| STOCKHOLDERS' DEFICIT, STOCK OPTIONS AND WARRANTS | NOTE 3 – STOCKHOLDERS' DEFICIT, STOCK OPTIONS AND WARRANTS The Company has an equity incentive plan, which allows issuance of incentive and non-qualified stock options to employees, directors and consultants of the Company, where permitted under the plan. The exercise price for each stock option is determined by the Board of Directors. Vesting requirements are determined by the Board of Directors when granted and currently range from immediate to three years. Options under this plan have terms ranging from three to ten years. On February 4, 2014, (the “Closing Date”) we raised $ 2,055,000 0.01 20,550 21,334 24.38 61,539 The Securities Purchase Agreement requires the Company to register the resale of the shares of Common Stock underlying the Preferred Shares (the “Underlying Shares”) and the Common Stock underlying the Warrants (the “Warrant Shares”). On September 9, 2014, a resale registration statement covering the Underlying Shares, the Warrant Shares and certain other securities (the “Resale Registration Statement”) was declared effective. The Preferred Shares are convertible at the option of the holder into the number of shares of Common Stock determined by dividing the stated value of the Preferred Shares being converted by the conversion price of $19.50, subject to adjustment for stock splits, reverse stock splits and similar recapitalization events. If the Company issues additional shares of Common Stock, other than certain stock that is excluded under the terms of the Securities Purchase Agreement, in one or more capital raising transactions with an aggregate purchase price of at least $100,000 for a price less than the then existing conversion price for the Preferred Shares (the “New Issuance Price”), then the then existing conversion price shall be reduced to the New Issuance Price, provided, however, that under no circumstances shall the New Issuance Price be less than $9.75 or reduced to a price level that would be in breach of the listing rules of any stock exchange In July 2014, in connection with the issuance of certain convertible notes, the conversion price of the Preferred Stock was adjusted to $ 9.75 4.99 an amount equal to $ 2,055,000 The Warrants are exercisable on any day on or after the date of issuance, have an adjusted exercise price of $9.75 per share, subject to possible further adjustment, and a term of five years from the date they are first exercisable. However, a holder will be prohibited from exercising a Warrant if, as a result of such exercise, the holder, together with its affiliates, would exceed the Beneficial Ownership Limitation as described above for the Preferred Shares. If any Warrant has not been fully exercised prior to the first anniversary of the Closing and if during such period the Company has not installed or received firm purchase orders (accepted by the Company) for at least 500 STREAMWAY ® Automated Surgical Fluid Disposal Systems, then, the number of shares of Common Stock for which such Warrant may be exercised shall be increased to 2.5 times the previous amount. In January 2015, the number of shares of Common Stock for which each Warrant may be exercised was increased according to this provision. As described in Note 1 under “Subsequent Events”, the Company and the holders of the Preferred Shares have agreed to the exchange of the Preferred Shares for certain units, with an agreed-upon reduction in the number of shares for which each Warrant may be exercised. In addition, in July, August and September 2014, the Company issued 71,257 Accounting for share-based payment The Company has adopted ASC 718- Compensation-Stock Compensation ("ASC 718"). Under ASC 718 stock-based employee compensation cost is recognized using the fair value based method for all new awards granted after January 1, 2006 and unvested awards outstanding at January 1, 2006. Compensation costs for unvested stock options and non-vested awards that were outstanding at January 1, 2006, are being recognized over the requisite service period based on the grant-date fair value of those options and awards, using a straight-line method. We elected the modified-prospective method under which prior periods are not retroactively restated. ASC 718 requires companies