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7. STOCKHOLDERS' EQUITY | 12 Months Ended
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Dec. 31, 2017
Notes to Financial Statements |
NOTE 7. STOCKHOLDERS' EQUITY | Our board of directors may, without further action by our shareholders, from time to time, direct the issuance of any authorized but unissued or unreserved shares of preferred stock in series and at the time of issuance, determine the rights, preferences and limitations of each series. The holders of such preferred stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of the Company before any payment is made to the holders of our common stock. Furthermore, the board of directors could issue preferred stock with voting and other rights that could adversely affect the voting power of the holders of our common stock. Convertible Series A Preferred Stock Our authorized Convertible Series A Preferred Stock, $0.01 par value, consists of 1,000,000 shares. At December 31, 2017 and 2016, there were 510,000 shares issued and outstanding, respectively. The Convertible Series A Preferred Stock is convertible at the rate of one share of common stock for one share of Convertible Series A Preferred Stock. Convertible Series B Preferred Stock Our authorized Convertible Series B Preferred Stock, $1,000 stated value, 7.5% Cumulative dividend, consists of 4,000 shares. At December 31, 2017 and 2016, there were no shares issued and outstanding, respectively. Each share of Convertible Series B Preferred Stock may be converted (at the holder’s election) into two hundred shares of our common stock. Common Stock During the year ended December 31, 2016, we issued 761,954 shares of common stock valued at $369,654 for professional services rendered. During the year ended December 31, 2017, the Company issued 249,824 shares of common stock valued at $38,100 for professional services rendered, of which the Company issued 200,000 shares that were valued at $32,000 and issued to our board of directors (See Note 10). In August 2017, warrants to purchase 375,000 and 600,000 shares of common stock were exercised, which resulted in gross proceeds to the Company of $18,750 and $30,000, respectively. Stock Options In February 2016, we issued options to purchase an aggregate of 100,000 shares of common stock to four directors, valued at $54,980 in total. The options have an exercise price of $0.55 per share and expire in February 2026. The options were valued using the Black-Scholes model using the following assumptions: volatility: 224%; dividend yield: 0%; zero coupon rate: 1.47%; and a life of 10 years. The following table summarizes stock options outstanding as of December 31, 2017 and 2016:
|  | December 31, 2017 |  |  | December 31, 2016 |
|  | Number of Options |  |  | Weighted Average Exercise Price |  |  | Number of Options |  |  | Weighted Average Exercise Price |
Outstanding, beginning of period |  |  | 200,000 |  |  | $ | 0.76 |  |  |  | 100,000 |  |  | $ | 0.96 |
Granted |  |  | — |  |  |  | — |  |  |  | 100,000 |  |  |  | 0.55 |
Exercised |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Outstanding, end of period |  |  | 200,000 |  |  | $ | 0.76 |  |  |  | 200,000 |  |  | $ | 0.76 |
Options outstanding and exercisable by price range as of December 31, 2017 were as follows:
| Outstanding Options |  |  | Average Weighted |  |  | Exercisable Options |
| Range |  |  | Number |  |  | Remaining Contractual Life in Years |  |  | Number |  |  | Weighted Average Exercise Price |
| $ | 2.10 |  |  |  | 40,000 |  |  |  | 2.01 |  |  |  | 40,000 |  |  | $ | 2.10 |
| $ | 0.05 |  |  |  | 20,000 |  |  |  | 3.03 |  |  |  | 20,000 |  |  | $ | 0.05 |
| $ | 0.27 |  |  |  | 40,000 |  |  |  | 7.01 |  |  |  | 40,000 |  |  | $ | 0.27 |
| $ | 0.55 |  |  |  | 100,000 |  |  |  | 8.10 |  |  |  | 100,000 |  |  | $ | 0.55 |
|  |  |  |  |  | 200,000 |  |  |  | 6.16 |  |  |  | 200,000 |  |  | $ | 0.76 |
Stock Warrants For the year ended December 31, 2016, we recognized total equity-based compensation of approximately $394,000 on warrants issued to the CEO in connection with his current and previous employment agreements (Note 9). For the year ended December 31, 2016, we recognized $39,000 in stock compensation expense for the warrants issued to the CEO in February 2014 that vested in February 2016. In addition, on March 31, 2016, we issued warrants to purchase up to 250,000 shares of common stock to the CEO with a term of five years that vest upon issuance and have an exercise price of $0.50 per share. We utilized the Black-Scholes method to fair value the warrants to purchase up to 250,000 shares of common stock received by the CEO totaling approximately $129,000 with the following assumptions: volatility, 162%; expected dividend yield, 0%; risk free interest rate, 1.47%; and a life of 5 years. The grant