Pursuant to The Audit Committee consists of Messrs. Angelis, Sukumaran and Martella. The Audit Committee held 4 meetings during the requirementsyear ended December 31, 2018. All members of the Section 13 or 15 or 15(d)Audit Committee (i) are independent directors (as currently defined in Rule 5605(a)(2) of the NASDAQ listing rules); (ii) meet the criteria for independence set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); (iii) have not participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years; and (iv) are able to read and understand fundamental financial statements. Mr. Angelis qualifies as an “Audit Committee financial expert” as defined in the rules and regulations established by the SEC. The Audit Committee is governed by a written charter approved by our Board of Directors. The functions of the Audit Committee include, among other things:
Meeting with our management periodically to consider the adequacy of our internal controls and the objectivity of our financial reporting;
Meeting with our independent registered public accounting firm and with internal financial personnel regarding the adequacy of our internal controls and the objectivity of our financial reporting;
Recommending to our Board of Directors the engagement of our independent registered public accounting firm;
Reviewing our quarterly and audited consolidated financial statements and reports and discussing the statements and reports with our management, including any significant adjustments, management judgments and estimates, new accounting policies and disagreements with management; and
Reviewing our financial plans and reporting recommendations to our full Board of Directors for approval and to authorize action.
Both our independent registered public accounting firm and internal financial personnel regularly meet privately with our Audit Committee and have unrestricted access to the Audit Committee.
Compensation Committee. The Compensation Committee consists of Messrs. Angelis and Sukumaran. The Compensation Committee held 2 meetings during the year ended December 31, 2018. Messrs. Angelis and Sukumaran are independent, as determined under the various NASDAQ Stock Market, SEC and Internal Revenue Service qualification requirements. The Compensation Committee is governed by a written charter approved by our Board of Directors. The charter of the Compensation Committee permits the Compensation Committee to engage outside consultants and to consult with our human resources department when appropriate to assist in carrying out its responsibilities. Compensation consultants have not been engaged by the Company to recommend or assist in determining the amount or form of compensation for any current executive officers or directors of the Company. The Committee may also obtain advice and assistance from internal or external legal, accounting, or other advisers selected by the Committee. The functions of the Compensation Committee include, among other things:
Reviewing and, as it deems appropriate, recommending to our Board of Directors, policies, practices, and procedures relating to the compensation of our directors, officers and other managerial employees and the establishment and administration of our employee benefit plans;
Establishing appropriate incentives for officers, including the Chief Executive Officer, to encourage high performance, promote accountability and adherence to company values and further our long-term strategic plan and long-term value; and
Exercising authority under our employee benefit plans.
Corporate Governance Committee. The Nominations and Corporate Governance Committee consists of Mr. Angelis. The Nominations and Corporate Governance Committee held 2 meetings during the year ended December 31, 2018. Mr. Angelis is an independent director (as currently defined in Rule 5605(a)(2) of the NASDAQ listing rules). The Nominations and Corporate Governance Committee is governed by a written charter approved by our Board of Directors. The functions of the Nominations and Corporate Governance Committee include, among other things:
Reviewing and recommending nominees for election as directors;
Assessing the performance of our board of directors;
Developing guidelines for the composition of our board of directors;
Reviewing and administering our corporate governance guidelines and considering other issues relating to corporate governance; and
Oversight of the Company compliance officer and compliance with the Company’s Code of Ethics and Business Conduct and Code of Ethics for our Chief Executive Officer and Senior Financial Officers.
The Board of Directors’ Role in Risk Oversight
Our Board of Directors, as a whole and also at the committee level, has an active role in managing enterprise risk. The members of our Board of Directors participate in our risk oversight assessment by receiving regular reports from members of senior management and the Company compliance officer appointed by our Board of Directors on areas of material risk to us, including operational, financial, legal and regulatory, and strategic and reputational risks. The Compensation Committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements. The Audit Committee oversees management of financial risks, as well as our policies with respect to risk assessment and risk management. The Nominations and Corporate Governance Committee manages risks associated with the independence of our Board of Directors and potential conflicts of interest. Members of the management team report directly to our Board of Directors or the appropriate committee. The directors then use this information to understand, identify, manage, and mitigate risk. Once a committee has considered the reports from management, the chairperson will report on the matter to our full Board of Directors at the next meeting of the Board of Directors, or sooner if deemed necessary. This enables our Board of Directors and its committees to effectively carry out its risk oversight role.
