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Shareholders' Deficit
 12 Months Ended
Dec. 31, 2019
Equity [Abstract]  
SHAREHOLDERS' DEFICIT

NOTE 13 – SHAREHOLDERS' DEFICIT

 

Common Stock

 

The holders of the Company's common stock are entitled to one vote per share. In addition, the holders of common stock will be entitled to receive ratably dividends, if any, declared by the board of directors out of legally available funds; however, the current policy of the board of directors is to retain earnings, if any, for operations and growth. Upon liquidation, dissolution or winding-up, the holders of common stock will be entitled to share ratably in all assets that are legally available for distribution. The holders of common stock will have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock, which may be designated solely by action of the board of directors and issued in the future.

 

On January 3, 2018, holders of a majority of the voting power of the outstanding capital stock of the Company, acting by written consented, authorized and approved an amendment to the Amended and Restated Articles of Incorporation of the Company increasing the amount of authorized shares of common stock to 500,000,000 shares from 230,000,000 shares. On February 5, 2018, the Company filed the amendment with the Secretary of State of Nevada to effect the increase.

 

Preferred Stock

 

The Company's board of directors will be authorized, subject to any limitations prescribed by law, without further vote or action by our stockholders, to issue from time to time shares of preferred stock in one or more series. Each series of preferred stock will have the number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by our board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights.

 

On September 4, 2014, the Company filed with the Nevada Secretary of State a certificate of designation for up to 20,000,000 shares of Series A Convertible Preferred Stock (the "Series A"). Each share of Series A Convertible Preferred Stock ("Series A") issued in 2014 converts into one share of common, has voting rights on an as converted basis, and receives liquidation preferences. Series A shares are not redeemable and have no dividend rights. No shares of Series A were outstanding as of December 31, 2019 or 2018.

 

July 2018 Private Placement

 

On July 16, 2018, the Company entered into a Securities Purchase Agreement with certain accredited investors pursuant to which the Company sold the following securities (the "July 2018 Private Placement"): (1) an aggregate of 3,900,000 shares of the Company's common stock, par value $0.0001 per share, (2) Pre-Funded Warrants to purchase an aggregate of 4,100,000 shares of Company common stock with an exercise price of $0.0001 and a five-year life, (3) Series A Warrants to purchase 8,000,000 shares of Company common stock with an exercise price of $0.25 per share, subject to anti-dilution and other adjustment as described below, and a term of five years, and (4) Series B Warrants to purchase up to a maximum of 17,000,000 shares of Company common stock, subject to adjustment as described below, at a fixed exercise price of $0.0001. On July 18, 2018, the Company and the investors consummated the transaction. The Company received gross proceeds of $1,999,590. After investor legal fees of $15,000 and placement agent fees of $209,900, net proceeds to the Company were $1,774,690. The Company also issued to the placement agent 640,000 Series A Warrants with the same terms as the investor's Series A Warrants and Series B Warrants to purchase up to a maximum of 1,360,000 shares of Company common stock at an exercise price of $0.0001.

 

The warrants issued in the transaction were treated as follows at inception: (1) because the Series A Warrants were not settled at a fixed price, these instruments did not qualify for equity classification and were recorded as derivative financial instruments with an inception date fair value of $1,984,722, (2) because the Series B Warrants were not settled into a fixed number of shares, these instruments did not qualify for equity classification and were recorded as derivative financial instruments with an inception date fair value of $412,794, (3) the Pre-Funded Warrants were settled into a fixed number of shares at a fixed price and were classified as equity with an inception date fair value of $942,988. The fair value of all warrants at inception was calculated using the Black-Scholes option pricing model with an assumed risk-free interest rate of 2.77%, expected life of 5 years, volatility of 288.0%, and expected dividend yield of zero. At inception, the net proceeds of $1,774,690 were classified first to common stock for the par value of common shares issued and second to derivative liabilities using the fair value of such instruments, with the excess amount of $623,216 recorded as "Financing cost" on the statement of operations.

