE COMPANY FROM COLORADO TO NEVADA.
 
 
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PROPOSAL NO. 2
 
APPROVAL OF AN AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO INCREASE THE
NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE FROM 60,000,000 TO 170,000,000

The Board of Directors has approved an amendment to the Company's Articles of Incorporation to increase the number of shares of common stock authorized to 60,000,000 from 170,000,000. The Company's stockholders are being asked to approve this amendment in the form attached hereto as Appendix C.

Increase Authorized Shares of Common Stock

On the Record Date, we had 5,371,170 shares of common stock issued and outstanding, 54,628,830 shares of common stock that were authorized but unissued, and 5,321,262 shares reserved for future issuance, consisting of (i) 1,900,000 shares of common stock potentially issuable upon conversion of convertible notes payable, (ii) 3,172,929 shares of common stock potentially issuable upon exercise of outstanding warrants and (iii) 248,333 shares of common stock potentially issuable upon exercise of outstanding stock options.

The Board believes that the availability of additional authorized shares of common stock will provide the Company with additional flexibility to issue common stock for a variety of general corporate purposes as the Board may determine to be desirable including, without limitation, stock splits (including splits effected through the declaration of stock dividends), raising capital, future financings, investment opportunities, licensing agreements, acquisitions or other distributions. Without an increase in the number of authorized shares of common stock, the number of remaining common shares may be insufficient to complete one or more of the above corporate actions when and if the Board deems it advisable and in the best interests of the stockholders to do so. We believe that having the additional authorized shares available to the Company for issuance, upon approval of the Board, will be beneficial to us and our stockholders by allowing us to promptly consider and respond to future business opportunities as they arise, including in relation to acquisition opportunities. The delay involved in calling and holding a stockholders' meeting to approve an increase in authorized shares at the time a business opportunity presents itself may prevent us from timely pursuing that opportunity, or may significantly adversely affect the economic or strategic value of that opportunity. The Board has not authorized the Company to take any action with respect to the shares that would be authorized under this proposal, and the Company currently does not have any definitive plans, arrangements or understandings with respect to the issuance of the additional shares of common stock authorized by the proposed amendment to the Articles of Incorporation, including with respect to the exit strategy previously disclosed.

The proposed amendment to increase the authorized number of shares of common stock could, under certain circumstances, have an anti-takeover effect or delay or prevent a change in control of the Company by providing the Company the capability to engage in actions that would be dilutive to a potential acquirer, to pursue alternative transactions, or to otherwise increase the potential cost to acquire control of the Company. Thus, while the Company currently has no intent to employ the additional unissued authorized shares as an anti-takeover device, the proposed amendment may have the effect of discouraging future unsolicited takeover attempts. The Board is not aware of any such attempt to take control of the Company, and would act in the best interest of shareholders if any attempt was made. The proposed amendment has been prompted by business and financial considerations.

The proposed increase in the number of authorized shares of the Company's common stock will not change the number of shares of common stock outstanding, nor will it have any immediate dilutive effect or change the rights of current holders of the Company's common stock. However, the issuance of additional shares of common stock authorized by this amendment to the Articles of Incorporation may occur at times or under circumstances as to have a dilutive effect on earnings per share, book value per share or the percentage voting or ownership interest of the present holders of the Company's common stock.

Once the proposed amendment is approved, no further action by the shareholders would be necessary prior to the issuance of additional shares of common stock unless required by law or the rules of any stock exchange or national securities association on which the common stock is then listed or quoted. Under the proposed amendment, each of the newly authorized shares of common stock will have the same rights and privileges as currently authorized common stock. Adoption of the proposed amendment will not affect the rights of the holders of currently outstanding common stock of the Company nor will it change the par value of the common stock, which will remain no par value per share. If the proposed amendment is adopted, it will become effective upon filing of an amendment to the Company's Articles of Incorporation with the Colorado Secretary of State (or the Nevada Secretary of State, if Proposal 1 is approved).

Vote Required

The affirmative vote of the majority of votes cast for this proposal is required to approve the amendment to the Company's articles of incorporation to increase the number of shares of common stock authorized from 60,000,000 to 170,000,000.

THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE FROM 60,000,000 TO 170,000,000.
 
 
 
 
 
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PROPOSAL NO. 3
 
APPROVAL OF AN AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO
AUTHORIZE 15,000,000 SHARES OF "BLANK CHECK" PREFERRED STOCK

Authorize Blank Check Class of Preferred Stock

The increase set forth in Proposal 3 is being sought to enhance corporate flexibility and to advance to the Company's business plan. Similarly, we believe that for us to successfully execute our business strategy we may need to raise investment capital and it may be preferable or necessary to issue preferred stock to investors and or to retain key personnel. Preferred stock usually grants the holders certain preferential rights in voting, dividends, liquidation or other rights in preference over a company's common stock. Accordingly, in order to grant us the flexibility to issue our equity securities in the manner best suited for our Company, or as may be required by the capital markets, the amendment will authorize 15,000,000 authorized shares of "blank check" preferred stock for us to issue. The Company's stockholders are being asked to approve this amendment in the form attached hereto as Appendix D.

The term "blank check" refers to preferred stock, the creation and issuance of which is authorized in advance by our Shareholders and the terms, rights and features of which are determined by our Board of Directors upon issuance. The authorization of such "blank check" preferred stock permits our Board of Directors to authorize and issue preferred stock from time to time in one or more series without seeking further action or vote of our Shareholders.

Subject to the provisions of the amendment and the limitations prescribed by law, our Board of Directors would be expressly authorized, at its discretion, to adopt resolutions to issue shares, to fix the number of shares and to change the number of shares constituting any series and to provide for or change the voting powers, designations, preferences and relative, participating, optional or other special rights, qualifications, limitations or restrictions thereof, including dividend rights (including whether the dividends are cumulative), dividend rates, terms of redemption (including sinking fund provisions), redemption prices, conversion rights and liquidation preferences of the shares constituting any series of the preferred stock, in each case without any further action or vote by our shareholders. Our Board of Directors would be required to make any determination to issue shares of preferred stock based on its judgment as to what is in the best interests of the Company and our shareholders. The amendment to the Company's Articles of Incorporation will give our Board of Directors flexibility, without further shareholder action, to issue preferred stock on such terms and conditions as our Board of Directors deems to be in our best interests and the best interests of our Shareholders.

The authorization of the "blank check" preferred stock will provide us with increased financial flexibility in meeting future capital requirements. It will allow preferred stock to be available for issuance from time to time and with such features as determined by our Board of Directors for any proper corporate purpose. It is anticipated that such purposes may include, without limitation, exchanging preferred stock for common stock, the issuance for cash as a means of obtaining capital for our use, or issuance as part or all of the consideration required to be paid by us for acquisitions of other businesses or assets.
 
The issuance by us of preferred stock could dilute both the equity interests and the earnings per share of existing holders of our common stock. Such dilution may be substantial, depending upon the amount of shares issued. The newly authorized shares of preferred stock could also have voting rights superior to our common stock, and therefore would have a dilutive effect on the voting power of our existing shareholders.
 
Any issuance of preferred stock with voting rights could, under certain circumstances, have the effect of delaying or preventing a change in control of our Company by increasing the number of outstanding shares entitled to vote and by increasing the number of votes required to approve a change in control of our Company. Shares of voting or convertible preferred stock could be issued, or rights to purchase such shares could be issued, to render more difficult or discourage an attempt to obtain control of our Company by means of a tender offer, proxy contest, merger or otherwise. The ability of our Board of Directors to issue such shares of preferred stock, with the rights and preferences it deems advisable, could discourage an attempt by a party to acquire control of our Company by tender offer or other means. Such issuances could therefore deprive our shareholders of benefits that could result from such an attempt, such as the realization of a premium over the market price that such an attempt could cause. Moreover, the issuance of such shares of preferred stock to persons friendly to our Board of Directors could make it more difficult to remove incumbent managers and directors from office even if such change were to be favorable to shareholders generally.
The Company has (i) no present plans or commitments for the issuance or use of the preferred stock in connection with any financing, and (ii) no present plans, proposals or arrangements, written or otherwise, at this time to issue any of the preferred stock in connection with a merger, share exchange or acquisition, including with respect to the exit strategy previously disclosed, but other than as described in Proposal 8, whereby certain convertible promissory notes shall be exchanged for shares of Series A Convertible Preferred Stock, to be created pending approval of this Proposal 3, pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended.
Vote Required

The affirmative vote of the majority of votes cast for this proposal is required to approve the amendment to the Company's articles of incorporation to authorize 15,000,000 shares of "blank check" preferred stock.

THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO AUTHORIZE 15,000,000 SHARES OF "BLANK CHECK" PREFERRED STOCK.
 
 
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PROPOSAL NO. 4
APPROVAL OF ISSUANCE OF SECURITIES IN ONE OR MORE NON-PUBLIC OFFERINGS WHERE THE MAXIMUM DISCOUNT AT WHICH SECURITIES WILL BE OFFERED WILL BE EQUIVALENT TO A DISCOUNT OF 30% BELOW THE MARKET PRICE OF OUR COMMON STOCK IN ACCORDANCE WITH NASDAQ MARKETPLACE RULE 5635(d)
 
Our common stock is currently listed on The Nasdaq Capital Market and, as such, we are subject to Nasdaq Marketplace Rules. Nasdaq Marketplace Rule 5635(d) ("Rule 5635(d)") requires us to obtain stockholder approval prior to the issuance of our common stock in connection with certain non-public offerings involving the sale, issuance or potential issuance by the Company of common stock (and/or securities convertible into or exercisable for common stock) equal to 20% or more of the common stock outstanding before the issuance. shares of our common stock issuable upon the exercise or conversion of warrants, options, debt instruments, preferred stock or other equity securities issued or granted in such non-public offerings will be considered shares issued in such a transaction in determining whether the 20% limit has been reached, except in certain circumstances such as issuing warrants that are not exercisable for a minimum of six months and have an exercise price that exceeds market value.
 
We may seek to raise additional capital to implement our business strategy and enhance our overall capitalization. We have not determined the particular terms for such prospective offerings. Because we may seek additional capital that triggers the requirements of Rule 5635(d), we are seeking stockholder approval now, so that we will be able to move quickly to take full advantage of any opportunities that may develop in the equity markets.
 
We hereby submit this Proposal 4 to our stockholders for their approval of the potential issuance of shares of our common stock, or securities convertible into our common stock, in one or more non-public capital-raising transactions, or offerings, subject to the following limitations:
 
·
The aggregate number of shares issued in the offerings will not exceed 4,000,000 shares of our common stock, subject to adjustment for any reverse stock split effected prior to the offerings (including pursuant to preferred stock, options, warrants, convertible debt or other securities exercisable for or convertible into common stock);
 
·
The total aggregate consideration will not exceed $10,000,000 million;
 
·
The maximum discount at which securities will be offered (which may consist of a share of common stock and a warrant for the issuance of up to an additional share of common stock) will be equivalent to a discount of 30% below the market price of our common stock at the time of issuance in recognition of the limited public float of our traded common stock and historical volatility making the pricing discount of our stock required by investors at any particular time difficult, at this time, to predict. For example, the range of high and low closing prices for our common stock as reported by The Nasdaq Capital Market, for the period December 31, 2015 through December 31, 2016 was $1.62 and $4.54, respectively;
 
 ·
Such offerings will occur, if at all, on or before August 21, 2018; and
 
 
·
Such other terms as the Board of Directors shall deem to be in the best interests of the Company and its stockholders, not inconsistent with the foregoing.
 
The issuance of shares of our common stock, or other securities convertible into shares of our common stock, in accordance with any offerings would dilute, and thereby reduce, each existing stockholder's proportionate ownership in our common stock.  The stockholders do not have preemptive rights to subscribe to additional shares that may be issued by the Company in order to maintain their proportionate ownership of the common stock.

The issuance of shares of common stock in one or more non-public offerings could have an anti-takeover effect. Such issuance could dilute the voting power of a person seeking control of the Company, thereby deterring or rendering more difficult a merger, tender offer, proxy contest or an extraordinary corporate transaction opposed by the Company.
 
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The Board of Directors has not yet determined the terms and conditions of any offerings. As a result, the level of potential dilution cannot be determined at this time, but as discussed above, we may not issue more than 4,000,000 shares of common stock in the aggregate pursuant to the authority requested from stockholders under this proposal (subject to adjustment for any reverse stock split). It is possible that if we conduct a non-public stock offering, some of the shares we sell could be purchased by one or more investors who could acquire a large block of our common stock. This would concentrate voting power in the hands of a few stockholders who could exercise greater influence on our operations or the outcome of matters put to a vote of stockholders in the future.

We cannot determine what the actual net proceeds of the offerings will be until they are completed, but as discussed above, the aggregate dollar amount of the non-public offerings will be no more than $10,000,000 million. If all or part of the offerings is completed, the net proceeds will be used for general corporate purposes. We currently have no arrangements or understandings regarding any specific transaction with investors, so we cannot predict whether we will be successful should we seek to raise capital through any offerings.
 
Vote Required

The affirmative vote of a majority of the votes cast for this proposal is required to approve the issuance of securities in one or more non-public offerings, as required by and in accordance with Nasdaq Marketplace Rule 5635(d).

THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE ISSUANCE OF SECURITIES IN ONE OR MORE NON-PUBLIC OFFERINGS WHERE THE MAXIMUM DISCOUNT AT WHICH SECURITIES WILL BE OFFERED WILL BE EQUIVALENT TO A DISCOUNT OF 30% BELOW THE MARKET PRICE OF OUR COMMON STOCK IN ACCORDANCE WITH NASDAQ MARKETPLACE RULE 5635(d).
 
