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Shareholders' Equity

3 Months Ended

Mar. 31, 2018

Equity [Abstract]

SHAREHOLDERS' EQUITY

NOTE 7 – SHAREHOLDERS' EQUITY

Common Stock

The Company has authorized 75,000,000 shares of $0.025 par value common stock.

Treasury Stock

During 2014, the Company's Board of Directors authorized a stock repurchase of 1,438 shares of its common stock for approximately $230,000 at an average price of $20.00 per share. At March 31, 2018 and December 31, 2017, the Company holds 1,438 shares of its common stock in its treasury.

Preferred Stock

The Company has authorized 5,000,000 shares of Preferred Stock, for which six classes have been designated to date. Series A has 51 and 51 shares issued and outstanding, Series B has 0 and 0 shares issued and outstanding, Series C has 0 and 0 shares issued and outstanding, Series D has 106,950 and 141,000 shares issued and outstanding, Series E has 223,950 and 300,000 shares issued and outstanding, and Series F has 2,500 and 0 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively.

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

Private Placement of Series D Preferred Stock, Common Stock and Warrants

During the third quarter of 2017, the Company completed a private placement offering to accredited investors (the "Offering") of $1,410,000 of units (the "Units"), with each Unit comprised of (i) one (1) share of Series D Preferred Stock, par value $0.001 per share (the "Series D Preferred Stock"), (ii) fifteen (15) warrants (the "Warrants") to purchase shares of the Company's common stock, par value $0.025 per share ("Common Stock"), and (iii) three (3) shares of Common Stock, at a per unit purchase price of $10.00. In addition, shares of common stock were issued and identified in the agreement as the prepayment of the first year of dividends.

During the three months ended March 31, 2018, 34,050 shares of Series D Preferred stock was converted under its contractual terms into 42,563 shares of common stock. In accordance with ASC 470, the Company recognized a deemed dividend of approximately $212,000 upon conversion which represented the unamortized discount on these converted Series D Preferred Shares.

March Modification

On March 13, 2018, the Company made certain changes to the Series D Preferred Stock and Series D Warrants including amending the conversion price of the Series D Preferred Stock and the exercise price of the Series D Warrants to $0.94. In addition, a round down provision was added to both instruments that resets the conversion price and exercise price of these instruments if a future equity offering occurs at a lower exercise, conversion or sales price or if a current equity offering resets to a lower exercise, conversion or sales price.

In relation to the warrants, the Company determined the fair values of the unmodified warrants and modified warrants at the modification date and recognized the incremental increase in fair value as a deemed dividend of approximately $90,000. Further, given the warrants can reset based on something other than a future equity offering, such as a triggering event change to the Series F instruments, the Company cannot assert that the Series D Warrants are indexed to our own stock. Accordingly, the Series D Warrants are now classified as warrant liabilities and will be subsequently remeasured to fair value each reporting period with the change in fair value being recorded as unrealized gain or loss on derivatives. A rollforward of the Series D warrant liability balance is as follows:

March 13, 2018 Pre Modification - Equity	1,096,758
Change in Fair Value due to modification	89,827
March 13, 2018 Reclass Liability	1,186,585
Change in Fair Value	(138,207	)
March 31, 2018 Fair Value	1,048,378

The Company used a black scholes merton model to value the Series D warrants (pre-modification) at March 13, 2018 with the following key assumptions: (1) Stock price - $0.64; (2) Exercise price - $1.44; (3) Term – 4.5 years; (4) Risk free rate of return – 2.62%; and (5) Volatility – 140%. The Company used a modified binomial lattice model to value the Series D warrants (post modification) at March 13, 2018 and March 31, 2018 with the following key assumptions:

	March 13, 2018			March 31, 2018

Stock Price	$	0.64		$	0.57
Exercise Price	$	0.94		$	0.94
Term (years)		4.50			4.45
Risk Free Rate		2.62	%		2.57	%
Volatility		140.4	%		140.4	%

In relation to the Series D Preferred Stock, the Company determined the modification changed the fair value of the embedded conversion option and instrument as a whole by more than 10% of carrying value and thus extinguishment accounting was appropriate. In accordance with ASC 260-10-S99-2, the Company remeasured the Series D Preferred Stock to its post modification fair value of $1,269,000 with the excess value over the prior carrying balance of $403,000 being recognized as a deemed dividend of $866,000.

The Company used a modified binomial lattice model to value the Series D Preferred Stock at March 13, 2018 with the following key assumptions: (1) Stock price - $0.64; (2) Initial Exercise price - $0.94; (3) Term until reset– 0.5 years; (4) Volatility – 140.4%.

