| STOCKHOLDERS’ EQUITY (DEFICIT) | Capital Stock The Company is authorized to issue
150,000,000 shares, all of which are common stock with a par value of $0.001 per share. Issuances of Common Stock On January 6, 2016 and April 5,
2016, the Company entered into a consulting agreement with a third party pursuant to which the Company agreed to issue, over the
term of the agreements, an aggregate of 1,560,000 shares of Company common stock in exchange for services to be rendered. During
the six months ended June 30, 2016, the Company issued 1,110,000 shares under the agreement related to services provided and recognized
the fair value of the shares issued of $67,260 in general and administrative expense in the accompanying condensed consolidated
statement of operations. The 1,110,000 shares of common stock vested on the date of issuance and the fair value of the
shares of common stock was based on the market price of the Companys common stock on the date of vesting. In January 2016, the Company issued
300,000 shares of common stock for services and recorded an expense of $17,000, which is included in general and administrative
expense in the accompanying condensed consolidated statement of operations. The 300,000 shares of common stock vested on the date
of issuance and the fair value of the shares of common stock was based on the market price of the Companys common stock
on the date of vesting. On February 10, 2016, the Company
entered into an investor relations service agreement with a third party pursuant to which the Company agreed to issue, over the
term of the agreement, 3,000,000 shares of Company common stock in exchange for services to be rendered. During the six months
ended June 30, 2016, the Company issued 2,500,000 shares under the agreement related to services provided and recognized the fair
value of the shares issued of $242,500 in general and administrative expense in the accompanying condensed consolidated statement
of operations. The 2,500,000 shares of common stock vested on the date of issuance and the fair value of the shares of common stock
was based on the market price of the Companys common stock on the date of vesting. On February 19, 2016, the Company
entered into a consulting agreement with a third party, pursuant to which the Company agreed to issue, over the term of the agreement,
1,750,000 shares of Company common stock in exchange for services to be rendered. During the six months ended June 30, 2016,
the Company issued 1,625,000 shares under the agreement related to services provided in connection with the acquisition of Beyond
Human (see Note 3) and recognized the fair value of the shares issued of $122,263 in general and administrative expense in the
accompanying condensed consolidated statement of operations. The 1,625,000 shares of common stock vested on the date of issuance
and the fair value of the shares of common stock was based on the market price of the Companys common stock on the date
of vesting. In April 2016, the Company issued
3,193,446 shares of common stock upon the cashless exercise of warrants to purchase 4,797,724 shares of common stock. Upon
exercise of the warrants, the fair value of the warrant derivative liability on the date of exercise was reclassified to additional
paid-in capital (see Note 9). In April and May 2016, the Company
issued 550,000 shares of common stock for services and recorded an expense of $54,900, which is included in general and administrative
expense in the accompanying condensed consolidated statement of operations. The 550,000 shares of common stock vested on the date
of issuance and the fair value of the shares of common stock was based on the market price of the Companys common stock
on the date of vesting. On April 27, 2016, the Company entered
into an investor relations service agreement with a third party pursuant to which the Company agreed to issue 300,000 shares of
Company common stock in exchange for services to be rendered over the 3 month term of the agreement. The shares of common
stock issued were non-forfeitable and the fair value of $28,500 was based on the market price of the Companys common stock
on the date of vesting. During the six months ended June 30, 2016, the Company recognized $19,000 in general and administrative
expense in the accompanying condensed consolidated statement of operations. At June 30, 2016, the remaining $9,500 is
included in prepaid expenses in the accompanying condensed consolidated balance sheet and will be expensed over the remaining term
of the agreement. In May 2016, the Company issued
1,250,000 shares of restricted common stock to certain note holders in connection with their notes payable. The relative
fair value of the shares of restricted common stock issued was determined to be $93,964 and was recorded as a debt discount (see
Note 5). In May and June 2016, the Buyers
of the Q3 2015 Notes elected to convert $1,515,635 in principal and interest into 10,104,228 shares of common stock (see Note 5).
