| STOCKHOLDERS’ EQUITY | Capital Stock We have 292,500,000 authorized shares of common
stock with a par value of $0.001 per share which were increased in November 2016 upon approval from our stockholders from 150,000,000
authorized shares. In November 2016, our stockholders approved the Amended and Restated Articles of Incorporation to authorize
a class of undesignated or "blank check" preferred stock, consisting of 7,500,000 shares at $0.001 par value per share.
Shares of preferred stock may be issued in one or more series, with such rights, preferences, privileges and restrictions to be
fixed by the Board of Directors. Issuances of Common Stock Public Equity Offering On March 21, 2017, we completed a sale of common
stock and warrants under a registered public offering. The gross proceeds to us from the offering were $3,850,000, before underwriting
discounts and commissions and other offering expenses ($3,307,773 after underwriting discounts, commissions and expenses). The public offering price per share of common
stock sold was $0.15. Each investor who purchased a share of common stock in the offering received a five-year warrant to purchase
one share of common stock at an exercise price of $0.15 per share (“Series A Warrants”) and a one-year warrant to purchase
one share of common stock at an exercise price of $0.15 per share (“Series B Warrants”). Under the terms of the offering,
we issued 25,666,669 shares of common stock, Series A Warrants to purchase up to an aggregate of 25,666,669 shares of common stock
and Series B Warrants to purchase up to an aggregate of 25,666,669 shares of common stock. The Series A Warrants and Series B Warrants
are exercisable immediately. We allocated the net proceeds received of $3,307,773 to the common stock, Series A Warrants and Series
B Warrants sold in the offering based on their relative fair values. The fair value of the Series A Warrants and Series B Warrants
was determined using Black-Scholes. Based on their relative fair values, we allocated net of proceeds of $1,593,233 to the common
stock, $1,075,995 to the Series A Warrants and $638,545 to the Series B Warrants. In connection with this offering, we issued
to H.C. Wainwright & Co. (“HCW”), the underwriter in the offering, a warrant to purchase up to
1,283,333 shares of common stock and HCW received total cash consideration, including the reimbursement of public offering-related
expenses, of $443,000. If such warrant is exercised, each share of common stock may be purchased at $0.1875 per share (125% of
the price of the common stock sold in the offering), commencing on March 21, 2017 and expiring March 21, 2022. The fair value of
the warrants issued to HCW totaled $129,755 and was determined using Black-Scholes. The fair value of the warrants was recorded
as an offering cost but has no net impact to additional paid-in capital in stockholders’ equity in the accompanying condensed
consolidated balance sheet. In connection with this offering, the Company
incurred $99,227 in other offering costs that have been offset against the proceeds from this offering. Other Stock Issuances and Related Stock-Based
Compensation On August 23, 2016, we entered into a consulting
agreement with a third party pursuant to which we 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 2016 we issued 800,000 shares of common stock
and in February 2017 we issued a total of 400,000 shares of common stock under the agreement. The fair value of the shares issued
in February 2017 of $180,000 was based on the market price of our 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, we have recorded a liability for the fair
value of the remaining 400,000 shares of common stock to be issued of $180,000 which is included in accounts payable and accrued
expense in the accompanying condensed consolidated balance sheet at March 31, 2017. Upon issuance of the remaining shares, we will
reclassify the liability to common stock and additional paid-in-capital. During the three months ended March 31, 2017, we recognized
$180,000 in general and administrative expense in the accompanying condensed consolidated statement of operations and the remaining
unamortized expense of $285,000 is included in prepaid expense and other current assets in the accompanying condensed consolidated
balance sheet at March 31, 2017. On September 1, 2016, we entered into a
service agreement with a third party pursuant to which we 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 three months ended March 31, 2017, we issued 670,000 shares
under the agreement related to services provided and recognized the fair value of the shares issued of $123,615 in general and
administrative expense in the accompanying condensed consolidated statement of operations. The 670,000 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 our common stock on the
date of vesting. There are no more shares of common stock to be issued under this service agreement as of March 31, 2017. On November 17, 2016, we entered into a service
agreement with a third party and in connection with the new agreement issued 275,000 fully-vested shares for services to be provided
over the term of the new service agreement through May 17, 2017. The fair value of the shares issued of $69,575 was based on the
market price of our common stock on the date of vesting. During the three months ended March 31, 2017, we recognized $34,787 in
general and administrative expense in the accompanying condensed consolidated statement of operations and the remaining unamortized
expense of $17,394 is included in prepaid expense and other current assets in the accompanying condensed consolidated balance sheet
at March 31, 2017. On December 16, 2016, we amended a consulting
agreement with a third party to extend the term of the agreement to June 16, 2017 and in connection with the amendment issued 80,000
fully-vested shares for services to be provided over the remaining term of the amended agreement. The fair value of the shares