Private Placement of Series E Preferred Stock, Common Stock and Warrants

During the fourth quarter of 2017, the Company completed a private placement offering to accredited investors (the "Offering") of $3,000,000 of units (the "Units"), with each Unit comprised of (i) one (1) share of Series E Preferred Stock, par value $0.001 per share (the "Series E Preferred Stock"), (ii) fifteen (15) warrants (the "Warrants") to purchase shares of the Company's common stock, par value $0.025 per share ("Common Stock"), at a per unit purchase price of $10.00. In addition, shares of common stock were issued and identified in the agreement as the prepayment of the first year of dividends.

The holders of shares of the Series E Preferred shall be entitled to receive quarterly dividends out of any assets legally available, to the extent permitted by New York law, at an annual rate equal to 20% of the stated value of the shares of Series E Preferred. Dividends for the first year will be payable in advance.

In total the Company issued an aggregate of 300,000 shares of Series E Preferred Stock, 562,500 Warrants and with an aggregate of 75,000 shares of Common Stock issued to investors in the Offering as dividends for Series E Preferred Stock. During the three months ended March 31, 2018 76,050 shares were converted in to 95,063 shares of common stock. At March 31, 2018 there are 223,950 shares of Series E Preferred Stock outstanding, convertible in to 277,994 shares of common stock.

During the three months ended March 31, 2018, 76,050 shares of Series E Preferred stock was converted under its contractual terms into 95,063 shares of common stock. In accordance with ASC 470, the Company recognized a deemed dividend of approximately $387,000 upon conversion which represented the unamortized discount on these converted Series E Preferred Shares.

March Modification

On March 13, 2018, the Company made certain changes to the Series E Preferred Stock and Series E Warrants including amending the conversion price of the Series E Preferred Stock and the exercise price of the Series E Warrants to $0.94. In addition, a round down provision was added to both instruments that resets the conversion price and exercise price of these instruments if a future equity offering occurs at a lower exercise, conversion or sales price or if a current equity offering resets to a lower exercise, conversion or sales price.

In relation to the warrants, the Company determined the fair values of the unmodified warrants and modified warrants at the modification date and recognized the incremental increase in fair value as a deemed dividend of approximately $145,000. Further, given the warrants can reset based on something other than a future equity offering, such as a triggering event change to the Series F instruments, the Company cannot assert that the Series E Warrants are indexed to our own stock. Accordingly, the Series E Warrants are now classified as warrant liabilities and will be subsequently remeasured to fair value each reporting period with the change in fair value being recorded as unrealized gain or loss on derivatives. A rollforward of the Series E warrant liability balance is as follows:

March 13, 2018 Pre Modification - Equity	2,390,687
Change in Fair Value due to modification	145,085
March 13, 2018 Reclass Liability	2,535,772
Change in Fair Value	(295,226	)
March 31, 2018 Fair Value	2,240,546

The Company used a black scholes merton model to value the Series E warrants (pre-modification) at March 13, 2018 with the following key assumptions: (1) Stock price - $0.64; (2) Exercise price - $1.20; (3) Term – 4.58 years; (4) Risk free rate of return – 2.62%; and (5) Volatility – 140%. The Company used a modified binomial lattice model to value the Series E warrants (post modification) at March 13, 2018 and March 31, 2018 with the following key assumptions:

	March 13, 2018			March 31, 2018

Stock Price	$	0.64		$	0.57
Exercise Price	$	0.94		$	0.94
Term (years)		4.58			4.53
Risk Free Rate		2.62	%		2.57	%
Volatility		140.4	%		140.4	%

In relation to the Series E Preferred Stock, the Company determined the modification changed the fair value of the embedded conversion option and instrument as a whole by more than 10% of carrying value and thus extinguishment accounting was appropriate. In accordance with ASC 260-10-S99-2, the Company remeasured the Series E Preferred Stock to its post modification fair value of $2,717,000 with the excess value over the prior carrying balance of $957,000 being recognized as a deemed dividend of $1,760,783.

Private Placement of Series F Preferred Stock, Common Stock and Warrants

During the first quarter of 2018, the Company completed a private placement offering to accredited investors of 2,500 units for $2,250,000, with each unit consisting of (i) 2,500 shares of Series F Preferred Stock, par value $0.001 per share, with a stated value of $1,000 per share (the "Series F Preferred Stock"); and (ii) 5,319,141 Series A warrants (the "Warrants") to purchase shares of the Company's common stock.