to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model or other acceptable means. The Company uses the Black-Scholes option valuation model which requires the input of significant assumptions including an estimate of the average period of time employees will retain vested stock options before exercising them, the estimated volatility of the Company's common stock price over the expected term, the number of options that will ultimately be forfeited before completing vesting requirements, the expected dividend rate and the risk-free interest rate. Changes in the assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the related expense recognized. The assumptions the Company uses in calculating the fair value of stock-based payment awards represent the Company's best estimates, which involve inherent uncertainties and the application of management's judgment. As a result, if factors change and the Company uses different assumptions, the Company's equity-based compensation expense could be materially different in the future. Since the Company's common stock has no significant public trading history, and the Company has experienced no significant option exercises in its history, the Company is required to take an alternative approach to estimating future volatility and estimated life and the future results could vary significantly from the Company's estimates. The Company compiled historical volatilities over a period of 2 to 7 years of 15 small-cap medical companies traded on major exchanges and 10 mid-range medical companies on the OTC Bulletin Board and combined the results using a weighted average approach. When an option or warrant is granted in place of cash compensation for services, the Company deems the value of the service rendered to be the value of the option or warrant. In most cases, however, an option or warrant is granted in addition to other forms of compensation and its separate value is difficult to determine without utilizing an option pricing model. For that reason the Company also uses the Black-Scholes option-pricing model to value options and warrants granted to non-employees, which requires the input of significant assumptions including an estimate of the average period the investors or consultants will retain vested stock options and warrants before exercising them, the estimated volatility of the Company's common stock price over the expected term, the number of options and warrants that will ultimately be forfeited before completing vesting requirements, the expected dividend rate and the risk-free interest rate. Changes in the assumptions can materially affect the estimate of fair value of stock-based consulting and/or compensation and, consequently, the related expense recognized. Since the Company has limited trading history in its stock and no first-hand experience with how its investors and consultants have acted in similar circumstances, the assumptions the Company uses in calculating the fair value of stock-based payment awards represent its best estimates, which involve inherent uncertainties and the application of management's judgment. As a result, if factors change and the Company uses different assumptions, the Company's equity-based consulting and interest expense could be materially different in the future. Valuation and accounting for options and warrants The Company determines the grant date fair value of options and warrants using a Black-Scholes option valuation model based upon assumptions regarding risk-free interest rate, expected dividend rate, volatility and estimated term. In January 2014 the Company issued 4,336 1.25 In January through March 2014, 9 warrant holders exercised warrants through a cashless exercise for a total of 15,442 In January and February 2014 the Company issued warrants to purchase 21,538 A Convertible Preferred Stock raising gross proceeds of $2,055,000. The warrants are at an exercise price of $ 24.38 In February 2014 the Company issued a warrant to purchase 1,482 On March 31, 2014, the Company issued dividends to the Purchasers of the Preferred Shares as described above. The dividends are at an annual rate of 6 19.50 970 In March 2014, the Company issued 4,444 11.25 3,333 In June 2014, the Company issued 3,725 On June 30, 2014, the Company issued dividends to the Purchasers of