issued of $14,640 was based on the market price of our common stock on the date of vesting. On January 19, 2017, we further amended
the agreement to expand the scope of service performed by the consultant and as a result issued an additional 78,947 shares of
fully vested common stock for services to be provided through June 16, 2017. The fair value of the shares issued of $15,000 was
based on the market price of our common stock on the date of vesting. During the three months ended March 31, 2017, we recognized
$14,820 in general and administrative expense in the accompanying condensed consolidated statement of operations and the remaining
unamortized expense of $13,600 is included in prepaid expense and other current assets in the accompanying condensed consolidated
balance sheet at March 31, 2017. In January 2017, we issued 10,076 shares of
common stock for services and recorded an expense of $2,000, which is included in general and administrative expense in the accompanying
condensed consolidated statement of operations. The 10,076 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 our common stock on the date of vesting. In January 2017, we issued 225,000 shares of
common stock to CRI pursuant to the Amended CRI Asset Purchase Agreement (see Note 2) for the prepayment of future royalties due
on net profit of Sensum+® in the U.S. in 2017. The fair value of the restricted shares of common stock of $44,662
was based on the market price of our common stock on the date of issuance and is included in prepaid expense and other current
assets in the accompanying condensed consolidated balance sheet at March 31, 2017. In January 2017, we issued 330,000 shares of
restricted common stock to a note holder in connection with their note payable. The relative fair value of the shares
of restricted common stock issued was determined to be $44,217 and was recorded as a debt discount (see Note 5). In March 2017, certain 2016 Notes holders elected
to convert $350,610 in principal and interest into 1,402,440 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 8). In March 2017, we issued shares of common stock
totaling 40,000 upon the exercise of stock options for total cash proceeds of $2,894. 2013 Equity Incentive Plan We have issued common stock, restricted stock
units and stock option awards to employees, non-executive directors and outside consultants under the 2013 Equity Incentive Plan
(“2013 Plan”), which was approved by our Board of Directors in February of 2013. The 2013 Plan allows for the
issuance of up to 10,000,000 shares of our 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 Plan is based on the fair market value of the common stock. Currently, because our 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 our common stock which is eligible for settlement at the earliest
of their termination, a change in control of us 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 March 31, 2017, no shares were available under the 2013 Plan. 2014 Equity Incentive Plan We have issued common stock, restricted stock
units and stock options to employees, non-executive directors and outside consultants under the 2014 Equity Incentive Plan (“2014
Plan”), which was approved by our Board of Directors in November 2014. The 2014 Plan allows for the issuance of up to
20,000,000 shares of our 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 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 our common stock which is eligible for settlement at the earliest of their termination, a change in control of us
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 March 31, 2017, 58,367 shares were available under the 2014 Plan. 2016 Equity Incentive Plan On March 21, 2016, our Board of Directors approved
the adoption of the 2016 Equity Incentive Plan and on October 20, 2016 adopted the Amended and Restated 2016 Equity Incentive Plan
(“2016 Plan”). The 2016 Plan was then approved by our stockholders in November 2016. The 2016 Plan allows for
the issuance of up to 20,000,000 shares of our 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 2016 Plan includes an evergreen provision
in which the number of shares of common stock authorized for issuance and available for future grants under the 2016 Plan will
be increased each January 1 after the effective date of the 2016 Plan by a number of shares of common stock equal to the lesser
of: (a) 4% of the number of shares of common stock issued and outstanding on a fully-diluted basis as of the close of business
on the immediately preceding December 31, or (b) a number of shares of common stock set by our Board of Directors. In March 2017,
our Board of Directors approved an increase of 5,663,199 shares of common stock to the shares authorized under the 2016 Plan in
accordance with the evergreen provision in the 2016 Plan. The exercise price for all equity awards issued under the 2016 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 our common stock which is eligible for settlement at the earliest of their termination, a change in control of the us
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 March 31, 2017, 19,420,168 shares were available under the 2016 Plan. Stock-Based Compensation The stock-based compensation expense for the
three months ended March 31, 2017 and 2016 was $225,172 and $524,633, respectively, for the issuance of restricted stock units
and stock options to management, directors and consultants. We calculate the fair value of the restricted stock units based
upon the quoted market value of the common stock at the date of grant. We calculate the fair value of each stock option award on
the date of grant using Black-Scholes. As of March 31, 2017, the remaining unamortized stock-based compensation expense to be 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. Stock Options For the three months ended March 31, 2017 and
2016, the following weighted average assumptions were utilized for the calculation of the fair value of the stock options granted
during the period using Black-Scholes:
2017 2016
Expected life (in years) 7.9 10.0
Expected volatility 217.9 % 226.72 %
Average risk-free interest rate 2.28 % 1.81 %
Dividend yield 0 % 0 %
Grant date fair value $ 0.23 $ 0.16 The dividend yield of zero is based on the fact
that we have never paid cash dividends and has no present intention to pay cash dividends. Expected volatility is based on
the historical volatility of our 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. We believe that all stock options
issued under its stock option plans meet the criteria of “plain vanilla” stock options. We use 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, 2016 237,500 $ 0.22 8.6 -
Granted 19,000 $ 0.23 - -
Exercised (40,000 ) $ 0.07 - -
Cancelled - - - -
Forfeited - - - -
Outstanding at March 31, 2017 216,500 $ 0.24 8.4 $ 2,209
Vested at March 31, 2017 216,500 $ 0.24 8.4 $ 2,209 The aggregate intrinsic value is calculated
as the difference between the exercise price of all outstanding stock options and the quoted price of our common stock at March
31, 2017. During the three months ended March 31, 2017 and 2016, the Company recognized stock-based compensation from
stock options of $4,378 and $5,500, respectively. The intrinsic value of the stock options exercised during the three months ended
March 31, 2017 on the date of exercise was $5,306. Restricted Stock Units The following table summarizes the restricted
stock unit activity for the three months ended March 31, 2017:
Restricted Stock Units
Outstanding at December 31, 2016 12,874,848
Granted 2,060,455
Exchanged -
Cancelled -
Outstanding at March 31, 2017 14,935,303
Vested at March 31, 2017 9,185,303 The vested restricted stock units at March 31,
2017 have not settled and are not showing as issued and outstanding shares of ours 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 us, 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. The grant date fair value of restricted stock
units issued during the three months ended March 31, 2017 was $432,000. For the three months ended March 31, 2017 and 2016, we
recognized $220,794 and $519,133, respectively, of stock-based compensation expense for the vested units. As of March 31, 2017,
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 During the year ended December 31, 2014, we
issued warrants in connection with notes payable (which were repaid in 2013). The remaining warrants of 135,816 have an exercise
price of $0.10 and expire December 6, 2018. In January 2015, we issued 250,000 warrants
with an exercise price of $0.30 per share to a former executive in connection with the January 2015 debenture. The warrants expire
on January 21, 2020. The warrants contain anti-dilution protection, including protection upon dilutive issuances. In connection
with the convertible debentures issued in 2015, 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 convertible debentures
in 2015, we issued warrants with an exercise price of $0.30 per share and expire in 2020 to investors and placement agents. Warrants
to purchase 774,533 shares of common stock remain outstanding as of March 31, 2017. In connection with the 2016 Notes, we issued
warrants to the Investors and placement agents with an exercise price of $0.40 per share and expire in 2021. Warrants to purchase
4,220,000 shares of common stock remain outstanding as of March 31, 2017. In connection with the public equity offering
in March 2017, we issued Series A Warrants to purchase 25,666,669 shares of common stock at $0.15 per share and Series B Warrants
to purchase 25,666,669 shares of common stock at $0.15 per share. The Series A Warrants expire in 2022 and the Series B Warrants
expire in 2018. We also issued warrants to purchase 1,283,333 shares of common stock to our placement agent with an exercise price
of $0.1875 per share and expire in 2022. For the three months ended March 31, 2017, the
following weighted average assumptions were utilized for the calculation of the fair value of the warrants issued during the period
using Black-Scholes:
2017
Expected life (in years) 3.1
Expected volatility 203.3 %
Average risk-free interest rate 1.49 %
Dividend yield 0 % At March 31, 2017, there are 58,583,725 fully
vested warrants outstanding. The weighted average exercise price of outstanding warrants at March 31, 2017 is $0.17 per share,
the weighted average remaining contractual term is 3.1 years and the aggregate intrinsic value of the outstanding warrants is $17,119. Net Loss per Share Restricted stock units that are vested but the
issuance and delivery of the shares are deferred until the employee or director resigns are included in the basic and diluted net
loss per share calculations. The weighted average shares of common stock
outstanding used in the basic and diluted net loss per share calculation for the three months ended March 31, 2017 and 2016 was
126,327,687 and 60,491,409, 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 months ended March 31,
2017 and 2016 was 8,771,486 and 7,881,817, respectively. The total weighted average shares outstanding
used in the basic and diluted net loss per share calculation for the three months ended March 31, 2017 and 2016 was 135,099,173
and 68,373,226, respectively. The following table shows the anti-dilutive
shares excluded from the calculation of basic and diluted net loss per common share as of March 31, 2017 and 2016:
As of March 31,
2017 2016
Gross number of shares excluded:
Restricted stock units – unvested 5,750,000 2,524,998
Stock options 216,500 230,500
Convertible debentures and accrued interest - 12,652,384
Warrants 58,583,725 6,372,831
Total 64,550,225 21,780,713 The above table does not include the ANDA Consideration
Shares related to the Novalere acquisition totaling 138,859 and 12,947,655 at March 31, 2017 and 2016, respectively, as they are
considered contingently issuable (see Note 3). |