In relation to this offering, the Company paid a placement agent an aggregate cash fee of $180,000, reimbursed $40,000 of the placement agent's expenses, and issued the placement agent 200,000 warrants, in substantially the same form as the warrants issued in the investment unit.

The net proceeds to the Company from the Closing, after deducting the foregoing fees and other Offering expenses, was approximately $2,002,000.

The holders of shares of the Series F Preferred Stock shall be entitled to receive quarterly dividends out of any assets legally available, to the extent permitted by New York law, at an annual rate equal to 8% of the stated value of the shares of Series F Preferred Stock. Dividends for the first year will be payable in advance.

The Warrants are five-year warrants to purchase shares of Common Stock at an exercise price of $0.95 per share, exercisable beginning six months after the date of issuance thereof. The Warrants provide for cashless exercise to the extent that there is no registration statement available for the underlying shares of Common Stock.

Both the Series F Preferred Stock and the Series A warrants contain a down round provision that resets the conversion price and exercise price of these instruments if a future equity offering occurs at a lower exercise, conversion or sales price or if a current equity offering resets to a lower exercise, conversion or sales price. In addition, the Series F Preferred Stock can reset based upon a lower stock price on certain trigger dates such as: (1) 30 days after the effective date of any registration statement related to this offering; (2) 30 days after shareholder approval of the transaction; (3) 30 days after the six month anniversary of the transaction; (4) the tenth day following the announcement of an asset sale; and (5) potentially 30 days after the one year anniversary if certain public information requirements under Rule 144c are not complied with and there is no effective registration statement.

As a result of the triggering event clause in the Series F Preferred Stock, the Series A, Series B, Class D, and Class E warrants can reset based on something other than a future equity offering, and as such the Company cannot assert that these warrants are indexed to our own stock. Accordingly, these warrants require classification as warrant liabilities and will be subsequently remeasured to fair value each reporting period with the change in fair value being recorded as unrealized gain or loss on derivatives. The Company reviewed the impact of this clause on the conversion feature of the Series F Preferred Stock itself and determined that the embedded conversion option is clearly and closely related to the host instrument and thus no bifurcation is required.

As the Series A warrants issued within this investment unit are deemed to be warrant liabilities, they must be presented at fair value. Thus, in terms of allocating the proceeds of this offering, the proceeds are first allocated to the instrument initially and subsequently measured at fair value (warrants) and the remaining proceeds, if any, are allocated to the Series F Preferred Stock. The Company calculated the warrant's fair value at issuance as $6,216,000. Such amount exceeded net proceeds by $4,214,000 which was expensed during the period. In addition, the warrant liability was remarked to fair value at March 31, 2018 which was determined to be $4,499,000 which resulted in an unrealized gain on derivatives of $1,700,000.

A rollforward of the Series A warrant liability balance is as follows:

February 21, 2018	$	6,216,073
Change in Fair Value		(1,716,830	)
March 31, 2018	$	4,499,243

The Company used a modified binomial lattice model to value the Series A warrants (post modification) at March 13, 2018 and March 31, 2018 with the following key assumptions:

	February 21, 2018			March 31, 2018

Stock Price	$	0.9600		$	0.57
Exercise Price	$	0.95		$	0.95
Term (years)		5.00			4.90
Risk Free Rate		2.69	%		2.56	%
Volatility		152.9	%		140.4	%

Common Stock Transactions

During the three months ended March 31, 2018, the Company issued 315,708 shares of common stock. The fair values of the shares of common stock were based on the quoted trading price on the date of issuance. Of the 315,708 shares issued during the three months ended March 31, 2018, the Company:

Issued 75,000 of these shares previously accrued in 2017 as dividends to the Series E Preferred Stock holders,

Issued 95,063 of these shares due to the conversion of Series E Preferred Stock to common shares,

Issued 42,563 of these shares due to the conversion of Series D Preferred Stock to common shares,

Issued 62,500 of these shares as a result of the American Science and Technology Corporation License Agreement and Lease,

Issued 313 of these shares due to the exercise of warrants,

Issued 7,770 of these shares to an employee as compensation,

Issued 1,250 of these shares to Environmental Trash Company in connection with the acquisition agreement,

Issued 31,250 of these shares to Garden State Securities in connection with a consulting agreement.

Warrants

The 5,319,143 warrants issued in the first quarter of 2018, as part of the Series F Preferred Stock offering are exercisable for 5 years and have an exercise price equal to $0.95 on a pre-split basis. The Company also issued the placement agent 200,000 warrants with the same terms.