 

In connection with the transaction, the Company also entered into a Registration Rights Agreement with the investors, pursuant to which the Company was required to (i) file a registration statement on Form S-1 covering the resale of the securities issued in the transaction with thirty (30) days of the closing, and (ii) use its best efforts to have the registration statement declared effective by the U.S. Securities and Exchange Commission (the "SEC") as soon as practicable, but in no event later than the earlier of: (x) (i) in the event that the registration statement is not subject to a full review by the SEC, ninety (90) calendar days after the closing or (ii) in the event that the registration statement is subject to a full review by the SEC, one hundred twenty (120) calendar days after the closing; and (y) the fifth (5th) Business Day (as such term is defined in the Registration Rights Agreement) after the date the Company is notified (orally or in writing, whichever is earlier) by the SEC that such registration statement will not be reviewed or will not be subject to further review. If the Company fails to (i) file the registration statement when required, (ii) have the registration statement declared effective when required or (iii) maintain the effectiveness of the registration statement, the Company will be required to pay certain liquidated damages to the Investors.

 

The Company filed a registration statement on August 16, 2018 that was declared effective by the SEC on August 22, 2018. Based on the price of the Company's common stock during the repricing period that began following the effectiveness of the registration statement and ended on September 21, 2018 (the "Repricing Date"), the following adjustments were made to the securities issued in the transaction: (1) the exercise price of the Series A Warrants issued to the investors and the placement agent was reduced from $0.25 to $0.2233, and (2) the number of Series B Warrants issuable was set at 2,745,757 for the investors and 219,660 for the placement agent. At the Repricing Date, the exercise price of the Series A Warrants and the number of shares issuable pursuant to the Series B Warrants was fixed. Accordingly, the derivative liabilities related to the Series A and Series B Warrants were revalued as of the Repricing Date at $2,071,680 and $711,692, respectively, using the Black-Scholes option pricing model with an assumed risk-free interest rate of 2.95%, expected life of 4.82 years, volatility of 298.82%, and expected dividend yield of zero, and reclassified to equity. The Company recognized a loss on change in fair value of derivative liabilities related to the Series A and Series B Warrants of $385,856 between the closing date and the Repricing Date in the year ended December 31, 2018.

 

Other Private Placements

 

During the year ended December 31, 2019, the Company sold 3,239,924 shares of common stock in eight separate private placement transactions. The Company received $670,000 in proceeds from the sales, which were transacted at share prices between $0.12 and $0.30 per share. In connection with these stock sales, the Company also issued 1,619,962 five-year warrants to purchase shares of common stock at exercise prices between $0.22 and $0.40 per share and 250,000 three-year warrants to purchase shares of common stock at an exercise price of $0.50 per share

 

During the year ended December 31, 2018, the Company sold 3,534,891 shares of common stock in six separate private placement transactions. The Company received $417,500 in proceeds from the sales, which were transacted at share prices between $0.085 and $0.35 per share. In connection with these stock sales, the Company also issued 2,649,798 five-year warrants to purchase shares of common stock at exercise prices between $0.15 and $0.45 per share.

 

Investment Agreement Draws

 

During the year ended December 31, 2019, the Company issued 5,074,068 common shares pursuant to draws made by the Company under the Investment Agreement. The Company received an aggregate of $929,986 in net proceeds from the draws.

 

During the year ended December 31, 2018, the Company issued 2,440,337 common shares pursuant to draws made by the Company under the Investment Agreement. The Company received an aggregate of $440,523 in net proceeds from the draws.

 

Common Stock Issuable

 

As of December 31, 2019 and 2018, the Company was obligated to issue the following shares:

 

   December 31, 
   2019   2018 
   Amount   Shares   Amount   Shares 
                 
Shares issuable pursuant to consulting agreements  $93,377    493,142   $26,137    114,080 
Shares issuable to employees   7,161    75,000    —    — 
Shares issuable pursuant to stock subscriptions received   59,000    479,762    —    — 
   $159,538    1,047,904   $26,137    114,080 

 

During December 2019, the Company completed stock subscription agreements totaling $59,000 for the sale of 479,762 shares of common stock. The funds were received and shares were issued in January and February 2020.

 

Stock Warrants

 

Transactions involving our stock warrants during the years ended December 31, 2019 and 2018 are summarized as follows:

 

   2019   2018 
       Weighted       Weighted 
       Average       Average 
       Exercise       Exercise 
   Number   Price   Number   Price 
Outstanding at beginning of the period   46,161,463   $0.18    20,526,387   $0.23 
Granted during the period   5,864,843   $0.22    27,635,819   $0.10 
Exercised during the period   (4,970,013)  $0.00    (2,000,744)  $(0.00)
Terminated during the period   —   $—    —   $— 
Outstanding at end of the period   47,056,293   $0.21    46,161,462   $0.18 
                     
Exercisable at end of the period   47,056,293   $0.21    46,161,462   $0.18 
                     
Weighted average remaining life   3.0 years    3.8 years 

 