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PROPOSAL NO. 5
 
APPROVAL OF ISSUANCE OF SECURITIES IN ONE OR MORE NON-PUBLIC OFFERINGS WHERE THE MAXIMUM
DISCOUNT AT WHICH SECURITIES WILL BE OFFERED WILL BE EQUIVALENT TO A DISCOUNT OF 20% BELOW THE
MARKET PRICE OF OUR COMMON STOCK IN ACCORDANCE WITH NASDAQ MARKETPLACE RULE 5635(d)
 
In the event that the stockholders do not approve Proposal 4, the Board recommends the stockholders approve the following proposal which is identical to Proposal 4 except that the maximum discount at which securities of the Company will be offered will be equivalent to a discount of 20% below the market price for our common stock at the time of issuance. The Board of Directors desires to give the Company's stockholders a meaningful opportunity to make an informed decision regarding the maximum discount below the market price for our common stock to be authorized for future issuance consistent with the principles adopted by NASDAQ (as defined below) and believes providing stockholders several options permits a meaningful informed decision.  

The Board's recommendation for Proposal 5 is not contingent on the outcome of the vote on Proposal 4.  In the event both Proposal 4 and Proposal 5 are approved by stockholders, only Proposal 4 shall be deemed to have any effect and the Company will only be authorized to engage in offerings that will not exceed 4 million shares and $10 million in aggregate consideration, as further governed by the parameters of Proposal 4.
 
Our common stock is currently listed on The Nasdaq Capital Market and, as such, we are subject to Nasdaq Marketplace Rules. Nasdaq Marketplace Rule 5635(d) ("Rule 5635(d)") requires us to obtain stockholder approval prior to the issuance of our common stock in connection with certain non-public offerings involving the sale, issuance or potential issuance by the Company of common stock (and/or securities convertible into or exercisable for common stock) equal to 20% or more of the common stock outstanding before the issuance. Shares of our common stock issuable upon the exercise or conversion of warrants, options, debt instruments, preferred stock or other equity securities issued or granted in such non-public offerings will be considered shares issued in such a transaction in determining whether the 20% limit has been reached, except in certain circumstances such as issuing warrants that are not exercisable for a minimum of six months and have an exercise price that exceeds market value.
 
We may seek to raise additional capital to implement our business strategy and enhance our overall capitalization. We have not determined the particular terms for such prospective offerings. Because we may seek additional capital that triggers the requirements of Rule 5635(d), we are seeking stockholder approval now, so that we will be able to move quickly to take full advantage of any opportunities that may develop in the equity markets.
 
We hereby submit this Proposal 5 to our stockholders for their approval of the potential issuance of shares of our common stock, or securities convertible into our common stock, in one or more non-public capital-raising transactions, or offerings, subject to the following limitations:
 
·
The aggregate number of shares issued in the offerings will not exceed 4,000,000 shares of our common stock, subject to adjustment for any reverse stock split effected prior to the offerings (including pursuant to preferred stock, options, warrants, convertible debt or other securities exercisable for or convertible into common stock);
 
·
The total aggregate consideration will not exceed $10,000,000 million;
 
·
The maximum discount at which securities will be offered (which may consist of a share of common stock and a warrant for the issuance of up to an additional share of common stock) will be equivalent to a discount of 20% below the market price of our common stock at the time of issuance in recognition of the limited public float of our traded common stock and historical volatility making the pricing discount of our stock required by investors at any particular time difficult, at this time, to predict. For example, the range of high and low closing prices for our common stock as reported by The Nasdaq Capital Market, for the period December 31, 2015 through December 31, 2016 was $1.62 and $4.54, respectively;
 
·
Such offerings will occur, if at all, on or before August 21, 2018; and
 
·
Such other terms as the Board of Directors shall deem to be in the best interests of the Company and its stockholders, not inconsistent with the foregoing.
 
 
 
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The issuance of shares of our common stock, or other securities convertible into shares of our common stock, in accordance with any offerings would dilute, and thereby reduce, each existing stockholder's proportionate ownership in our common stock.  The stockholders do not have preemptive rights to subscribe to additional shares that may be issued by the Company in order to maintain their proportionate ownership of the common stock.

The issuance of shares of common stock in one or more non-public offerings could have an anti-takeover effect. Such issuance could dilute the voting power of a person seeking control of the Company, thereby deterring or rendering more difficult a merger, tender offer, proxy contest or an extraordinary corporate transaction opposed by the Company.

The Board of Directors has not yet determined the terms and conditions of any offerings. As a result, the level of potential dilution cannot be determined at this time, but as discussed above, we may not issue more than 4,000,000 shares of common stock in the aggregate pursuant to the authority requested from stockholders under this proposal (subject to adjustment for any reverse stock split). It is possible that if we conduct a non-public stock offering, some of the shares we sell could be purchased by one or more investors who could acquire a large block of our common stock. This would concentrate voting power in the hands of a few stockholders who could exercise greater influence on our operations or the outcome of matters put to a vote of stockholders in the future.

We cannot determine what the actual net proceeds of the offerings will be until they are completed, but as discussed above, the aggregate dollar amount of the non-public offerings will be no more than $10,000,000 million. If all or part of the offerings is completed, the net proceeds will be used for general corporate purposes. We currently have no arrangements or understandings regarding any specific transaction with investors, so we cannot predict whether we will be successful should we seek to raise capital through any offerings.

 Vote Required

The affirmative vote of a majority of the votes cast for this proposal is required to approve the issuance of securities in one or more non-public offerings, as required by and in accordance with Nasdaq Marketplace Rule 5635(d).
 
THE BOARD RECOMMENDS THATTHE STOCKHOLDERS VOTE FOR APPROVAL OF THE ISSUANCE OF SECURITIES IN ONE OR MORE NON-PUBLIC OFFERINGS WHERE THE MAXIMUM DISCOUNT AT WHICH SECURITIES WILL BE OFFERED WILL BE EQUIVALENT TO A DISCOUNT OF 20% BELOW THE MARKET PRICE OF OUR COMMON STOCK IN ACCORDANCE WITH NASDAQ MARKETPLACE RULE 5635(d).
 
 
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PROPOSAL NO. 6
 
APPROVAL OF THE PARTICIPATION OF OFFICERS, DIRECTORS AND EMPLOYEES OF THE COMPANY TO
PARTICIPATE IN THE BELOW MARKET OFFERINGS APPROVED PURSUANT TO
PROPOSAL 4 OR PROPOSAL 5 IN ACCORDANCE WITH NASDAQ MARKETPLACE RULE 5635(c)
 
Our common stock is currently listed on The NASDAQ Capital Market, and, as such, we are subject to the NASDAQ Marketplace Rules.  NASDAQ Marketplace Rule 5635(c) ("Rule 5635(c)") requires us to obtain stockholder approval of the participation of officers, directors and employees of the Company in the below market offerings approved pursuant to Proposal 4 or Proposal 5.

As discussed in Proposal 4 or Proposal 5 above, we may seek to raise additional capital to implement our business strategy and enhance our overall capitalization through certain non-public offerings involving the sale, issuance or potential issuance of our common stock (and/or securities convertible into or exercisable for common stock).  We have not determined the particular terms for such prospective offerings provided for by Proposal 4 or Proposal 5 above.  However, Rule 5635(c) requires shareholder approval for certain equity compensation arrangements involving the issuance of common stock by a company to its officers, directors, employees, or consultants and, pursuant to Rule 5635(c), such issuances of common stock at a price less than the market value of the common stock are considered a form of "equity compensation." For this purpose, market value is the closing bid price immediately preceding the time the Company enters into a binding agreement to issue the securities. Because we may seek additional capital that triggers the requirements of Rule 5635(c), we are seeking stockholder approval now, so that we will be able to move more quickly to take advantage of any opportunities that may develop in the equity markets.

We hereby submit this Proposal 6 to our stockholders for their approval of the participation of officers, directors and employees of the Company in the below market offerings approved pursuant to Proposal 4 or Proposal 5 above.

Further, the participation of our officers, directors and employees in the below market offerings approved pursuant to Proposal 4 or Proposal 5 above would dilute, and thereby reduce, each existing stockholder's proportionate ownership in our common stock. The stockholders do not have preemptive rights to subscribe to additional shares that may be issued by the Company in order to maintain their proportionate ownership of the common stock.
 
The issuance of shares of common stock in one or more non-public offerings could have an anti-takeover effect. Such issuance could dilute the voting power of a person seeking control of the Company, thereby deterring or rendering more difficult a merger, tender offer, proxy contest or an extraordinary corporate transaction opposed by the Company.
 
The Board of Directors has not yet determined the terms and conditions of any of the proposed offerings provided for by Proposal 4 or Proposal 5. As a result, the level of potential dilution cannot be determined at this time. It is possible that if we conduct a non-public stock offering, some of the shares we sell could be purchased by one or more investors who could acquire a large block of our common stock. This would concentrate voting power in the hands of a few stockholders who could exercise greater influence on our operations or the outcome of matters put to a vote of stockholders in the future.
 
We cannot determine what the actual net proceeds of the offerings will be until they are completed. If all or part of the offerings is completed, the net proceeds will be used for general corporate purposes. We currently have no arrangements or understandings regarding any specific transaction with investors, so we cannot predict whether we will be successful should we seek to raise capital through any offerings.
 
Vote Required for Approval
 
The affirmative vote of a majority of the votes cast for this proposal is required to approve the participation of officers, directors and employees of the Company to participate in the below market offerings approved pursuant to Proposal 4 or Proposal 5, as required by and in accordance with NASDAQ Marketplace Rule 5635(c).

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVING THE PARTICIPATION OF OFFICERS, DIRECTORS AND EMPLOYEES OF THE COMPANY IN THE BELOW MARKET OFFERINGS APPROVED PURSUANT TO PROPOSAL 4 OR PROPOSAL 5, AS REQUIRED BY AND IN ACCORDANCE WITH NASDAQ MARKETPLACE RULE 5635(C).
 
 
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PROPOSAL NO. 7
 
APPROVAL OF THE 2017 EQUITY INCENTIVE PLAN AND THE RESERVATION OF 895,000 SHARES OF COMMON STOCK FOR ISSUANCE THEREUNDER.

Description of Our 2017 Equity Incentive Plan
   
    On April 28, 2017, the Board adopted the 2017 Equity Incentive Plan (the "2017 Plan"), an omnibus equity incentive plan pursuant to which the Company may grant cash and equity-linked awards to certain officers, directors, consultants and others. The Board recommends adoption of the 2017 Plan as a means to offer incentives and attract, motivate and retain and reward persons eligible to participate in the 2017 Plan. Accordingly the Board unanimously approved and adopted the 2017 Plan.
 
The 2017 Plan will replace the Company's 2002 Stock Incentive Plan (the "2002 Plan") on a prospective basis.  If the 2017 Plan is approved by the Company's shareholders, no new grants will be made from the 2002 Plan.  See "– Shares Available." Any awards previously granted under the 2002 Plan will continue to vest and be exercisable in accordance with their original terms and conditions.  If the 2017 Plan is not approved, the Company intends to continue to issue options under the 2002 Plan to the extent that authorized shares are available.

    Set forth below is a summary of the 2017 Plan, which is qualified in its entirety by reference to the full text of the 2017 Plan, a copy of which is included as Appendix E to this proxy statement.
 
Shares Available
 
As of the date of approval of the 2017 Plan, no additional grants will be made under the Corporation's 2002 Plan.  Outstanding grants and awards under the 2002 Plan will continue to be governed by their terms and the terms of the 2002 Plan.

The 2017 Plan authorizes issuance of 895,000 shares of the Company's common stock, which represents approximately 17% of the Company's issued common stock as of April 20, 2017, on a fully diluted basis and which includes previously approved plan rights of the 2002 Plan which are being transferred to the 2017 Plan; provided, however, that such share reserve shall be increased from time to time by a number of shares equal to the number of shares of common stock that are issuable pursuant to option grants outstanding under the 2002 Plan that, but for the termination or suspension of the 2002 Plan, would otherwise have reverted to the share reserve of the 2002 Plan pursuant to the terms thereof as a result of the expiration, termination, cancellation, cashless exercise, net exercise or forfeiture of such options.    

As of the Record Date, 91,333 options and 157,000 shares of common stock were issued under the previously adopted 2002 Plan.
 
Administration
 
The 2017 Plan will be administered by the Board or by one or more committees of directors appointed by the Board or another committee (within its delegated authority) to administer all or certain aspects of the 2017 Plan (the "Administrator"). Any such committee shall be comprised solely of one or more directors or such number of directors as may be required under applicable law. Any committee delegated administrative authority under the 2017 Plan may further delegate its authority under the 2017 Plan to another committee of directors, and any such delegate shall be deemed to be an Administrator of the 2017 Plan. The Administrator comprised solely of directors may also delegate, to the extent permitted by applicable law, to one or more officers of the Company, its powers under the 2017 Plan (a) to Eligible Persons (as defined below) who will receive grants of awards under the 2017 Plan and (b) to determine the number of shares subject to, and the other terms and conditions of, such awards.  The Board may delegate different levels of authority to different committees with administrative and grant authority under the 2017 Plan. It is anticipated that the Administrator (either generally or with respect to specific transactions) will be constituted so as to comply, as necessary or desirable, with the requirements of Internal Revenue Code of 1986, as amended (the "Code"), Section 162(m) of the Code and Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended.
 
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Eligibility
 
Awards may be granted pursuant to the 2017 Plan only to persons who are eligible persons. Under the 2017 Plan, "Eligible Person" means any person who is either: (a) an officer (whether or not a director) or employee of the Company or one of its subsidiaries; (b) a director of the Company or one of its subsidiaries; or (c) an individual consultant who renders bona fide services (other than services in connection with the offering or sale of securities of the Company or one of its subsidiaries in a capital-raising transaction or as a market maker or promoter of securities of the Company or one of its subsidiaries) to the Company or one of its subsidiaries and who is selected to participate in the 2017 Plan by the Administrator; provided, however, that an Eligible Person may only participate in the 2017 Plan if such participation would not adversely affect either the Company's eligibility to use Form S-8 to register, under the Securities Act of 1933, as amended, the offering and sale of shares issuable under the 2017 Plan by the Company or the Company's compliance with any other applicable laws. As of the Record Date, the approximate number of Eligible Persons under the 2017 Plan included two officers or employees of the Company and four directors of the Company.
 