Communications with our Board of Directors
Any stockholder may send correspondence to our Board of Directors c/o Corporate Secretary, Ameri Holdings, Inc., 5000 Research Court, Suite 750, Suwanee, Georgia, 30024. Our Corporate Secretary will review all correspondence addressed to our Board of Directors, or any individual director, and forward all such communications to our Board of Directors or the appropriate director prior to the next regularly scheduled meeting of our Board of Directors following the receipt of the communication, unless the corporate secretary decides the communication is more suitably directed to Company management and forwards the communication to Company management. Our Corporate Secretary will summarize all stockholder correspondence directed to our Board of Directors that is not forwarded to our Board of Directors and will make such correspondence available to our Board of Directors for its review at the request of any member of our Board of Directors.
Indebtedness of Directors and Executive Officers
None of our directors or executive officers or their respective associates or affiliates is currently indebted to us.
Certain Legal Proceedings
Lone Star Value Management LLC, Mr. Eberwein (our former Chairman) and a third-party unrelated to the Company are each subject to a SEC administrative order, dated February 14, 2017 (Securities Exchange Act Release No. 80038), relating to alleged violations of Section 13(d) of the Exchange Act and the rules promulgated thereunder, including failing to disclose the members of a stockholder group, and further allegations that Mr. Eberwein violated Section 16(a) of the Exchange Act and the rules promulgated thereunder, including failing to timely file initial statements of beneficial ownership on Form 3 and changes thereto on Form 4. Without admitting or denying any violations, (i) Lone Star Value Management agreed to cease and desist from committing or causing any violations of Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2 promulgated thereunder, and paid a civil penalty of $120,000 to the SEC and (ii) Mr. Eberwein and the unrelated third-party agreed to cease and desist from committing or causing any violations of (x) Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2 promulgated thereunder and (y) Section 16(a) of the Exchange Act and Rules 16a-2 and 16a-3 promulgated thereunder, and each paid a civil penalty to the SEC.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires our executive officers, directors and holders of more than 10% of our equity securities to file reports of ownership and changes in ownership of our securities (Forms 3, 4 and 5) with the SEC. To the best of our knowledge, based solely on a review of the Section 16(a) reports and written statements from executive officers and directors, for the year ended December 31, 2018, all required reports of executive officers, directors and holders of more than 10% of our equity securities were filed on time.
Family Relationships
There are no family relationships among our directors and executive officers.
Role and Authority of Compensation Committee
The Compensation Committee currently consists of Messrs. Angelis and Sukumaran. Messrs. Angelis and Sukumaran are each a “non-employee director” within the meaning of Rule 16b-3 under the Securities and Exchange Act of 1934 and an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code. Messrs. Angelis and Sukumaran and satisfy the independence requirements imposed by the NASDAQ Stock Market.
The Compensation Committee is responsible for discharging the responsibilities of the Board of Directors with respect to the compensation of our executive officers. The Compensation Committee recommends overall compensation of our executive officers to the Board of Directors. The Board of Directors approves all compensation of our executive officers. The Compensation Committee also periodically reviews director compensation.
The charter of the Compensation Committee permits the Compensation Committee to engage outside consultants and to consult with our human resources department when appropriate to assist in carrying out its responsibilities. Compensation consultants have not been engaged by the Company to recommend or assist in determining the amount or form of compensation for any current executive officers or directors of the Company.
The Committee may also obtain advice and assistance from internal or external legal, accounting, or other advisers selected by the Committee.
Elements of Executive Compensation
Our executive compensation consists of the following elements:
Long-Term Incentives; and
Retirement benefits under a 401(k) plan and generally available benefit programs.
Base Salary. The base salary for each executive is initially established through negotiation at the time the executive is hired, taking into account his or her scope of responsibilities, qualifications, experience, prior salary, and competitive salary information within our industry. Year-to-year adjustments to each executive officer’s base salary are determined by an assessment of his or her sustained performance against individual goals, including leadership skills and the achievement of high ethical standards, the individual’s impact on our business and financial results, current salary in relation to the salary range designated for the job, experience, demonstrated potential for advancement, and an assessment against base salaries paid to executives for comparable jobs in the marketplace..
Annual Bonus. Annual bonus payments under our executive employment agreements are based on the discretion of our Board of Directors. We believe that such bonuses provide our executives with an incentive to achieve goals that are aligned with our stockholders’ interests, with the achievement of such goals being measurable in terms of revenue and income or other financial objectives. An executive officer’s failure to achieve measurable performance goals can affect his or her bonus amount. We believe that offering significant potential income in the form of bonuses allows us to attract and retain executives and to align their interests with those of our stockholders.
