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NOTE 8 EQUITY TRANSACTIONS
6 Months Ended
Jun. 30, 2017
Disclosure Text Block Supplement [Abstract]  
Shareholders' Equity and Share-based Payments [Text Block]
NOTE 8     EQUITY TRANSACTIONS

Recapitzalization

On December 15, 2016, the Company’s stockholders approved the Board’s recommendation to increase the number of authorized shares of common stock from 395,000,000 to 500,000,000 shares in order to provide the Company with sufficient authorized shares to accomplish its objectives. The Company filed an amendment to modify its Articles of Incorporation with the State of Nevada on January 4, 2017, which was approved by the Secretary of State on January 24, 2017.

Common Stock Issuances

During January 2016, the Company issued 500,000 restricted shares of common stock to a consultant. The fair value of the shares on the date of grant was $48,000, or $0.96 per share. The Company recorded compensation expense of $48,000 in connection with the issuance of the shares.

During the six months ended June 30, 2017, the Company issued and sold 5,000,000 restricted shares of common stock at a price of $0.06 per share to accredited investors, which included the Company’s Chairman and Interim CEO and an independent director, for net proceeds of $300,000 as part of a private offering.  The market price of the Company’s common stock on the dates of these transactions ranged from $0.06 to $0.10 per share.

Common Stock Options and Awards

The Company recognizes stock-based compensation expense for grants of stock option awards, stock awards, restricted stock units and restricted stock under the Company’s Incentive Plan to employees and nonemployee members of the Company’s Board of Directors. In addition, the Company grants stock options to nonemployee consultants from time to time in consideration for services performed for the Company.

The Company’s 2016 Equity Incentive Award Plan (the “2016 Plan”) was approved on December 15, 2016 by the stockholders. The 2016 Plan replaces the Company’s 2008 Equity Incentive Plan (the “2008 Plan”), 2009 Incentive Stock Plan (the “2009 Plan”), 2012 Equity Incentive Award Plan (the “2012 Plan”), and the 2014 Equity Incentive Plan (the “2014 Plan” and, together with the 2008, 2009, and 2012 Plans, the “Prior Plans”). Options and awards previously granted under the Prior Plans that have not yet expired by their terms will remain outstanding until their expiration dates. Following adoption of the 2016 Plan, the Company no longer makes any grants or awards under the Prior Plans. The 2016 Plan replaces all previous plans and reserves a total of 10,000,000 shares of common stock for awards granted under the 2016 Plan. Under the 2016 Plan, as of June 30, 2017, the Company had granted options for the purchase of a total of 6,900,000 shares, had awarded 1,000,000 shares with an additional 1,000,000 shares to be awarded upon achievement of certain performance milestones, leaving 1,100,000 options available for future grants or awards.

The Company estimates the fair value of each stock option award by using the Black-Scholes option-pricing model, which model requires the use of exercise behavior data and the use of a number of assumptions including volatility of the Company’s stock price, the weighted average risk-free interest rate, and the expected life of the options. Because the Company does not pay dividends, the dividend rate variable used in the Black-Scholes option-pricing model is zero. For the three months ended June 30, 2017 and 2016, the Company recorded stock-based compensation of $29,849 and $0, respectively. For the six months ended June 30, 2017 and 2016, the Company recorded stock-based compensation of $718,061 and $0, respectively, of which $464,537, relates to options granted to employees, directors and consultants. Upon the appointment of its new Chairman and Interim CEO, the Company incurred a one-time charge of $89,064 relating to the modification of vesting relating to 750,000 options issued in 2014 and a one-time charge of $150,000 pertaining to a stock award of 1,000,000 shares of common stock. The Company also recorded a one-time charge of $14,460 of stock-based compensation expense for the modification relating to the extension of exercisability from three weeks to three years upon retirement related to Mr. Marshall and Dr. Marshall’s stock options. In June 2017, Mr. Hoyt retired from the Board and was offered the same extension of exercisability related to his options, as that was provided to Mr. Marshall and Dr. Marshall. As the stock price on the date of modification of Mr. Hoyt’s options was significantly lower than the option’s exercise price, no additional expense was recorded as the result of this modification. An additional 1,000,000 shares of common stock has been reserved as a performance award to Mr. Esposito as part of his appointment to Chairman and Interim CEO, contingent upon meeting certain performance milestones. No expense has yet been recorded in conjunction with this award as the milestones have not been met as of June 30, 2017. As of June 30, 2017, the Company had outstanding unvested options for a total of 925,000 shares with related unrecognized expense of approximately $75,000. The Company will recognize this expense over the service period or when the achievement of the required milestones becomes probable. The Company estimated the fair value of the stock options at the date of grant, based on the following weighted average assumptions:

Risk-free interest rate
1.36% to 1.99
%
Expected life
5 years
 
Expected volatility
 
98.38% to 101.86
%
Dividend yield
 
 
0.00
%

The following is a summary of the status of the Company’s outstanding options as of June 30, 2017 and changes during the six months then ended:

 
 
Number of Shares
   
Weighted Average
Exercise Price
   
Weighted Average Remaining Contractual Term (Years)
   
Aggregate Intrinsic Value
 
 
                       
As of December 31, 2016
   
20,715,000
   
$
0.143
     
2.08
   
$
261,220
 
Granted
   
6,900,000
     
0.097
                 
Expired and canceled
   
(7,050,000
)
   
0.209
                 
Exercised
   
-
     
-
                 
As of June 30, 2017
   
20,565,000
     
0.105
     
4.93
     
10,000
 
Exercisable
   
19,640,000
     
0.105
     
4.83
     
5,000
 

Warrants

In October 2016, the Company issued warrants to purchase up to $1,000,000 in common stock with the number of shares determined based on a 20-day average stock price prior to the date of exercise with the exercise prices discounted 40%. The warrants are exercisable between January 31, 2017 and January 30, 2018, at which point the outstanding warrants expire (see Note 6).