Upon conversion, the fair value of the embedded conversion feature derivative liability on the date of conversion was reclassified
to additional paid-in capital (see Note 9). During the six months ended June
30, 2016, the Company issued 215,000 shares of common stock for legal fees in connection with the Semprae merger transaction and
recognized the fair value of the shares issued of $64,500 in general and administrative expense in the accompanying condensed consolidated
statement of operations. During the six months ended June
30, 2016, the Company issued 18,887,859 shares of common stock in exchange for vested restricted stock units. Common Stock Subscribed but Unissued In connection with the issuance
of the Q2 2016 Notes, the Company was to issue restricted shares of common stock totaling 3,750,000 to the Investors. The restricted
shares of common stock were not issued until July 2016 and thus the relative fair value of the restricted shares of common stock
totaling $472,814 was recorded as common stock subscribed but unissued in the accompanying condensed consolidated balance sheet
(see Note 5). The amount will be reclassified to common stock par value and additional paid-in capital upon issuance
in July 2016. 2013 Equity Plan The Company has issued common stock,
restricted stock units and stock option awards to employees, non-executive directors and outside consultants under the 2013 Incentive
Plan, which was approved by the Companys Board of Directors in February of 2013. The 2013 Incentive Plan allows for
the issuance of up to 10,000,000 shares of the Companys common stock to be issued in the form of stock options, stock awards,
stock unit awards, stock appreciation rights, performance shares and other share-based awards. The exercise price for all
equity awards issued under the 2013 Incentive Plan is based on the fair market value of the common stock. Currently, because
the Companys common stock is quoted on the OTCQB, the fair market value of the common stock is equal to the last-sale price
reported by the OTCQB as of the date of determination, or if there were no sales on such date, on the last date preceding such
date on which a sale was reported. Generally, each vested stock unit entitles the recipient to receive one share of Company
common stock which is eligible for settlement at the earliest of their termination, a change in control of the Company or a specified
date. Restricted stock units can vest according to a schedule or immediately upon award. Stock options generally vest
over a three-year period, first year cliff vesting with quarterly vesting thereafter on the three-year awards, and have a ten-year
life. Stock options outstanding are subject to time-based vesting as described above and thus are not performance-based. As
of June 30, 2016, 386,153 shares were available under this plan. 2014 Equity Plan The Company has issued common stock,
restricted stock units and stock option awards to employees, non-executive directors and outside consultants under the 2014 Incentive
Plan, which was approved by the Companys Board of Directors in November 2014. The 2014 Incentive Plan allows for the
issuance of up to 20,000,000 shares of the Companys common stock to be issued in the form of stock options, stock awards,
stock unit awards, stock appreciation rights, performance shares and other share-based awards. The exercise price for all
equity awards issued under the 2014 Incentive Plan is based on the fair market value of the common stock. Currently, because
the Companys common stock is quoted on the OTCQB, the fair market value of the common stock is equal to the last-sale price
reported by the OTCQB as of the date of determination, or if there were no sales on such date, on the last date preceding such
date on which a sale was reported. Generally, each vested stock unit entitles the recipient to receive one share of Company
common stock which is eligible for settlement at the earliest of their termination, a change in control of the Company or a specified
date. Restricted stock units can vest according to a schedule or immediately upon award. Stock options generally vest
over a three-year period, first year cliff vesting with quarterly vesting thereafter on the three-year awards and have a ten-year
life. Stock options outstanding are subject to time-based vesting as described above and thus are not performance-based. As
of June 30, 2016, 950,001 shares were available under this plan. Stock-Based Compensation The stock-based compensation expense
for the three and six months ended June 30, 2016 and 2015 was $111,885, $636,518, $121,192 and $751,710, respectively, for the
issuance of restricted stock units and stock options to management, directors and consultants. The Company calculates the
fair value of the restricted stock units based upon the quoted market value of the common stock at the date of grant. The Company
calculates the fair value of each stock option award on the date of grant using Black-Scholes. Stock Options For the six months ended June 30,
2016 and 2015, the following weighted average assumptions were utilized for the stock options granted during the period:
2016 2015
Expected life (in years) 10.0 6.0