the Preferred Shares as described above. The dividends are at an annual rate of 6 19.50 1,561 On June 30, 2014, the Company issued a warrant to purchase 5,431 12.38 11 4,831 12.38 In July 2014, the Company issued warrants to purchase 28,986 12.38 11 In August 2014, the Company issued warrants to purchase 61,539 24.38 In August and September 2014, the Company issued warrants to purchase 37,440 12.38 11 On September 30, 2014, the Company issued dividends to the Purchasers of the Preferred Shares as described above. The dividends are at an annual rate of 6 19.50 1,561 In November 2014, the Company issued 13,700 0.01 On December 31, 2014, the Company issued dividends to the Purchasers of the Preferred Shares as described above. The dividends are at an annual rate of 6 19.50 1,559 For grants of stock options and warrants in 2014 the Company used a 1.44 2.75 0 59 66 5 10 3.2006 13.9195 In January 2015, the Company issued a dividend adjustment to the Purchasers of the Preferred Shares as described above. Certain previous dividends paid were calculated with an exercise price of $ 19.50 9.75 3,122 On March 31, 201 5 , the Company issued dividends to the Purchasers of the Preferred Shares as described above. The dividends are at an annual rate of 6 9.75 per share. As a result 3,121 shares of common stock were issued to 16 holders of Preferred Shares. On June 30, 2015, the Company issued dividends to Purchases of the Preferred Shares as described above. The dividends are at an annual rate of 6 9.75 3,121 For grants of stock options and warrants in 2015 the Company used a 1.63 2.35 0 59 66 5 10 0.2750 to $ 5.5695 per share. The following summarizes transactions for stock options and warrants for the periods indicated:
Stock Options
Warrants
Average
Average
Number of
Exercise
Number of
Exercise
Shares
Price
Shares
Price
Outstanding at December 31, 2013 385,733 $ 6.75 461,920 $ 10.50
Issued 75,683 8.12 161,375 3.81
Expired (7,879 ) 23.58 (81,851 ) 13.54
Exercised (4,936 ) 1.76 (40,722 ) 8.38
Outstanding at December 31, 2014 448,601 $ 7.51 500,722 $ 7.95
Issued 66,926 3.14 126,310 13.49
Expired (7,136 ) 13.55 (1,567) 14.04
Exercised - - - -
Outstanding at June 30, 2015 508,391 $ 6.96 625,465 $ 9.06 At June 30, 2015 , 501,723 stock options are fully vested and currently exercisable with a weighted average exercise price of $ 6.31 and a weighted average remaining term of 6.43 years. All warrants are fully vested and exercisable. Stock-based compensation recognized for the six months ending June 2015 and June 2014 was $ 302,981 and $ 352,762 , respectively. The Company has $ 72,354 of unrecognized compensation expense related to non-vested stock options that are expected to be recognized over a weighted average period of approximately 9 months. The following summarizes the status of options and warrants outstanding at June 30, 2015 :
Range of Prices
Shares
Weighted
Options
$ 0.75 7,333 6.02
$ 3.10 59,681 10.00
$ 3.45 7,245 9.76
$ 4.875 134 7.70
$ 5.25 2,031 7.19
$ 5.625 192,000 7.71
$ 5.925 23,206 7.72
$ 6.00 123,998 7.13
$ 6.50 3,845 9.51
$ 6.60 5,332 6.57
$ 8.25 3,636 9.26
$ 9.9375 3,019 8.04
$ 10.50 3,238 8.04
$ 11.25 13,666 7.60
$ 12.75 3,401 8.29
$ 13.875 2,160 8.76
$ 15.00 3,334 8.72
$ 17.25 40,261 8.69
$ 18.75 3,334 8.65
$ 20.25 4,940 8.51
$ 21.75 1,336 8.28
$ 23.85 1,260 8.26
Total 508,391
Warrants
$ 0.75 400 0.44
$ 6.00 102,857 2.71
$ 9.00 2,666 2.58
$ 9.75 155,545 4.10
$ 11.25 203,801 2.52
$ 12.375 71,257 4.11
$ 12.38 5,557 4.36
$ 13.50 4,444 2.97
$ 14.85 23,612 2.92
$ 20.25 1,481 3.63
$ 24.375 53,845 3.60
Total 625,465 Stock options and warrants expire on various dates from December 2015 to June 2025 . The shareholders approved an increase in authorized shares to 1,066,067 2,666,667 The shareholders approved an increase in authorized shares to 4,000,000 The shareholders approved an amendment of the Company's 2012 Stock Incentive Plan to increase the reserve of shares authorized for issuance to 666,667 266,667 An increase from 4,000,000 10,666,667 1,333,334 On July 24, 2015, an amendment to the Certificate of Incorporation became effective, pursuant to which the authorized common stock was increased to 100,000,000 20,000,000 Stock Options and Warrants Granted by the Company The following table is the listing of stock options and warrants as of June 30, 2015 by year of grant:
