7. Stockholders' Equity | 9 Months Ended |
Sep. 30, 2014 |
Equity [Abstract] | ' |
7. Stockholders' Equity | ' |
Authorized Capital |
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The Company has 500,000,000 authorized shares of Common Stock at $0.0001 par value per share and 100,000,000 authorized shares of Preferred Stock at $0.0001 par value per share. |
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On October 1, 2012, the Company filed a certificate of designation with the Secretary of State of Nevada to designate 5,000 shares of Series B Non-convertible Preferred Stock, at $0.0001 par value per share. The Series B shares do not include any voting rights and allow for monthly dividends in an amount equal to the sum of 1) 10% of the amount of gross sales in excess of $1 million collected in the ordinary course of business, not to exceed $150,000, and 2) 15% of the amount of gross sales in excess of $2.5 million collected in the ordinary course of business. At each of September 30, 2014 and December 31, 2013, there were 5,000 shares of Series B Preferred Stock outstanding. |
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On March 27, 2014, each of the holders of shares of Series B Preferred Stock entered into a purchase option agreement with the Company. Each agreement grants the Company an option to purchase any or all shares of Series B Preferred Stock held by the holder at any time through March 27, 2016 at a purchase price of $5,000 per share. Each holder agreed not to transfer or dispose of any shares of Series B Preferred Stock during the term of the option, other than to the Company upon an exercise of the option. Any exercise of an option is completely at the Company's discretion. |
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The Series B Preferred shares (“shares”) contained provisions which allowed the Company, at its sole option, to buy back the shares of a holder in the event the holder terminates employment with the Company. (This option expired on October 1, 2014.) Upon evaluation of this provision, the issuance of the shares could be treated as stock compensation and accounted for under the liability method from the date of initial issuance. This treatment would require the recognition of Non-Cash Stock Compensation Expense and a related liability in the Company’s financial statements. The amount of the periodic expense and associated liability would be based on the estimated fair market value of the shares for the periods being reported. The Company is currently evaluating the accounting treatment and may restate previously reported financial statements for all periods if the amount of Stock Compensation expense is determined to be material, including the current quarter and, if necessary, the previously audited financial statements for the years ended December 31, 2013 and 2012. |
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As a consequence of the March 18, 2014 option agreements, if the liability method is deemed appropriate, the Company will continue the liability accounting method (expense recognition and resulting liability) until the agreements surrounding these shares expire or the shares are purchased by the Company. |
Management believes the results of operations and cash flows reported herein, and those of previous periods, are fairly stated in all material respects. |
The independent accountants have not completed their review of the current quarter’s financial statements herein. |
On October 7, 2012, the Company filed a certificate of designation with the Secretary of State of Nevada to designate 1,000,000 shares of Series C Convertible Preferred Stock, at $0.0001 par value per share. The Series C shares were convertible into shares of Common Stock by the quotient of 1 divided by the product of 0.80 multiplied by the market price of the Company’s Common Stock at the date of conversion. The Series C shares also included voting rights of 25 votes for every share of Series C Preferred Stock and were entitled to dividends at the same time any dividend was paid or declared on any shares of the Company’s Common Stock. Pursuant to their terms, all of the shares of Series C Preferred Stock were converted into shares of Common Stock on December 31, 2012. |
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On March 17, 2014, the Company filed a Certificate of Designation with the Secretary of State of Nevada authorizing up to 200,000 shares of Series D Convertible Preferred Stock at $0.0001 par value per share ("Series D Preferred Stock"). Each share of Series D Preferred Stock is convertible into the number of shares of Common Stock equal to the quotient of 5 divided by the product of 0.80 multiplied by the market price, as defined in Certificate of Designation, of the Company’s Common Stock at the date of conversion. After the earlier of the date the trading volume of the Common Stock exceeds an aggregate of 3,000,000 shares in any 30 day period or the date the Company sells shares of Common Stock in a firm commitment underwritten public offering with aggregate gross proceeds of at least $30,000,000, each share of Series D Preferred Stock shall be convertible into the number of shares of Common Stock equal to the quotient of (i) 5 divided by (ii) the market price of the Common Stock. All shares of Series D Preferred Stock outstanding on the second anniversary of the original issuance date shall be automatically converted into shares of Common Stock. |