Expected volatility 227.9 % 222.8 %
Average risk free interest rate 1.77 % 1.54 %
Dividend yield 0 % 0 %
Grant date fair value $ 0.16 $ 0.14 The dividend yield of zero is based
on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. Expected volatility
is based on the historical volatility of the Companys common stock over the period commensurate with the expected life of
the stock options. Expected life in years is based on the simplified method as permitted by ASC Topic 718. The
Company believes that all stock options issued under its stock option plans meet the criteria of plain vanilla stock
options. The Company uses a term equal to the term of the stock options for all non-employee stock options. The risk
free interest rate is based on average rates for treasury notes as published by the Federal Reserve in which the term of the rates
correspond to the expected term of the stock options. The following table summarizes the
number of stock options outstanding and the weighted average exercise price:
Options Weighted average exercise price Weighted remaining contractual life (years) Aggregate intrinsic value
Outstanding at December 31, 2015 196,000 $ 0.31 9.0 -
Granted 58,500 $ 0.09 10.0 -
Exercised - - - -
Cancelled - - - -
Forfeited - - - -
Outstanding at June 30, 2016 254,500 $ 0.22 8.8 $ 16,145
Vested at June 30, 2016 254,500 $ 0.22 8.8 $ 16,145 The aggregate intrinsic value is
calculated as the difference between the exercise price of all outstanding stock options and the quoted price of the Companys
common stock at June 30, 2016. During the three and six months ended June 30, 2016 and 2015, the Company recognized
stock-based compensation from stock options of $4,000, $9,500, $887 and $2,711, respectively. Restricted Stock Units The following table summarizes the
number of restricted stock units activity for the six months ended June 30, 2016 under both plans:
Restricted Stock Units
Outstanding at December 31, 2015 17,554,736
Granted 10,787,947
Exchanged (18,887,859 )
Cancelled -
Outstanding at June 30, 2016 9,454,824
Vested at June 30, 2016 7,561,071 The vested restricted stock units
at June 30, 2016 have not settled and are not showing as issued and outstanding shares of the Company but are considered for earnings
per share calculations. Settlement of these vested restricted stock units will occur on the earliest of (i) the date of termination
of service of the employee or consultant, (ii) change of control of the Company, or (iii) 10 years from date of issuance. Settlement
of vested restricted stock units may be made in the form of (i) cash, (ii) shares, or (iii) any combination of both, as determined
by the board of directors and is subject to certain criteria having been fulfilled by the recipient. During the six months ended June
30, 2016, the Company issued 10,787,947 restricted stock units to employees and board members. In 2016, 787,948 were from the 2013
Plan and vested immediately and the remaining 9,999,999 were from the 2014 Plan. A total of 6,000,001 of 9,999,999 restricted
stock units vested immediately and the remaining 3,999,998 vested upon the closing of the Beyond Human asset acquisition.
In January 2016, the board of directors approved for grant 3,999,998 restricted stock units to employees and board members subject
to the increase in the authorized shares available under the 2014 Plan or the adoption of a new equity inventive plan. The restricted
stock units were to vest upon the achievement of a certain milestone by the Company. The restricted stock units were
not considered granted under ASC 718 until such time as the authorized shares under the 2014 Plan were increased or a new equity
incentive plan was approved. In June 2016, these restricted stock units were cancelled by the board of directors. The
grant date fair value of restricted stock units issued during the six months ended June 30, 2016 was $450,269. For the three and
six months ended June 30, 2016 and 2015, the Company recognized $107,885, $627,018, $120,305 and $748,999, respectively, of stock-based
compensation expense for the vested units. As of June 30, 2016, compensation expense related to unvested shares not yet recognized
in the condensed consolidated statement of operations was $265,125 and will be recognized over 0.75 years. Warrants In 2014, the Company issued 380,973
warrants in connection with a note payable. The warrants have an exercise price of $0.10 and expire December 6, 2018. Warrants
to purchase 245,157 shares of common stock were exercised under the cashless exercise provisions of the warrant agreement in July
2016 (see Note 10). In February 2014, the Company issued
250,000 warrants in connection with a convertible debenture. The warrants had an exercise price of $0.50 per share and was to expire
on February 13, 2019. On March 6, 2015 the Company entered into an agreement with the note holder to extend the convertible
debenture for six months. As consideration for the extension, the Company issued the note holder an additional 250,000 warrants,
reduced the exercise price of the warrants from $0.50 to $0.30 per share and extended the expiration date to March 12, 2020. The
