| 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 common stock in exchange for services to be rendered. During the nine months ended September
30, 2016, the Company issued 1,335,000 shares under the agreement related to services provided and recognized the fair value of
the shares issued of $116,760 in general and administrative expense in the accompanying condensed consolidated statement of operations. The
1,335,000 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 Company’s 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 Company’s common stock on the date
of vesting. On February 10, 2016, the Company entered into
a 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 common stock in exchange for services to be rendered. During the nine months ended September 30, 2016, the Company
issued 3,000,000 shares under the agreement related to services provided and recognized the fair value of the shares issued of
$352,500 in general and administrative expense in the accompanying condensed consolidated statement of operations. The 3,000,000
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 Company’s 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 common stock in exchange for services to be rendered. During the nine months ended September 30, 2016, the Company
issued 1,750,000 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 $181,013 in general and administrative expense in the accompanying
condensed consolidated statement of operations. The 1,750,000 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 Company’s common stock on the date of vesting. In April and August 2016, the Company issued
an aggregate of 3,385,354 shares of common stock upon the cashless exercise of warrants to purchase 5,042,881 shares of common
stock. Upon exercise of certain warrants in April 2016, 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, May and August 2016, the Company issued
an aggregate of 785,714 shares of common stock for services and recorded an expense of $126,543, which is included in general and
administrative expense in the accompanying condensed consolidated statement of operations. The 785,714 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 Company’s common
stock on the date of vesting. On April 27, 2016, the Company entered into
a service agreement with a third party pursuant to which the Company agreed to issue 300,000 shares of 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 Company’s common stock on the date of vesting. During
the nine months ended September 30, 2016, the Company recognized $28,500 in general and administrative expense in the accompanying
condensed consolidated statement of operations. 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). On June 16, 2016, the Company entered into a
consulting agreement with a third party pursuant to which the Company agreed to issue 250,000 restricted shares of common stock
in exchange for services to be rendered. In July 2016, the Company issued 250,000 fully-vested shares under the agreement
related to services to be provided over the term of the agreement which ends on December 16, 2016. The fair value of the shares
issued of $47,500 was based on the market price of the Company’s common stock on the date of vesting. During the nine months
ended September 30, 2016, the Company recognized $27,710 in general and administrative expense in the accompanying condensed consolidated
statement of operations and the remaining unamortized expense of $19,790 is included in prepaid expenses and other current assets
in the accompanying condensed consolidated balance sheet at September 30, 2016. In July
2016, the Company issued 100,000 shares of common stock to CRI pursuant to the Amended CRI Asset Purchase Agreement (see Note 2). The
fair value of the restricted shares of common stock of $23,000 was based on the market price of the Company’s common stock
on the date of issuance and is included in research and development expense in the accompanying condensed consolidated statement
of operations. On August 3, 2016, the Company entered into
a service agreement with a third party pursuant to which the Company issued 75,000 fully-vested restricted shares of common stock
in exchange for services to be rendered over the term of the agreement which ended on November 10, 2016. The fair value of the
shares issued of $32,250 was based on the market price of the Company’s common stock on the date of vesting. During the nine
months ended September 30, 2016, the Company recognized $21,500 in general and administrative expense in the accompanying condensed
consolidated statement of operations and the remaining unamortized expense of $10,750 is included in prepaid expenses and other
current assets in the accompanying condensed consolidated balance sheet at September 30, 2016. On August 23, 2016, the Company entered into
a consulting agreement with a third party pursuant to which the Company agreed to issue 1,600,000 restricted shares of common stock,
payable in four equal installments, in exchange for services to be rendered over the agreement which ends on August 23, 2017. The