On November 29, 2017, the Company, entered into a Securities Purchase Agreement with five (5) accredited investors (the "Purchasers"). Pursuant to the Securities Purchase Agreement, the Purchasers purchased 1,868,933 shares of the Company's common stock, par value $0.025 per share at a price of $1.03 per share of Common Stock on a pre-split basis, 736,948 Series A Common Stock Purchase Warrants (the "Series A Warrants"), and 664,753 Series B Common Stock Purchase Warrants for an aggregate of $1,925,000. The Series A Warrants are exercisable immediately, at the price of $1.31 per share, and expire five years from the date of issuance. The Series B Warrants are exercisable on the date six months from the date of issuance, at the price of $1.31 per share, expiring five years from the initial exercise date. Now, both the Series A and Series B warrants include a down round provision that resets the conversion price and exercise price of these instruments if a future equity offering occurs at a lower exercise, conversion or sales price.

Upon the issuance of Series F Preferred Stock, a down round of the exercise price was triggered for the Series A and Series B Warrants as the exercise price reset to $0.94. In accordance with ASC 260-10-35-1 and 30-1, the Company measured the effect of the round down as the difference between the fair value of the warrant immediately before the round down and then after and recorded such difference, $10,000 as a deemed dividend.

In addition, as a result of the Series F Preferred Stock issuance, the down round provision was expanded to include the reset of any existing instrument, including if the reset is triggered as a result of something other than a future equity offering such as remeasurement on certain triggering event days which would reset Series F Preferred Stock and thereby trigger the round down provision of the Series A and B warrants. Accordingly, effective with the issuance of the Series F Preferred Stock on February 21, 2018, the Company cannot assert that the Series A and B Warrants are indexed to our own stock. Accordingly, the Series A and B Warrants are now classified as warrant liabilities and will be subsequently remeasured to fair value each reporting period with the change in fair value being recorded as unrealized gain or loss on derivatives. A rollforward of the Series A and B warrant liability balance is as follows:

February 21, 2018 Pre Down Round (Equity)	1,233,086
Change in Fair Value (deemed dividend)	9,649
February 21, 2018 Post Down Round (Liability)	1,242,735
Change in Fair Value	(541,145	)
March 31, 2018, ending balance	701,590

The Company used a modified binomial lattice model to value the Series A and B warrants (post modification) at March 13, 2018 and March 31, 2018 with the following key assumptions:

	February 21, 2018 Pre Round Down			February 21, 2018 Post Down Round			March 31, 2018
Stock Price	$	0.96		$	0.96		$	0.57
Exercise Price	$	1.31		$	0.94		$	0.94
Term (years)		4.75			4.75			4.65
Risk Free Rate		2.69	%		2.69	%		2.57	%
Volatility		152.9	%		152.9	%		140.4	%

A summary of the status of the Company's outstanding stock warrants for the period ended March 31, 2018 is as follows:

	Number of Shares			Average Exercise Price		Expiration Date
Outstanding - December 31, 2017		1,644,359		$	.78
Granted		689,893			2.82	February, 2023
Exercised		(313	)		15.20
Outstanding, March 31, 2018		2,333,939		$	10.84
Warrants exercisable at March 31, 2018		2,333,939

Stock Options

A summary of the Company's stock options as of and for the three months ended March 31, 2018 are as follows:

	Number of Shares Underlying Options		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value (1)

Outstanding at December 31, 2017		1,434	$	154.78	$	4.78		3.61		-

For the three months ended March 31, 2018
Granted		-		-		-		-
Exercised		-		-		-		-
Expired		-		-		-		-

Outstanding at March 31, 2018		1,434	$	154.78	$	4.78		3.61		-

Outstanding and Exercisable at March 31, 2018		213	$	154.78	$	4.78		3.61		-

(1)

The aggregate intrinsic value is based on the $0.57 closing price as of March 29, 2018 for the Company's Common Stock.

The following information applies to options outstanding at March 31, 2018:

Options Outstanding						Options Exercisable
Exercise Price		Number of Shares Underlying Options		Weighted Average Remaining Contractual Life		Number Exercisable		Exercise Price
$	96.00		28		3.38		28	$	96.00
$	160.00		1,406		3.38		663	$	160.00
			1,434		3.38		691

At March 31, 2018 there was approximately $32,000 of unrecognized compensation cost related to stock options, with expense expected to be recognized ratably over the next 3 years.