Awards
 
The 2017 Plan permits the grant of: (a) stock options, which may be intended as an incentive stock option within the meaning of Section 422 of the Code (an "ISO") or as a nonqualified stock option (an option not intended to be an ISO); (b) stock appreciation rights ("SARs"); (c) restricted shares; (d) restricted share units; (e) cash awards; or (f) other awards, including: (i) stock bonuses, performance stock, performance units, dividend equivalents, or similar rights to purchase or acquire shares, whether at a fixed or variable price or ratio related to the common stock (subject to certain requirements as discussed in the 2017 Plan and in compliance with applicable laws), upon the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or any combination thereof; or (ii) any similar securities with a value derived from the value of or related to the common stock and/or returns thereon.  All of the reserved shares under the 2017 Plan may be issued as ISOs.
  
The Administrator may adopt reasonable counting procedures to ensure appropriate counting, avoid double counting (as, for example, in the case of tandem or substitute awards) and make adjustments in accordance with the 2017 Plan. Shares shall be counted against those reserved to the extent such shares have been delivered and are no longer subject to a substantial risk of forfeiture. Accordingly, (i) to the extent that an award under the 2017 Plan, in whole or in part, is canceled, expired, forfeited, settled in cash, settled by delivery of fewer shares than the number of shares underlying the award, or otherwise terminated without delivery of shares to the participant, the shares retained by or returned to the Company will not be deemed to have been delivered under the 2017 Plan and will be deemed to remain or to become available under the 2017 Plan; and (ii) shares that are withheld from such an award or separately surrendered by the participant in payment of the exercise price or taxes relating to such an award shall be deemed to constitute shares not delivered and will be deemed to remain or to become available under the 2017 Plan. The foregoing adjustments to the share limit of the 2017 Plan are subject to any applicable limitations under Section 162(m) of the Code with respect to awards intended to qualify as performance-based compensation thereunder.
 
    The number of shares available for issuance under the 2017 Plan (as well as the number of shares that may be issued as ISOs, and the share limitations set forth below under the heading "— Performance Based Compensation") are subject to proportionate adjustment by the Administrator in the event of any reclassification, recapitalization, stock split (including a stock split in the form of a stock dividend) or reverse stock split, or upon any merger, arrangement, combination, consolidation, or other reorganization, or upon any spin-off, split-up or similar extraordinary dividend distribution in respect of the common stock, or upon any exchange of common stock or other securities of the Company, or upon any similar unusual or extraordinary corporate transaction in respect of the common stock.
 
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    Option and SAR Awards. Option and SAR awards granted under the 2017 Plan must have an exercise price or base price of no less than 100% of the fair market value of a share of common stock on the date of grant of the option (or 110% of the fair market value on the date of grant, in the case of ISOs granted to certain ten percent stockholders of the Company). Options and SAR awards shall become exercisable upon such conditions as the Administrator may establish in its sole discretion. The exercise price of any option shall be paid in cash or by any of the methods set forth below under the heading "— Consideration for Awards." Option and SAR awards are exercisable for a period established by the Administrator, which in no event shall exceed ten years from the date of grant (five years in the case of ISOs granted to certain ten percent stockholders of the Company). If the Administrator does not specify otherwise in an award agreement, upon termination of a participant's employment or other service to the Company, option and SAR awards shall expire (1) three months after the last day that the participant is employed by or provides services to the Company or any subsidiary (provided, however, that in the event of the participant's death during this period, those persons entitled to exercise the option or SAR pursuant to the laws of descent and distribution shall have one year following the date of death within which to exercise such option or SAR); (2) in the case of a participant whose termination of employment or services is due to death or disability (as defined in the applicable award agreement), twelve months after the last day that the participant is employed by or provides services to the Company or any subsidiary; and (3) immediately upon a participant's termination for "cause."
 
    Restricted Shares. A participant that is granted restricted stock under the 2017 Plan shall have all of the rights of a shareholder, including the right to vote the shares of restricted stock and the right to receive dividends thereon (subject to any mandatory reinvestment or other requirements imposed by the Administrator). As a condition to the grant of an award of restricted stock, subject to applicable law, the Administrator may require or permit a participant to elect that any cash dividends paid on a share of restricted stock be automatically reinvested in additional shares of restricted stock or applied to the purchase of additional awards under the 2017 Plan. Unless otherwise determined by the Administrator, stock distributed in connection with a stock split or stock dividend, and other property distributed as a dividend, shall be subject to restrictions and a risk of forfeiture to the same extent as the restricted stock with respect to which such stock or other property has been distributed.
 
    Restricted Share Units. At the time an award of restricted share units is made, the Administrator shall determine the period of time during which the restricted share units shall vest and the timing of settlement. Subject to the 2017 Plan, the applicable award agreement and any other procedures established by the Administrator, the Administrator may determine to pay dividend equivalent rights with respect to restricted share units, in which case, the Company shall establish an account for the participant and reflect in that account any securities, cash or other property comprising any dividend or property distribution with respect to the shares of common stock underlying each restricted share unit.  Each amount or other property credited to any such account shall be subject to the same vesting conditions as the restricted share unit to which it relates.  The participant shall have the right to be paid the amounts or other property credited to such account upon vesting of the subject restricted share unit. Each participant receiving restricted share units shall have no rights as a shareholder with respect to such restricted share units until such time as shares of common stock are issued to the participant.
 
    Director Compensation Policy. A portion of the shares available for issuance under the 2017 Plan will be available for issuance in connection with the Company's director compensation policy.
 
Performance Based Compensation

The 2017 Plan provides for the grant of certain awards, the vesting or payment of which may be contingent on the satisfaction of certain performance criteria. Such performance-based awards are designed to be exempt from the limitations of Section 162(m) of the Code, as described below under "—Certain Federal Tax Consequences." The maximum number of shares that may be issued to any single participant pursuant to options and SARs during the term of the 2017 Plan shall not exceed 895,000 shares. The maximum number of shares of common stock which may be delivered pursuant to other performance-based equity awards granted during the 162(m) Term (as defined below) may not exceed 895,000 shares, and the maximum amount of cash compensation payable pursuant to performance-based cash awards granted during the 162(m) Term (as defined below) may not exceed $1,000,000. The 162(m) Term is the period beginning on the effective date of the 2017 Plan and ending on the date of the first stockholder meeting that occurs in the fifth year following the year in which the Company's stockholders first approve this 2017 Plan (the "162(m) Term").
 
The 2017 Plan includes the following performance criteria that may be used by the Administrator when granting performance-based awards: (1) earnings per share, (2) cash flow (which means cash and cash equivalents derived from either (i) net cash flow from operations or (ii) net cash flow from operations, financing and investing activities), (3) total stockholder return, (4) price per share of common stock, (5) gross revenue, (6) revenue growth, (7) operating income (before or after taxes), (8) net earnings (before or after interest, taxes, depreciation and/or amortization), (9) return on equity, (10) capital employed, or on assets or on net investment, (11) cost containment or reduction, (12) cash cost per ounce of production, (13) operating margin, (14) debt reduction, (15) resource amounts, (16) production or production growth, (17) resource replacement or resource growth, (18) successful completion of financings, or (19) any combination of the foregoing.
 
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Fair Market Value
 
       Under the 2017 Plan, "Fair Market Value" means, unless otherwise determined or provided by the Administrator under the circumstances, the closing price for a share of common stock on the trading day immediately before the grant date, as furnished by The Nasdaq Capital Market or other principal stock exchange on which the common stock is then listed for the date in question, or if the common stock is no longer listed on a principal stock exchange, then by the Over-the-Counter Bulletin Board or OTC Markets. If the common stock is no longer listed on The Nasdaq Capital Market or listed on a principal stock exchange or is no longer actively traded on the Over-the-Counter Bulletin Board or OTC Markets as of the applicable date, the Fair Market Value of the common stock shall be the value as reasonably determined by the Administrator for purposes of the award under the circumstances.
 
Consideration for Awards
 
                The purchase price for any award granted under the 2017 Plan or the common stock to be delivered pursuant to any such award, as applicable, may be paid by means of any lawful consideration as determined by the Administrator, including, without limitation, one or a combination of the following methods:

·
services rendered by the recipient of such award;
 
·
cash, check payable to the order of the Company, or electronic funds transfer;
 
·
notice and third party payment in such manner as may be authorized by the Administrator;
 
·
the delivery of previously owned shares of common stock that are fully vested and unencumbered;
 
·
by a reduction in the number of shares otherwise deliverable pursuant to the award; or
 
·
subject to such procedures as the Administrator may adopt, pursuant to a "cashless exercise" with a third party who provides financing for the purposes of (or who otherwise facilitates) the purchase or exercise of awards.
 
                In the event that the Administrator allows a participant to exercise an award by delivering shares of common stock previously owned by such participant and unless otherwise expressly provided by the Administrator, any shares delivered which were initially acquired by the participant from the Company (upon exercise of a stock option or otherwise) must have been owned by the participant at least six months as of the date of delivery (or such other period as may be required by the Administrator in order to avoid adverse accounting treatment). Shares of common stock used to satisfy the exercise price of an option shall be valued at their fair market value on the date of exercise. The Company will not be obligated to deliver any shares unless and until it receives full payment of the exercise or purchase price therefor and any related withholding obligations and any other conditions to exercise or purchase, as established from time to time by the Administrator, have been satisfied. Unless otherwise expressly provided in the applicable award agreement, the Administrator may at any time eliminate or limit a participant's ability to pay the purchase or exercise price of any award or shares by any method other than cash payment to the Company.

Change in Control
 
Upon a Change in Control (as defined below), each then-outstanding option and SAR shall automatically become fully vested, all restricted shares then outstanding shall automatically fully vest free of restrictions, and each other award granted under the 2017 Plan that is then outstanding shall automatically become vested and payable to the holder of such award unless the Administrator has made appropriate provision for the substitution, assumption, exchange or other continuation of the award pursuant to the Change in Control.  Notwithstanding the foregoing, the Administrator, in its sole and absolute discretion, may choose (in an award agreement or otherwise) to provide for full or partial accelerated vesting of any award upon a Change in Control (or upon any other event or other circumstance related to the Change in Control, such as an involuntary termination of employment occurring after such Change in Control, as the Administrator may determine), irrespective of whether such any such award has been substituted, assumed, exchanged or otherwise continued pursuant to the Change in Control.
 
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For purposes of the 2017 Plan, "Change in Control" shall be deemed to have occurred if:
 
(i)           a tender offer (or series of related offers) shall be made and consummated for the ownership of 50% or more of the outstanding voting securities of the Company, unless as a result of such tender offer more than 50% of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the stockholders of the Company (as of the time immediately prior to the commencement of such offer), any employee benefit plan of the Company or its subsidiaries, and their affiliates;
 
(ii)           the Company shall be merged or consolidated with another entity, unless as a result of such merger or consolidation more than 50% of the outstanding voting securities of the surviving or resulting entity shall be owned in the aggregate by the stockholders of the Company (as of the time immediately prior to such transaction), any employee benefit plan of the Company or its subsidiaries, and their affiliates;
 
(iii)           the Company shall sell substantially all of its assets to another entity that is not wholly owned by the Company, unless as a result of such sale more than 50% of such assets shall be owned in the aggregate by the stockholders of the Company (as of the time immediately prior to such transaction), any employee benefit plan of the Company or its Subsidiaries and their affiliates; or
 
(iv)           a person shall acquire 50% or more of the outstanding voting securities of the Company (whether directly, indirectly, beneficially or of record), unless as a result of such acquisition more than 50% of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the stockholders of the Company (as of the time immediately prior to the first acquisition of such securities by such person), any employee benefit plan of the Company or its subsidiaries, and their affiliates.
 
Notwithstanding the foregoing, (1) the Administrator may waive the requirement described in paragraph (iv) above that a person must acquire more than 50% of the outstanding voting securities of the Company for a Change in Control to have occurred if the Administrator determines that the percentage acquired by a person is significant (as determined by the Administrator in its discretion) and that waiving such condition is appropriate in light of all facts and circumstances, and (2) no compensation that has been deferred for purposes of Section 409A of the Code shall be payable as a result of a Change in Control unless the Change in Control qualifies as a change in ownership or effective control of the Company within the meaning of Section 409A of the Code.
 
The "spread" under an ISO—i.e., the difference between the fair market value of the shares at exercise and the exercise price—is classified as an item of adjustment in the year of exercise for purposes of the alternative minimum tax. If a participant's alternative minimum tax liability exceeds such participant's regular income tax liability, the participant will owe the alternative minimum tax liability.
 
Restricted Stock. Restricted stock is generally taxable to the participant as ordinary compensation income on the date that the restrictions lapse (i.e. the date that the stock vests), in an amount equal to the excess of the fair market value of the shares on such date over the amount paid for such stock (if any). If the participant is an employee, this income is subject to withholding for federal income and employment tax purposes. The Company is entitled to an income tax deduction in the amount of the ordinary income recognized by the participant, subject to possible limitations imposed by the Code, including Section 162(m) thereof. Any gain or loss on the participant's subsequent disposition of the shares will be treated as long-term or short-term capital gain or loss treatment depending on the sales price and how long the stock has been held since the restrictions lapsed. The Company does not receive a tax deduction for any subsequent gain.
 