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The Series D shares also include voting rights of 1 vote for every share of Series D Preferred Stock and are entitled to dividends, at the same time any dividend is paid or declared on any shares of the Company’s Common Stock The dividends are to be in an amount equal to the amount such holder would have received if the Series D Preferred Stock were converted to Common Stock. As of September 30, 2014 and December 31, 2013, there were 200,000 shares and no shares of Series D Preferred Stock outstanding, respectively. |
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On August 21, 2014, the Company filed a Certificate of Designation with the Secretary of State of Nevada authorizing 100,000 shares of Series E Convertible Preferred Stock at a par value of $.0001 per share. The Series E shares are convertible into the number of shares of Common Stock equal to the quotient of 8 divided by the average market price of the Company’s Common Stock for thirty trading days prior to the date of conversion, multiplied by the number of Series E shares being converted. Any Series E shares which remain outstanding on August 28, 2016 will be automatically converted into Common Stock using the prescribed formula. The Series E shares also include voting rights of 1 vote for every share of Series E Preferred Stock and are entitled to dividends at the same time any dividend is paid or declared on any shares of the Company’s Common Stock. The dividends are to be in an amount equal to the amount such holder would have received if the Series E Preferred Stock were converted to Common Stock at the same time any dividend is paid or declared on any shares of the Company’s Common Stock. As of September 30, 2014 and December 31, 2013, there were 100,000 shares and no shares of Series E Preferred Stock outstanding, respectively. |
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Preferred Stock |
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During the nine months ended September 30, 2014 and 2013, the Series B preferred shareholders earned dividends totaling $3,815,719 and $1,396,238, respectively. |
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On March 18, 2014, 200,000 shares of Series D Preferred Stock of the Company were issued to the previous owners of Clinlab pursuant to a stock purchase agreement whereby the Company purchased all of the outstanding stock of Clinlab (See Note 9 – Business Combinations). |
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On August 28, 2014, 100,000 shares of Series E Preferred Stock of the Company were issued to the previous owner of Epinex pursuant to a stock purchase agreement whereby the Company purchased all of the outstanding stock of Epinex (See Note 9 – Business Combinations). |
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Common Stock |
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During the nine months ended September 30, 2014, the Company issued an aggregate of 285,000 shares of the Company’s restricted common stock. The Company issued an aggregate of 210,000 shares under the Medytox Solutions, Inc. 2013 Incentive Compensation Plan to six management executives and one consultant as partial payment of bonuses which were accrued at December 31, 2013. The shares were valued at $2.50, based on the price of shares sold to investors, for a total of $525,000. An aggregate of 65,000 shares were issued to two employees pursuant to employment agreements, valued at $2.50, based on the price of shares sold to investors, for a total of $162,500. A total of 10,000 shares were issued to GlobalOne in connection with the acquisition of certain assets, valued at $2.50, based on the price of shares sold to investors, for a total of $25,000. |
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On September 11, 2014, William Forhan resigned as Chief Executive Officer and Chairman and returned 1,241,550 restricted common shares to the Company, which were then retired. Mr. Forhan remains the owner of 1,241,551 restricted common shares. |
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2013 Equity Plan |
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On September 25, 2013, the Company’s board of directors approved and adopted the Medytox Solutions, Inc. 2013 Incentive Compensation Plan (the “2013 Plan”). The 2013 Plan was approved by a majority of stockholders of the Company on November 22, 2013. The 2013 Plan provides for the grant of shares of common stock, options, performance shares, performance units, restricted stock, stock appreciation rights and other awards. |
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The following summarizes activity under the 2013 Plan for the nine months ended September 30, 2014: |