Long-Term Incentives. The Compensation Committee has the ability to grant equity instruments to our executives under our 2015 Equity Incentive Award Plan. The Compensation Committee has the ability to issue a variety of instruments, but equity grants will typically be in the form of stock options and restricted stock units. We believe that our executive compensation program must include long-term incentives such as stock options and restricted stock units if we wish to hire and retain high-level executive talent. We also believe that stock options and restricted stock units help to provide a balance to the overall executive compensation program as base salary and bonus awards focus only on short-term compensation. In addition, the vesting period of stock options and restricted stock units encourages executive retention and the preservation of stockholder value. Finally, we believe that aligning at least a portion of restricted stock units vesting provisions to financial performance measures further aligns executive compensation to stockholder value; if performance targets are not achieved, then the awards do not vest. We base the number of equity units granted on the type and responsibility level of the executive’s position, the executive’s performance in the prior year and the executive’s potential for continued sustained contributions to our long-term success and the long-term interests of our stockholders.
401(k) and Other Benefits. During 2018, our executive officers were eligible to receive certain benefits generally available to all our employees on the same terms, including medical, dental and vision insurance, long-term and short-term disability insurance, life and accidental death and dismemberment insurance, health and dependent care flexible spending accounts, educational and employee assistance, paid-time-off, and certain other benefits. During 2015, we also maintained a tax-qualified 401(k) Plan, which provides for broad-based employee participation. During 2018, under the 401(k) Plan, at the Company’s discretion, all employees were eligible to receive matching contributions from Ameri of (i) 100% of their first 3% of employee contributions and (ii) 50% of the next 2% of employee contributions up to an aggregate maximum of $10,600 per employee, per year, subject to vesting provisions.
Compensation Risk Assessment. In establishing and reviewing our overall compensation program, the Compensation Committee considers whether the program and its various elements encourage or motivate our executives or other employees to take excessive risks. We believe that our compensation program and its elements are designed to encourage our employees to act in the long-term best interests of the Company and are not reasonably likely to have a material adverse effect on our business.
The Impact of Tax and Accounting Treatments on Elements of Compensation
We have elected to award non-qualified stock options instead of incentive stock options to all our employees, directors and consultants to allow the corporation to take advantage of the more favorable tax advantages associated with non-qualified stock options.
Internal Revenue Code Section 162(m) precludes us from deducting compensation in excess of $1.0 million for certain employees. To date, we have not exceeded the $1.0 million limit for those employees, and the Compensation Committee has not defined a policy that all compensation must be deductible. However, since stock-based awards comprise a significant portion of total compensation, the Compensation Committee has taken appropriate steps to preserve deductibility for such awards in the future, when appropriate.
Summary Compensation Table
The following table provides information regarding the compensation earned during the years ended December 31, 2018 and December 31, 2017 by our Chief Executive Officer and our two other most highly compensated executive officers (our “Named Executive Officers”) who were employed by us during such years.
Name & Principal Position | | Transition Period or Fiscal Year Ended | | Salary ($) | | | Bonus ($) | | | Stock Awards ($) | | | Option Awards ($) | | | Non-Equity Incentive Plan Compensation ($) | | | Non-Qualified Deferred Compensation Earnings ($) | | | All Other
Compensation ($) | | | Total ($) | |
Brent Kelton(1) Chief Executive Officer | | 12/31/2018 12/31/2017 | | | 250,000 121,500 | | | | 100,000 50,000 | | | | — — | | | | — — | | | | — — | | | | — — | | | | — — | | | | 350,000 171,500 | |
Viraj Patel(2) Former Chief Financial Officer | | 12/31/2018 12/31/2017 | | | 204,621 137,222 | | | | — — | | | | — — | | | | — — | | | | — — | | | | — — | | | | — — | | | | 204,621 137,222 | |
Giri Devanur(3) Former President and Chief Executive Officer | | 12/31/2018 12/31/2017 | | | 220,000 220,000 | | | | 25,000 | | | | — — | | | | — — | | | | — — | | | | — — | | | | — — | | | | 220,000 245,000 | |
Srinidhi (Dev) Devanur Executive Chairman | | 12/31/2018 12/31/2017 | | | 250,000 100,000 | | | | — — | | | | — — | | | | — — | | | | — — | | | | — — | | | | — — | | | | 250,000 100,000 | |
| (1) | Brent Kelton was appointed as our Chief Executive Officer effective December 26, 2017. |
| (2) | Viraj Patel was appointed as our Chief Financial Officer effective April 24, 2017 and he has served as CFO until December 15, 2018. |
| (3) | Giri Devanur’s employment with the Company terminated on December 26, 2017. The Company agreed to pay Mr. Devanur severance of $220,000, his annual salary at the time of departure in accordance with the terms of his employment agreement, over a period of one year and a lump sum of $25,000 in exchange for his release of the Company from all claims he or his heirs, executors and assigns ever had or may have against the Company, its officers, directors, employees, stockholders or any of one of them by reason of any actual or alleged act, omission, transaction, practice, conduct, occurrence, or other matter. |
Grants of Plan-Based Awards
On September 12, 2018 we granted 250,000 options to purchase 250,000 shares of our common stock to certain employees and directors. On October 17, 2018, we granted 150,000 options to purchase 150,000 shares of our common stock to certain employees and directors.
