Quarterly report pursuant to Section 13 or 15(d)

Shareholders' Equity

v3.7.0.1
Shareholders' Equity
6 Months Ended
Jun. 30, 2017
Shareholders' Equity [Abstract]  
SHAREHOLDERS' EQUITY

NOTE 7 – SHAREHOLDERS’ EQUITY

 

Preferred Stock

 

The Company has authorized 5,000,000 shares of Preferred Stock, for which three 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 and series C has 0 and 35,750 shares issued and outstanding, as of June 30, 2017 and December 31, 2016, 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.

 

Series C

 

The Company has authorized for issuance up to 67,361 shares of Series C Preferred Stock (“Series C”). Each share of Series C: (a) has a stated value of equal to $100 per share; (b) has a par value of $0.001 per share; (c) accrues fixed rate dividends at a rate of eight percent per annum; (d) are convertible at the option of the holder into 89.28 shares of common Stock (conversion price of $22.40 per share based off stated value of $100); (e) votes on an ‘as converted’ basis; (f) has a liquidation privileges of $22.40 per share; and (g) expire 15 months after issuance.

 

Further, in the event of a Qualified Offering, the shares of Series C Preferred Stock will be automatically converted at the lower of $22.40 per share or the per share price that reflects a 20% discount to the price of the Common Stock pursuant to such Qualified Offering. A “Qualified Offering” is defined as an underwritten offering by the Company pursuant to which (1) the Company receives aggregate gross proceeds of at least $20,000,000 in consideration of the purchase of shares of Common Stock or (2) (a) the Company receives aggregate gross proceeds of at least $15,000,000 amended to reflect gross proceeds of at least $12,000,000, in consideration of the purchase of shares of Common Stock and (b) the Common Stock becomes listed on The Nasdaq Capital Market, the New York Stock Exchange, or the NYSE MKT.

 

In addition, if after six months from the date of the issuance until the expiration date, the holder voluntarily converts a Series C security to common stock and sells such common stock for total proceeds that do not equal or exceed such holder’s purchase price, the Company is obligated to issue additional shares of common stock in an amount sufficient such that, when sold and the net proceeds are added to the net proceeds of the initial sale, the holder shall have received funds equal to that of the holder’s initial purchase price (“Shortfall Provision”).

 

The Company evaluated the Series C in accordance with ASC 815 – Derivatives and Hedging, to discern whether any feature(s) required bifurcation and derivative accounting. The Company noted the Shortfall Provision has variable settlement based upon an item (initial purchase price) that is not an input into a fixed for fixed price model, thus such provision is not considered indexed to the Company’s stock. Accordingly, the Shortfall Provision was bifurcated and accounted for as a derivative liability.

 

Between July 21, 2016 and August 26, 2016, the Company sold 12,750 shares of Series C for gross proceeds of $1.275 million. These proceeds were allocated between the Shortfall Provision derivative liability ($310,000) and the host Series C instrument ($965,000). After such allocation, the Company noted that the Series C had a beneficial conversion feature of $265,000 which was recognized as a deemed dividend.

 

On August 26, 2016, the Company issued 23,000 shares of Series C to repurchase the 2,053,573 shares of common stock and related top off provision derivative issued in June 2016. Given the transaction was predominantly the repurchase of common stock that was immediately retired, the Company accounted for this as a treasury stock transaction. The Series C was recorded at a fair value of $2.3 million ($620,000 of which was allocated to the Shortfall Provision), the top off provision (which was $246,000 at the time of exchange) was written off, and a beneficial conversion feature of $373,000 was recognized immediately as a deemed dividend.


Preferred Series C conversion

 

On January 30, 2017, a Qualified Offering occurred and accordingly at such time all 35,750 shares of Preferred Series C were converted into 1,082,022 shares of common stock. The shares were converted according to the terms in the original agreement at a 20% discount to the public offering price per unit of $4.13 which was $3.30.

 

The automatic conversion resulted in the extinguishment of the shortfall derivative liability resulting in a gain on the extinguishment of liabilities of approximately $2,937,000. In addition, in accordance with ASC 470, the Company recognized a deemed dividend of approximately $2,100,000 upon conversion which represented the unamortized discount on the Series C that resulted from the beneficial conversion feature

 

Derivative Footnote

 

As noted above, the Series C included a Shortfall Provision that required bifurcation and to be accounted for as a derivative liability (until the Series C was converted). Upon the execution of the automatic conversion feature, the Shortfall Provision was no longer in effect and the associated derivative liability was extinguished resulting in a gain on extinguishment of liability. The fair value of the Shortfall Provision was calculated using a Monte Carlo simulated put option Black Scholes Merton Model. The cumulative fair values at respective date of issuances and extinguishment were $930,000 and $2.9 million, respectively. The key assumptions used in the model at inception and at January 30, 2017 (extinguishment) are as follows:

 

    Inception   1/30/2017
         
Stock Price   $0.00 - $60.00   $0.00 - $6.20
Exercise Price   $22.40   $22.40
Term   .5 years   0.72 to 0.83 years
Risk Free Interest Rate   .39% - .47%   0.81%
Volatility   60%   60%
Dividend Rate   0%   0%

 

The roll forward of the Shortfall Provision derivative liability is as follows

 

Balance – December 31, 2016   $ 2,093,623  
Fair Value Adjustment     844,112  
Extinguishment of Liability     (2,937,735 )
Balance – June 30, 2017   $ -  

 

Common Stock Transactions

 

During the six months ended June 30, 2017, the Company issued 7,644,225 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 7,644,775 shares issued during the six months ended June 30, 2017, the Company:

 

1. Issued 421,326 of these shares to Goldman Sachs as a result of their warrant agreement see note 6 Notes Payable and Convertible Notes;
   
2. Issued 212,654 of these shares to an officer, see note 13 Equity and Incentive Plans;
   
3.