Participants receiving restricted stock awards may make an election under Section 83(b) of the Code ("Section 83(b) Election") to recognize as ordinary compensation income in the year that such restricted stock is granted, the amount equal to the excess of the fair market value on the date of the issuance of the stock over the amount paid for such stock. If such an election is made, the recipient recognizes no further amounts of compensation income upon the lapse of any restrictions and any gain or loss on subsequent disposition will be long-term or short-term capital gain or loss to the recipient. The Section 83(b) Election must be made within 30 days from the time the restricted stock is issued.
 
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Other Awards. Other awards (such as restricted stock units) are generally treated as ordinary compensation income as and when common stock or cash are paid to the participant upon vesting or settlement of such awards. If the participant is an employee, this income is subject to withholding for income and employment tax purposes. The Company is generally entitled to an income tax deduction equal to the amount of ordinary income recognized by the recipient, subject to possible limitations imposed by the Code, including Section 162(m) thereof.

Section 162(m) of the Internal Revenue Code. Under Code Section 162(m), no deduction is allowed in any taxable year of the Company for compensation in excess of $1 million paid to the Company's "covered employees." A "covered employee" is the Company's chief executive officer and the three other most highly compensated officers of the Company other than the chief financial officer. An exception to this rule applies to "qualified performance based compensation," which generally includes stock options and stock appreciation rights granted under a stockholder approved plan, and other forms of equity incentives, the vesting or payment of which is contingent upon the satisfaction of certain stockholder approved performance goals. The Company intends that the 2017 Plan allow for the grant of options and stock appreciation rights that may be treated as "qualified performance based compensation" that is exempt from the limitations of Code Section 162(m), and for the grant of other performance-based awards that may be treated as "qualified performance based compensation," but it makes no assurance that either such type of award will be so treated.

Certain Federal Tax Consequences
 
The following summary of the federal income tax consequences of the 2017 Plan transactions is based upon federal income tax laws in effect on the date of this Proxy Statement. This summary does not purport to be complete, and does not discuss state, local or non-U.S. tax consequences.
 
Nonqualified Stock Options. The grant of a nonqualified stock option under the 2017 Plan will not result in any federal income tax consequences to the participant or to the Company. Upon exercise of a nonqualified stock option, the participant will recognize ordinary compensation income equal to the excess of the fair market value of the shares of common stock at the time of exercise over the option exercise price. If the participant is an employee, this income is subject to withholding for federal income and employment tax purposes. The Company is entitled to an income tax deduction in the amount of the income recognized by the participant, subject to possible limitations imposed by the Code, including Section 162(m) thereof. Any gain or loss on the participant's subsequent disposition of the shares will be treated as long-term or short-term capital gain or loss, depending on the sales proceeds received and whether the shares are held for more than one year following exercise. The Company does not receive a tax deduction for any subsequent capital gain.
 
Incentive Options. The grant of an ISO under the 2017 Plan will not result in any federal income tax consequences to the participant or to the Company. A participant recognizes no federal taxable income upon exercising an ISO (subject to the alternative minimum tax rules discussed below), and the Company receives no deduction at the time of exercise. In the event of a disposition of stock acquired upon exercise of an ISO, the tax consequences depend upon how long the participant has held the shares. If the participant does not dispose of the shares within two years after the ISO was granted, nor within one year after the ISO was exercised, the participant will recognize a long-term capital gain (or loss) equal to the difference between the sale price of the shares and the exercise price. The Company is not entitled to any deduction under these circumstances.
 
If the participant fails to satisfy either of the foregoing holding periods (referred to as a "disqualifying disposition"), he or she will recognize ordinary compensation income in the year of the disposition. The amount of ordinary compensation income generally is the lesser of (i) the difference between the amount realized on the disposition and the exercise price or (ii) the difference between the fair market value of the stock at the time of exercise and the exercise price. Such amount is not subject to withholding for federal income and employment tax purposes, even if the participant is an employee of the Company. Any gain in excess of the amount taxed as ordinary income will generally be treated as a short-term capital gain. The Company, in the year of the disqualifying disposition, is entitled to a deduction equal to the amount of ordinary compensation income recognized by the participant, subject to possible limitations imposed by the Code, including Section 162(m) thereof.
 
New Plan Benefits
 
SEC rules require us to disclose any amounts that we currently are able to determine will be allocated to our named executive officers, directors and other employees following approval of the 2017 Plan. No such amounts are currently determinable or allocated to any of the foregoing Eligible Persons under the 2017 Plan.
 
Vote Required

The affirmative vote of a majority of the votes cast for this proposal is required to approve the 2017 Equity Incentive Plan and the reservation of 895,000 shares of common stock reserved for issuance thereunder.
 
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE 2017 EQUITY INCENTIVE PLAN AND THE RESERVATION OF 895,000 SHARES OF COMMON STOCK FOR ISSUANCE THEREUNDER.
 
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PROPOSAL NO. 8
APPROVAL OF THE ISSUANCE OF $4.75 MILLION OF CONVERTIBLE PROMISSORY NOTES, WARRANTS TO PURCHASE UP TO 1,900,000 SHARES OF COMMON STOCK, SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK (WHEN EXCHANGED FOR THE CONVERTIBLE PROMISSORY NOTES), AND THE SHARES OF THE COMMON STOCK ISSUABLE UPON CONVERSION OR EXERCISE OF THE AFOREMENTIONED SECURITIES, ISSUED BY THE COMPANY IN A PRIVATE PLACEMENT THAT CLOSED ON MARCH 16, 2017, AS REQUIRED BY AND IN ORDER TO SATISFY THE REQUIREMENTS OF THE NASDAQ CAPITAL MARKET, INCLUDING WITHOUT LIMITATION, MARKETPLACE RULE 5635(D)

On March 15, 2017, the Company entered into separate securities purchase agreements (the "Purchase Agreement(s)") pursuant to which it agreed to sell up to $4,750,000 of principal amount of convertible promissory notes (the "Notes") and three year warrants to purchase up to 1,900,000 shares of the Company's common stock (the "Warrants") to accredited investors (the "Investors")(the "Private Placement").  On March 16, 2017, the Company satisfied all closing conditions and closed the Private Placement. The Notes were issued to each Investor in such Investor's subscription amount and are convertible into shares of common stock at an initial conversion price of $2.50 (the "Conversion Price").  Each Warrant is exercisable into shares of common stock at an exercise price equal to $3.56 per share (the "Exercise Price").
 
The Private Placement was approved by the Board of Directors on March 14, 2017. The Board determined that the Private Placement was advisable and in the best interest of the stockholders of the Company for a number of reasons, including the need to raise funds for working capital and general corporate purposes. In reaching its determination, the Board also considered potential alternate financing sources and the risks that would be involved with delaying the Private Placement given the Company's cash position.  Mr. Honig invested $500,000 in the Private Placement on March 16, 2017 and is a holder of a note and warrant. 200,000 shares of common stock are initially issuable upon conversion of Mr. Honig’s note, not including any accrued interest at the time of conversion, and 200,000 shares of common stock are issuable upon exercise of the warrant.  GRQ Consultants, Inc. Roth 401K FBO Barry Honig (“Roth 401K”), for which Mr. Honig is trustee, invested $1,250,000 in the Private Placement. 500,000 shares of common stock are initially issuable upon conversion of Roth 401K’s note, not including any accrued interest at the time of conversion, and 500,000 shares of common stock are issuable upon exercise of Roth 401K’s warrant. Both Mr. Honig and Roth 401K’s notes contain a 4.99% beneficial ownership limitation and both Mr. Honig and Roth 401K’s warrants contain a 9.99% beneficial ownership limitation. See “Change in Control” on Page 9.
 
Description of Notes

The Notes are convertible at the Conversion Price at any time after the Company has received (i) NASDAQ Approval (as defined in the Purchase Agreement) and (ii) shareholder approval, such approval being asked for in this Proposal 8.  The number of shares of common stock issuable upon a conversion shall be determined by the quotient obtained by dividing the outstanding principal amount of such Investor's Note to be converted by the Conversion Price.  The Company is prohibited from effecting a conversion of any Note to the extent that, as a result of any such exercise, the holder would beneficially own more than 9.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of such Note (the "Beneficial Ownership Limitation"). 

Except as otherwise provided in the Note, the Company may not prepay or redeem the Note in whole or in part without the prior written consent of the holder, and to the extent the Company agrees with other holders to prepay or redeem other Notes in whole or in part, the Company shall offer such prepayment or redemption of the Note on a pro rata basis on the same terms and conditions.

If the Company, at any time while the Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of common stock on shares of common stock or any common stock equivalents (which, for avoidance of doubt, shall not include any shares of common stock issued by the Company upon conversion of the Notes), (ii) subdivides outstanding shares of common stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of common stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the common stock, any shares of capital stock of borrower, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of common stock outstanding immediately after such event.
 
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Holders of the Notes shall be entitled to receive, and the Company shall pay, cumulative interest on the outstanding principal amount of the Note at the annual rate of two (2%) percent (all subject to increase as set forth in the Note), payable on the Maturity Date (as defined in the Note) in cash or shares issuable in lieu of the cash payment of interest on the Notes in accordance with the terms of the Notes. Interest on the Notes shall be calculated on the basis of a 360-day year and the actual number of days elapsed. Payments made in connection with the Notes shall be applied first to amounts due thereunder other than principal and interest, thereafter to interest and finally to principal. Conversion privileges set forth in the Notes shall remain in full force and effect immediately from the date thereof and until the Note is paid in full.

Pursuant to the Purchase Agreement, upon an affirmative vote for Proposal 3, authorizing the creation of 15,000,000 shares of "blank check" preferred stock, the Company shall designate shares of preferred stock as "Series A Preferred Stock" by filing a Certificate of Designations, Preferences and Rights of 0% Series A Convertible Preferred Stock (the "Certificate of Designations") with the Secretary of State of Colorado (or Nevada, if Proposal 1 is also approved)(such date of filing, the "Filing Date"). On the Filing Date, the Notes shall automatically, and without any further action on the part of the Investors, be exchanged for shares of Series A Convertible Preferred Stock based on a ratio of $1.00 of stated value of shares of Series A Convertible Preferred Stock for each $1.00 of then outstanding principal amount of Notes plus any accrued but unpaid interest thereon, pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended. The conversion of the shares of Series A Convertible Preferred Stock (when exchanged for the Notes) is subject to shareholder approval, such approval being asked for in this Proposal 8. 

Description of Warrants

The Company issued Warrants registered in the name of each such Investor to purchase an aggregate of 1,900,000 shares of common stock with each Warrant based upon the number of shares of common stock equal to 100% of such Investor's subscription amount divided by the Conversion Price. The Warrants are exercisable at a price of $3.56 per share, subject to adjustment, and expire three years from the date of issuance. The holders may, subject to certain limitations, exercise the Warrants on a cashless basis. The Company is prohibited from effecting an exercise of any Warrant to the extent that, as a result of any such exercise, the holder would beneficially own more than 9.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon exercise of such Warrant.  The exercise of the Warrants is subject to shareholder approval, such approval being asked for in this Proposal 8. 

If the Company, at any time while the Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of common stock on shares of common stock or any common stock equivalents (which, for avoidance of doubt, shall not include any shares of common stock issued by the Company upon exercise of the Warrants), (ii) subdivides outstanding shares of common stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of common stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the common stock, any shares of capital stock of borrower, then the exercise price shall be multiplied by a fraction of which the numerator shall be the number of shares of common stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of common stock outstanding immediately after such event.

Description of Shares of Series A Convertible Preferred Stock
 
Pursuant to the Purchase Agreement, upon an affirmative vote for Proposal 3, authorizing the creation of 15,000,000 shares of "blank check" preferred stock, the Company shall designate shares of preferred stock as "Series A Preferred Stock" by filing a Certificate of Designations, Preferences and Rights of 0% Series A Convertible Preferred Stock (the "Certificate of Designations") with the Secretary of State of Colorado (or Nevada, if Proposal 1 is also approved)(such date of filing, the "Filing Date"). On the Filing Date, the Notes shall automatically, and without any further action on the part of the Investors, be exchanged for shares of Series A Convertible Preferred Stock based on a ratio of $1.00 of stated value of shares of Series A Convertible Preferred Stock for each $1.00 of then outstanding principal amount of Notes plus any accrued but unpaid interest thereon, pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended. The conversion of the shares of Series A Convertible Preferred Stock (when exchanged for the Notes) is subject to shareholder approval, such approval being asked for in this Proposal 8. 
 
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The shares of Series A Convertible Preferred Stock are convertible into shares of common stock based on a conversion calculation equal to the stated value of such shares of Series A Convertible Preferred Stock, plus all accrued and unpaid dividends, if any, on such shares of Series A Convertible Preferred Stock, as of such date of determination, divided by the conversion price of $2.50, subject to adjustments. The shares of Series A Convertible Preferred Stock are subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events.

In addition, in the event the Company issues or sells, or is deemed to issue or sell, shares of common stock at a per share price that is less than the conversion price then in effect, the conversion price shall be reduced to such lower price, subject to certain exceptions. Each holder is entitled to vote on all matters submitted to stockholders of the Company, and shall have the number of votes equal to the number of shares of common stock issuable upon conversion of such holder's shares of Series A Convertible Preferred Stock, provided that in no event shall the holders be entitled to cast votes in excess of the number of votes that holders would be entitled to cast if the shares of Series A Convertible Preferred Stock were converted at $3.56 per share.

All shares of capital stock of the Company shall be junior in rank to all shares of Series A Convertible Preferred Stock with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding-up of the Company. Without the prior express consent of the holders of at least a majority of the outstanding shares of Series A Convertible Preferred Stock, voting separate as a single class, the Company shall not hereafter authorize or issue any additional or other shares of capital stock that is (i) of senior rank to the Series A Convertible Preferred Stock in respect of the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding-up of the Company, (ii) of pari passu rank to the Series A Convertible Preferred Stock in respect of the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding-up of the Company or (iii) any junior stock having a maturity date (or any other date requiring redemption or repayment of such shares of junior stock) that is prior to the date on which any shares of Series A Convertible Preferred Stock remain outstanding. In the event of the merger or consolidation of the Company with or into another corporation, the shares of Series A Convertible Preferred Stock shall maintain their relative rights, powers, designations, privileges and preferences provided for in the Certificate of Designations and no such merger or consolidation shall result inconsistent therewith.