Outstanding Equity Awards at Fiscal Year-End
As of December 31, 2018, there were no outstanding equity incentive awards held by any of our named executive officers pursuant to our equity incentive plan.
Employment Agreements; Potential Payments Upon Termination or Change of Control Under Employment Agreements
In connection with the appointment of Mr. Devanur as Executive Chairman, the Company and Mr. Devanur entered into an amended and restated employment agreement (the “Employment Agreement”), pursuant to which the Company agreed to pay Mr. Devanur a base salary of $250,000 per year. The term of the Employment Agreement is initially for three years. Additionally, Mr. Devanur shall be eligible to earn a bonus of up to 100% of his base salary upon the achievement of pre-established performance targets set by the Board.
On October 17, 2018, pursuant to an employment letter (the “Employment Letter”), Mr. Kostiner will receive an annual base salary of $200,000 and be eligible for bonus payments of up to an aggregate of $50,000 as determined by the Board of Directors, based on meeting and exceeding mutually agreed upon annual performance goals. Additionally, Mr. Kostiner received an option to purchase 150,000 shares of common stock with an exercise price based on the closing price of the Company’s common stock on the grant date and expiring on the fifth anniversary of the grant date. The option vests in thirds on each of the first through third anniversaries of October 17, 2018, the grant date.
Mr. Kostiner’s Employment Letter has a term lasting through December 31, 2019, subject to automatic one-year renewals thereafter, unless the Company or Mr. Kostiner delivers written notice of non-renewal to the other party at least 60 days prior to the relevant renewal date. In addition, the Employment Letter is subject to early termination by him or the Company in accordance with the terms of the Employment Letter. The Employment Letter also contains covenants restricting Mr. Kostiner from soliciting the Company’s employees or customers for a period of two years after the termination of Mr. Kostiner’s employment with the Company, and prohibiting him from disclosure of confidential information regarding the Company at any time.
Upon the termination of Giri Devanur’s employment with the Company, on December 26, 2017, the Company agreed to pay Mr. Devanur severance of $220,000, his annual salary at the time of departure in accordance with the terms of his employment agreement, over a period of one year and a lump sum of $25,000 in exchange for his release of the Company from all claims he or his heirs, executors and assigns ever had or may have against the Company, its officers, directors, employees, stockholders or any of one of them by reason of any actual or alleged act, omission, transaction, practice, conduct, occurrence, or other matter.
Securities Authorized for Issuance Under Equity Compensation Plans
On April 20, 2015, our Board and the holder of a majority of our outstanding shares of common stock approved the adoption of our 2015 Equity Incentive Award Plan (the “Plan”) and a grant of discretionary authority to the executive officers to implement and administer the Plan. The Plan allows for the issuance of up to 4,000,000 shares of our common stock for award grants (all of which can be incentive stock options). The Plan provides equity-based compensation through the grant of cash-based awards, nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and other stock-based awards. As of December 31, 2018, restricted stock units for the issuance of 141,872 shares of common stock and options to purchase 670,000 shares of our common stock had been granted and were outstanding. The Board of Directors adopted the Plan to provide a means by which our employees, directors, officers and consultants may be granted an opportunity to purchase our common stock, to assist in retaining the services of such persons, to secure and retain the services of persons capable of filling such positions and to provide incentives for such persons to exert maximum efforts for our success.
