Quarterly report pursuant to Section 13 or 15(d)

Stockholders' Equity

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Stockholders' Equity
6 Months Ended
Jun. 30, 2017
Stockholders' Equity [Abstract]  
Stockholders' Equity
5. Stockholders’ Equity

 

Common Stock

 

On April 1, 2016, the Company entered into two agreements with two consultants to provide services over a nine-month period in exchange for 2,300,000 shares of common stock. The Company calculated a fair value of $690,000 based on the market price of the shares on the date of the agreements. During the third quarter of 2016, the Company and the consultants renegotiated the agreements by extending the service requirement to December 31, 2017. For the six and three months ended June 30, 2017, the Company has recognized expense of $153,333 and $76,667, respectively, in connection with these agreements. For the six and three months ended June 30, 2016, the Company has recognized expense of $230,000. As of June 30, 2017 and December 31, 2016, the unamortized portion of these service agreements are $153,333 and $306,667, respectively.

 

During 2016, the Company purchased 325,000 shares of outstanding Company common stock through an exchange for a price per share of $0.23 to $0.29. During 2017, the Company purchased an additional 12,800 shares of outstanding Company common stock for a price per share of $0.24 to $0.26. As of the June 30, 2017, a total of 337,800 shares are being held by the Company valued at cost is $90,204 and are included in treasury stock in the consolidated balance sheet.

 

In January 2017, the Company issued 1,183,490 shares of common stock pursuant to a conversion of Immudyne PR equity contributions of $272,203 into equity of Immudyne, Inc. by the noncontrolling interest.

 

In January 2017, the Company issued 217,391 shares of common stock in relation to issuance of a $210,000 note payable.

 

In the first quarter of 2017, the Company commenced an offering to sell up to 4,000,000 shares of common stock at a price of $0.23 per share and warrants to purchase up to 2,000,000 shares of common stock excisable any time prior to the secondary anniversary of the issuance. The warrants are paired with the stock on the basis of one warrant for every two shares of stock purchased. During the first quarter of 2017, the Company received subscriptions in the amount of 2,817,156 shares and issued 1,408,578 warrants and proceeds in the amount of $647,944.

 

In March 2017, the Company issued 755,179 shares of common stock for the conversion of the outstanding balance of three notes payable totaling $499,802 (see Note 3).

 

On April 24, 2017, the Company, issued 217,390 shares of common stock pursuant to a stock subscription agreement and the Company issued 108,696 warrants with an exercise price of $0.40 per share for the stated consideration and satisfaction of obligation to pay $50,000 on the 180-day anniversary of the execution of the Sole and Exclusive License, Royalty, and Advisory Agreement dated September 1, 2016 with Pilaris Laboratories, LLC. The fair value of the shares and warrants issued were determined to be $131,103, of which $81,103 was included in general and administrative expense as loss on settlement of other payables.

 

During the second quarter of 2017 the Company received subscriptions in the amount of 110,000 shares and issued 55,000 warrants and proceeds in the amount of $25,300.

 

On June 1, 2017, the Company entered into an agreement with a consultant to provide services, with a six month term, and issued 125,000 shares of common stock as compensation. The shares were valued at $45,000 and the Company is recognizing the expense over the term of the agreement. For the three months ending June 30, 2017, $7,500 has been expensed and included in compensation and related expenses on the consolidated statement of operations.

   

Noncontrolling Interest

 

On April 1, 2016, the Company increased its ownership in Immudyne PR to 78.1667% decreasing the minority interest from 66.7% to 21.8333% resulting in a charge to noncontrolling interest and additional paid-in-capital of $91,612.

 

For the six months ended June 30, 2017 and 2016, the net loss of Immudyne PR attributed to the noncontrolling interest amounted to $68,924 and $2,516, respectively.

 

For the three months ended June 30, 2017, the net loss of Immudyne PR attributed to the noncontrolling interest amounted to $41,194. For the three months ended June 30, 2016, the net income of Immudyne PR attributed to the noncontrolling interest amounted to $43,594.

 

Service-Based Stock Options

 

In May 2016, the Company issued 175,000 service-based options valued at $40,829 to two consultants at exercise prices of $0.20 per share. The options are fully vested and expire in 10 years.

 

In July 2016, the Company issued 50,000 service-based options valued at $12,397 to a consultant with an exercise price of $0.20 per share. The options are fully vested and expire in 10 years.

  

In November 2016, the Company issued 50,000 service-based options valued at $9,980 to a consultant with an exercise price of $0.50 per share. The options are fully vested and expire in 2 years.

 

In February 2017, the Company issued 500,000 service-based options valued at $113,522 to a director with an exercise price of $0.20 per share. The options are fully vested and expire in 10 years.

 

Accordingly, stock based compensation expense for the six months ended June 30, 2017 and 2016 included $113,522 and $40,829, respectively, related to such service-based stock options. Stock based compensation expense for the three months ended June 30, 2017 and 2016 included $-0- and $40,829, respectively, related to such service-based stock options.

 

A summary of the outstanding service-based options are as follows:

 

      Number of
Options
 
  Balance at December 31, 2016     10,700,273  
  Issued     500,000  
           
  Balance at June 30, 2017     11,200,273  

 

All outstanding options are exercisable and have a cashless exercise provision, and certain options provide for accelerated vesting provisions and modifications, as defined, if the Company is sold or acquired. The intrinsic value of service based options outstanding and exercisable at June 30, 2017 and December 31, 2016 amounted to $1,131,805 and $704,794, respectively.