Each holder of shares of Series A Convertible Preferred Stock shall be entitled to receive dividends, which dividends shall be paid by the Company out of funds legally available therefor, payable, subject to the conditions and other terms hereof, in shares of common stock or cash on the stated value of such shares of Series A Convertible Preferred Stock at the dividend rate of two percent (2%) per annum, which shall be cumulative and shall continue to accrue and compound monthly whether or not declared and whether or not in any fiscal year there shall be net profits or surplus available for the payment of dividends in such fiscal year.
 
If at any time the Company grants, issues or sells any securities or rights to purchase securities pro rata to the holders of common stock, then each holder of  shares of Series A Convertible Preferred Stock will be entitled to acquire or receive, as applicable, subject to certain terms, such securities or right to purchase securities or other assets, as applicable, such holder could have acquired if such holder had held the number of shares of common stock acquirable upon complete conversion of all of such holder's  shares of Series A Convertible Preferred Stock held by such holder immediately before the record date for such issuance. In addition, should the Company ever undertake a corporate event (as defined in the certificate of designations), the Company shall ensure that each holder of  shares of Series A Convertible Preferred Stock shall have the right to receive, upon conversion of such holder's  shares of Series A Convertible Preferred Stock (i) in addition to the shares of common stock received upon such conversion, such securities or other assets such holder would have been entitled to with respect to such shares of common stock had the common stock been held by such holder upon the consummation of the corporate event or (ii) in lieu of the shares of common stock receivable upon such conversion, such securities or other assets received by holders of common stock in such amount such holder would have been entitled to receive had the  shares of Series A Convertible Preferred Stock initially been issued with conversion rights for such consideration at a conversion rate commensurate with the conversion rate for the  shares of Series A Convertible Preferred Stock. Notwithstanding the foregoing, the Company is prohibited from effecting a conversion of the  shares of Series A Convertible Preferred Stock to the extent that, as a result of such conversion, any Investor would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the  shares of Series A Convertible Preferred Stock, which beneficial ownership limitation may be increased by the holder up to, but not exceeding, 9.99%.
 
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Registration Rights Agreement
 
In connection with the Private Placement, the Company entered into a registration rights agreement, dated as of March 16, 2017 (the "Registration Rights Agreement"), with each Investor, pursuant to which the Company will undertake to file a registration statement to register the shares of common stock issuable upon (i) conversion of the Notes; (ii) exercise of the  Warrants and (iii) conversion of the  shares of Series A Convertible Preferred Stock issued or issuable pursuant to the Purchase Agreement, within forty-five days following the date of closing, to cause such registration statement to be declared effective by the Securities and Exchange Commission within one hundred and twenty days of the filing date and to maintain the effectiveness of the registration statement until all of such shares of common stock registered have been sold or are otherwise able to be sold pursuant to Rule 144.  In the event the Company fails to file, or obtain effectiveness of, such registration statement with the given period of time, the Company will be obligated to pay liquidated damages to the Investors for every thirty-days during which such filing is not made and/or effectiveness obtained, such fee being subject to certain exceptions.
 
Possible Effects on Rights of Existing Stockholders
 
We issued convertible promissory notes with an aggregate principal amount of $4,750,000 and Warrants to purchase up to 1,900,000 shares of common stock.  Any additional equity or convertible debt financings in the future could result in further dilution to our stockholders.  Additionally, sales in the public market of shares of common stock or the shares of common stock acquired upon conversion of the Notes, upon conversion of the shares of Series A Convertible Preferred Stock (when exchanged for the Notes) or the exercise of the Warrants, or the perception that such sales could occur, could adversely affect the prevailing market price of our common stock and impair our ability to raise funds in additional stock financings.  The sale into the public market of these shares could also materially and adversely affect the market price of our common stock. The Notes, shares of Series A Convertible Preferred Stock (when exchanged for the Notes) and the Warrants could be converted into shares of common stock constituting more than 20% of our shares of common stock outstanding before the Private Placement.  Therefore, the Company is seeking stockholder approval under Nasdaq Marketplace Rule 5635(d).
 
Reasons for Stockholder Approval
 
Our common stock is listed on The Nasdaq Capital Market and, as such, we are subject to Nasdaq Marketplace Rules. Nasdaq Marketplace Rule 5635(d) requires that an issuer obtain stockholder approval prior to the issuance of common stock in certain circumstances, including for an issuance of common stock through a private placement, if such issuance is for less than the greater of book or market value of the common stock and would equal 20% or more of the common stock or voting power of the issuer outstanding before the issuance.  The initial conversion price of the Notes is $2.50.  If this Proposal 8 is approved, the issuance of our common stock upon conversion of the Notes, shares of Series A Convertible Preferred Stock (when exchanged for the Notes) and Warrants could exceed 20% of our common stock outstanding as of the Closing Date.  We therefore seek your approval of this Proposal in order to satisfy the requirements of Nasdaq Marketplace Rule 5635(d) with respect to the issuance of the common stock upon the conversion of the Notes, conversion or dilution of the  shares of Series A Convertible Preferred Stock (when exchanged for the Notes) and exercise of the Warrants.

Vote Required

The affirmative vote of a majority of the votes cast for this proposal is required to approve the issuance of the Notes, the Warrants, and the shares of Series A Convertible Preferred Stock, and the shares of the common stock issuable upon conversion or exercise of the aforementioned securities, issued by the Company in a private placement that closed on March 16, 2017, as required by and in order to satisfy the requirements of The Nasdaq Capital Market, including without limitation, Marketplace Rule 5635(d).
 
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE ISSUANCE OF $4.75 MILLION OF CONVERTIBLE PROMISSORY NOTES, WARRANTS TO PURCHASE UP TO 1,900,000 SHARES OF COMMON STOCK, SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK (WHEN EXCHANGED FOR THE CONVERTIBLE PROMISSORY NOTES), AND THE SHARES OF THE COMMON STOCK ISSUABLE UPON CONVERSION OR EXERCISE OF THE AFOREMENTIONED SECURITIES, ISSUED BY THE COMPANY IN A PRIVATE PLACEMENT THAT CLOSED ON MARCH 16, 2017, AS REQUIRED BY AND IN ORDER TO SATISFY THE REQUIREMENTS OF THE NASDAQ CAPITAL MARKET, INCLUDING WITHOUT LIMITATION, MARKETPLACE RULE 5635(D).
 
42

 
PROPOSAL NO. 9
 APPROVAL OF THE GRANT TO THE BOARD OF DIRECTORS, IN ITS DISCRETION, THE ABILITY TO ISSUE UP TO $8,500,000 OF COMMON STOCK UPON EXERCISE OF WARRANTS TO PURCHASE SHARES OF OUR COMMON STOCK THAT WERE ISSUED IN PRIVATE PLACEMENTS ON MARCH 10, 2017 AND MARCH 16, 2017, AT AN AMENDED EXERCISE PRICE OF $3.00, INCLUDING AMENDMENT OF THE EXERCISE PRICE AND ISSUANCE OF SUCH SHARES OF COMMON STOCK IN ACCORDANCE WITH THE REQUIREMENTS OF THE NASDAQ CAPITAL MARKET, INCLUDING WITHOUT LIMITATION, MARKETPLACE RULE 5635(D)

On March 10, 2017, the Company sold $2,250,000 of units (the "Units") of its securities, pursuant to separate purchase agreements with accredited investors, at a purchase price of $2.50 per Unit.  Each Unit consisted of one share of the Company's common stock and a three year warrant to purchase one share of common stock, at an exercise price of $3.50 per share. The Company sold warrants to purchase an aggregate of 900,000 shares of common stock.

The warrants are exercisable, at any time on or after the sixth month anniversary of the closing date of the Private Placement, at a price of $3.50 per share, subject to adjustment, and expire three years from the date of issuance. The holders may, subject to certain limitations, exercise the warrants on a cashless basis. The Company is prohibited from effecting an exercise of any warrant to the extent that, as a result of any such exercise, the holder would beneficially own more than 9.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon exercise of such warrant.

On March 16, 2017, the Company closed on the Private Placement pursuant to which the Company agreed to sell the Notes and the Warrants to purchase an aggregate of 1,900,000 shares of common stock at an exercise price equal to $3.56 per share, as further described in Proposal 8.

Upon approval of this Proposal 9, and subject to the approval of Proposal 8, the exercise prices of the existing warrants issued to investors in the private placements on March 10, 2017 to purchase an aggregate of 900,000 shares of common stock at an exercise price of $3.50 per share and on March 16, 2017 to purchase an aggregate of 1,900,000 shares of common stock at an exercise price of $3.56 per share, will be temporarily reset from $3.50 per share and $3.56 per share, respectively, to $3.00 per share for a period during which the Company will provide a one-time option to holders of the warrants to exercise their warrants at such lower price. Holders of warrants that opt to exercise at the temporarily lower exercise price of $3.00 will only be allowed to exercise their warrants in cash, as, in exchange for lowering the exercise price, the warrants will no longer contain a cashless exercise feature for such period that the exercise price is $3.00.   Mr. Honig invested $500,000 in the Private Placement on March 16, 2017 and is a holder of a warrant. 200,000 shares of common stock are issuable upon exercise of the warrant.  Roth 401K, for which Mr. Honig is trustee, invested $1,250,000 in the Private Placement. 500,000 shares of common stock are issuable upon exercise of Roth 401K’s warrant. Both Mr. Honig and Roth 401K’s warrants contain a 9.99% beneficial ownership limitation. See “Change in Control” on Page 9.

Reasons for Stockholder Approval

Our common stock is listed on The Nasdaq Capital Market and, as such, we are subject to Nasdaq Marketplace Rules. Nasdaq Marketplace Rule 5635(d) requires that an issuer obtain stockholder approval prior to the issuance of common stock in certain circumstances, including for an issuance of common stock through a private placement, if such issuance is for less than the greater of book or market value of the common stock and would equal 20% or more of the common stock or voting power of the issuer outstanding before the issuance. Adjustments to the exercise price of the warrants could result in the issuance of shares of common stock in excess of the amount allowed by Nasdaq. We therefore seek your approval of this Proposal 9 in order to satisfy the requirements of Nasdaq Marketplace Rule 5635(d) and permit the issuance of the common stock upon the exercise of the warrants at the one-time lower exercise price $3.00 per share.
 
 
43


 
Vote Required
 
The affirmative vote of a majority of the votes cast for this proposal is required to approve the grant to the Board of Directors, in its discretion, the ability to issue up to $8,500,000 of common stock upon exercise of warrants to purchase shares of our common stock that were issued in private placements on March 10, 2017 and March 16, 2017, at an amended exercise price of $3.00, including amendment of the exercise price and issuance of such shares of common stock in accordance with the requirements of the Nasdaq Capital Market, including without limitation, Marketplace Rule 5635(d).

THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE GRANT TO THE BOARD OF DIRECTORS, IN ITS DISCRETION, THE ABILITY TO ISSUE UP TO $8,500,000 OF COMMON STOCK UPON EXERCISE OF WARRANTS TO PURCHASE SHARES OF OUR COMMON STOCK THAT WERE ISSUED IN PRIVATE PLACEMENTS ON MARCH 10, 2017 AND MARCH 16, 2017, AT AN AMENDED EXERCISE PRICE OF $3.00, INCLUDING AMENDMENT OF THE EXERCISE PRICE AND ISSUANCE OF SUCH SHARES OF COMMON STOCK IN ACCORDANCE WITH THE REQUIREMENTS OF THE NASDAQ CAPITAL MARKET, INCLUDING WITHOUT LIMITATION, MARKETPLACE RULE 5635(D).
 
 
 
44

 
Financial and Other Information

Index
Page
     
 
Financial Information for the Years Ended December 31, 2016 and 2015
46
 
Financial Information for the Three Months Ended March 31, 2017 and 2016
72
 
Management's Discussion and Analysis of Financial Condition and Results of Operation:
 
 
   For the year's ended December 31, 2016 and 2015
90
 
   For the three months ended March 31, 2017 and 2016
95
 
Pro Forma Information
99





45

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


 

 
The Board of Directors and Shareholders of
Bioptix, Inc.

 
We have audited the accompanying consolidated balance sheet of Bioptix, Inc. (formerly: Venaxis, Inc.) and Subsidiary (the "Company") as of December 31, 2016, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended.  The financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bioptix, Inc. and Subsidiary as of December 31, 2016, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We also have audited the adjustments to the 2015 financial statements to retrospectively reflect the reverse stock split, as described in Note 1. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2015 financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2015 financial statements taken as a whole.


/s/ EisnerAmper LLP
Iselin, New Jersey
March 31, 2017, except for Note 12, as to which the date is June 28, 2017.





 
46




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

Board of Directors and Shareholders
Bioptix, Inc.

We have audited, before the effects of the adjustments to retroactively apply the impact of the reverse stock split described in Notes 1 and 6, the accompanying balance sheet of Bioptix, Inc. (formerly Venaxis, Inc.) ("the Company") as of December 31, 2015, and the related statements of operations, stockholders' equity, and cash flows for the year then ended (the 2015 financial statements before the effects of the adjustments discussed in Notes 1 and 6 are not presented herein).  These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above, before the effects of the adjustments to retroactively apply the impact of the reverse stock split described in Notes 1 and 6, present fairly, in all material respects, the financial position of Bioptix, Inc. as of December 31, 2015, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to audit, review or apply any procedures to the adjustments to retroactively apply the change in accounting described in Notes 1 and 6 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by EisnerAmper LLP.