Under Plan, our board of directors determines the exercise price to be paid for the shares, the period within which each option may be exercised, and the terms and conditions of each option. The exercise price of the incentive and non-qualified stock options may not be less than 100% of the fair market value per share of our common stock on the grant date. If an individual owns stock representing more than 10% of the outstanding shares, the price of each share of an incentive stock option must be equal to or exceed 110% of fair market value.
The following table sets forth information regarding our equity compensation plans as of December 31, 2018:
| Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | | Weighted-average exercise price of outstanding options, warrants and rights | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |
| | | (a) | | | (b) | | | (c) | |
| Equity compensation plans approved by security holders | | | 2,748,548 | | | $ | 1.17 | | | | 1,052,852 | |
| Warrants and options issued outside of our equity compensation plan | | | | | | | | | | | — | |
| Total | | | 2,748,548 | | | $ | 1.17 | | | | 1.052,852 | |
DIRECTOR COMPENSATION
Directors are expected to timely and fully participate in all regular and special board meetings, and all meetings of committees that they serve on. We compensate non-management directors through an annual grant of stock options pursuant to the 2015 Equity Incentive Award Plan. Such option awards have an exercise price not less than 100% of the fair market value of our common stock, based on the value of such shares of common stock on the date the option is granted, and become vested and exercisable as determined by the compensation committee or the entire Board of Directors. Other terms and conditions of the option grants are on the terms and conditions as determined by the Compensation Committee or the entire Board of Directors when the options are granted.
The following table sets forth the cash compensation, as well as certain other compensation earned by each person who served as a director of our company, during the year ended December 31, 2018:
| Name | | Fees Earned or Paid in Cash | | | Stock Awards | | | RSU & Option Awards | | | All Other Compensation | | | Total | |
| | | ($) | | | ($) | | | ($) | | | ($) | | | ($) | |
| | | | | | | | | | | | | | | | |
| Srinidhi “Dev” Devanur | | | - | | | | - | | | | - | | | | - | | | | - | |
Dimitrios J. Angelis(1) | | | - | | | | - | | | | 70,408 | | | | - | | | | 70,408 | |
Dr. Arthur M. Langer(2) | | | - | | | | - | | | | 48,495 | | | | - | | | | 48,495 | |
Dhruwa N. Rai (3) | | | - | | | | - | | | | 39,867 | | | | - | | | | 39,867 | |
James Shad(4) | | | | | | | - | | | | 14,300 | | | | - | | | | 14,300 | |
David Luci(5) | | | - | | | | - | | | | 21,450 | | | | - | | | | 21,450 | |
| Thoranath Sukumaran | | | - | | | | - | | | | - | | | | - | | | | - | |
| TOTAL | | | - | | | | - | | | | 194,520 | | | | - | | | | 194,250 | |
| (1) | Includes 27,386 RSUs granted on multiple dates during 2018 Valued at an average $2.57 per share for a total of $70,408. |
| (2) | Resigned on May 7, 2018. Includes 15,061 RSUs granted on multiple dates during 2018 valued at an average $3.25 per share for a total of $48,945. |
| (3) | Resigned on February 12, 2018. Includes 12,061 RSUs granted on multiple dates during 2018 valued at an average $3.16 per share for a total of $39,867. |
| (4) | Resigned on February 13, 2019. Includes 10,000 RSUs granted on August 20, 2018 valued at $1.43 per share for a total of $14,300. |
| (5) | Appointed on February 8, 2018. Resigned on March 28, 2019. Includes 15,000 RSUs granted on August 20, 2018 valued at $1.43 per share for a total of $21,450. |
| Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of April 22, 2019 regarding the beneficial ownership of our common stock by (i) each person we know to be the beneficial owner of 5% or more of our common stock, (ii) each of our current executive officers, (iii) each of our directors, and (iv) all of our current executive officers and directors as a group. Information with respect to beneficial ownership has been furnished by each director, executive officer or 5% or more stockholder, as the case may be. The address for all executive officers and directors is c/o Ameri Holdings, Inc., 5000 Research Court, Suite 750, Suwanee, Georgia, 30024.
Percentage of beneficial ownership in the table below is calculated based on 50,486,653 shares of common stock outstanding as of April 22, 2019. Beneficial ownership is determined in accordance with the rules of the SEC, which generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities and includes shares of our common stock issuable pursuant to the exercise of stock options, warrants or other securities that are immediately exercisable or convertible or exercisable or convertible within 60 days of April 22, 2019. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them.