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Shares approved for issuance at plan inception | | | 5,000,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Options granted in 2014 | | | (1,435,000 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Options cancelled in 2014 | | | 10,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Restricted shares issued in 2014 | | | (210,000 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2014 | | | 3,365,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Stock Options |
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The following summarizes options outstanding at December 31, 2013 and option activity for the nine months ended September 30, 2014: |
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| | | | | Weighted | | | | | | | | | | | | | | | |
| | Common Stock Options Outstanding | | | average | | | | | | | | | | | | | | | |
| | Employees and | | | Non- | | | | | | exercise | | | | | | | | | | | | | | | |
| | Directors | | | employees | | | Total | | | price | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2013 | | | 20,150,000 | | | | 3,020,000 | | | | 23,170,000 | | | $ | 5.33 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Options granted | | | 1,435,000 | | | | – | | | | 1,435,000 | | | | 2.76 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Options cancelled or expired | | | (210,000 | ) | | | – | | | | (210,000 | ) | | | 2.5 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2014 | | | 21,375,000 | | | | 3,020,000 | | | | 24,395,000 | | | $ | 5.06 | | | | | | | | | | | | | | | |
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The following table summarizes information with respect to stock options outstanding and exercisable by employees and directors at September 30, 2014: |
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| | | | Options outstanding | | | Options vested and exercisable | |
| | | | | | | | Weighted | | | | | | | | | | | | |
| | | | | | | | average | | | Weighted | | | | | | | | | | | Weighted | | | | | |
| | | | | | | | remaining | | | average | | | Aggregate | | | | | | | average | | | Aggregate | |
| | | | Number | | | contractual | | | exercise | | | intrinsic | | | Number | | | exercise | | | intrinsic | |
Exercise price | | | outstanding | | | life (years) | | | price | | | value | | | vested | | | price | | | value | |
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$2.50 | | | | 8,625,000 | | | | 3.76 | | | $2.50 | | | $ | – | | | | 7,962,500 | | | $2.50 | | | $ | – | |
$5.00 | | | | 6,750,000 | | | | 3.24 | | | $5.00 | | | | – | | | | 6,600,000 | | | $5.00 | | | | – | |
$10.00 | | | | 6,000,000 | | | | 8.26 | | | $10.00 | | | | – | | | | 6,000,000 | | | $10.00 | | | | – | |
| | | | | 21,375,000 | | | | | | | $5.39 | | | $ | – | | | | 20,562,500 | | | $5.49 | | | $ | – | |
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The following table summarizes information with respect to stock options outstanding and exercisable by non-employees at September 30, 2014: |
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| | | | Options outstanding | | | Options vested and exercisable | |
| | | | | | | | Weighted | | | | | | | | | | | | |
| | | | | | | | average | | | Weighted | | | | | | | | | | | Weighted | | | | | |
| | | | | | | | remaining | | | average | | | Aggregate | | | | | | | average | | | Aggregate | |
| | | | Number | | | contractual | | | exercise | | | intrinsic | | | Number | | | exercise | | | intrinsic | |
Exercise price | | | outstanding | | | life (years) | | | price | | | value | | | vested | | | price | | | value | |
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$2.50 | | | | 1,020,000 | | | | 3.2 | | | $2.50 | | | $ | – | | | | 1,020,000 | | | $2.50 | | | $ | – | |
$5.00 | | | | 1,000,000 | | | | 3.25 | | | $5.00 | | | | – | | | | 1,000,000 | | | $5.00 | | | | – | |
$10.00 | | | | 1,000,000 | | | | 8.26 | | | $10.00 | | | | – | | | | 1,000,000 | | | $10.00 | | | | – | |
| | | | | 3,020,000 | | | | | | | $5.81 | | | $ | – | | | | 3,020,000 | | | $5.81 | | | $ | – | |
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During the nine months ended September 30, 2014, the Company issued options to purchase a total of 100,000 shares of the Company’s common stock to an employee pursuant to terms of an employment agreement. These options have contractual lives of two years and were valued at an average grant date fair value of $0.25 per option, or $25,000, using the Black-Scholes Option Pricing Model with the following assumptions: |
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Stock price | $2.50 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expected term | 1 year | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expected volatility | 24.43% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk free interest rate | 0.30% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividend yield | 0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The stock price was based on the price of shares sold to investors and volatility was based on comparable volatility of other companies since the Company had no significant historical volatility. As the 100,000 options were vested as of September 30, 2014, $25,000 of stock-based compensation was recorded for the nine months ended September 30, 2014. |