/s/ GHP HORWATH, P.C.
Denver, Colorado
March 23, 2016






47


Bioptix, Inc. and Subsidiary
Consolidated Balance Sheets
December 31,
 
   
 
 
2016
 
 
2015
 
 
 
(Retrospectively Revised -Note 12)
 
 
 
 
ASSETS
 
 
 
 
 
 
Current assets (Note 1):
 
 
 
 
 
 
     Cash and cash equivalents
 
$
5,529,848
 
 
$
2,012,283
 
     Short-term investments
 
 
7,506,761
 
 
 
14,147,991
 
     Prepaid expenses and other current assets
 
 
219,991
 
 
 
251,778
 
     Current assets of discontinued operations (Note 12)
 
 
486,890
 
 
 
 
 
 
 
 
 
 
 
 
 
         Total current assets
 
 
13,743,490
 
 
 
16,412,052
 
 
   
Property and equipment, net (Note 3)
 
 
5,538
 
 
 
1,954,496
 
 
   
Other long term assets, net (Note 4)
 
 
938,038
 
 
 
1,523,649
 
                 
Long-term investments (Note 1)
   
     
972,000
 
 
   
 Noncurrent assets of discontinued operations (Note 12)
 
 
2,353,749
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
17,040,815
 
 
$
20,862,197
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
     Accounts payable
 
$
253,817
 
 
$
701,064
 
     Accrued compensation
 
 
1,520
 
 
 
449,873
 
     Accrued expenses
 
 
304,675
 
 
 
241,882
 
     Notes and other obligations, current portion (Note 5)
 
 
139,611
 
 
 
301,250
 
     Deferred revenue, current portion (Note 8)
 
 
96,698
 
 
 
96,698
 
     Current liabilities of discontinued operations (Note 12)
 
 
258,819
 
 
 
 
 
 
 
 
 
 
 
 
 
         Total current liabilities
 
 
1,055,140
 
 
 
1,790,767
 
 
   
 Notes and other obligations, less current portion (Note 5)
 
 
 —
 
 
 
1,838,779
 
Deferred revenue, less current portion (Note 8)
 
 
1,065,316
   
 
1,162,015
 
 
 
 
 
 
 
 
 
 
         Total liabilities
 
 
2,120,456
 
 
 
4,791,561
 
 
 
 
 
 
 
 
 
 
Commitments and contingencies (Notes 8 and 10)
   
 
 
 
 
 
 
 
 
 
Stockholders' equity (Notes 6, 7 and 11): 
 
 
 
 
 
 
 
 
    Common stock, no par value, 60,000,000 shares authorized; shares issued
 
 
 
 
 
 
 
 
          4,503,971 (2016) and 3,876,961 (2015)
 
 
 124,775,635
 
 
 
121,653,075
 
    Accumulated deficit
 
 
(109,855,276
)
 
 
(105,582,439
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
         Total equity
 
 
14,920,359
 
 
 
16,070,636
 
 
 
 
 
 
 
 
 
 
Total liabilities and stockholders' equity
 
$
17,040,815
 
 
$
20,862,197
 

 See Accompanying Notes to Consolidated Financial Statements
 
48


Bioptix, Inc. and Subsidiary
Consolidated Statements of Operations
Years Ended December 31,

 
     
 
 
2016
   
2015
 
 
 
(Retrospectively Revised
Note 12)
       
Sales (Note 1)
 
$
   
$
101,388
 
Cost of sales
   
     
30,586
 
                 
Gross profit
   
     
70,802
 
                 
Other revenue – fee (Note 8)
   
96,699
     
96,698
 
 
               
 Operating expenses:
               
    Selling, general and administrative  
   
4,428,220
     
6,757,074
 
    Research and development
   
860,843
     
2,159,137
 
    Total operating expenses
   
5,289,063
     
8,916,211
 
 
               
     Operating loss from continuing operations
   
(5,192,364
)
   
(8,748,711
)
Other (expense) income:
               
    Gain on sale of property and equipment (Note 3)
   
1,942,980
     
 
    Interest expense
   
(30,161
)
   
(98,964
)
    Investment income
   
121,724
     
82,000
 
    Other income
   
     
8,110
 
 
               
    Total other income (expense)
   
2,034,543
     
(8,854
)
 
               
Loss from continuing operations
   
(3,157,821
)
   
(8,757,565
)
Discontinued operations (Notes 2 and 12):
               
    Loss from discontinued operations
   
(1,115,016
)
   
 
 
               
     Net loss
 
$
(4,272,837
)
 
$
(8,757,565
)
Basic and diluted net (loss) per share (Note 1):
               
   Continuing operations
 
$
(0.78
)
 
$
(2.26
)
   Discontinued operations
   
(0.27
)
   
 
   Net Loss
 
$
(1.05
)
 
$
(2.26
)
Basic and diluted weighted average number of shares outstanding (Note 1)
   
4,065,406
     
3,876,960
 




See Accompanying Notes to Consolidated Financial Statements



49


Bioptix, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
Years ended December 31, 2016 and 2015




 
 
Common Stock
   
Accumulated
       
 
 
Shares
   
Amount
   
Deficit
   
Total
 
 
                       
Balance, January 1, 2015
   
3,876,961
   
$
120,509,997
   
$
(96,824,874
)
 
$
23,685,123
 
 
                               
Stock-based compensation issued for services
   
     
1,143,078
     
     
1,143,078
 
 
                               
Net loss for the year
   
     
     
(8,757,565
)
   
(8,757,565
)
 
                               
Balance, December 31, 2015
   
3,876,961
     
121,653,075
     
(105,582,439
)
   
16,070,636
 
 
                               
      Stock-based compensation issued for services
   
     
545,549
     
     
545,549
 
 
                               
      Common stock issued for acquisition (Note 2)
   
627,010
     
2,577,011
     
     
2,577,011
 
 
                               
      Net loss for the year
   
     
     
(4,272,837
)
   
(4,272,837
)
 
                               
Balance, December 31, 2016
   
4,503,971
   
$
124,775,635
   
$
(109,855,276
)
 
$
14,920,359
 


 


See Accompanying Notes to Consolidated Financial Statements

 

50

 
 
Bioptix, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended December 31,


 
 
2016
   
2015
 
   
(Retrospectively
Revised - Note 12)
       
Cash flows from operating activities:
           
Continuing operations:
           
     Net loss
 
$
(4,272,837
)
 
$
(8,757,565
)
     (Loss) from discontinued operations
   
(1,115,016
)
   
 
     (Loss) income from continuing operations
   
(3,157,821
)
   
(8,757,565
)
     Adjustments to reconcile net (loss) income from continuing operations to net cash used in operating activities of continuing operations:
               
                 
               Stock-based compensation for services
   
545,549
     
1,143,078
 
               Depreciation and amortization
   
93,315
     
253,818
 
               Amortization of license fees
   
(96,699
)
   
(96,698
)
               Patent impairment charges
   
535,256
     
188,141
 
               Gain on sale of property and equipment
   
(1,942,980
)
   
(8,110
)
        Change in:
               
               Prepaid expenses and other current assets
   
309,928
     
388,129
 
               Accounts payable
   
(447,247
)
   
263,545
 
               Accrued compensation
   
(448,353
)
   
(159,544
)
               Accrued expenses
   
161,604
     
(83,518
)
     Net cash (used in) operating activities of continuing operations
   
(4,447,448
)
   
(6,868,724
)
     Net cash (used in) operating activities of discontinued operations
   
(1,072,296
)
   
 
     Net cash (used in) operating activities
   
(5,519,744
)
   
(6,868,724
)
 
               
Cash flows from investing activities:
               
Continuing operations:
               
        Purchases of short-term investments
   
(16,875,550
)
   
(27,178,337
)
        Proceeds from sales of short-term investments
   
24,488,780
     
33,057,135
 
        Proceeds from sale of property and equipment
   
1,808,787
     
8,110
 
        Purchases of patent and trademark application costs
   
(26,067
)
   
(92,033
)
        Acquisition of BDI remaining interest
   
(28,800
)
   
 
     Net cash provided by investing activities of continuing operations
   
9,367,150
     
5,794,875
 
     Net cash (used in) investing activities of discontinued operations
   
(18,729
)
   
 
     Net cash provided by investing activities
   
9,348,421
     
5,794,875
 
 
               
Cash flows from financing activities:
               
Continuing operations:
               
                 
     Repayment of notes payable and other obligations
   
(311,112
)
   
(453,779
)
 
               
     Net cash (used in) financing activities of continuing operations
   
(311,112
)
   
(453,779
)
 
               
Net increase (decrease) in cash and cash equivalents
   
3,517,565
     
(1,527,628
)
 
               
Cash and cash equivalents at beginning of year
   
2,012,283
     
3,539,911
 
 
               
Cash and cash equivalents at end of year
 
$
5,529,848
   
$
2,012,283
 
 
               
Supplemental disclosure of cash flow information:
               
     Cash paid during the year for interest
 
$
35,516
   
$
99,382
 
Supplemental disclosure of investing information:
               
     Liability payoffs upon property sale
 
$
2,064,758
   
$
 
    Value of Common Shares issued for BDI purchase
 
$
2,577,011
   
$
 
    Acquisitions of assets for installment obligations
 
$
276,640
   
$
282,825
 

 
See Accompanying Notes to Consolidated Financial Statements.

 

51


Bioptix, Inc. and Subsidiary
Notes to Consolidated Financial Statements



 
Note 1.  Organization and summary of significant accounting policies:

Nature of operations:

Bioptix, Inc. (the "Company", "we" or "Bioptix") was organized on July 24, 2000, as a Colorado corporation.  Effective November 30, 2016, the Company's name was changed to Bioptix, Inc., from Venaxis, Inc.  

Historically, we have been an in vitro diagnostic company. The Company's business had been in the development and commercialization of innovative products that address unmet diagnostic and therapeutic needs. Until 2016, when determined that it was not prudent to use our financial resources to continue to advance development of the APPY1 Test to attempt to secure FDA clearance and we suspended operations associated with the APPY1 Test, the Company's former lead product candidate, the APPY1 Test, was being developed to be a novel blood-based diagnostic test intended to aid, through the test's negative predictive value, in the evaluation of low risk patients initially suspected of having acute appendicitis.

We hold an exclusive license agreement with Washington University ("WU") in St. Louis which granted us an exclusive license and right to sublicense its technology for veterinary products worldwide, subject to certain exceptions.  In July 2012, we granted Ceva Sante Animale S.A. ("Ceva") an exclusive royalty-bearing license to our intellectual property and other assets, relating to recombinant single chain reproductive hormone technology for use in non-human mammals.  This license includes a sublicense of the technology licensed to us by WU.  Ceva continues to advance development of the bovine rFSH product and cumulative cash payments received to date by us from Ceva are approximately $2 million.

Through our wholly owned subsidiary, BiOptix Diagnostics, Inc., ("BDI") which we acquired in September 2016, we have developed a proprietary Enhanced Surface Plasmon Resonance technology platform for the detection of molecular interactions.  We acquired a Surface Plasma Resonance ("SPR") platform which seeks to combine high sensitivity with microarray detection capability to allow researchers to understand whether their target molecules have functionality against the disease targeted. SPR is an advanced and highly sensitive optical technology that can measure refractive index changes on a sensor chip's gold surface due to a change in mass that occurs during a binding event. This change can be used to monitor biological interactions such as the concentration of target molecules, kinetic rates and affinity constants.

Effective January 14, 2017, we adopted a plan to exit this acquired business and commenced a significant reduction in the workforce. The decision to adopt this plan was made following an evaluation by the Company's Board of Directors in January 2017, of the estimated results of operations projected during the near to mid-term period for BDI, including consideration of product development required and updated sales forecasts, and estimated additional cash resources required.  We are reviewing possible strategic alternatives relative to the business to maximize shareholder value. See Note 11.
 
Management's plans and basis of presentation:
 
The Company has experienced recurring losses and negative cash flows from operations.  At December 31, 2016, the Company had approximate balances of cash and liquid investments of $13,037,000, working capital of $12,688,000, total stockholders' equity of $14,920,000 and an accumulated deficit of $109,855,000. To date, the Company has in large part relied on equity financing to fund its operations. 
 
The Company expects to continue to incur losses from operations for the near-term and these losses could be significant as professional and other associated expenses in connection with possible strategic considerations, evaluations and transactions, wind-down of the operations of the Company's subsidiary BDI occur, and public company and administrative related expenses are incurred. The Company believes that its current working capital position will be sufficient to meet its currently estimated cash needs through the first quarter of 2018, subject to any possible strategic transactions. The Company continues to explore obtaining additional financing.  The Company is closely monitoring its cash balances, cash needs and expense levels.


 
52



Management's strategic plans include the following:
 
·
exploring other possible strategic options and financing opportunities available to the Company;
·
evaluating options to monetize, partner or license the Company's assets, including the operations of our subsidiary, BDI and the appendicitis product portfolio; and;
·
continuing to implement cost control initiatives to conserve cash.
As part of the Company's process to identify possible strategic partners, several targets were identified that the Company assessed as possibly having a business model that could be interested in discussions with Bioptix for possibly acquiring or licensing the appendicitis assets. Bioptix has made initial contact with several of these parties to gauge their interest level, which initially is more focused on the APPY2 development assets. While management believes that the estimated potential market for an appendicitis test continues to be significant, to date Bioptix has been unable to locate a new strategic target, a partner or other third-party interested in advancing development and commercial activities of the Bioptix appendicitis portfolio.  The capitalized costs on the Company's balance sheet, totaling approximately $508,000, as of December 31, 2015 for the acute appendicitis patents have been deemed 100% impaired as of December 31, 2016.            
 
Principles of consolidation
 
The accompanying consolidated financial statements of the Company include the accounts of Bioptix and its wholly-owned and controlled subsidiary, BDI (collectively the "Company") from the date it was acquired (September 12, 2016). Intercompany investments, accounts and transactions have been eliminated in consolidation.
 