date fair value of each warrant was $0.51. On June 30, 2016, we issued warrants to purchase up to 250,000 shares of common stock to the CEO with a term of five years that vest upon issuance and have an exercise price of $0.42 per share. The Company utilized the Black-Scholes method to fair value the warrants to purchase up to 250,000 shares of common stock received by the CEO totaling approximately $99,000 with the following assumptions: volatility, 157%; expected dividend yield, 0%; risk free interest rate, 1.17%; and a life of 5 years. The grant date fair value of each warrant was $0.40. On September 30, 2016, the Company issued warrants to purchase up to 250,000 shares of common stock to the CEO with a term of five years that vest upon issuance and have an exercise price of $0.32 per share. We utilized the Black-Scholes method to fair value the warrants to purchase up to 250,000 shares of common stock received by the CEO totaling approximately $66,000 with the following assumptions: volatility, 155%; expected dividend yield, 0%; risk free interest rate, 1.27%; and a life of 5 years. The grant date fair value of each warrant was $0.27. On December 31, 2016, we issued warrants to purchase up to 250,000 shares of common stock to the CEO with a term of five years that vest upon issuance and have an exercise price of $0.27 per share. We utilized the Black-Scholes method to fair value the warrants to purchase up to 250,000 shares of common stock received by the CEO totaling approximately $61,000 with the following assumptions: volatility, 146%; expected dividend yield, 0%; risk free interest rate, 1.95%; and a life of 5 years. The grant date fair value of each warrant was $0.24. For the year ended December 31, 2016, we recognized total equity-based compensation of approximately $73,000 on warrants issued to the CFO in connection with his current and previous employment agreements (Note 11). For the year ended December 31, 2016, we recognized $22,000 in stock compensation expense for the warrants issued to the CFO under his previous agreement with the Company. In addition, on January 26, 2016, we issued warrants to purchase up to 100,000 shares of common stock to the CFO with a term of five years that vest upon issuance and have an exercise price of $0.55 per share. We utilized the Black-Scholes method to fair value the warrants to purchase up to 100,000 shares of common stock received by the CFO totaling approximately $51,000 with the following assumptions: volatility, 164%; expected dividend yield, 0%; risk free interest rate, 1.47%; and a life of 5 years. The grant date fair value of each warrant was $0.51. For the year ended December 31, 2016, we recognized equity compensation expense of approximately $92,000 related to the vested and accrual of unvested warrants contracted to an employee pursuant to his employment agreement with the Company that were issued in April 2016. We utilized the Black-Scholes method to fair value the 300,000 warrants received by the employee totaling approximately $139,000 with the following assumptions: volatility, 159%; expected dividend yield, 0%; risk free interest rate, 1.47%; and a life of 5 years. The grant date fair value of each warrant was $0.46. In March and May of 2017, in connection with the issuance of the Notes, we issued three-year warrants to purchase up to an aggregate of 999,998 shares of common stock at an exercise price of $0.69 per share (see Note 6). On June 30, 2017, we issued warrants to purchase up to 15,000 shares of common stock at an exercise price of $0.10 per share to the members of the Scientific Advisory Board with a term of five years, which vested upon issuance. The Company utilized the Black-Scholes method to fair value the warrants received by the members of the Scientific Advisory Board at $1,400 with the following assumptions: volatility, 150%; expected dividend yield, 0%; risk free interest rate, 1.83%; and a life of 5 years. The grant date fair value of each share underlying the warrant was $0.09. During the first and second quarter of 2017, we recognized approximately $23,000 in equity compensation expense for the vested and unvested portion of a warrant issued to a former employee pursuant to his agreement with the Company. In September 2017, the employee resigned from his position with the Company. Accordingly, the unvested portion of his warrant was terminated and the $22,000 in equity compensation expense was reversed. In June 2017, we modified the terms of outstanding warrants to purchase 4,000,000 shares of common stock. Pursuant to a settlement agreement, the term of the warrants was increased by 2 years and the exercise price was modified to $0.12 per share (decrease of $0.03 per share). Pursuant to ASC 718, the modified terms of the warrants resulted in approximately $196,000 in incremental equity compensation