shares were considered fully-vested and non-refundable at the execution of the agreement. In September 2016, the Company issued
400,000 shares of common stock under the agreement. The fair value of the shares issued of $180,000 was based on the market price
of the Company’s common stock on the date of agreement. As a result of the shares being fully-vested at the execution of
the agreement but payable in equal installments, the Company recorded a liability for the fair value of the remaining 1,200,000
shares of common stock to be issued of $540,000 which is included in accounts payable and accrued expenses in the accompanying
condensed consolidated balance sheet at September 30, 2016. The fair value was based on the market price of the Company’s
common stock on the date of the agreement. Upon issuance of the remaining shares, the Company will reclassify the liability to
common stock and additional paid-in-capital. During the nine months ended September 30, 2016, the Company recognized $75,000 in
general and administrative expense in the accompanying condensed consolidated statement of operations and the remaining unamortized
expense of $645,000 is included in prepaid expenses and other current assets in the accompanying condensed consolidated balance
sheet at September 30, 2016. On September 1, 2016, the Company entered into
a service agreement with a third party pursuant to which the Company agreed to issue, over the term of the agreement, 2,000,000
shares of common stock in exchange for services to be rendered. During the nine months ended September 30, 2016, the Company
issued 330,000 shares under the agreement related to services provided and recognized the fair value of the shares issued of $89,100
in general and administrative expense in the accompanying condensed consolidated statement of operations. The 330,000 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
Company’s common stock on the date of vesting. During the nine months ended September 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 nine months ended September 30, 2016,
the Company issued 19,228,494 shares of common stock in exchange for vested restricted stock units. In connection with the issuance of the 2016
Notes, the Company issued restricted shares of common stock totaling 7,500,000 to the Investors. The relative fair value of the
restricted shares of common stock totaling $1,127,225 was recorded as a debt discount (see Note 5). In August and September 2016, certain 2016 Notes
holders elected to convert $1,420,265 in principal and interest into 5,681,060 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 nine months ended September 30, 2016,
the Company received notifications from five of its warrant holders on their intent to exercise their warrants to purchase
shares of common stock totaling 1,033,800 at an exercise price of $0.30 per share. The Company received gross cash proceeds
of $310,140. 2013 Equity Incentive 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 Equity Incentive
Plan, which was approved by the Company’s Board of Directors in February of 2013. The 2013 Equity Incentive Plan allows
for the issuance of up to 10,000,000 shares of the Company’s 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 Equity Incentive Plan is based on the fair market value of the common stock. Currently,
because the Company’s 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 September 30, 2016, 119,516 shares were available under this plan. 2014 Equity Incentive Plan The Company has issued common stock and restricted
stock units to employees and non-executive directors under the 2014 Equity Incentive Plan, which was approved by the Company’s
Board of Directors in November 2014. The 2014 Equity Incentive Plan allows for the issuance of up to 20,000,000 shares of
the Company’s 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 Equity
Incentive Plan is based on the fair market value of the common stock. 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 September 30, 2016, 950,001 shares were available under this plan. 2016 Equity Incentive Plan On March 21, 2016, our Board of Directors approved
the adoption of the 2016 Equity Incentive Plan. The 2016 Equity Incentive Plan allows for the issuance of up to 20,000,000
shares of the Company’s 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 2016 Equity
Incentive Plan is based on the fair market value of the common stock. 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 September 30, 2016, 16,250,000 shares were available under this plan. Stock-Based Compensation The stock-based compensation expense for the three and nine months
ended September 30, 2016 and 2015 was $130,193, $766,711, $80,097 and $831,807, 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 nine months ended September 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 227.8 % 219.3 %
Average risk-free interest rate 1.71 % 1.54 %
Dividend yield 0 % 0 %
Grant date fair value $ 0.17 $ 0.12 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 Company’s 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 82,500 $ 0.17 10.0 -
Exercised - - - -
Cancelled (50,000 ) $ 0.31 - -
Forfeited - - - -
Outstanding at September 30, 2016 228,500 $ 0.21 8.8 $ 27,060