Cash, cash equivalents and short-term investments:
 
The Company considers all highly liquid investments with an original maturity of three months or less at the date of acquisition to be cash equivalents. From time to time, the Company's cash account balances exceed the balances as covered by the Federal Deposit Insurance System. The Company has never suffered a loss due to such excess balances.
 
The Company invests excess cash from time to time in highly-liquid debt and equity investments of highly-rated entities, which are classified as trading securities. Historically, the purpose of the investments has been to fund research and development, product development, FDA clearance-related activities and general corporate purposes. Such amounts are recorded at market values using Level 1 inputs in determining fair value and are generally classified as current, as the Company does not intend to hold the investments beyond twelve months. Investment securities classified as trading are those securities that are bought and held principally for the purpose of selling them in the near term, with the objective of preserving principal and generating profits. These securities are reported at fair value with unrealized gains and losses reported as an element of other (expense) income in current period earnings. The Company's Board of Directors has approved an investment policy covering the investment parameters to be followed with the primary goals being the safety of principal amounts and maintaining liquidity. The policy provides for minimum investment rating requirements as well as limitations on investment duration and concentrations. Based upon market conditions, the investment guidelines have been tightened to increase the minimum acceptable investment ratings required for investments and shorten the maximum investment term. As of December 31, 2016 and 2015, approximately 41% and 9%, respectively, of the investment portfolio was in cash and cash equivalents, which is presented as such on the accompanying balance sheet, and the remaining funds were invested in marketable securities with none individually representing a material amount of the portfolio.  Investments with a scheduled maturity beyond one year are classified as long-term investments on the balance sheet.  For the years ended December 31, 2016 and 2015, there were approximately $22,000 and $30,000, respectively, in management fee expenses.
 
The Company's short-term investments comprise certificates of deposit, commercial paper and corporate bonds, all of which are classified as trading securities and carried at their fair value based upon quoted market prices of the securities at December 31, 2016 and 2015.  Net realized and unrealized gains and losses on trading securities are included in net loss.  For purposes of determining realized gains and losses, the cost of securities sold is based on specific identification.


 
 
53

 
The composition of trading securities is as follows at December 31, 2016 and 2015:
 
 
 
2016
   
2015
 
 
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
 
                       
Certificates of deposit / commercial paper
 
$
2,378,222
   
$
2,373,891
   
$
1,249,988
   
$
1,248,845
 
 
                               
Corporate bonds
   
5,138,182
     
5,132,870
     
12,924,514
     
12,899,146
 
 
                               
Subtotal current assets
   
7,516,404
     
7,506,761
     
14,174,502
     
14,147,991
 
 
                               
Certificates of deposit, long term
   
     
     
350,000
     
349,013
 
 
                               
Corporate bonds, long term
   
     
     
626,622
     
622,987
 
 
                               
Total trading securities
 
$
7,516,404
   
$
7,506,761
   
$
15,151,124
   
$
15,119,991
 


Investment income for the years ended December 31, 2016 and 2015 consists of the following:
 
 
 
2016
   
2015
 
Interest income
 
$
126,296
   
$
153,586
 
 
               
Realized gains (losses)
   
(3,316
)
   
(34,791
)
 
               
Unrealized gains (losses)
   
20,641
     
(7,246
)
 
               
Management fee expenses
   
(21,897
)
   
(29,549
)
 
               
 Net investment income
 
$
121,724
   
$
82,000
 
 
Fair value of financial instruments:
 
The Company accounts for financial instruments under Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic (ASC) 820, Fair Value Measurements.  This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  To increase consistency and comparability in fair value measurements, ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:
 
 
Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities;
 
 
 
Level 2 — observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and
 
 
 
Level 3 — assets and liabilities whose significant value drivers are unobservable.

 
Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company's market assumptions.  Unobservable inputs require significant management judgment or estimation.  In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy.  In those instances, the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement.  Such determination requires significant management judgment. There were no financial assets or liabilities measured at fair value, with the exception of cash, cash equivalents (level 1) and short-term investments (level 1) as of December 31, 2016 and 2015.
 
The carrying amounts of the Company's financial instruments (other than cash, cash equivalents and short-term investments as discussed above) approximate fair value because of their variable interest rates and / or short maturities combined with the recent historical interest rate levels.

 
54

 
Revenue recognition and accounts receivable:
 
We recognize sales of goods under the provisions of Financial Accounting Standards Board ("FASB") ASC 605 and the U.S. Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 104, Revenue Recognition. Historical revenue has been generated primarily from the sale of products. Product revenue primarily consists of sales of instrumentation and consumables.
 
Revenue is recognized when the following four basic criteria have been met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred and risk of loss has passed; (iii) the seller's price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured.

Revenues are recorded less a reserve for estimated warranty costs, product returns and allowances which to date have not been significant. Determination of the reserve for estimated product warranty costs, returns and allowances is based on management's analyses and judgments regarding certain conditions. Should future changes in conditions prove management's conclusions and judgments on previous analyses to be incorrect, revenue recognized for any reporting period could be adversely affected.

The Company extends credit to customers generally without requiring collateral. At December 31, 2016 and 2015, the Company's accounts receivable were insignificant. During the year ended December 31, 2016, our sales were not significant and resulted from consumable sales made to several BDI customers. During the year ended December 31, 2015, three European-based customers of the APPY1 product, accounted for total net sales, each representing 52%, 26% and 22%, respectively. 

The Company monitors its exposure for credit losses and maintains allowances for anticipated losses. The Company records an allowance for doubtful accounts when it is probable that the accounts receivable balance will not be collected. When estimating the allowance, the Company takes into consideration such factors as its day-to-day knowledge of the financial position of specific clients, the industry and size of its clients. A financial decline of any one of the Company's large clients could have an adverse and material effect on the collectability of receivables and thus the adequacy of the allowance for doubtful accounts receivable. Increases in the allowance are recorded as charges to bad debt expense and are reflected in operating expenses in the Company's statements of operations. Write-offs of uncollectible accounts are charged against the allowance.
 
Inventories:
 
The Company values its inventories at the lower of the actual cost to purchase (first-in, first-out method) and/or manufacture the inventories or the current estimated market value of the inventories. The Company regularly reviews inventory on hand and records a provision to write down obsolete inventories to its estimated net realizable value if less than cost.
 
Property and equipment:
 
Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, generally twenty-five years for the building, ten years for land improvements, five years for equipment, and three years for computer related assets. See Note 3 for the 2016 sale of the land and building.
 
Patents and other intangible assets:
 
The Company accounts for intangible assets under ASC 350-30. Patents consisting of legal fees incurred are initially recorded at cost.  Patents are amortized over the useful lives of the assets, using the straight-line method. Certain patents are in the legal application process and therefore are not currently being amortized. We review the carrying value of patents at the end of each reporting period.



 
55



Goodwill:
 
The Company performs a goodwill impairment analysis in the fourth quarter of each year, or whenever there is an indication of impairment.  When conducting its annual goodwill impairment assessment, the Company initially performs a qualitative evaluation to determine if it is more likely than not that the fair value of its reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a two-step goodwill impairment test.  The Company has determined, based on its qualitative evaluation, that it was not necessary to perform the two-step goodwill impairment test and that no impairment had occurred as of December 31, 2016. (See Notes 2 and 4 for goodwill information).
 
Impairment of long-lived assets:
 
Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.  Based on its review, management determined that certain costs previously incurred for patents had been impaired during the years ended December 31, 2016 and 2015.  Approximately $535,000 and $188,000 of such net patent costs were determined to be impaired during the years ended December 31, 2016 and 2015, respectively, resulting from management's decisions not to pursue patents based upon a cost benefit analysis of patent expenses and coverage protection in several smaller world markets that were determined to not have the economic or fiscal potential to make the patent pursuit viable. Impairment charges are included in research and development expenses in the accompanying statements of operations.
 
Research and development:
 
Research and development costs are charged to expense as incurred.
 
Use of estimates:
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ significantly from those estimates.
 
Income taxes:
 
The Company accounts for income taxes under the asset and liability method, in which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is required to the extent any deferred tax assets may not be realizable.
 
The Company does not have an accrual for uncertain tax positions as of December 31, 2016 and 2015.  
 
The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. At December 31, 2016, the Company did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the years ended December 31, 2016 or 2015.



56


 
 
Stock-based compensation:
 
The Company recognizes the cost of employee services received in exchange for an award of equity instruments in the financial statements which is measured based on the grant date fair value of the award. Stock-based compensation expense is recognized over the period during which an employee is required to provide service in exchange for the award (generally the vesting period). The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option pricing model.
 
Income (loss) per share:
 
ASC 260, Earnings Per Share, requires dual presentation of basic and diluted earnings per share (EPS) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.
 
Basic earnings (loss) per share includes no dilution and is computed by dividing net earnings (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the Company's earnings (loss). The effect of the inclusion of the dilutive shares would have resulted in a decrease in loss per share during the years ended December 31, 2016 and 2015. Accordingly, the weighted average shares outstanding have not been adjusted for dilutive shares. Outstanding stock options and warrants are not considered in the calculation, as the impact of the potential common shares (totaling approximately 1,093,750 and 764,563 shares for each of the years ended December 31, 2016 and 2015, respectively) would be to decrease the net loss per share.
 
Reverse stock split: 
 
In 2015, the Company received a notification letter from NASDAQ notifying it that it was not in compliance with its $1.00 minimum bid price requirement because the bid price for the Company's common stock closed below $1.00 over the prior 30 consecutive business days. To regain compliance with this requirement, the Company completed a reverse stock split, which was effected on March 31, 2016 at a ratio of one-for-eight with no change in par value. All historical references to shares and share amounts in this report have been retroactively revised to reflect the Reverse Stock Split. 
 
Reclassifications:
 
Certain immaterial amounts in the 2015 financial statement have been reclassified to conform to classifications used in the 2016 financial statements.

Recently issued and adopted accounting pronouncements:
 
The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company's financial reporting, the Company undertakes a study to determine the consequences of the change to its consolidated financial statements and assures that there are proper controls in place to ascertain that the Company's consolidated financial statements properly reflect the change.
 
In August 2014, the FASB issued ASU No. 2014‑15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. ASU 2014‑15 requires management to evaluate, at each annual or interim reporting period, whether there are conditions or events that exist that raise substantial doubt about an entity's ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures. ASU 2014‑15 is effective for annual periods ending after December 15, 2016 and earlier application is permitted. The Company adopted this standard during the three months ended December 31, 2016. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2041-09"), which supersedes nearly all existing revenue recognition guidance. The standard's core principle is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard creates a five-step model to achieve its core principle: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction's price to the separate performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. In addition, entities must disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Qualitative and quantitative disclosures are required about: (i) the entity's contracts with customers; (ii) the significant judgments, and changes in judgments, made in applying the guidance to those contracts; and (iii) any assets recognized from the costs to obtain or fulfill a contract with a customer.




 
57


In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 616) - Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 to interim and annual periods beginning after December 15, 2017. The standard allows entities to apply the standard retrospectively to each prior period presented ("full retrospective adoption") or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application ("modified retrospective adoption"). The Company plans to adopt this guidance on January 1, 2018, and continues to evaluate the impact of adopting under the modified retrospective adoption versus the full retrospective method. The Company is currently in the process of determining the impact of the new revenue recognition guidance on its revenue transactions, including any impacts on associated processes, systems, and internal controls. The Company's preliminary assessment indicates implementation of this standard will not have a material impact on financial results. The Company's evaluation has included determining whether the unit of account (i.e., performance obligations) will change as compared to current GAAP, as well as determining the standalone selling price of each performance obligation. The Company continues to evaluate the impact of this guidance and its subsequent amendments on the consolidated financial position, results of operations, and cash flows, and any preliminary assessments are subject to change.
 
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330). This standard requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company plans to adopt ASU 2015-11 on January 1, 2017. The Company is currently in the process of evaluating the impact that will result from adopting ASU 2015-11.
 
In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. ASU No. 2016-01 supersedes and amends the guidance to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale) and require equity securities to be measured at fair value with changes in the fair value recognized through net income. The amendments allow equity investments that do not have readily determinable fair values to be re-measured at fair value either upon the occurrence of an observable price change or upon identification of an impairment. The amendments also require enhanced disclosures about those investments. ASU No. 2016-01 is effective for annual reporting beginning after December 15, 2017, including interim periods within the year of adoption, and calls for prospective application. The Company is currently in the process of evaluating the impact that will result from adopting ASU 2016-01.
 
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This standard requires a lessee to recognize the lease assets and lease liabilities arising from operating leases in the balance sheet. Qualitative along with specific quantitative disclosures are required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 including interim periods within those fiscal years. The Company is currently evaluating the impact that will result from adopting ASU 2016-02.
 
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share Based Payment Accounting ("ASU 2016-09"), which amends guidance issued in Accounting Standards Codification ("ASC") Topic 718, Compensation - Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years and early adoption is permitted. The Company has evaluated the impact of adoption of the ASU on its Consolidated Financial Statements. The principal impact will be that the to the extent a tax benefit or expense from stock compensation arises it will be presented in the income tax line of the Statement of Operations rather than the current presentation as a component of equity on the Balance Sheet. Also the tax benefit or expense will be presented as activity in Cash Flow from Operating Activity rather than the current presentation as Cash Flow from Financing Activity in the Statement of Cash Flows. The Company will also continue to estimate forfeitures of stock grants as allowed by ASU 2016-09.
 
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This standard provides guidance for eight cash flow classification issues in current GAAP. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The Company is currently evaluating the impact that will result from adopting ASU 2016-15.

 
 
58




In January 2017, the FASB issued an ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. The amendments in this Update is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company plans to adopt this guidance effective January 1, 2017.
 
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard will be effective for the Company beginning in the first quarter of fiscal year 2020 and is required to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
We have considered recently issued accounting pronouncements and do not believe the adoption of such pronouncements will have a material impact on our consolidated financial statements.
 