Issued 3,000,000 of these shares as part of the January 2017 offering, see below “Underwriting Agreements;”

 

4 Issued 1,081,472 of these shares due to the conversion of Series C preferred stock, see above “Preferred Series C conversion;”
   
5.
Issued 500,000 of restricted shares to Waste Services Industries, LLC, as a result of the CFS Group Acquisition, see note 3;


6. Issued 19,908 of these shares to the outside members of our Board of Directors for services for a total expense of $45,000;
   
7. Issued 2,000,000 of these shares as part of the June 2017 offering, see below “Underwriting Agreements;”
   
8. Issued 5,000 of these shares to a vendor for services performed;
   
9. Issued 403,865 of these shares for the purchase of the remaining 85% of MSTI. See Note 3

 

Underwriting Agreements

 

On January 24, 2017, the Company entered into an underwriting agreement (the “January 2017 Underwriting Agreement”) with Joseph Gunnar & Co., LLC, as representative of the several underwriters listed therein, with respect to the issuance and sale in an underwritten public offering (the “January 2017 Offering”) by the Company of an aggregate 3,000,000 shares of the Company’s common stock, par value $0.025 per share (“Shares”) and warrants to purchase up to an aggregate of 3,000,000 shares of common stock (the “Warrants”), at a combined public offering price of $4.13 per unit comprised of one Share and one Warrant. The January 2017 Offering closed on January 30, 2017, upon satisfaction of customary closing conditions. The Company received approximately $11,000,000 in net proceeds from the Offering after deducting the underwriting discount and other estimated offering expenses payable by the Company.

 

On June 28, 2017, the Company entered into an underwriting agreement (the “June 2017 Underwriting Agreement”) with Roth Capital Partners, LLC and Joseph Gunnar & Co., LLC, with respect to the issuance and sale in an underwritten public offering (the “June 2017 Offering”) by the Company of an aggregate of 2,000,000 shares of the Company’s common stock, $0.025 par value per share and five year warrants to purchase up to 575,000 shares of Common Stock, including 75,000 warrants sold pursuant to the partial exercise of the underwriters' over-allotment option with an exercise price of $1.90 per share (the “June 2017 Warrants”), at a combined public offering price of $1.75 per share of Common Stock and quarter-warrant. Pursuant to the Underwriting Agreement, the Company agreed to issue and sell to the Underwriters for an aggregate purchase price of $100 a warrant (the "Representatives' Warrant") to purchase up to 100,000 shares of Common Stock.

 

The gross proceeds to the Company from the sale of the shares and the June 2017 Warrants in the June 2017 Offering are approximately $3,500,000, before deducting the underwriting discount and other estimated offering expenses payable by the Company.

 

The June 2017 Offering closed on June 30, 2017, upon satisfaction of customary closing conditions.

 

Warrants

 

The 3,000,000 warrants issued in the January 2017 Offering are exercisable for five years from issuance and have an exercise price equal to $5.16. The Warrants are listed on The NASDAQ Capital Market under the symbol “MRDNW.”

 

In addition, pursuant to the underwriting agreement, the Company granted the underwriters a 45-day option to purchase up to an additional 450,000 shares and/or 450,000 warrants. The underwriters elected to purchase 112,871 warrants under this option for net proceeds of approximately $1,200.

 

The 575,000 warrants issued in the June 2017 Offering are exercisable for five years from issuance and have an exercise price equal to $1.90. The Warrants are listed on The NASDAQ Capital Market under the symbol “MRDNW.”

 

The 100,000 warrants issued in the June 2017 Offering are exercisable from December 25, 2017 through December 25, 2022 and have an exercise price equal to $2.19. 

 

A summary of the status of the Company’s outstanding stock warrants for the period ended June 30, 2017 is as follows:

 

    Number of Shares     Average Exercise Price     If exercised   Expiration Date
Outstanding - December 31, 2016     148,777     $ 3.02          
Granted – January 30, 2017     3,112,871       5.16         January 31, 2022
Granted – June 30, 2017     575,000       1.90          
Granted – June 30, 2017     100,000       2.19          
Exercised     148,777                  
Outstanding, March 31, 2017     3,787,871     $ 4.59          
Warrants exercisable at March 31, 2017     3,787,871                  



Stock Options

 

A summary of the Company’s stock options as of and for the six months ended June 30, 2017 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, 2016     12,250     $ 19.35     $ 4.78       4.84                -  
                                         
For the six months ended June 30, 2017                                        
Granted     -       -       -       -          
Exercised     -       -       -       -          
Expired     -       -       -       -          
                                         
Outstanding at June 30, 2017     12,250     $ 19.35     $ 4.78       4.35       -  
                                         
Outstanding and Exercisable at June 30, 2017     2,722     $ 19.35     $ 4.78       4.35       -  

 

(1) The aggregate intrinsic value is based on the $1.65 closing price as of June 30, 2017 for the Company’s Common Stock.

 

The following information applies to options outstanding at June 30, 2017:

 

Options Outstanding   Options Exercisable  
Exercise Price   Number of Shares Underlying Options     Weighted Average Remaining Contractual Life     Number Exercisable     Exercise Price  
$12.00     1,000       4.35       222     $ 12.00  
$20.00     11,250       4.35       2,500     $ 20.00  
      12,250       4.35       2,722          

 

At June 30, 2017 there was $445,500 of unrecognized compensation cost related to stock options, with expense expected to be recognized ratably over the next 3 years.