STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE

Common Stock

Shares of Common Stock, Class B Common Stock, Class C Common Stock, and Class D Common Stock share proportionately in our earnings and losses attributable to common shareholders. There are no shares of Class D Common Stock outstanding as of June 30, 2017 or December 31, 2016.

Preferred Stock

In 2014, the Company issued a total of 8.2 million shares of the Company’s newly-designated Series B-1 and B-2 Cumulative Convertible Preferred Stock (“Series B Preferred Stock”) to certain investor groups in exchange for $26.4 million (the “Preferred Investment”). The current holders of Series B Preferred Stock are collectively referred to herein as the “Series B Investors.” Except for certain voting and transfer rights, the rights and obligations of the Series B-1 Preferred Stock and Series B-2 Preferred Stock are substantially the same.

On April 11, 2017, JPMorgan Chase Funding Inc., a Delaware corporation (“Chase Funding”), an affiliate of JPMorgan Chase & Co., purchased all of the Company’s outstanding Series B-2 Preferred Shares from SRE Monarch pursuant to a Preferred Stock Purchase Agreement among the Company, Chase Funding and SRE Monarch (“Series B-2 Purchase Agreement”). Pursuant to the Series B-2 Purchase Agreement, the Company paid SRE Monarch all accrued and unpaid dividends on the Series B-2 Preferred Shares and $0.3 million in expenses. In connection with this transaction, the Company’s board of directors approved for filing with Secretary of State of the State of Delaware, an Amended and Restated Certificate of Designation of the Cumulative Convertible Series B-1 Preferred Stock and Cumulative Convertible Series B-2 Preferred Stock (“Restated Certificate of Designation”) pursuant to which Chase Funding replaced SRE Monarch as the holder of the Series B-2 Preferred Stock and, in general, succeeded to the rights of SRE Monarch thereunder. Concurrent with the execution of the Series B-2 Purchase Agreement, the Company, JCP Realty Partners, LLC, Juniper NVM, LLC, and Chase Funding entered into an Investment Agreement (“Series B Investment Agreement”) pursuant to which the Company made certain representations and covenants, including, but not limited to, a covenant that the Company take all commercially reasonable actions as are reasonably necessary for the Company to be eligible to rely on the exemption provided by Section 3(c)(5)(C) of the Investment Company Act of 1940, as amended, commonly referred to as the “Real Estate Exemption,” and to remain eligible to rely on that exemption at all times thereafter. Furthermore, the Company may not take any action, the result of which would reasonably be expected to cause the Company to become ineligible for the Real Estate Exemption without the prior written consent of Chase Funding. In the event that the Company violates any of the above covenants, and such violation is not cured within 60 days of the violation, the holders of our Series B Preferred Shares have the right to demand that the Company purchase all of their Series B Preferred Shares at the Required Redemption Price as set forth in the Restated Certificate of Designation. The Amended and Restated Certificate of Designation contains numerous provisions relating to dividend preferences, redemption rights, liquidation preferences and requirements, conversion rights, voting rights, investment committee participation and other restrictive covenants with respect to the Series B Preferred Stock.

On April 11, 2017, in connection with the consummation of the transactions contemplated by the Series B-2 Purchase Agreement, Seth Singerman resigned as our Series B-2 Director (as such term is defined in the Restated Certificate of Designation), and was replaced, effective April 24, 2017, with Chad Parson.

Treasury Stock

During the six months ended June 30, 2017, we redeemed 196,278 shares of the common stock of the Company, which were part of an 850,000 restricted share grant awarded to the Company’s Chief Executive Officer pursuant to a restricted stock award agreement entered into in 2015 (the “Award Agreement”). The shares were redeemed by the Company pursuant to an election made by the Chief Executive Officer under Section 83(b) of the Internal Revenue Code of 1986, as amended (the “Code”) and the Award Agreement pursuant to which the parties agreed to make arrangements for the satisfaction of tax withholding requirements associated with the stock award. The Company paid $0.3 million for the redeemed shares, of which $0.2 million was determined to represent the fair value of the stock redeemed, with the difference of $0.1 million treated as compensation expense.

Share-Based Compensation

During the six months ended June 30, 2017, the Company issued 527,383 shares of common stock pursuant to previous restricted stock awards. During the six months ended June 30, 2017, the Company granted 322,262 shares of restricted stock to certain executives of the Company. Such granted restricted stock vests in three approximately equal parts on each of January 1, 2018, January 1, 2019, and January 1, 2020. There were 116,830 options to employees pursuant to our 2010 Employee Stock Incentive Plan granted during the six months ended June 30, 2017. Such options have an exercise price of $1.13 per share, vest over a three year term, and have an estimated fair value of $0.70 per option. During the six months ended June 30, 2017, no options were forfeited.

As of June 30, 2017, there were 854,667 fully vested stock options outstanding, 2,000,000 fully vested stock warrants outstanding and 2,499,254 restricted stock grants outstanding, of which 974,364 were vested.