Stock Options:
Year
Shares
Price
2011 11,666 $ 0.75
2012 126,029 5.25 6.00
2013 238,088 4.875 23.85
2014 65,681 6.50 18.75
2015 66,926 3.10 3.45
Total 508,391 $ .75 25.613
Warrants:
Year
Shares
Price
2010 400 0.75
2011 - -
2012 69,801 11.25
2013 267,579 6.00 14.85
2014 161,375 12.375 24.375
2015 126,310 $ 9.75 24.375
Total 625,465 $ 0.75 24.375 | NOTE 3 – STOCKHOLDERS' DEFICIT, STOCK OPTIONS AND WARRANTS The Company has an equity incentive plan, which allows issuance of incentive and non-qualified stock options to employees, directors and consultants of the Company, where permitted under the plan. The exercise price for each stock option is determined by the Board of Directors. Vesting requirements are determined by the Board of Directors when granted and currently range from immediate to three years. Options under this plan have terms ranging from three to ten On February 4, 2014, (the “Closing Date”) we raised $ 2,055,000 0.01 21,334 24.38 61,539 The Securities Purchase Agreement requires the Company to register the resale of the shares of Common Stock underlying the Preferred Shares (the “Underlying Shares”) and the Common Stock underlying the Warrants (the “Warrant Shares”). On September 9, 2014, a resale registration statement covering the Underlying Shares, the Warrant Shares and certain other securities (the “Resale Registration Statement”) was declared effective. The Preferred Shares are convertible at the option of the holder into the number of shares of Common Stock determined by dividing the stated value of the Preferred Shares being converted by the conversion price of $ 19.50 9.75 4.99 an amount equal to $2,055,000 times 1.2, plus all declared but unpaid dividends. In July 2014, in connection with the offering of convertible notes and warrants and in connection with the waiver of certain rights, the Company agreed to issue additional shares of Common Stock to the Preferred Stockholders (the “Additional Shares”) (A) automatically upon the closing of a Qualified Public Offering (as defined in the Certificate of Designation), to the extent that (i) the Qualified Public Offering closes within six (6) months of the first closing of the convertible notes offering (“Qualified Public Offering Deadline”) and (ii) 70% of the public offering price per share of the Common Stock in the Qualified Public Offering (the “QPO Discount Price”) is less than the Conversion Price floor contained in Section 7(e)(i) of the Certificate of Designation (the “Conversion Price Floor”), or (B) if a Qualified Public Offering has not been consummated by the Qualified Public Offering Deadline, upon the Preferred Stockholders' conversion of their shares of Preferred Stock to the extent that 70% of the volume weighted average price of the Common Stock on the principal Trading Market (as defined in the Certificate of Designation) of the Common Stock during the ten Trading Days (as defined in the Certificate of Designation) immediately preceding the Qualified Public Offering Deadline (the “Non-QPO Discount Price”) is less than the Conversion Price Floor. The Warrants are exercisable on any day on or after the date of issuance, have an exercise price of $24.38 per share, subject to adjustment, and a term of five years from the date they are first exercisable. However, a holder will be prohibited from exercising a Warrant if, as a result of such exercise, the holder, together with its affiliates, would exceed the Beneficial Ownership Limitation as described above for the Preferred Shares. If any Warrant has not been fully exercised prior to the first anniversary of the Closing and if during such period the Company has not installed or received firm purchase orders (accepted by the Company) for at least 500 STREAMWAY ® Automated Surgical Fluid Disposal Systems, then, the number of shares of Common Stock for which such Warrant may be exercised shall be increased 2.5 times. In addition, in July, August and September 2014, the Company issued 71,257 Accounting for share-based payment The Company has adopted ASC 718- Compensation-Stock Compensation ASC 718 requires companies to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model or other acceptable means. The Company uses the Black-Scholes option valuation model which requires the input of