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7. STOCKHOLDERS' EQUITY

6 Months Ended

Jun. 30, 2018

Statement of Stockholders' Equity [Abstract]

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 June 30, 2018 and December 31, 2017, there were 510,000 shares issued and outstanding. 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 June 30, 2018 and December 31, 2017, 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 six months ended June 30, 2017, the Company issued 218,824 shares of common stock valued at $35,000 for professional services rendered, of which 200,000 shares were valued at $32,000 and issued to members of our board of directors.

During the six months ended June 30, 2018, we issued 362,500 shares of common stock valued at $37,500 to members of our board of directors (see Note 9).

In May 2018, we issued 1,877,960 shares of common stock in connection with the conversion of $705,212 of principal and accrued interest outstanding under a Note (see Note 6).

Stock Options

In January 2018, we issued options to purchase an aggregate of 100,000 shares of common stock to our Chief Operating Officer, valued at $11,780. The options have an exercise price of $0.12 per share and expire in January 2023. The options were valued using the Black-Scholes model using the following assumptions: volatility: 146%; dividend yield: 0%; zero coupon rate: 2.27%; and a life of 5 years.

In January 2018, we issued options to purchase an aggregate of 20,000 shares of common stock to our scientific advisory board members, valued at $1,810 in total. The options have an exercise price of $0.10 per share and expire in January 2028. The options were valued using the Black-Scholes model using the following assumptions: volatility: 147%; dividend yield: 0%; zero coupon rate: 2.41%; and a life of 10 years.

The following table summarizes stock options outstanding as of June 30, 2018 and December 31, 2017:

		June 30, 2018 (Unaudited)								December 31, 2017
		Number of Options				Weighted Average Exercise Price				Number of Options				Weighted Average Exercise Price
Outstanding, beginning of period			200,000			$	0.76				200,000			$	0.76
Granted			120,000			$	0.12				—				—
Exercised			—				—				—				—
Outstanding, end of period			320,000			$	0.52				200,000			$	0.76

Options outstanding and exercisable by price range as of June 30, 2018 were as follows:

Outstanding Options								Average				Exercisable Options
								Weighted
Range				Number				Remaining				Number				Weighted
								Contractual								Average
								Life in Years								Exercise Price
$	0.05				20,000				2.78				20,000			$	0.05
$	0.1				20,000				9.58				20,000			$	0.1
$	0.12				100,000				4.52				100,000			$	0.12
$	0.27				40,000				6.51				40,000			$	0.27
$	0.55				100,000				7.6				100,000			$	0.55
$	2.1				40,000				1.51				40,000			$	2.1
					320,000				5.55				320,000			$	0.52

Stock Warrants

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.

For the three and six months ended June 30, 2017, we recognized approximately $12,000 and $24,000 in equity compensation expense for the accrued but unvested portion of the warrants issued to an employee pursuant to his agreement with the Company.

In June 2017, we modified the terms of outstanding warrants to purchase an aggregate of 4,000,000 shares of common stock.  Pursuant to a settlement agreement, we extended the term of the warrants by 2 years and decreased the exercise price by $0.03 per share to $0.12.  Pursuant to ASC 718, the modified terms of the warrants resulted in approximately $196,000 in incremental equity compensation expense for the six months ended June 30, 2017.  We utilized the Black-Scholes model 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 underlying the warrants was $0.01 and $0.06, respectively.

               As of June 30, 2017, we accrued for and expensed approximately $23,000 in equity compensation expense in connection with the issuance of a warrant to purchase 250,000 shares of common stock at an exercise price of $0.10 per share, which we issued in July 2017 to our CEO in connection with his employment agreement. The warrant has a term of 5 years. We utilized the Black-Scholes model to fair value the warrant received by our 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 underlying the warrant was $0.09.

In March and May 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).

The following table summarizes the outstanding common stock warrants as of June 30, 2018 and December 31, 2017:

		June 30, 2018 (Unaudited)								December 31, 2017
		Number of Warrants				Weighted Average Exercise Price				Number of Warrants				Weighted Average Exercise Price
Outstanding, beginning of period			35,501,411			$	0.33				37,076,413			$	0.31
Granted			-				-				4,774,998				0.24
Exercised			-				-				(975,000	)			0.05
Expired			(425,000	)			(0.24	)			(5,375,000	)			0.13
Outstanding, end of period			35,076,411			$	0.33				35,501,411			$	0.33

Warrants outstanding and exercisable by price range as of June 30, 2018 were as follows: 

	Outstanding Warrants												Exercisable Warrants
	Exercise Price				Number				Average Weighted Remaining Contractual Life in Years				Number				Weighted Average Exercise Price
	$	0.10				265,000				4.04				265,000			$	0.10
	$	0.12				7,500,000				2.78				7,500,000			$	0.12
	$	0.17				10,000				4.32				10,000			$	0.17
	$	0.27				250,000				3.50				250,000			$	0.27
	$	0.29				10,125,613				2.30				10,125,613			$	0.29
	$	0.30				11,925,800				0.25				11,925,800			$	0.30
	$	0.32				250,000				3.25				250,000			$	0.32
	$	0.33				75,000				0.25				75,000			$	0.33
	$	0.42				250,000				3.00				250,000			$	0.42
	$	0.50				250,000				2.75				250,000			$	0.50
	$	0.55				100,000				2.58				100,000			$	0.55
	$	0.62				75,000				0.05				75,000			$	0.62
	$	0.69				999,998				1.71				999,998			$	0.69
	$	1.00				3,000,000				1.84				3,000,000			$	1.00
						35,076,411				1.82				35,076,411			$	0.33

There were no unvested warrants outstanding as of June 30, 2018.

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- References

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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://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-URI http://asc.fasb.org/topic&trid=2208762

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