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During the nine months ended September 30, 2014, the Company issued options to purchase a total of 1,035,000 shares of the Company’s common stock to various employees. These options have contractual lives of ten years and were valued at an average grant date fair value of $0.70 per option, or $724,500, using the Black-Scholes Option Pricing Model with the following assumptions: |
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Stock price | $2.50 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expected term | 5.375 years | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expected volatility | 27.72% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk free interest rate | 1.46% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividend yield | 0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The stock price was based on the price of shares sold to investors and volatility was based on comparable volatility of other companies since the Company had no significant historical volatility. As of September 30, 2014, 517,500 of these options had vested and the Company recognized $358,750 of stock-based compensation expense the nine and three months ended September 30, 2014. |
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During the nine months ended September 30, 2014, the Company issued options to purchase a total of 300,000 shares of the Company’s common stock to a director. These options have contractual lives of four years and were valued at an average grant date fair value of $0.18 per option, or $54,000, using the Black-Scholes Option Pricing Model with the following assumptions: |
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Stock price | $2.50 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expected term | 2 years | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expected volatility | 24.43% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk free interest rate | 0.43% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividend yield | 0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The stock price was based on the price of shares sold to investors and volatility was based on comparable volatility of other companies since the Company had no significant historical volatility. As of September 30, 2014, 200,000 of these options had vested and the Company recognized $36,000 of stock-based compensation expense the nine and three months ended September 30, 2014. |
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As of September 30, 2014, there were unrecognized compensation costs of $416,750 related to stock options. The Company expects to recognize those costs over a weighted average period of .35 years as of September 30, 2014. Future option grants will increase the amount of compensation expense to be recorded in these periods. |
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Warrants |
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The following table summarizes warrant transactions for the nine months ended September 30, 2014: |
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| | | | | | | | Weighted | | | | | | | | | | | | | | | | | | |
| | | | | Weighted | | | average | | | | | | | | | | | | | | | | | | |
| | | | | average | | | remaining | | | Aggregate | | | | | | | | | | | | | | | |
| | Number | | | exercise | | | contractual | | | intrinsic | | | | | | | | | | | | | | | |
| | of warrants | | | price | | | term (years) | | | value | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Granted in 2013 | | | 346,400 | | | $ | 3.22 | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Outstanding at December 31, 2013 and September 30, 2014 | | | 346,400 | | | $ | 3.22 | | | | 0.32 | | | $ | – | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exercisable at December 31, 2013 and September 30, 2014 | | | 346,400 | | | $ | 3.22 | | | | 0.32 | | | $ | – | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted Average Grant Date Fair Value | | | | | | $ | 0.25 | | | | | | | | | | | | | | | | | | | | | | | |
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During the nine months ended September 30, 2013, the Company issued warrants to purchase a total of 46,400 shares of the Company’s common stock in conjunction with sales of Units. These warrants have contractual lives of twenty-four months and were valued at a grant date fair value of $-0- per warrant using the Black-Scholes Option Pricing Model with the following assumptions: |
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Stock price | $0.01 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contractual term | 24 months | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expected volatility | 29.13% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk free interest rate | 0.15% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividend yield | 0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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During the nine months ended September 30, 2013, the Company issued warrants to purchase a total of 300,000 shares of the Company’s common stock to two individuals in connection with obligations entered into by the Company’s subsidiaries. These warrants have contractual lives of two years and were valued at an average grant date fair value of $0.283 per warrant, or $85,000, using the Black-Scholes Option Pricing Model with the following assumptions: |