significant assumptions including an estimate of the average period of time employees will retain vested stock options before exercising them, the estimated volatility of the Company's common stock price over the expected term, the number of options that will ultimately be forfeited before completing vesting requirements, the expected dividend rate and the risk-free interest rate. Changes in the assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the related expense recognized. The assumptions the Company uses in calculating the fair value of stock-based payment awards represent the Company's best estimates, which involve inherent uncertainties and the application of management's judgment. As a result, if factors change and the Company uses different assumptions, the Company's equity-based compensation expense could be materially different in the future. Since the Company's common stock has no significant public trading history, and the Company has experienced no significant option exercises in its history, the Company is required to take an alternative approach to estimating future volatility and estimated life and the future results could vary significantly from the Company's estimates. The Company compiled historical volatilities over a period of 2 to 7 years of 15 small-cap medical companies traded on major exchanges and 10 mid-range medical companies on the OTC Bulletin Board and combined the results using a weighted average approach. When an option or warrant is granted in place of cash compensation for services, the Company deems the value of the service rendered to be the value of the option or warrant. In most cases, however, an option or warrant is granted in addition to other forms of compensation and its separate value is difficult to determine without utilizing an option pricing model. For that reason the Company also uses the Black-Scholes option-pricing model to value options and warrants granted to non-employees, which requires the input of significant assumptions including an estimate of the average period the investors or consultants will retain vested stock options and warrants before exercising them, the estimated volatility of the Company's common stock price over the expected term, the number of options and warrants that will ultimately be forfeited before completing vesting requirements, the expected dividend rate and the risk-free interest rate. Changes in the assumptions can materially affect the estimate of fair value of stock-based consulting and/or compensation and, consequently, the related expense recognized. Since the Company has limited trading history in its stock and no first-hand experience with how its investors and consultants have acted in similar circumstances, the assumptions the Company uses in calculating the fair value of stock-based payment awards represent its best estimates, which involve inherent uncertainties and the application of management's judgment. As a result, if factors change and the Company uses different assumptions, the Company's equity-based consulting and interest expense could be materially different in the future. Valuation and accounting for options and warrants The Company determines the grant date fair value of options and warrants using a Black-Scholes option valuation model based upon assumptions regarding risk-free interest rate, expected dividend rate, volatility and estimated term. In January 2013, in connection with a private placement offering we issued 8 300,000 33,333 9.00 33,333 11.25 77,644 2,667 9.00 In January and March 2013, in connection with a separate and new private placement offering we issued 95,238 95,238 11.25 500,000 On March 15, 2013 the Company completed the private sale of 95,239 shares of the Company's common stock, par value $ .01 5.25 500,000 95,239 6.00 47,619 11.25 In April 2013, the Company issued 2,667 .01 4,444 0.75 In May 2013, the Company converted four (4) notes totaling $ 156,243 11,169 14,881 .01 7.50 4,762 In May and June 2013 in connection with a private placement offering we issued 8 1,000,000 80,000 13.50 five 61,481 14.85 275,640 5,926 13.50 In August and September 2013 the Company entered into agreements with holders of certain of its outstanding warrants to purchase the Company's common stock to amend the exercise price of the