Name(1) | | Number of Shares Beneficially Owned | | | Percentage of Shares Beneficially Owned | |
| | | | | | | |
| Executive Officers and Directors: | | | | | | |
| | | | | | | |
| Srinidhi “Dev” Devanur | | | 6,276,375 | | | | 12.43 | % |
Brent Kelton (5) | | | 93,276 | | | | * | |
| Barry Kostiner | | | - | | | | - | |
Dimitrios J. Angelis (6) | | | 65,990 | | | | * | |
| Thoranath Sukumaran | | | - | | | | - | |
| Carmo Martella | | | - | | | | - | |
| All executive officers and directors as a group (6 persons) | | | 6,435,641 | | | | 12.74 | % |
| | | | | | | | | |
| 5% Stockholders: | | | | | | | | |
Lone Star Value Management, LLC(2)(3)(4) | | | 4,216,974 | | | | 8.35 | % |
Anson Funds Management LP(7) | | | 4,877,350 | | | | 9.66 | % |
Hudson Bay Capital Management (8) | | | 4,395,951 | | | | 8.70 | % |
| * | Less than one percent of outstanding shares. |
| (1) | Unless otherwise indicated, the address of each person or entity is c/o AMERI Holdings, Inc., 5000 Research Court, Suite 750, Suwanee, Georgia, 30024. |
| (2) | Includes (A) (i) 2,972,592 shares of common stock and (ii) 1,100,000 shares of common stock reserved for issuance upon the exercise of warrants, in each case held of record by LSVI, (B) 13,910 shares of common stock held of record by Lone Star Value Co-Invest I, LP (“Co-Invest”) and (C) 47,164 shares of common stock held of record by Jeffrey E. Eberwein, our former Chairman. Lone Star Value Investors GP, LLC (“Lone Star Value GP”), the general partner of LSVI, Co-Invest and Lone Star Value Management, the investment manager of LSVI, may be deemed to beneficially own the 4,133,666 shares held by LSVI and Co-Invest. Jeffrey E. Eberwein is the managing member of Lone Star Value GP and may be deemed to beneficially own the 3,882,696 shares held by LSVI and Co-Invest. Mr. Eberwein disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. The address of Mr. Eberwein, LSVI, Co-Invest, Lone Star Value GP and Lone Star Value Management is 53 Forest Avenue, 1st Floor, Old Greenwich, CT 06870. |
| (3) | Includes 83,308 shares held in an account separately managed by Lone Star Value Management. Lone Star Value Management, as the investment manager of the separately managed account, may be deemed to beneficially own the 83,308 shares held in the separately managed account; and Jeffrey Eberwein, our former Chairman, as the sole member of Lone Star Value Management may be deemed to beneficially own the shares held in the separately managed account. Mr. Eberwein disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. |
| (4) | As of April 26, 2019, we had 405,395 shares of Series A Preferred Stock issued and outstanding. As of such date, LSVI held 405,395 shares of our Series A Preferred Stock, representing 100% of the issued and outstanding shares of the Series A Preferred Stock. Jeffrey E. Eberwein as the managing member of Lone Star Value GP may be deemed to beneficially own the 405,395 shares of Series A Preferred Stock held by LSVI. Mr. Eberwein disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. The address of Mr. Eberwein, LSVI and Lone Star Value GP is 53 Forest Avenue, 1st Floor, Old Greenwich, CT 06870. |
| (5) | Consists of 93,276 shares of common stock and 250,000 warrants. |
| (6) | Consists of 40,990 shares of common stock and 25,000 shares of common stock issuable upon exercise of options exercisable within 60 days. |
| (7) | Based on information provided in the Schedule 13G/A filed on February 14, 2019. Anson Advisors Inc. and Anson Funds Management LP, the Co-Investment Advisers of Anson Investments Master Fund LP (“Anson”), hold voting and dispositive power over the securities held by Anson. Bruce Winson is the managing member of Anson Management GP LLC, which is the general partner of Anson Funds Management LP. Moez Kassam and Amin Nathoo are directors of Anson Advisors Inc. Mr. Winson, Mr. Kassam and Mr. Nathoo each disclaim beneficial ownership of these shares of common stock except to the extent of their pecuniary interest therein. The principal business address of Anson is 5950 Berkshire Lane, Suite 210, Dallas, Texas 75225. Anson Funds Management LP and Anson Advisors Inc. serve as co-investment advisors to Anson and may direct the vote and disposition of the 4,877,350 shares of Common Stock held by the Fund. As the general partner of Anson Funds Management LP, Anson Management GP LLC may direct the vote and disposition of the 4,877,350 shares of Common Stock held by Anson. As the principal of Anson Fund Management LP and Anson Management GP LLC, Mr. Winson may direct the vote and disposition of the 4,877,350 shares of Common Stock held by Anson. As directors of Anson Advisors Inc., Mr. Nathoo and Mr. Kassam may each direct the vote and disposition of the 4,877,350 shares of Common Stock held by Anson. |