warrants were also amended to include certain anti-dilution protection, including protection upon dilutive issuances. In connection
with the third quarter 2015 convertible debenture financing, the exercise price of these warrants was reduced to $0.0896 per share
and an additional 1,173,410 warrants were issued per the anti-dilution protection afforded in the warrant agreement during the
year ended December 31, 2015. These warrants were exercised under the cashless exercise provisions of the warrant agreement in
April 2016. In connection with the exercise of the warrants, the Company agreed to reduce the exercise price of these
warrants to $0.07 per share which resulted in an additional 469,447 warrants being issued in April 2016 prior to exercise. The
warrants exercised were classified as derivative liabilities and, upon exercise, the fair value of the warrant derivative liability
was reclassified to additional paid-in capital (see Note 9). In January 2015, the Company issued
500,000 warrants in connection with a non-convertible debenture. The warrants are exercisable for five years from the closing date
at an exercise price of $0.30 per share of common stock or January 21, 2020. The warrants contain anti-dilution protection, including
protection upon dilutive issuances. In connection with the third quarter 2015 convertible debenture financing, the exercise price
of these warrants was reduced to $0.0896 per share and an additional 1,173,410 warrants were issued per the anti-dilution protection
afforded in the warrant agreement during the year ended December 31, 2015. These warrants were exercised under the cashless exercise
provisions of the warrant agreement in April 2016. In connection with the exercise of the warrants, the Company agreed
to reduce the exercise price of these warrants to $0.0565 per share which resulted in an additional 981,457 warrants being issued
in April 2016 prior to exercise. The warrants exercised were classified as derivative liabilities and, upon exercise,
the fair value of the warrant derivative liability was reclassified to additional paid-in capital (see Note 9). In January 2015, the Company issued
250,000 warrants with an exercise price of $0.30 per share to its former CFO in connection with a non-convertible debenture. The
warrants expire on January 21, 2020. The warrants contain anti-dilution protection, including protection upon dilutive issuances.
In connection with the third quarter 2015 convertible debenture financing, the exercise price of these warrants was reduced to
$0.0896 per share and an additional 586,705 warrants were issued per the anti-dilution protection afforded in the warrant agreement
during the year ended December 31, 2015. In connection with the Third Quarter
2015 Financing the Company issued 1,808,333 warrants with an exercise price of $0.30 per share and expire in 2020. Warrants to
purchase 635,000 shares of common stock were exercised in July 2016 (see Note 10). In connection with the Second Quarter
2016 Financing the Company issued 2,180,000 warrants to the Investors and placement agents with an exercise price of $0.40 per
share and expire in 2021. At June 30, 2016 and December 31,
2015, there are 5,206,011 and 6,372,831 fully vested warrants outstanding, respectively. Net Loss per Share The weighted average shares of common
stock outstanding used in the basic and diluted net loss per share calculation for the three and six months ended June 30, 2016
was 77,455,497 and 62,335,408, respectively. The weighted average restricted
stock units vested but deferred until the employee or director resigns outstanding used in the basic and diluted net loss per share
calculation for the three and six months ended June 30, 2016 was 7,940,349 and 7,935,925, respectively. The total weighted average shares
outstanding used in the basic and diluted net loss per share calculation for the three and six months ended June 30, 2016 was 85,395,846
and 70,271,333, respectively. The weighted average restricted
stock units, vested but deferred until the employee or director resigns, outstanding during the three and six months ended June
30, 2015 was 11,392,909 and 9,316,897, respectively. The total weighted average shares outstanding during the three
and six months ended June 30, 2015 would have been 52,209,676 and 47,226,561, respectively. There would have been no
impact on the previously reported basic and diluted net loss per share for the three months ended June 30, 2015 but there would
have been a decrease in the previously reported basic and diluted net loss per share for the six months ended June 30, 2015 of
$0.01 per share. The following table shows the anti-dilutive
shares excluded from the calculation of basic and diluted net loss per common share as of June 30, 2016 and 2015:
As of June 30,
2016 2015
Gross number of shares excluded:
Restricted stock units - unvested 1,893,753 6,274,572
Stock options 254,500 134,000
Convertible debentures and accrued interest 6,600,000 2,281,128
Warrants 5,206,011 1,630,973
Total 13,954,264 10,320,673 The above table does not include
the ANDA Consideration Shares related to the Novalere acquisition, as they are considered contingently issuable (see Note 3). |