warrant to $ 7.50 11.25 34.50 1,044,490 139,265 87,117 In October 2013 the Company entered into agreements with a holder of certain of its outstanding warrants to purchase the Company's common stock to amend the exercise price of the warrant to $ 9.38 18.75 125,000 13,333 For grants of stock options and warrants in 2013 the Company used a 0.78 2.04 0 59 66 1.43 18.34 In January 2014 the Company issued 4,336 1.25 In January through March 2014, 9 warrant holders exercised warrants through a cashless exercise for a total of 15,442 In January and February 2014 the Company issued warrants to purchase 21,538 20,550 2,055,000 24.38 In February 2014 the Company issued a warrant to purchase 1,482 On March 31, 2014, the Company issued dividends to the Purchasers of the Preferred Shares as described above. The dividends are at an annual rate of 6 19.50 970 In March 2014, the Company issued 4,444 11.25 3,333 In June 2014, the Company issued 3,725 On June 30, 2014, the Company issued dividends to the Purchasers of the Preferred Shares as described above. The dividends are at an annual rate of 6 19.50 1,561 On June 30, 2014, the Company issued a warrant to purchase 5,431 12.38 11 4,831 12.38 In July 2014, the Company issued warrants to purchase 28,986 12.38 11 In August 2014, the Company issued warrants to purchase 61,539 24.38 In August and September 2014, the Company issued warrants to purchase 37,440 12.38 11 On September 30, 2014, the Company issued dividends to the Purchasers of the Preferred Shares as described above. The dividends are at an annual rate of 6 19.50 1,561 In November 2014, the Company issued 13,700 0.01 On December 31, 2014, the Company issued dividends to the Purchasers of the Preferred Shares as described above. The dividends are at an annual rate of 6 1,559 For grants of stock options and warrants in 2014 the Company used a 1.44 2.75 0 59 66 5 10 3.2006 13.9195 The following summarizes transactions for stock options and warrants for the periods indicated:
Stock Options
Warrants
Average
Average
Number of
Exercise
Number of
Exercise
Shares
Price
Shares
Price
Outstanding at December 31, 2012 168,856 $ 6.75 468,431 $ 9.75
Issued 239,816 6.75 343,196 9.00
Expired (15,467 ) 18.00 (111,025 ) 13.50
Exercised (7,472 ) 0.75 (238,682 ) 8.25
Outstanding at December 31, 2013 385,733 $ 6.75 461,920 $ 10.50
Issued 75,683 8.12 161,375 3.81
Expired (7,879 ) 23.58 (81,851 ) 13.54
Exercised (4,936 ) 1.76 (40,722 ) 8.38
Outstanding at December 31, 2014 448,601 $ 7.51 500,722 $ 7.95 At December 31, 2014, 429,930 7.19 7.94 723,367 3,700,070 198,220 16 The following summarizes the status of options and warrants outstanding at December 31, 2014:
Range of Exercise Prices
Shares
Weighted Average Remaining Life
Options:
$ 0.75 7,333 6.52
$ 4.875 134 8.20
$ 5.25 2,031 7.62
$ 5.625 192,000 8.21
$ 5.925 23,206 8.22
$ 6.00 123,998 7.63
$ 6.50 3,845 10.00
$ 6.60 5,332 7.07
$ 8.25 3,636 9.76
$ 9.9375 3,019 8.54
$ 10.50 3,238 8.54
$ 11.25 13,666 8.08
$ 12.75 10,069 9.29
$ 13.875 2,160 9.25
$ 15.00 3,334 9.22
$ 17.25 40,261 9.19
$ 18.75 3,335 9.15
$ 20.25 4,940 9.01
$ 21.75 1,336 8.77
$ 23.85 1,260 8.75
$ 24.75 334 8.73
$ 25.6125 134 8.49
Total 448,601
Warrants:
$ 0.75 400 0.94
$ 6.00 102,857 3.20
$ 9.00 2,666 3.07
$ 11.25 204,200 3.02
$ 12.375 71,257 4.61
$ 12.38 5,557 4.85
$ 13.50 4,444 3.47
$ 14.85 23,612 3.41
$ 15.00 1,168 0.09
$ 20.25 1,481 4.13
$ 24.375 83,080 4.46
Total 500,722 Stock options and warrants expire on various dates from January 2015 to December 2024. The shareholders approved an increase in authorized shares to 1,066,067 2,666,667 The shareholders approved an increase in authorized shares to 4,000,000 The shareholders approved an amendment of the Company's 2012 Stock Incentive Plan to increase the reserve of shares authorized for issuance to 666,667 266,667 An increase from 4,000,000 10,666,667 1,333,334 Stock Options and Warrants Granted by the Company The following table is the listing of stock options and warrants as of December 31, 2014 by year of grant:
Stock Options:
Year
Shares
Price
2011 11,666 $ .75
2012 126,029 5.25 6.00
2013 238,556 4.875 25.613
2014 72,350 6.50 18.75
Total 448,601 $ .75 25.613
Warrants:
Year
Shares
Price
2010 400 .75
2012 71,368 11.25 15.00
2013 267,579 6.00 14.85
2014 161,375 $ 12.375 24.375
Total 500,722 $ .75 24.375 |