    

The significant assumptions used to determine the fair values of options issued in 2017, using the Black-Scholes option-pricing model are as follows:

 

  Significant assumptions:      
  Risk-free interest rate at grant date     1.49 %
  Expected stock price volatility     216.7 %
  Expected dividend payout      
  Expected option life-years     3 years  
  Weighted average grant date fair value   $ 0.24  
  Forfeiture rate     0 %

  

The following is a summary of outstanding service-based options at June 30, 2017:

 

  Exercise Price   Number of
Options
    Weighted Average Remaining Contractual Life  
               
  $0.10     1,380,273       1 year  
  $0.20 - $0.25     8,620,000       5 years  
  $0.40     1,200,000       5 years  
  Total     11,200,273          

  

Performance-Based Stock Options

 

Vested

 

The Company granted performance-based options to purchase 2,925,000 shares of common stock at exercise prices of $0.40. The options expire at various dates between 2021 and 2026 and are exercisable upon the Company achieving annual sales revenue of $5,000,000.  During the year ended December 31, 2016, the Company cancelled 287,500 of these service-based options issued to two consultants, valued at $12,457.

 

The fair value of the vested performance-based options aggregated $120,867 and was expensed over the implicit service period commencing once management believed the performance criteria was expected to be met. During 2016, the Company met the performance criteria and accordingly, recorded stock based compensation expense of $38,867 and $77,733 for the three and six months ended June 30, 2016, respectively.

 

Unvested

 

The Company granted performance-based options to purchase 1,150,000 shares of common stock at exercise prices of $0.40 and $0.80. The options expire at various dates between 2021 and 2027 and are exercisable upon the Company achieving annual sales revenue of $5,000,000 and $10,000,000.  During the year ended December 31, 2016, the Company cancelled 287,500 of these service-based options issued to two consultants, valued at $5,542.

 

The performance options exercisable upon the Company achieving annual sales revenue of $5,000,000 and $10,000,000 have an aggregate fair value of $85,608. As of June 30, 2017, no amounts have been expensed and the unearned compensation for all the performance based options is $85,608.

  

Warrants

 

The following is a summary of outstanding and exercisable warrants:

 

 
      Number of Shares     Weighted Average 
Exercise Price
    Year of 
Expiration
                   
  Balance at December 31, 2016     1,954,891     $ 0.19     2017 - 2019
  Issued     2,566,367                0.40     2019 - 2020
                     
  Balance at June 30, 2017     4,521,258       0.31     2017 - 2020

  

In September 2016, the Company issued 100,000 warrants with an exercise price of $0.50 per share, in relation to a sale of common stock. These warrants are fully vested and expire in two years.

 

In September 2016, the Company issued 100,000 warrants with exercise prices between $0.20 and $0.50 per share, for consulting services. These warrants are fully vested and expire in three years.

 

In December 2016, the Company issued 37,500 warrants with an exercise price of $0.50 per share, in relation to a sale of common stock. These warrants are fully vested and expire in two years.

 

In December 2016, the Company issued 217,391 warrants with an exercise price of $0.40 per share, in relation to an issuance of common stock. These warrants are fully vested and expire in two years.

 

In January 2017, the Company issued 591,745 warrants with an exercise price of $0.40 per share, in relation to an issuance of common stock for the conversion of an equity contribution into Immudyne PR by the noncontrolling interest. These warrants are fully vested and expire in two years.

 

In March 2017, the Company issued 403,348 warrants with an exercise price of $0.40 per share, in relation to an issuance of common stock for the conversion of debt. These warrants are fully vested and expire in two years.

 

In the first quarter of 2017, the Company issued 1,408,578 warrants with an exercise price of $0.40 per share, in relation to a sale of common stock. These warrants are fully vested and expire in two years.

 

In April 2017, the Company issued 55,000 warrants with an exercise price of $0.40 per share, in relation to a sale of common stock. These warrants are fully vested and expire in two years.

 

In April 2017, the Company issued 108,696 warrants with an exercise price of $0.40 per share, in relation to an issuance of common stock for conversion of a payable. These warrants are fully vested and expire in three years.

 

The fair value of warrants granted during the period ended June 30, 2017, was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 

  Expected volatility     127% - 215%  
  Risk free interest rate     1.24% - 2.14%  
  Expected dividend yield     -  
  Expected term (in years)     1.2 - 8.3  
  Weighted average grant date fair value     $0.12 - 0.30  

 

As of June 30, 2017 and December 31, 2016, certain of the Company’s stock options, stock warrants and convertible debt instruments were accounted for as derivative liabilities due to insufficient authorized shares of common stock to settle outstanding contracts. At June 30, 2017 and December 31, 2016, the Company estimated the fair value of these stock options, stock warrants and embedded conversion features using the Black-Scholes option pricing model (“Black-Scholes”) to be $955,014 and $192,254, based on Level 2 valuation inputs.

  

Stock Based Compensation

 

The total stock based compensation expense related Service-Based Stock Options and Performance-Based Stock Options and Warrants amounted to $113,522 and $118,562 for the six months ended June 30, 2017 and 2016, respectively. For the three months ended June 30, 2017 and 2016, total stock based compensation amounted to $-0- and $79,695, respectively. Such amounts are included in compensation and related expenses in the accompanying statement of operations.

 

Common stock issued for services amounted to $160,833 and $230,000 for the six months ended June 30, 2017 and 2016, respectively. For the three months ended June 30, 2017 and 2016, common stock issued for services amounted to $84,167 and $-0-, respectively. Such amounts are included in compensation and related expenses in the accompanying statement of operations.