| (8) | Based on information provided in the Schedule 13G filed on February 1, 2019. Includes 4,395,951 shares of Common Stock issuable upon exercise of warrants, which warrants are subject to a 9.99% beneficial ownership blocker. Hudson Bay Capital Management, L.P. (“Hudson Bay”), which serves as the investment manager to Hudson Bay Master Fund Ltd., in whose name the securities reported are held, may be deemed to be the beneficial owner of all shares of common stock of the Company held by Hudson Bay Master Fund Ltd. Mr. Sander Gerber serves as the managing member of Hudson Bay Capital GP LLC, which is the general partner of Hudson Bay. Mr. Gerber disclaims beneficial ownership of these securities. The address for Hudson Bay and Mr. Gerber is 777 Third Avenue, 30th Floor, New York, New York 10017. |
| Certain Relationships and Related Transactions, and Director Independence |
The following represent transactions or series of similar transactions, since January 1, 2017 to which we have been a participant in which the amount involved exceeded or will exceed the lesser of (a) $120,000 or (b) 1% of our average total assets at year end for the last two completed fiscal years, and in which any of our director, executive officer, holder of more than 5% of our capital stock, promotor or certain control person or any member of their immediate family had or will have a direct or indirect material interest.
Lone Star Value
On May 26, 2015, we issued a 5% Unsecured Convertible Note due May 26, 2017, in the principal amount of $5,000,000 (the “Convertible Note”) bearing interest at 5% per annum, maturing on May 26, 2017 and at a conversion price of $1.80 per share, or an aggregate of 2,777,778 shares of common stock, together with a warrant to purchase shares of our common stock (the “Original Warrant”) to purchase up to 2,777,777 shares of our common stock, at an exercise price equal to $1.80 per share, in a private placement (the “Private Placement”) to Lone Star Value Investors, LP (“LSVI”), one of our significant stockholders and an entity controlled by our former Chairman, Jeffrey Eberwein, pursuant to the terms of a Securities Purchase Agreement, dated as of May 26, 2015. In connection with the Private Placement, LSVI was granted the right to designate three of our directors.
On May 13, 2016, LSVI completed an early partial exercise of the Original Warrant for 1,111,111 shares of our common stock for total consideration to us of $2,000,000, and LSVI was issued a replacement warrant for the remaining 1,666,666 shares under the Original Warrant on the same terms as the Original Warrant (the “Replacement Warrant”). LSVI also agreed to amend the Convertible Note to extend its maturity for two years in exchange for (i) the right to request that we expand the size of the Board to nine directors from the then-current eight, with LSVI having the right to designate up to four of the nine directors, and (ii) the issuance of an additional warrant (the “Additional Warrant”) for the purchase of 1,000,000 shares of the Company’s common stock at a price of $6.00 per share, on substantively the same terms as the Original Warrant. LSVI’s Registration Rights Agreement, dated May 26, 2015, with us was also amended and restated to include the shares of common stock issuable under the Additional Warrant.
On December 30, 2016, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with LSVI, pursuant to which the Convertible Note was returned to the Company and cancelled in exchange for 363,611 shares of the Company’s Series A Preferred Stock, which is non-convertible and perpetual preferred stock of the Company. As a result of the exchange transaction, no principal or interest remained outstanding or payable under the Convertible Note and the Convertible Note was no longer convertible into shares of common stock of the Company. The Company issued 57,107 shares of Series A Preferred Stock to LSVI during 2017 and the first three quarters of 2018. The Company is yet to issue the payments of a dividend on shares of Series A preferred Stock for the fourth quarter of 2018, which amounts to 2,104 shares.
On September 26, 2017, LSVI completed a cashless exercise of the full Replacement Warrant, of which there was a total of 1,666,666 shares of common stock underlying, in exchange for the issuance of 1,205,837 shares of our common stock.
