Quarterly report pursuant to Section 13 or 15(d)

Equity Transactions

v3.10.0.1
Equity Transactions
9 Months Ended
Sep. 30, 2018
Equity [Abstract]  
Equity Transactions

NOTE 7 – EQUITY TRANSACTIONS

 

Common Stock:

 

Nine Months Ended September 30, 2018:

 

During the nine months ended September 30, 2018, the Company issued 500,000 shares of restricted common stock to the father of an executive officer of the Company for cash of $50,000.

 

During the nine months ended September 30, 2018, the Company issued an aggregate of 6,200,000 shares of restricted common stock to third parties for cash of $855,000.

 

During the nine months ended September 30, 2018, the Company issued an aggregate of 1,250,000 shares of restricted common stock to employees with a total fair value of $625,000 for services rendered. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed the entire $625,000 upon issuance. The shares issued were valued at the date earned under the respective agreement based upon closing market price of the Company’s common stock.

 

During the nine months ended September 30, 2018, the Company issued an aggregate of 6,608,781 shares of restricted common stock to consultants with a total fair value of $2,350,000. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed the entire $2,350,000 upon issuance. The shares issued were valued at the date earned under the respective agreements based upon closing market price of the Company’s common stock.

 

During the nine months ended September 30, 2018, the Company cancelled an aggregate of 625,000 shares of restricted common stock on termination of a third-party service agreement with a total fair value on the date of termination of $207,000. The Company recorded a gain on cancellation of $113,000 for the portion of shares (375,000) issued during 2017 and reversed expenses of $94,000 for the portion of shares (250,000) issued during 2018. The shares issued were valued at the termination date of the agreement based upon closing market price of the Company’s common stock.

 

During the nine months ended September 30, 2018, the Company cancelled an aggregate of 17,500 shares of restricted common stock due to the violation of certain gating provisions of a third-party service agreement. The total fair value on the date of termination was $5,000 based upon closing market price of the Company’s common stock. The Company recorded a gain on cancellation of $5,000.

 

On July 12, 2018, the court approved a Joint Motion for Order Approving Settlement Agreement. Pursuant to the settlement, the Company issued 3,500,000 common shares valued at $1,050,000. The shares issued were valued at the July 12, 2018 court approval date based upon closing market price of the Company’s common stock. Total fair value of the shares was computed using the Black-Scholes Option Pricing Model and was fully recognized on the issuance date as a reduction to the litigation settlement liability on the accompanying consolidated balance sheets as of September 30, 2018.

 

Options:

 

The following table summarizes common stock options activity:

        Weighted
        Average
        Exercise
    Options   Price
  December 31, 2017       13,320,000     $ 1.74  
  Granted       420,000       1.00  
  Exercised       —         —    
  Forfeited       —         —    
  Outstanding, September 30, 2018       13,740,000     $ 1.72  
  Exercisable, September 30, 2018       13,065,000     $ 1.60  

 

During the year ended December 31, 2017, the Company granted stock options to a consultant to purchase a total of 420,000 shares of common stock. During the nine months ended September 30, 2018, the Company renewed the contract for an additional year and granted the consultant an additional 420,000 stock options with a total fair value of $115,000. A total of 350,000 vested during 2017, 315,000 options vested during the nine months ended September 30, 2018 while the remaining 175,000 options will vest through February 2019 at a rate of 35,000 shares per month. The options are exercisable at $1.00 per share and will expire over 4 years. The fair values of the options are recorded at their respective grant dates computed using the Black-Scholes Option Pricing Model. During the nine months ended September 30, 2018, the Company recognized $109,000 in compensation expense based upon the vesting of outstanding options. As of September 30, 2018, the unamortized compensation expense for unvested options was $48,000 which will be recognized over the vesting period.

 

The weighted average exercise prices, remaining lives for options granted, and exercisable as of September 30, 2018 were as follows:

                     
    Outstanding Options       Exercisable Options
Options           Weighted       Weighted
Exercise Price       Life   Average Exercise       Average Exercise
Per Share   Shares   (Years)   Price   Shares   Price
$0.50   8,000,000   1.92   $0.50   8,000,000   $0.50
$1.00   1,490,000   1.07 – 3.36   $1.00   1,315,000   $1.00
$2.50   1,250,000   .25   $2.50   1,250,000   $2.50
$5.00   3,000,000   1.25   $5.00   2,500,000   $5.00
    13,740,000       $1.72   13,065,000   $1.60

 

At September 30, 2018, the Company’s closing stock price was $0.24 per share. As all outstanding options had an exercise price greater than $0.24 per share, there was no intrinsic value of the options outstanding at September 30, 2018.

 

The following table summarizes options granted with vesting terms activity:

 

          Weighted
          Average
    Number of     Grant Date
    Shares     Fair Value
Non-vested, December 31, 2017 70,000   $ 1.00
  Granted 420,000     1.00
  Vested (315,000)     1.00
  Forfeited    
Non-vested, September 30, 2018 175,000   $ 1.00

 

Warrants:

 

The following table summarizes common stock warrants activity:

        Weighted
        Average
        Exercise
    Warrants   Price
  Outstanding, December 31, 2017       1,700,000     $ 1.06  
  Granted       7,100,000       0.55  
  Exercised       —         —    
  Forfeited       —         —    
  Outstanding, September 30, 2018       8,800,000     $ 0.65  
  Exercisable, September 30, 2018       8,800,000     $ 0.65  

 

In January 2018, pursuant to a services agreement, the Company granted warrants to purchase a total of 1,200,000 shares of restricted common stock with an exercise price of $0.40 and will expire 36 months after date of grant. The warrants are fully vested and exercisable upon grant. Total fair value of the warrants at grant date amounted to $383,000 computed using the Black-Scholes Option Pricing Model and was fully recognized on the date of grant.