expense for the year ended December 31, 2017. We utilized the Black-Scholes method to fair value the warrants under the original and modified terms with the following range of assumptions: volatility, 81%-97%; expected dividend yield, 0%; risk free interest rate, 1.28%; and a life of 0.33 - 2.33 years, respectively. The grant date fair value of each share of common stock underlying the warrant was $0.01 and $0.06, respectively. In July 2017 we issued a warrant to purchase 250,000 shares of common stock to the CEO at an exercise price of $0.10 per share pursuant to his employment agreement with the Company. The warrant was valued at approximately $23,000 and has a term of 5 years. We utilized the Black-Scholes method to fair value the warrant received by the CEO with the following assumptions: volatility, 153%; expected dividend yield, 0%; risk free interest rate, 1.90%; and a life of 5 years. The grant date fair value of each share of common stock underlying the warrant was $0.09. In October 2017, we issued warrants to purchase up to 10,000 shares of common stock at an exercise price of $0.17 per share to the members of the Scientific Advisory Board with a term of five years, which vested upon issuance. The Company utilized the Black-Scholes method to fair value the warrants received by the members of the Scientific Advisory Board at approximately $1,500 with the following assumptions: volatility, 147%; expected dividend yield, 0%; risk free interest rate, 1.98%; and a life of 5 years. The grant date fair value of each share underlying the warrant was $0.15. In December 2017 we issued a warrant to purchase 3,500,000 shares of common stock to the CEO at an exercise price of $0.12 per share pursuant to his employment agreement with the Company. The warrant was valued at approximately $412,000 and has a term of 5 years. We utilized the Black-Scholes method to fair value the warrant received by the CEO with the following assumptions: volatility, 145%; expected dividend yield, 0%; risk free interest rate, 2.23%; and a life of 5 years. The grant date fair value of each share of common stock underlying the warrant was $0.12. The following table summarizes the outstanding common stock warrants as of December 31, 2017 and December 31, 2016:
|  | December 31, 2017 |  |  | December 31, 2016 |
|  | Number of Warrants |  |  | Weighted Average Exercise Price |  |  | Number of Warrants |  |  | Weighted Average Exercise Price |
Outstanding, beginning of period |  |  | 37,076,413 |  |  | $ | 0.31 |  |  |  | 35,676,413 |  |  | $ | 0.30 |
Granted |  |  | 4,774,998 |  |  |  | 0.24 |  |  |  | 1,400,000 |  |  |  | 0.42 |
Exercised |  |  | (975,000 | ) |  |  | 0.05 |  |  |  | — |  |  |  | — |
Expired |  |  | (5,375,000 | ) |  |  | 0.13 |  |  |  | — |  |  |  | — |
Outstanding, end of period |  |  | 35,501,411 |  |  | $ | 0.33 |  |  |  | 37,076,413 |  |  | $ | 0.31 |
Warrants outstanding and exercisable by price range as of December 31, 2017 were as follows:
| Outstanding Warrants |  |  |  |  |  | Exercisable Warrants |
| Range |  |  | Number |  |  | Average Weighted Remaining Contractual Life in Years |  |  | Number |  |  | Weighted Average Exercise Price |
| $ | 0.10 |  |  |  | 265,000 |  |  |  | 4.54 |  |  |  | 265,000 |  |  | $ | 0.10 |
| $ | 0.12 |  |  |  | 7,500,000 |  |  |  | 3.28 |  |  |  | 7,500,000 |  |  | $ | 0.12 |
| $ | 0.15 |  |  |  | 250,000 |  |  |  | 0.01 |  |  |  | 250,000 |  |  | $ | 0.15 |
| $ | 0.17 |  |  |  | 10,000 |  |  |  | 4.82 |  |  |  | 10,000 |  |  | $ | 0.17 |
| $ | 0.26 |  |  |  | 100,000 |  |  |  | 0.49 |  |  |  | 100,000 |  |  | $ | 0.26 |
| $ | 0.27 |  |  |  | 250,000 |  |  |  | 4.00 |  |  |  | 250,000 |  |  | $ | 0.27 |
| $ | 0.29 |  |  |  | 10,125,613 |  |  |  | 2.80 |  |  |  | 10,125,613 |  |  | $ | 0.29 |
| $ | 0.30 |  |  |  | 11,925,800 |  |  |  | 0.75 |  |  |  | 11,925,800 |  |  | $ | 0.30 |
| $ | 0.32 |  |  |  | 250,000 |  |  |  | 3.75 |  |  |  | 250,000 |  |  | $ | 0.32 |
| $ | 0.33 |  |  |  | 75,000 |  |  |  | 0.75 |  |  |  | 75,000 |  |  | $ | 0.33 |
| $ | 0.42 |  |  |  | 250,000 |  |  |  | 3.50 |  |  |  | 250,000 |  |  | $ | 0.42 |
| $ | 0.50 |  |  |  | 325,000 |  |  |  | 2.57 |  |  |  | 325,000 |  |  | $ | 0.50 |
| $ | 0.55 |  |  |  | 100,000 |  |  |  | 3.08 |  |  |  | 100,000 |  |  | $ | 0.55 |
| $ | 0.62 |  |  |  | 75,000 |  |  |  | 0.55 |  |  |  | 75,000 |  |  | $ | 0.62 |
| $ | 0.69 |  |  |  | 999,998 |  |  |  | 2.21 |  |  |  | 999,998 |  |  | $ | 0.69 |
| $ | 1.00 |  |  |  | 3,000,000 |  |  |  | 2.34 |  |  |  | 3,000,000 |  |  | $ | 1.00 |
|  |  |  |  |  | 35,501,411 |  |  |  | 2.15 |  |  |  | 35,501,411 |  |  | $ | 0.33 |

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- Definition The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -URI http://asc.fasb.org/topic&trid=2208762 + Details
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