The following table summarizes information about the Company's stock warrants outstanding as of December 31, 2019:

 

Warrants Outstanding   Warrants Exercisable 
        Weighted-             
        Average   Weighted-       Weighted- 
        Remaining   Average       Average 
Exercise   Number   Contractual   Exercise   Number   Exercise 
Prices   Outstanding   Life (years)   Price   Exercisable   Price 
$0.0001 to 0.09    15,287,011    4.9   $0.07    15,287,011   $0.07 
$0.10 to 0.24    17,735,322    3.4   $0.18    17,735,322   $0.18 
$0.25 to 0.49    10,093,960    4.4   $0.29    10,093,960   $0.29 
$0.50 to 1.00    3,940,000    2.2   $0.28    3,940,000   $0.28 
$0.05 to 1.00    47,056,293    4.0   $0.18    47,056,293   $0.18 

 

During the year ended December 31, 2019, the Company issued 5,864,843 warrants. The fair value of warrants issued in 2019 was calculated using the Black-Scholes pricing model with the following assumptions: risk-free interest rate of 1.54% to 2.52%, expected life of 3.0 to 5.0 years, volatility of 118.60% to 216.35%, and expected dividend yield of zero.

 

During the year ended December 31, 2018, the Company issued 27,635,819 warrants. The fair value of warrants issued in 2018 was calculated using the Black-Scholes pricing model with the following assumptions: risk-free interest rate of 2.32% to 2.93%, expected life of 3.0 to 5.0 years, volatility of 261.18% to 308.60%, and expected dividend yield of zero. The aggregate grant date fair value of warrants issued during the years ended December 31, 2019 and 2018 and 2017 was $920,668 and $4,645,446, respectively.

 

In June 2018, the Company issued 600,000 five-year warrants with an exercise price of $0.15 to two individuals for consulting services to be performed between June 6 and December 6, 2018. The fair value of the warrants was $94,844, which was recognized to general and administrative expense during the year ended December 31, 2018.

 

In August 2018, the Company issued 400,000 five-year warrants with an exercise price of $0.35 to a consultant for services performed. The fair value of the warrants was $145,861, which was recognized to general and administrative expense during the year ended December 31, 2018.

 

In December 2018, the Company issued 240,000 three-year warrants with an exercise price of $0.20 to two consultants for services performed. The fair value of the warrants was $35,462, which was recognized to general and administrative expense during the year ended December 31, 2018.

 

During the year ended December 31, 2018, the Company sold 3,534,891 shares of common stock in six separate private placement transactions. In connection with these stock sales, the Company also issued 2,649,798 five-year warrants to purchase shares of common stock at exercise prices between $0.15 and $0.45 per share.

 

In March 2019, the Company issued 180,000 three-year warrants with an exercise price of $0.35 to two consultants for services performed. The fair value of the warrants was $54,257, which was recognized to general and administrative expense during the year ended December 31, 2019.

 

On December 31, 2019, Iconic and the Company agreed to extend the maturity date of the $550k Note, the $50k Note, the $111k Note and the $357.5k Note until December 31, 2020 in exchange for (i) a new five-year warrant to Iconic to purchase 1,907,143 shares at an exercise price of $0.14 per share, (ii) extension of the expiration date on 12,586,111 warrants held by Iconic until January 1, 2025, (iii) repricing of the exercise price 3,508,333 warrants held by Iconic from various prices above $0.50 to $0.25, (iv) a reduction of the conversion price of the $111k Note from $0.35 to $0.15 and of the $357.5k Note from $0.20 to $0.15, and (v) the Company agreed to allow a one-time conversion of up to $30,000 on the $111k Note at a reduced conversion rate.

 

During the year ended December 31, 2019, the Company sold 3,239,924 shares of common stock in eight separate private placement transactions. In connection with these stock sales, the Company also issued 1,619,962 five-year warrants to purchase shares of common stock at exercise prices between $0.22 and $0.40 per share and 250,000 three-year warrants to purchase shares of common stock at an exercise price of $0.50 per share.

 

On December 31, 2019, Dr. Dent agreed to further extend the maturity date on all of notes payable to him until December 31, 2020 in exchange for (i) a new five-year warrant to purchase 1,157,143 shares of common stock at an exercise price of $0.014 per share, and (ii) an extension of the expiration date on the 2018 Dr. Dent Warrant from February 12, 2023 to January 1, 2025.