 

In March 2018, pursuant to a stock purchase agreement, the Company granted warrants to purchase a total of 700,000 shares of restricted common stock with an exercise price of $0.50 and will expire March 18, 2023. The warrants are fully vested and exercisable upon grant. Total fair value of the options at grant date amounted to $234,000 computed using the Black-Scholes Option Pricing Model and was fully recognized on the date of grant.

 

In April 2018, in combination with a 12-month convertible promissory note, the Company granted warrants to purchase a total of 500,000 shares of restricted common stock with exercise prices ranging from $0.375 to $0.625 and will expire April 20, 2021. The warrants are fully vested and exercisable upon grant. The proceeds of the note were allocated between the note and the warrants based on the relative fair values which resulted in proceeds of $61,000 allocated to the warrants and recorded as paid in capital and debt discount. The debt discount will be amortized over the life of the note as interest expense. During the nine months ended September 30, 2018, the Company recognized $27,000 of debt discount interest. As of September 30, 2018, the unamortized debt discount was $34,000 which will be recognized over the life of the note.

 

In May 2018, in combination with an 8-month convertible promissory note, the Company granted warrants to purchase a total of 200,000 shares of restricted common stock with an exercise prices of $2.00 and will expire May 22, 2023. The warrants are fully vested and exercisable upon grant. The proceeds of the note were allocated between the note and the warrants based on the relative fair values which resulted in proceeds of $32,000 allocated to the warrants and recorded as paid in capital and debt discount. The debt discount will be amortized over the life of the note as interest expense. During the nine months ended September 30, 2018, the Company recognized $17,000 of debt discount interest. As of September 30, 2018, the unamortized debt discount was $15,000 which will be recognized over the life of the note.

 

In May 2018, pursuant to a stock purchase agreement, the Company granted warrants to purchase a total of 1,000,000 shares of restricted common stock with exercise prices ranging from $0.50 to $1.00 and will expire May 29, 2021. The warrants are fully vested and exercisable upon grant. Total fair value of the options at grant date amounted to $184,000 computed using the Black-Scholes Option Pricing Model and was fully recognized on the date of grant.

 

On July 12, 2018, pursuant to a court approved Joint Motion for Order Approving Settlement Agreement, the Company issued warrants to purchase a total of 3,500,000 shares of common stock with exercise prices ranging from $0.25 to $0.75 and will expire July 11, 2023. The warrants are fully vested and exercisable upon grant. Total fair value of the options at grant date amounted to $933,000 computed using the Black-Scholes Option Pricing Model and was fully recognized on the date of grant as a reduction to the litigation settlement liability on the accompanying consolidated balance sheets as of September 30, 2018.

 

The weighted average exercise prices, remaining lives for warrants granted, and exercisable as of September 30, 2018, were as follows:

 

          Outstanding and Exercisable Warrants  
  Warrants                  
  Exercise Price               Life  
  Per Share       Shares       (Years)  
$ 0.01       600,000       2.25  
$ 0.25       1,000,000       4.78  
$ 0.375       200,000       2.56  
$ 0.40       1,200,000       2.28  
$ 0.50       3,000,000       0.08 – 4.78  
$ 0.625       100,000       2.56  
$ 0.75       1,250,000       2.66 – 4.78  
$ 1.00       250,000       2.66  
$ 1.50       500,000       0.25  
$ 2.00       700,000       0.25 – 4.64  
          8,800,000          

 

At September 30, 2018, the Company’s closing stock price was $0.24 per share. The Company had 600,000 warrants outstanding with exercise prices less than $0.24 with an intrinsic value of $138,000 at September 30, 2018.

 

The table below represents the average assumptions used in valuing the stock options and warrants granted in fiscal 2018:

 

      Nine Months Ended September 30,  
      2018  
Expected life in years     3.00 – 5.00  
Stock price volatility     138% - 153%  
Risk free interest rate     2.12 % - 2.9%  
Expected dividends     —    
Forfeiture rate     —    

 

The assumptions used in the Black Scholes models referred to above are based upon the following data: (1) the contractual life of the underlying non-employee options is the expected life. The expected life of the employee option is estimated by considering the contractual term of the option, the vesting period of the option, the employees’ expected exercise behavior and the post-vesting employee turnover rate. (2) The expected stock price volatility was based upon the Company’s historical stock price over the expected term of the option. (3) The risk-free interest rate is based on published U.S. Treasury Department interest rates for the expected terms of the underlying options. (4) The expected dividend yield was based on the fact that the Company has not paid dividends to common shareholders in the past and does not expect to pay dividends to common shareholders in the future. (5) The expected forfeiture rate is based on historical forfeiture activity and assumptions regarding future forfeitures based on the composition of current grantees.

 

Shares Reserved:

 

At September 30, 2018, the Company has reserved 30,000,000 shares of common stock in connection with 2 convertible notes with detachable warrants and 3,500,000 shares of common stock in connection with the court approves settlement agreement for a total of 33,500,000 reserved shares of common stock.