2017 Notes Transaction
On March 7, 2017, we completed the sale and issuance of $1,250,000 in 8% Convertible Unsecured Promissory Notes (the “2017 Notes”), which were issued to four accredited investors, including one of the Company’s then-directors, Dhruwa N. Rai, and David Luci, who became a director of the Company in February 2018 but no longer serves as a director as of the date hereof. The 2017 Notes bear interest at 8% per annum until maturity in March 2020, with interest being paid annually on the first, second and third anniversaries of the issuance of the 2017 Notes beginning in March 2018. From and after an event of default and for so long as the event of default is continuing, the 2017 Notes will bear default interest at the rate of 10% per annum. The 2017 Notes can be prepaid by us at any time without penalty.
The 2017 Notes are convertible into shares of our common stock at a conversion price equal to $2.80. The holders of the 2017 Notes have the right, at their option, at any time and from time to time to convert, in part or in whole, the outstanding principal amount and all accrued and unpaid interest under the 2017 Notes into shares of the Company’s common stock at the then applicable conversion price.
The 2017 Notes rank junior to our secured credit facility with North Mill Capital LLC. The 2017 Notes also include certain negative covenants including, without the investors’ approval, restrictions on dividends and other restricted payments and reclassification of its stock.
Director Independence
Our Board of Directors has determined that all directors, except for Srinidhi Devanur, our Executive Chairman, are independent directors (as currently defined in Rule 5605(a)(2) of the NASDAQ listing rules). In determining the independence of our directors, the Board of Directors considered all transactions in which the Company and any director had any interest, including those discussed under “Related Transactions and Section 16(a) Beneficial Ownership Reporting Compliance” below. The independent directors meet as often as necessary to fulfill their responsibilities, including meeting at least twice annually in executive session without the presence of non-independent directors and management.
| Principal Accountant Fees and Services |
In May 2015, the Board selected Ram Associates as its independent accountant to audit the registrant’s financial statements. Since they were retained, there have been (1) no disagreements between us and Ram Associates on any matters of accounting principle or practices, financial statement disclosure, or auditing scope or procedures and (2) no reportable events within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K. Ram Associates has not issued any reports on our financial statements during the previous two fiscal years that contained any adverse opinion or a disclaimer of opinion or were qualified or modified as to uncertainty, audit scope or accounting principle. In connection with the audit of the 2015 financial statements, we entered into an engagement agreement with Ram Associates which sets forth the terms by which Ram Associates has performed audit and related professional services for us.
The following table sets forth the aggregate accounting fees paid by us for the year ended December 31, 2018 and the year ended December 31, 2017. The below fees were paid to the firm Ram Associates. All non-audit related services in the table were pre-approved and/or ratified by the Audit Committee of our Board of Directors.
| Type of Fees | | Year Ended | | | Year Ended December | |
| Audit Fees | | $ | 70,000 | | | $ | 75,000 | |
| Audit Related Fees | | | — | | | | — | |
| Tax Fees | | | — | | | | — | |
| All Other Fees | | | — | | | | 29,500 | |
| Total | | $ | 70,000 | | | $ | 104,500 | |
Types of Fees Explanation
Audit Fees. Audit fees were incurred for accounting services rendered for the audit of our consolidated financial statements for the years ended December 31, 2018 and 2017 and reviews of quarterly consolidated financial statements.
Audit Committee Pre-Approval of Services by Independent Registered Public Accounting Firm
Section 10A(i)(1) of the Exchange Act and related SEC rules require that all auditing and permissible non-audit services to be performed by our principal accountants be approved in advance by the Audit Committee of the Board. Pursuant to Section 10A(i)(3) of the Exchange Act and related SEC rules, the Audit Committee has established procedures by which the Chairman of the Audit Committee may pre-approve such services provided that the pre-approval is detailed as to the particular service or category of services to be rendered and the Chairman reports the details of the services to the full Audit Committee at its next regularly scheduled meeting.
The audit committee has considered the services provided by RAM Associates as disclosed above in the captions “audit fees” and “all other fees” and has concluded that such services are compatible with the independence of RAM Associates as our principal accountant.
Our Board has considered the nature and amount of fees billed by our independent auditors and believes that the provision of services for activities unrelated to the audit is compatible with maintaining our independent auditors’ independence.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 3rd day of April 2017.
..authorized.