Net stock-based compensation expense relating to the stock-based awards was $0.4 million and $0.6 million for the three and six months ended June 30, 2017, respectively, and $0.2 million and $0.5 million for the three and six months ended June 30, 2016, respectively. No stock options or warrants were exercised and we did not receive any cash from option or warrant exercises during the three and six months ended June 30, 2017 or 2016. As of June 30, 2017, there was $0.8 million of unrecognized compensation cost related to the time-based restricted stock that is expected to be recognized as a charge to earnings over a weighted-average vesting period of 0.78 years.

During the second quarter of 2017, we issued 73,128 shares of previously granted restricted common stock to our employees pursuant to the Company’s First Amended and Restated 2010 Employee Stock Incentive Plan. These restricted shares were included in the Company’s board approved grant of 86,207 restricted shares for the year ended December 31, 2016. Of the 86,207 shares authorized, 9,942 shares were forfeited due to subsequent employee terminations, and 3,136 shares were withheld by the Company pursuant to an election made by certain employees under Section 83(b) of the Code.

During the second quarter of 2017, the Company issued 100,000 shares of previously granted restricted common stock as part of the Executive Employment Agreement with Samuel Montes, the Company’s Chief Financial Officer. The agreement provides for the issuance of 50,000 shares upon the execution of the employment agreement and an additional 50,000 shares upon the filing of the Company’s 2016 Form 10-K. The restricted shares vest ratably on each anniversary of the Montes Employment Agreement over a three year period beginning on April 1, 2017. Pursuant to an election made by Mr. Montes under Section 83(b) of the Code and the award agreement, the Company reduced the issuance to 79,323 shares in order to satisfy the tax withholding requirements associated with the stock award.

In addition, during the second quarter of 2017, the Company issued a total of 116,772 shares of restricted common stock to our non-employee independent directors pursuant to the 2014 Non-Employee Director Compensation Plan for fiscal years 2015 and 2016 (“Director Compensation Plan”), of which 45,976 shares immediately vested and the balance vested on June 29, 2017.

Net Income (Loss) Per Share

The Company has adopted the two-class computation method, and thus includes all participating securities in the computation of basic shares for the periods in which the Company has net income available to common shareholders. A participating security is defined as an unvested share-based payment award containing non-forfeitable rights to dividends regardless of whether or not the awards ultimately vest or expire. Net losses are not allocated to participating securities unless the holder has a contractual obligation to share in the losses.

The following table presents a reconciliation of net loss to net loss attributable to common shareholders used in the basic and diluted earnings per share calculations for the three and six months ended June 30, 2017 and 2016, (amounts in thousands, except for per share data):



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Earnings allocable to common shares:
Numerator - Loss Attributable to Common Shareholders:
Net Loss from Continuing Operations	$	(2,125	)	$	(4,565	)	$	(5,098	)	$	(8,133	)
Provision for Income Taxes	—			—			—			(2		)
(Income) Loss attributable to noncontrolling interest loss allocation	(755		)	18			(734		)	73
Preferred dividends - cash and deemed	(1,205		)	(1,153		)	(2,392		)	(2,294		)
Net Loss from Continuing Operations attributable to common shareholders	(4,085		)	(5,700		)	(8,224		)	(10,356		)
Net Income (Loss) from Discontinued Operations attributable to common shareholders	(240		)	40			4,736			(1,157		)
Net Loss attributable to common shareholders	$	(4,325	)	$	(5,660	)	$	(3,488	)	$	(11,513	)

Denominator - Weighted average shares:
Weighted average common shares outstanding for basic and diluted earnings per common share	16,154,341			15,922,321			16,121,992			15,910,197
Basic and diluted earnings per common share:
Net loss per share, Continuing Operations	$	(0.18	)	$	(0.29	)	$	(0.36	)	$	(0.51	)
Preferred dividends per share	(0.07		)	(0.07		)	(0.15		)	(0.14		)
Net loss per share, Continuing Operations, net	(0.25		)	(0.36		)	(0.51		)	(0.65		)
Net income (loss) per share, Discontinued Operations	(0.01		)	—			0.29			(0.07		)
Net loss attributable to common shareholders per share	$	(0.26	)	$	(0.36	)	$	(0.22	)	$	(0.72	)

The following securities were not included in the computation of diluted net loss per share as their effect would have been anti-dilutive (presented on a weighted average balance):



	Three Months Ended June 30,		Six Months Ended June 30,
	2017	2016	2017	2016
Options to purchase common stock	939,951	980,563	939,312	954,833
Restricted stock	916,492	843,334	789,197	855,458
Warrants to purchase common stock	2,000,000	2,000,000	2,000,000	2,000,000
Convertible preferred stock	8,200,000	8,200,000	8,200,000	8,200,000
Total	12,056,443	12,023,897	11,928,509	12,010,291