Note 2. Acquisition:

On September 12, 2016, the Company completed the strategic acquisition of BDI, a privately-held entity. The decision to acquire BDI was made based on the evaluation that the Company's resources would primarily be used for market development and commercial launch of the product and the market opportunity was estimated to be sizable.  Pursuant to the Purchase Agreement, through a wholly-owned subsidiary ("Venaxis Sub"), the Company acquired all of the outstanding shares of Series 1 Preferred Stock of BDI from the selling shareholders, representing more than 98% of the outstanding voting stock of BDI, and BDI thereupon become a majority owned subsidiary of the Company.
 
Under the terms of the Purchase Agreement, the consideration consisted of an aggregate of 627,010 shares of the Company's common stock (the "Shares") which Shares were distributed in accordance with the liquidation preferences set forth in BDI's Fifth Amended and Restated Certificate of Incorporation, as amended.  The Shares were valued at approximately $2,577,000 (based upon the closing value of our common stock on the acquisition date) and the issuance represented approximately 14% of the outstanding Bioptix common stock at the closing. The Purchase Agreement contains customary representations and warranties of the parties, including BDI, and the Sellers have customary indemnification obligations to the Company relating to BDI, which are subject to certain limitations described further in the Purchase Agreement. The issuance of the Shares was effected as a private placement of securities.  The Company also entered into a Registration Rights Agreement with the Sellers.
 
Effective November 30, 2016, Venaxis Sub, a wholly-owned subsidiary of the Company, merged with and into BDI, pursuant to an Agreement and Plan of Merger.  In the merger, each share of BDI common stock, par value $0.001 per share, except for shares owned by Venaxis Sub, converted into the right to receive cash consideration, upon the terms and subject to the conditions set forth in the merger agreement. The aggregate cash consideration paid in the merger was approximately $28,800 for acquisition of the then remaining 1.1% of the outstanding voting securities of BDI.  Following the merger transaction, BDI, the surviving corporation in the Merger, became a wholly-owned subsidiary of the Company.
 
The total consideration transferred consisted of the 627,010 shares of the Company's common stock with a value of $2,577,000.
 
 
59


 
Under the acquisition method of accounting, the total estimated purchase consideration is allocated to the acquired tangible and intangible assets and assumed liabilities based on their estimated fair values as of the acquisition date. We have completed a preliminary allocation of the purchase consideration. The following allocation of the purchase consideration is subject to revision as additional information becomes known in the future:
 
Cash and cash equivalents
 
$
17,000
 
Accounts receivable
   
21,000
 
Inventory
   
379,000
 
Prepaid and other assets
   
51,000
 
Equipment
   
1,000
 
Identifiable intangible assets:
       
  Trademarks (5 year estimated useful life)
   
99,000
 
  Customer base (6 year estimated useful life)
   
37,000
 
  Developed technology (4 year estimated useful life)
   
1,864,000
 
Total identifiable intangible assets
   
2,000,000
 
Goodwill
   
430,000
 
Accounts payable
   
(118,000
)
Accrued and other liabilities
   
(175,000
)
Non-controlling interest
   
(29,000
)
Purchase price
 
$
2,577,000
 


The identifiable intangible assets acquired estimated average lives are noted above, which will result in annual estimated future amortization of approximately $492,000 per year.
 
Intangible rights acquired consisted of the following as of December 31, 2016:

Trademarks
 
$
99,000
 
Customer base
   
37,000
 
Developed technology
   
1,864,000
 
Total
   
2,000,000
 
Less accumulated amortization
   
(148,264
)
Net acquired intangibles
 
$
1,851,736
 


As of November 30, 2016, the Company paid approximately $29,000 to acquire the non-controlling interest in BDI, which was accounted for as an equity transaction.

From the September 12, 2016 acquisition date through December 31, 2016, BDI revenues and net loss were approximately $9,000 and $1,115,000, respectively. Amortization expense amounted to approximately $148,000 for the period ended December 31, 2016.

The following table presents unaudited supplemental pro forma information for the years ended December 31, 2016 and 2015, as if the BDI acquisition had occurred as of January 1, 2015:
 
 
 
2016
   
2015
 
Total revenue
 
$
127,000
   
$
690,000
 
Net loss
   
6,895,000
     
10,921,000
 
 
               
Loss per share (Basic and Diluted)
 
$
1.53
   
$
2.42
 


These pro forma condensed consolidated financial results have been prepared for comparative purposes only and include certain adjustments to reflect the pro forma results of operations as if the acquisition had occurred as of the beginning of the periods presented, such as increased amortization for the fair value of acquired intangible assets. The pro forma information does not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred at the beginning of each period presented, or of future results of the consolidated entities.
 
As of December 31, 2016, Bioptix had incurred a total of approximately $130,000 in advisory and legal fees related to the acquisition of BDI, reported in selling, general and administrative expenses in the accompanying consolidated statement of operations for the year ended December 31, 2016.

 
60


 
 
As of December 31, 2016 inventories totaled $415,847, consisting of $187,921 in raw materials and $227,926 in finished goods, all associated with the BDI operations.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. In addition, separate presentation on the face of the income statement or disclosure in the notes is required regarding the portion of the adjustment recorded in the current period earnings, by line item, which would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is to be applied prospectively for measurement period adjustments that occur after the effective date. ASU 2015-16 is effective for annual reporting periods beginning after December 15, 2015. The Company adopted this guidance on January 1, 2016 and the adoption thereof did not have a material impact on the Company's consolidated financial statements.

See Note 12. 
 
Note 3.  Property and equipment:
 
Property and equipment consisted of the following as of December 31: 
 
 
 
2016
   
2015
 
 
 
(Retrospectively
Revised - Note 12)
       
Land and improvements
 
$
   
$
1,107,508
 
Building
   
     
2,589,231
 
Building improvements
   
     
253,526
 
Laboratory equipment
   
     
848,014
 
Office and computer equipment
   
116,510
     
318,254
 
 
               
 
   
116,510
     
5,116,533
 
Less accumulated depreciation
   
110,972
     
3,162,037
 
 
               
 
 
$
5,538
   
$
1,954,496
 

 
Depreciation expense totaled approximately $4,000 and $149,000, for the years ended December 31, 2016 and 2015, respectively.

On February 25, 2016, the Company completed the sale of its corporate headquarters, land, building and certain fixtures and equipment to a third party for a purchase price of approximately $4,000,000. The sale resulted in a gain of approximately $1,943,000 and generated approximately $1,809,000 in net cash after expenses and mortgage payoffs. The Company is leasing back space in the building under a short-term lease agreement for storage space.


 
61


 
Note 4.  Other long-term assets:

 
Other long-term assets consisted of the following as of December 31, 2016 (Retrospectively Revised - Note 12) and 2015:

 
 
Beginning Balance
   
Additions
   
Impairments
   
Ending Balance
 
Year ended December 31, 2016:
                       
Cost:
                       
  Patents
 
$
1,684,737
   
$
26,067
   
$
(677,822
)
 
$
1,032,982
 
  Goodwill
   
447,951
     
     
     
447,951
 
  Deposits
   
     
     
     
 
Total
   
2,132,688
     
26,067
     
(677,822
)
   
1,480,933
 
 
                               
Accumulated Amortization:
                               
  Patents
   
(548,327
)
   
(76,422
)
   
142,566
     
(482,183
)
  Goodwill
   
(60,712
)
   
     
     
(60,712
)
Total
   
(609,039
)
   
(76,422
)
   
142,566
     
(542,895
)
 
                               
Net Other Long Term Assets
 
$
1,523,649
   
$
(50,355
)
 
$
(535,256
)
 
$
938,038
 
 
                               
Year ended December 31, 2015:
                               
Cost:
                               
  Patents
 
$
1,844,595
   
$
92,033
   
$
(251,891
)
 
$
1,684,737
 
  Goodwill
   
447,951
     
     
     
447,951
 
  Deposits
   
     
     
     
 
Total
   
2,292,546
     
92,033
     
(251,891
)
   
2,132,688
 
 
                               
Accumulated Amortization:
                               
  Patents
   
(507,644
)
   
(104,433
)
   
63,750
     
(548,327
)
  Goodwill
   
(60,712
)
   
     
     
(60,712
)
Total
   
(568,356
)
   
(104,433
)
   
63,750
     
(609,039
)
 
                               
Net Other Long Term Assets
 
$
1,724,190
   
$
(12,400
)
 
$
(188,141
)
 
$
1,523,649
 

The Company capitalizes legal costs and filing fees associated with obtaining patents on its new discoveries. Once the patents have been issued, the Company amortizes these costs over the shorter of the legal life of the patent or its estimated economic life using the straight-line method. Amortization expense totaled $76,000 and $104,000 for the years ended December 31, 2016 and 2015, respectively. Based upon the current status of the above intangible assets, the aggregate amortization expense is estimated to be approximately $68,000 for each of the next five fiscal years. The Company tests intangible assets with finite lives upon significant changes in the Company's business environment. The testing resulted in approximately $535,000 and $188,000 of net patent impairment charges during the years ended December 31, 2016 and 2015, respectively.  The impairment charges are related to the Company's ongoing analysis on which specific patents in specific countries the Company intends to continue to pursue.
 
Note 5.  Notes and other obligations:

Notes payable and installment obligations consisted of the following as of December 31:
 
 
 
2016
   
2015
 
 
           
Mortgage notes
 
$
   
$
1,997,701
 
Other short-term installment obligations
   
139,611
     
142,328
 
 
   
139,611
     
2,140,029
 
Less current portion
   
139,611
     
301,250
 
 
               
 
 
$
   
$
1,838,779
 


 
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Mortgage notes:
 
Prior to the February 2016 sale of the corporate headquarters, the Company had a permanent mortgage on its land and building that was refinanced in May 2013. The mortgage was held by a commercial bank and included a portion guaranteed by the U. S. Small Business Administration ("SBA").  The loan was collateralized by the real property and the SBA portion was also personally guaranteed by a former officer of the Company. The commercial bank loan terms included a payment schedule based on a fifteen year amortization, with a balloon maturity at five years. The commercial bank portion had an interest rate fixed at 3.95%, and the SBA portion bore interest at the rate of 5.86%. The commercial bank portion of the loan required total monthly payments of approximately $11,700, which included approximately $4,500 per month in interest. The SBA portion of the loan required total monthly payments of approximately $9,000 through July 2023, which included approximately $3,500 per month in interest and fees in 2016.
 
On February 25, 2016, the Company completed the sale of its corporate headquarters, land and building, and also paid off its mortgage obligations.  See Note 3.
 
Other short-term installment obligations and future maturities:
 
The Company has executed financing agreements for certain of the Company's insurance premiums.  At December 31, 2016, these obligations totaled $139,611, all of which are due in 2017.
 
The Company's exclusive license agreement with The Washington University also requires minimum annual royalty payments of $20,000 per year during its term. See Note 8.
 
Note 6.  Stockholders' equity:
 
2016 Transactions:
 
On September 12, 2016, the Company issued an aggregate of 627,010 shares of common stock of the Company as consideration for the acquisition of the Preferred Stock of BDI, thereby making BDI a majority-owned subsidiary of the Company.  The issuance of the shares was effected as a private placement transaction. See Note 2.

Upon the completion of a special shareholders meeting on March 24, 2016, where such action was approved by shareholders, the Board of Directors authorized the Reverse Stock Split at a ratio of one-for-eight, whereby each eight shares of common stock were combined into one share of common stock.  The Reverse Stock Split was implemented and effective on March 31, 2016. All historical references to shares and share amounts in this report have been retroactively revised to reflect the Reverse Stock Split. 
 
2015 Transactions:
 
The Company had no equity offerings in 2015, as it focused on strategic alternatives.
 
Note 7.  Stock options and warrants:
 
The Company currently provides stock-based compensation to employees, directors and consultants, both under the Company's 2002 Stock Incentive Plan, as amended (the "Plan") and non-qualified options and warrants issued outside of the Plan.  During November, 2016, the Company's shareholders approved amendments to the Plan to increase the number of shares reserved under the Plan from 709,141 to 895,000. The Company estimates the fair value of the share-based awards on the date of grant using the Black-Scholes option-pricing model (the "Black-Scholes model").  Using the Black-Scholes model, the value of the award that is ultimately expected to vest is recognized over the requisite service period in the statement of operations.  Option forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  The Company attributes compensation to expense using the straight-line single option method for all options granted. 

 

 
63


The Company's determination of the estimated fair value of share-based payment awards on the date of grant is affected by the following variables and assumptions:
 
·
The grant date exercise price – the closing market price of the Company's common stock on the date of the grant;
·
Expected option term – based on historical experience with existing option holders estimated at 3-5 years;
·
Estimated dividend rates – based on historical and anticipated dividends over the life of the option;
·
Term of the option – grants have lives of 10 years;
·
Risk-free interest rates – with maturities that approximate the expected life of the options granted;
·
Calculated stock price volatility – calculated over the expected life of the options granted, which is calculated based on the daily closing price of the Company's common stock over a period equal to the expected term of the option; and
·
Option exercise behaviors – based on actual and projected employee stock option exercises and forfeitures.


The Company recognized stock-based compensation totaling $545,549 and $1,143,078 during the years ended December 31, 2016 and 2015, respectively. These expenses are included in the accompanying Statements of Operations for the years ended December 31, in the following categories: 

 
 
2016
   
2015
 
 
       
Selling, general and administrative expenses
 
$
542,989
   
$
1,016,011
 
Research and development expenses
   
2,560
     
127,067
 
 Total stock-based compensation
 
$
545,549
   
$
1,143,078
 
 
Stock incentive plan options:
 
The Company currently provides stock-based compensation to employees, directors and consultants under the Plan.  The Company utilized assumptions in the estimation of fair value of stock-based compensation for the years ended December 31, as follows: