| Stockholders' Equity | NOTE 7 - STOCKHOLDERS’ EQUITY
A. Common Stock Holders of shares of our
common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. The holders
of common stock do not have cumulative voting rights in the election of directors. Holders of shares of our common stock are entitled
to receive dividends when and if declared by our Board out of funds legally available therefor, subject to any statutory or contractual
restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding
preferred stock. Upon our dissolution or liquidation or the sale of all or substantially all of our assets, after payment in full
of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the
holders of shares of our common stock will be entitled to receive pro rata our remaining assets available for distribution. Holders
of shares of our common stock do not have preemptive, subscription, redemption or conversion rights and there are no redemption
or sinking fund provisions applicable to tour common stock.
B. Common Stock and Stock Warrants Issued for Cash
1. During the year ended December 31, 2016, the Company received $325,000 through a placement of 2,500,000 common stock units. Those units were sold at $0.13 per unit. Each unit consisted of two shares of common stock and warrants to purchase common stock. 953,846 class “G” warrants exercisable at $0.25 expire on December 2, 2018 and 953,846 class “H” warrants exercisable at $0.40 expire on December 2, 2019. Such warrants were classified within stockholders’ equity.
2. During the year ended December 31, 2017, the Company received $117,640 through a placement of 904,924 common stock units to four investors for the offering price of $0.13 per unit. Each unit consisted of one share of common stock and two (one “G” and one “H”) warrants to purchase one share of common stock. The 904,924 “G” warrants are exercisable at $0.25 and expire two years from the issuance date. The 904,924 “H” warrants are exercisable at $0.40 and expire 3 years from the issuance date. Such warrants were classified within stockholders’ equity.
3. During the year ended December 31, 2017, the Company received $100,000 through a placement of 588,237 common stock units to three investors for the offering price of $0.17 per unit. Each unit consisted of one share of common stock and one “H” warrant to purchase one share of common stock. The 588,237 “H” warrants are exercisable at $0.40 and expire 3 years from the issuance date. Such warrants were classified within stockholders’ equity.
4. During the year ended December 31, 2017, the Company received $130,000 through a placement of 520,000 common stock units to five investors for the offering price of $0.25 per unit. Each unit consisted of one share of common stock and one “I” warrant to purchase one share of common stock. The 520,000 “I” warrants are exercisable at $0.50 and expire 2 years from the issuance date. Such warrants were classified within stockholders’ equity.
5. During the year ended December 31, 2017, the Company received $883,625 through a placement of 1,767,250 common stock units to twenty investors for the offering price of $0.50 per unit. Each unit consisted of one share of common stock and one “K” warrant to purchase one share of common stock. The 1,767,250 “K” warrants are exercisable at $1.00 and expire 18 months from the issuance date. Such warrants were classified within stockholders’ equity.
6. During the year ended December 31, 2017, the Company received $436,260 through a placement of 623,227 common stock units to eleven investors for the offering price of $0.70 per unit. Each unit consisted of one share of common stock and one “L” warrant to purchase one share of common stock. The 623,227 “L” warrants are exercisable at $1.40 and expire 18 months from the issuance date. Such warrants were classified within stockholders’ equity.
C. Stock-Based Compensation
1. Grants to non-employees
A. On November 22, 2016, the Company entered into a Corporate Management Services Agreement with Sorelenco Limited (“Sorelenco”). In consideration for business and European market development services, the Company agreed to issue to the Sorelenco: (i) 1,442,308 restricted shares of the common stock, par value $0.0001 (the “Shares”); (ii) Class M Warrants exercisable for a period of 12 months to purchase 1,250,000 Shares at an exercise price $0.08; (iii) Class G Warrants exercisable for a period of 24 months to purchase 448,462 Shares at an exercise price $0.25; and (iv) Class H Warrants exercisable for a period of 36 months to purchase 448,462 Shares at an exercise price $0.40. The aggregate fair value of the restricted shares and warrants was $432,200. This transaction represents an initiation of business relations between the parties. As the equity instruments issued are fully vested and non-forfeitable, the fair value of the grant was recognized as an increase to stockholders’ equity at the measurement date with an offsetting amount as a deduction from stockholders’ equity within the caption “Services receivable” (see also Note 2I). Such amount will be recognized as consulting expense over the term of the agreement. During the years ended December 31, 2017 and 2016, the Company recognized $144,067 and $22,893, respectively, as consulting expenses. As of December 31, 2017, the related services receivable amounted to $265,240.
The exercise period of the Class M Warrants has been extended by two weeks in which Sorelenco exercised such warrants into 1,250,000 shares of common stock. Such extension has been accounted as a modification under ASC 718 pursuant to which the incremental fair value of $402,588 was recognized immediately as business development service expenses in the statements of comprehensive loss for the year ended December 31, 2017.
B. On November 28, 2016, the Company entered into a Consulting Agreement with Bear Creek Capital. In consideration for the services, the Company issued to Bear Creek 100,000 restricted shares of Common Stock. The aggregate fair value of the restricted shares was $10,000. This transaction represents initiation of business relations between the parties. As the equity instruments issued are fully vested and non-forfeitable, the fair value of the grant was recognized as an increase to stockholders’ equity at the measurement date with an offsetting amount as a deduction from stockholders’ equity within the caption “Services receivable” (see also Note 2I). Such amount will be recognized as consulting expense over the term of the agreement. During the years ended December 31, 2017 and 2016, the Company recognized $6,413 and $3,587, respectively, as investor and public relations service expenses. As of December 31, 2017, there is no services receivable.
C. On December 16, 2016, the Company entered into a Consulting Agreement with Jeff Smurlick, pursuant to which the Consultant shall provide the Company with services in the areas of investor relations and business development. In consideration for the services, the Company issued to the Consultant 200,000 Class G Warrants and 200,000 Class H Warrants identical to the Class G and Class H Warrants described above with a cashless exercise feature. The aggregate fair value of the warrants was $41,259. This transaction represents initiation of business relations between the parties. As the equity instruments issued are fully vested and non-forfeitable, the fair value of the grant was recognized as an increase to stockholders’ equity at the measurement date with an offsetting amount as a deduction from stockholders’ equity within the caption “Services receivable” (see also Note 2I). Such amount will be recognized as investor and public relations services expense over the term of the agreement. During the years ended December 31, 2017 and 2016, the Company recognized $39,563 and $1,696, respectively, as consulting expenses. As of December 31, 2017, there is no services receivable
During the year ended December 31, 2017, the aforesaid warrants were exercised on a cashless basis (see also Note 7D3).
D. In January 2017, the Company issued 300,000 fully vested shares of common stock and 400,000 warrants to Lyons Capital LLC. 200,000 “G” warrants with exercise price of $0.25 and 200,000 “H” warrants with exercise price of $0.40 and a cashless feature for the purchase of one share each of common stock to a consultant as payment for services. As the equity instruments issued are fully vested and non-forfeitable, the fair value of the grant was recognized as an increase to stockholders’ equity at the measurement date with an offsetting amount as a deduction from stockholders’ equity within the caption “Services receivable” (see also Note 2I). The shares were measured at the closing price as of the date of the agreement and the related expenses will be recognized as consulting expense over the terms of the agreement. During the year ended December 31, 2017, an amount of $185,030 was recognized as conferences and business development expenses resulting from the issuance of the shares. As of December 31, 2017, the related services receivable amounted to $15,970.
The warrants were measured by using the Black-Scholes-Merton pricing model to estimate total fair value amounting to $153,963. The Black-Sholes-Merton pricing model assumptions that were used are as follows: expected dividend yield of 0%; risk-free interest rate of 0.10%-0.11%; expected volatility of 282%, and warrant exercise period based upon the stated terms (see also Note 7C1). The total amount will be recognized as consulting expense over the terms of the agreement. During the year ended December 31, 2017 amount of $148,901 was recognized as consulting expenses resulting from the issuance of these warrants. As of December 31, 2017, the related services receivable amounted to $5,062.
During the year ended December 31, 2017, the aforesaid warrants were exercised on a cashless exercise (see also Note 7D2).
E. Under the Bear Creek Corporate Advisory Consulting agreement executed in November of 2016, the Company became obligated to issue 100,000 additional shares to Bear Creek as of February 28, 2017. The shares were measured at $262,000 according to the closing price of the underlying shares at February 28, 2017. The shares were issued in April 2017.
F. On January 21, 2016, the Company entered into a two-year Consulting Agreement with Global Corporation Strategies (“GCS”). In consideration for investor and public relations services to be provided by GCS, the Company issued to GCS 5,134,375 restricted shares of Common Stock. The aggregate fair value of the restricted shares was $259,070. This transaction represents initiation of business relations between the parties. As the equity instruments issued are fully vested and non-forfeitable, the fair value of the grant was recognized as an increase to stockholders’ equity at the measurement date with an offsetting amount as a deduction from stockholders’ equity within the caption “Services receivable” (see also Note 2I). Such amount will be recognized as investor and public relations services expense over the term of the agreement. During the years ended December 31, 2017 and 2016, the Company recognized $129,358 and $122,270, respectively, as consulting expenses. As of December 31, 2017, the related services receivable amounted to $7,442.
G. In 2017, the Company issued 350,000 “E” warrants that are exercisable at $0.25 and expire two years from the date of issuance to purchase one share each of the Company’s common stock to two former employees parties as payment for services. The aggregate fair value of the warrants was $133,210. As the equity instruments issued are fully vested and non-forfeitable, the fair value of the grant was recognized as an increase to stockholders’ equity at the measurement date with an offsetting amount as a deduction from stockholders’ equity within the caption “Services receivable” (see also Note 2I). This amount will be recognized as consulting expense over the terms of the agreements. During the year ended December 31, 2017, the Company recognized $128,830 as consulting expenses. As of December 31, 2017, the related services receivable amounted to $4,380.
The Company used the Black-Scholes-Merton pricing model to estimate the fair value of these warrants. The Black-Sholes-Merton pricing model assumptions used are as follows: expected dividend yield of 0%; risk-free interest rate of 0.10%-0.11%; expected volatility of 282%, and warrant exercise period based upon the stated terms. Shares issued for services are measured at the closing price as of the agreement date.
H. In 2017, the Company issued 450,000 fully vested shares of common stock to Lyons Capital as payment for services. The fair value of these shares was measured at the closing price as of the date of the agreement and the related expenses will be recognized as consulting expense over the terms of the agreement. The aggregate fair value of the shares was $328,500. As the equity instruments issued are fully vested and non-forfeitable, the fair value of the grant was recognized as an increase to stockholders’ equity at the measurement date with an offsetting amount as a deduction from stockholders’ equity within the caption “Services receivable” (see also Note 2I). During the year ended December 31, 2017, an amount of $212,400 was recognized as business development expenses. As of December 31, 2017, the related services receivable amounted to $116,100.
I. In 2017, the Company issued 416,127 fully vested shares of common stock to Jeff Smurlick as payment for services. As the equity instruments issued are fully vested and non-forfeitable, the fair value of the grant was recognized as an increase to stockholders’ equity at the measurement date with an offsetting amount as a deduction from stockholders’ equity within the caption “Services receivable” (see also Note 2I). The shares were measured at the closing price as of the date of the agreement and the related expenses will be recognized as consulting expense over the terms of the agreement. During the year ended December 31, 2017, an amount of $259,754 was recognized as business development and investor relations consulting expenses. As of December 31, 2017, the related services receivable amounted to $110,599.
J. On December 14, 2016, the Company issued 50,000 fully vested restricted shares of Common Stock to Securities Compliance Services for securities compliance services. The aggregate fair value of the restricted shares amounted to $19,000 and was fully recognized as legal expense in 2016.
2. Grants to employees In 2016, the Company approved
the 2016 Employee Incentive Plan (the “2016 Plan”) which provides for the issuance of common stock, stock options and
other stock-based awards to employees, officers, directors, consultants, and advisors. The number of shares reserved for issuance
under the 2016 Plan is 36,000,000 shares of common stock.
A. In January 2016, the Company granted to certain employees 200,000 stock options which are exercisable into 200,000 shares of common stock at $0.05 per share. The fair value of these stock options was measured at $6,342.
B. In December 2016, the Company granted 34,850,000 stock options which are exercisable into 34,850,000 shares of common stock under the 2016 plan at an exercise price of $0.05 per share. The granted stock options become vested over a 2 year period from its date of grant. The stock options vested 1/3 on the grant date and the remaining 2/3 will vest on a quarterly basis (8.33% per quarter).
C. During the second quarter of 2017, the engagement of OWC’s CEO was terminated and the CFO resigned. These combined actions triggered the forfeiture of 10,456,094 options previously granted under the 2016 Plan. The forfeiture resulted in a reversal of $645,434 of previously recognized compensation expense in 2017 ($407,746 out of which was previously recognized as expense in 2016).
As such award was subject to a clawback feature for certain contingent events, such as termination for cause, the Company accounted for the cancellation of the award in accordance with the provisions of ASC 718-10-55. Thus, the Company recognized the original compensation cost related to that grant (which was determined to be less than the current fair value of such award) as a credit to the consolidated statement of comprehensive loss within the line item “General and administrative”.
D. On August 1, 2017, the Company granted options exercisable into 3,000,000 shares to two officers under the plan at an exercise price of $0.05 per share. 1,500,000 options become vested over a 2 year period from its date of grant. The options shall vest 1/3 on the grant date and the remaining 2/3 on a quarterly basis (8.33% per quarter). The remaining 1,500,000 options become vested over a 3 year period from its date of grant. The options shall vest 1/3 on the first anniversary and the remaining 2/3 on a quarterly basis (8.33% per quarter). The Company used the Black-Scholes-Merton pricing model to estimate the fair value. The Black-Sholes-Merton pricing model assumptions used are as follows: expected dividend yield of 0%; risk-free interest rate of 1.8%-2.07%; expected volatility of 255%, and expected term of 5-6.5 years. The fair value of the options at the grant date was $1,019,139.
During the year ended December 31, 2017, the Company recognized stock-based compensation expense related to all employee awards amounting to $438,118.
E. The following table presents a summary of the status of the grants of stock options to employees, officers and directors under the 2016 Plan as of December 31, 2017.
Amount Weighted average exercise price Weighted average remaining contractual term (years) Aggregate intrinsic value
Options outstanding at December 31, 2015 - -
Granted 35,050,000 $ 0.05
Exercised - $ 0.00
Lapsed - $ 0.00
Options outstanding at December 31, 2016 35,050,000 $ 0.05 5.0 $ 4,398,700
Granted 3,000,000 $ 0.05
Exercise (293,906 ) $ 0.05
Lapsed (10,456,094 ) $ 0.05
Options outstanding at December 31, 2017 27,300,000 $ 0.05 4.6 $ 11,015,580
Options exercisable at December 31, 2017 16,766,668 $ 0.05 4.1 $ 6,753,794 The aggregate intrinsic
value represents the total intrinsic value (the difference between the deemed fair value of the Company’s Common Stock on
the last day of fiscal 2017 and the exercise price, multiplied by the number of in-the-money options) that would have been received
by the option holders had all option holders exercised their options on December 31, 2017. This amount is impacted by the changes
in the fair value of the Company’s shares. The exercise of 312,500
vested stock options by the former CFO resulted in a net share settlement of 293,906 shares of common stock and the forfeiture
of 456,094 remaining vested and unvested stock options. In accordance with the original terms of the option agreement, the exercise
was made on a cashless exercise basis based on the average market value of the common shares for the 10 days period preceding the
date of exercise. As of December 31, 2017,
all options granted are expected to vest and the weighted-average remaining contractual life of all options is 4.6 years. The weighted-average
fair value of all stock options granted during the years ended December 31, 2017 and 2016 was $0.34 and $0.13, respectively. The following table presents
the assumptions used to estimate the fair values of the options granted in the period presented:
2017 2016
Risk-free interest rate 1.8 % 1.1 %
Dividend yield - -
Expected volatility 255 % 269 %
Expected term (in years) 5.5 - 6.5 5.0 As of December 31, 2017,
there was $872,951 of total unrecognized compensation cost related to non-vested stock options granted under the 2016 Plan. This
cost is expected to be recognized over a weighted-average period of 1.06 years. The following table summarizes
information about stock options outstanding at December 31, 2017:
Exercise price Outstanding at December 31, 2017 Weighted average remaining contractual life (months) Exercise price Exercisable at December 31, 2017 Weighted average remaining contractual life (months)
$ 0.05 27,100,000 55.0 $ 0.05 16,566,668 49.5
$0.10-$0.30 200,000 45.6 $ 0.20 200,000 45.6
27,300,000 16,766,668
D. Stock Warrants
1. In 2017, the Company received $225,160 in cash from exercise of 1,750,642 stock warrants into 1,750,642 shares of common stock at exercise prices ranging from $0.08 to $0.40.
2. In 2017, the consultant mentioned in Note (C.1.D), exercised 400,000 stock warrants into 334,450 shares of common stock. In accordance with the original terms of the warrant agreement, the exercise was made on a cashless exercise basis through a net share settlement based on the average market value of the common shares for the 10 days period preceding the date of such exercise.
3. In 2017, the consultant mentioned in Note (C.1.C) ,
4. The following table presents a summary of the status of the grants of stock warrants as of December 31, 2017:
Amount Weighted average exercise price Weighted average remaining contractual term (months) Aggregate intrinsic value
Warrants outstanding at December 31, 2015 15,631,602 $ 0.14
Granted 4,534,616 $ 0.26
Exercised - $ 0.00
Lapsed (15,489,935 ) $ 0.14
Warrants outstanding at December 31, 2016 4,676,283 $ 0.26 30.0 $ 127,600
Granted 6,225,228 $ 0.64
Exercised (2,347,455 ) $ 0.18
Lapsed (203,187 ) $ 0.34
Warrants outstanding at December 31, 2017 8,350,869 $ 0.56 14.1 $ 701,630
Warrants exercisable at December 31, 2017 8,350,869 $ 0.56 14.1 $ 701,630 The aggregate intrinsic
value represents the total intrinsic value (the difference between the deemed fair value of the Company’s Common Stock on
the last day of fiscal 2017 and the exercise price, multiplied by the number of in-the-money warrants) that would have been received
by the warrant holders had all warrant holders exercised their warrants on December 31, 2017. This amount is impacted by the changes
in the fair value of the Company’s shares.
D. Stock Warrants The following table summarizes
information about stock warrants outstanding at December 31, 2017:
Warrants Outstanding Warrants Exercisable
Range of exercise prices Amount weighted average exercise price Weighted average remaining life in months Amount weighted average exercise price
$ 0.01-$ 0.75 5,960,393 $ 0.34 16.8 5,960,393 $ 0.34
$ 0.76-$1 .40 2,390,476 $ 1.10 7.3 2,390,476 $ 1.10
Total Warrants 8,350,869 8,350,869
E. Unsecured Notes Payable with Conversion Rights On February 2, 2016, a convertible
loan amounting to $78,500 was issued, bears interest at a rate of 8% per annum until paid or converted and had an original maturity
date of November 2, 2016. Any or all of the outstanding balance of the note may be converted at the option of the holder at any
time into common stock of the Company at a variable conversion price of 65% of market price. Upon the issuance of the convertible
note, the Company bifurcated the embedded conversion feature and recorded an initial derivative liability of $41,974 (the estimated
fair value at the date of grant based on the Binomial option pricing model) all of which was allocated as debt discount. In 2015, the Company agreed
to provide unsecured promissory note with an unrelated party for $37,500. The note was non-interest bearing and was due on September
16, 2016. The note had not been paid and was in default at September 30, 2016. The note had a future conversion right that allowed
the holder to convert the principal balance into the Company’s common stock at the lender’s sole discretion at 50%
of the then market price per share. In accordance with ASC 470, the Company has analyzed the beneficial nature of the conversion
terms and determined that a Beneficial Conversion Feature (“BCF”) existed because the effective conversion price was
less than the quoted market price at the time of the issuance. The Company calculated the value of the BCF by using the intrinsic
method as stipulated in ASC 470. The BCF of $37,500 had been recorded as a discount to the notes payable and to Additional Paid-in
Capital in fiscal 2015 upon initial recognition of such note. For the year ended December
31, 2016, the Company amortized $83,650 of the discount arising from the embedded derivative and BCF of the above described notes.
The amortization has been reported as a component of Financing Expenses in the 2016 Consolidated Statement of Comprehensive Loss.
As a result of the conversion described below, both notes were derecognized prior to December 31, 2016 During August and September
2016, in accordance with the original terms of the note, at the option of the note holders, the entire combined principal balance
of $116,000 and accrued interest of $3,140 were converted into 53,844,599 shares of common stock. At the conversion date, the entire
derivative liability associated with the bifurcated conversion feature was marked-to-market, resulting in an increase to the total
derivative liability of $55,998 which was reclassified into additional paid-in capital on the conversion date. The change in derivative
fair value was recorded as a derivative valuation charge within financing expenses in the 2016 consolidated statement of comprehensive
loss (see also F below). However, as the $37,500 note
was in default, the Company was required to amend the conversion price to 25% of the market price, in accordance with the original
terms of such note.
F. Embedded Conversion Feature To properly account for the
$78,500 convertible note issued in February 2016, as discussed in Note 7E, the Company performed a detailed analysis to obtain
a thorough understanding of the transaction. The Company reviewed ASC 815, to identify whether any equity-linked features in the
notes are freestanding or embedded. The note was then analyzed in accordance with ASC 815 to determine if the anti-dilution feature
should be bifurcated and accounted for at fair value and re-measured at fair value in income. The Company determined that the anti-dilution
feature met the requirements for bifurcation, pursuant to ASC 815, due to the variable conversion price and therefore accounted
for the anti-dilution features of the notes as a derivative liability. Changes in fair value of the derivative financial instruments
were recognized in the Company’s statement of comprehensive loss as a derivative valuation gain or loss within financing
expenses in the 2016 consolidated statement of comprehensive loss. The adjustment to market
of $55,998 resulted a charge of $14,024 during the year ended December 31, 2016. The Company measured the
conversion option derivatives using the lattice model. Assumptions used include:
● life through the note maturity date
● expected volatility-152%,
● expected dividends-none
● exercise prices as set forth in the agreements,
● common stock price of the underlying share on the valuation date, and
● number of shares to be issued if the instrument is converted |