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Stock price | $2.50 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contractual term | 2 years | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expected volatility | 29.13% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk free interest rate | 0.27% | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividend yield | 0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The stock price was based on the price of shares sold to investors and volatility was based on comparable volatility of other companies since the Company had no significant historical volatility. The $85,000 was expensed as stock-based consulting fees for the nine months ended September 30, 2013. |
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Basic and Diluted Income per Share |
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The Company computes income per share in accordance with ASC 260, "Earnings per Share", which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the statement of operations. Basic EPS is computed by dividing income available to common shareholders by the weighted average number of shares outstanding during the period. Diluted EPS gives effect to all potential dilutive equivalent shares of common stock outstanding during the period using the treasury stock method and convertible debt and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options, convertible debt, convertible preferred stock, or warrants. |
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Basic and Diluted EPS were calculated as follows: |
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| | Three Months Ended | | | Nine Months Ended | | | | | | | | | | | | | | | |
September 30, | September 30, | | | | | | | | | | | | | | |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | | | | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Numerator - net income available to common stockholders | | $ | 2,339,607 | | | $ | 1,891,218 | | | $ | 7,718,514 | | | $ | 2,744,602 | | | | | | | | | | | | | | | |
Denominator - weighted-average shares outstanding | | | 30,281,386 | | | | 29,692,110 | | | | 30,186,893 | | | | 29,610,287 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income per share - Basic | | $ | 0.08 | | | $ | 0.06 | | | $ | 0.26 | | | $ | 0.09 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Diluted: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Numerator: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income available to common stockholders | | $ | 2,339,607 | | | $ | 1,891,218 | | | $ | 7,718,514 | | | $ | 2,744,602 | | | | | | | | | | | | | | | |
Interest expense on convertible debt, net of taxes | | | 3,750 | | | | 13,285 | | | | 11,250 | | | | 39,856 | | | | | | | | | | | | | | | |
| | $ | 2,343,357 | | | $ | 1,904,503 | | | $ | 7,729,764 | | | $ | 2,784,458 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Denominator: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted-average shares outstanding | | | 30,281,386 | | | | 29,692,110 | | | | 30,186,893 | | | | 29,610,287 | | | | | | | | | | | | | | | |
Weighted-average equivalent shares from convertible debt | | | 222,222 | | | | 322,222 | | | | 222,222 | | | | 245,706 | | | | | | | | | | | | | | | |
Weighted-average equivalent shares from Series C convertible preferred stock | | | – | | | | 203,233 | | | | – | | | | 203,233 | | | | | | | | | | | | | | | |
Weighted-average equivalent shares from Series D convertible preferred stock | | | 200,000 | | | | – | | | | 143,590 | | | | – | | | | | | | | | | | | | | | |
Weighted-average equivalent shares from Series E convertible preferred stock | | | 38,043 | | | | – | | | | 12,821 | | | | – | | | | | | | | | | | | | | | |
| | | 30,741,651 | | | | 30,217,565 | | | | 30,565,526 | | | | 30,059,226 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income per share - Diluted | | $ | 0.08 | | | $ | 0.06 | | | $ | 0.25 | | | $ | 0.09 | | | | | | | | | | | | | | | |
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Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of September 30, 2014 and 2013, the following potential common stock equivalents were excluded from the calculation of Diluted EPS as their effect was anti-dilutive: |
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| | September 30, | | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | | 2013 | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock options outstanding | | | 24,395,000 | | | | 23,170,000 | | | | | | | | | | | | | | | | | | | | | | | |
Warrants outstanding | | | 346,400 | | | | 346,400 | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 24,741,400 | | | | 23,516,400 | | | | | | | | | | | | | | | | | | | | | | | |
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