Vested at September 30, 2016 228,500 $ 0.21 8.8 $ 27,060 The aggregate intrinsic value is calculated
as the difference between the exercise price of all outstanding stock options and the quoted price of the Company’s common
stock at September 30, 2016. During the three and nine months ended September 30, 2016 and 2015, the Company recognized
stock-based compensation from stock options of $8,638, $18,138, $4,000 and $6,711, respectively. Restricted Stock Units The following table summarizes the restricted stock unit activity
for the nine months ended September 30, 2016:
Restricted Stock Units
Outstanding at December 31, 2015 17,554,736
Granted 14,593,247
Exchanged (19,228,494 )
Cancelled -
Outstanding at September 30, 2016 12,919,489
Vested at September 30, 2016 7,906,990 The vested restricted stock units at September
30, 2016 have not settled and are not showing as issued and outstanding shares of the Company but are considered outstanding 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 nine months ended September 30, 2016,
the Company issued 14,593,247 restricted stock units to employees and board members. In 2016, 843,248 were from the 2013 Equity
Incentive Plan and vested immediately, 9,999,999 were from the 2014 Equity Incentive Plan and 3,750,000 were from the 2016 Equity
Incentive Plan. A total of 6,000,001 of 9,999,999 restricted stock units issued under the 2014 Equity Incentive Plan
vested immediately and the remaining 3,999,998 vested upon the closing of the Beyond Human asset acquisition. The restricted stock
units issued under the 2016 Equity Incentive Plan vest as to 25% on the one year anniversary from the date of grant and then in
equal quarterly installments for the next two years. The grant date fair value of restricted stock units issued during the nine
months ended September 30, 2016 was $1,487,268. For the three and nine months ended September 30, 2016 and 2015, the Company recognized
$121,555, $748,573, $76,097 and $825,096, respectively, of stock-based compensation expense for the vested units. As of September
30, 2016, compensation expense related to unvested shares not yet recognized in the condensed consolidated statement of operations
was approximately $1.2 million and will be recognized over a remaining weighted-average term of 2.6 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 per share 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, which resulted in the issuance of 191,908 shares of common stock. The intrinsic value of the warrants on the date of exercise
was $86,359. 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 were 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). The intrinsic value of the warrants on the date of exercise was $53,629. 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). The intrinsic value
of the warrants on the date of exercise was $99,121. 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 Q3 2015 Notes, the Company
issued 1,808,333 warrants with an exercise price of $0.30 per share and expire in 2020. Warrants to purchase 1,033,800 shares of
common stock were exercised during the nine months ended September 30, 2016. The intrinsic value of the warrants on the dates of
exercise was $150,200. In connection with the 2016 Notes, the Company
issued 4,220,000 warrants to the Investors and placement agents with an exercise price of $0.40 per share and expire in 2021. At September 30, 2016 and December 31, 2015,
there are 5,967,054 and 6,372,831 fully vested warrants outstanding, respectively. The weighted average exercise price of outstanding
warrants at September 30, 2016 is $0.34 per share, the weighted average remaining contractual term is 4.4 years and the aggregate
intrinsic value of the outstanding warrants is $183,421. 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 nine months ended September 30, 2016
and 2015 was 97,222,394, 77,645,019, 42,453,051 and 39,440,755, respectively. The weighted average restricted stock units
vested but issuance of the common stock is deferred until there is a change in control, a specified date in the agreement or the
employee or director resigns used in the basic and diluted net loss per share calculation for the three and nine months ended September
30, 2016 and 2015 was 7,750,251, 8,853,215, 12,623,768 and 11,045,746, respectively. The total weighted average shares outstanding
used in the basic and diluted net loss per share calculation for the three and nine months ended September 30, 2016 and 2015 was
104,972,645, 86,498,234, 55,076,819 and 50,486,501, respectively. The following table shows the anti-dilutive
shares excluded from the calculation of basic and diluted net loss per common share as of September 30, 2016 and 2015:
As of September 30,
2016 2015
Gross number of shares excluded:
Restricted stock units – unvested 5,012,499 4,623,333
Stock options 228,500 164,500
Convertible debentures and accrued interest 7,651,830 1,359,590
Warrants 5,967,054 3,439,306
Total 18,859,883 9,586,729 The above table does not include the ANDA Consideration
Shares related to the Novalere acquisition, as they are considered contingently issuable (see Note 3). |