 

During the years ended December 31, 2019 and 2018, holders of warrants exercised warrants into 4,937,745 and 2,000,001 shares of common stock, respectively, from which the Company received proceeds of $275 and $-0-, respectively.

 

Employee Equity Incentive Plan

 

On January 1, 2016, the Company instituted the EIP for the purpose of having equity awards available to allow for equity participation by its employees. The EIP allows for the issuance of up to 15,503,680 shares of the Company's common stock to employees, which may be issued in the form of stock options, stock appreciation rights, or restricted shares. The EIP is governed by the Company's board, or a committee that may be appointed by the board in the future.

 

The following table summarizes the status of shares issued and outstanding under the EIP outstanding as of and for the years ended December 31, 2019 and 2018:

 

   2019   2018 
Outstanding at beginning of the period   1,738,750    1,498,750 
Granted during the period   135,313    440,000 
Terminated during the period   —    (200,000)
Outstanding at end of the period   1,874,063    1,738,750 
           
Shares vested at period-end   1,535,313    1,198,750 
Weighted average grant date fair value of shares granted during the period  $0.26   $0.30 
Aggregate grant date fair value of shares granted during the period  $12,805   $107,197 
Shares available for grant pursuant to EIP at period-end   10,360,368    10,075,934 

 

Total stock-based compensation recognized for grants under the EIP was $86,523 and $28,678 during the years ended December 31, 2019 and 2018, respectively. Total unrecognized stock compensation related to these grants was $88,045 as of December 31, 2019.

 

A summary of the status of non-vested shares issued pursuant to the EIP as of December 31, 2019 is presented below:

 

    2019   2018 
        Weighted       Weighted 
        Average       Average 
        Grant Date       Grant Date 
    Shares   Fair Value   Shares   Fair Value 
Nonvested at beginning of period    540,000   $0.16    628,750   $0.05 
Granted    —   $—    440,000   $0.24 
Vested    (207,500)  $0.14    (328,750)  $0.13 
Forfeited    —   $—    (200,000)  $0.04 
Nonvested at end of period    332,500   $0.17    540,000   $0.16 

  

Employee Stock Options

 

The following table summarizes the status of options outstanding as of and for the years ended of December 31, 2019 and 2018:

 

   2019   2018 
       Weighted       Weighted 
       Average       Average 
       Exercise       Exercise 
   Number   Price   Number   Price 
Outstanding at beginning of the period   3,707,996   $0.18    2,349,996   $0.12 
Granted during the period   1,078,750   $0.26    1,383,000   $0.29 
Exercised during the period   (154,166)  $0.20    —   $— 
Forfeited during the period   (1,363,330)  $0.18    (25,000)  $0.15 
Outstanding at end of the period   3,269,250   $0.21    3,707,996   $0.18 
                     
Options exercisable at period-end   1,633,000         1,375,583      
Weighted average remaining life (in years)   7.7         8.1      
Weighted average grant date fair value of options granted during the period  $0.20        $0.22      
Options available for grant at period-end   10,360,368         10,075,684      

 

The following table summarizes information about the Company's stock options outstanding as of December 31, 2019:

 

Options Outstanding   Options Exercisable 
        Weighted-             
        Average   Weighted-       Weighted- 
        Remaining   Average       Average 
Exercise   Number   Contractual   Exercise   Number   Exercise 
Prices   Outstanding   Life (years)   Price   Exercisable   Price 
$— to 0.10    1,283,000    6.0   $0.08    1,258,000    0.08 
$0.11 to 0.31    1,986,250    8.9   $0.29    375,000    0.31 
$0.08 to 0.31    3,269,250    7.7   $0.21    1,633,000   $0.13 

 

Total stock-based compensation recognized related to option grants was $127,010 and $73,954 during the years ended December 31, 2019 and 2018, respectively.

 

A summary of the status of non-vested options issued pursuant to the EIP as of December 31, 2019 and 2018 is presented below:

 

    2019   2018 
        Weighted       Weighted 
        Average       Average 
        Grant Date       Grant Date 
    Shares   Fair Value   Shares   Fair Value 
Nonvested at beginning of period    2,332,413   $0.13    1,774,996   $0.03 
Granted    1,078,750   $0.20    1,383,000   $0.22 
Vested    (414,583)  $0.19    (803,583)  $0.05 
Forfeited    (1,360,330)  $0.07    (22,000)  $0.12 
Nonvested at end of period    1,636,250   $0.22    2,332,413   $0.13