| Note 4 - COMMITMENTS AND CONTINGENCIES | Employment Agreements Eric Clemons On June 15, 2013, the Company entered into
an employment agreement with Eric Clemons. Terms of the agreement included the following:
· An annual salary of One Hundred Fifty-Six Thousand Dollars ($156,000), which has been paid or settled in stock in full.
· Bonus of $40,000 upon the delivery to the Company of a prototype medical device from Sonos Models Inc., which has been paid in full.
· Cash bonus should he be responsible for the Company consolidating with or merge into another corporation or convey all or substantially all of its assets to another corporation, will receive a cash bonus calculated using a Lehman formula of 5% for the first $1,000,000, 4% for the second $1,000,000, 3% for the third $1,000,000, 2% for the fourth $1,000,000, and 1% thereafter. To date, this incentive has not earned or been paid.
· Option to acquire up to 100,000 shares of our common stock at an exercise price of $5.00 per share subject to a vesting schedule. Fair Market Value of these options totaled approximately $822,000, and is recognized ratably over the vesting period in selling, general and administrative expense. The options were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 100%; risk-free interest rate of 1.04%; expected term of 5 years; and 0% dividend yield. As of March 31, 2017, 80,000 options to purchase the Companys common stock have vested. The Company recognized selling, general and administrative expense of approximately $41,000 for the three-month periods ended March 31, 2017 and 2016, respectively, and approximately $123,000 for the nine-month periods ended March 31, 2017 and 2016, respectively. The compensation expected to be recognized in selling, general and administrative expense in future years is approximately $41,000. On October 1, 2014,
the Company entered into an addendum to the employment agreement. The addendum had no accounting impact on the prior agreement.
Terms of the addendum include included the following:
· Extension of employment until June 15, 2017.
· Annual salary of One Hundred Ninety-Five Thousand Dollars ($195,000).
· Option to acquire up to 100,000 shares of our common stock under the Companys 2014 Omnibus Stock Grant and Option Plan at an exercise price of $1.20 per share subject to a vesting schedule. Fair Market Value of these options totaled approximately $112,000, and is recognized ratably over the vesting period in selling, general and administrative expense. The options were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 262%; risk-free interest rate of 1.69%; expected term of 5 years; and 0% dividend yield. As of March 31, 2017, 60,000 options to purchase the Companys common stock have vested. The Company recognized selling, general and administrative expense of approximately $5,500 and $4,500 for the three-month periods ended March 31, 2017 and 2016, respectively, and approximately $16,000 and $13,000 for the nine-month periods ended March 31, 2017 and 2016, respectively. The compensation expected to be recognized in selling, general and administrative expense in future years is approximately $32,000. On March 1, 2015, the Company entered into
an addendum to the employment agreement. The addendum had no accounting impact on the prior agreements. Terms of the addendum included
a cash placement bonus equal to an amount up to 10% of the aggregate purchase price paid by each purchaser of the Companys
Securities and Convertible Debt, where the purchaser of said Securities and Convertible Debt has been directly introduced to the
Company by Mr. Clemons. For the three-month periods ended March 31, 2017 and 2016, a cash placement bonus was earned of approximately
$0 and $20,000, respectively, and for the nine-month periods ended March 31, 2017 and 2016, a cash placement bonus was earned of
approximately $27,500 and $20,000, respectively, which was recognized as a reduction of the proceeds from the sale of shares of
common stock and debt issuances and recorded as an expense. On September 29, 2016, the Company issued Mr.
Clemons an option to acquire up to 105,000 shares of our common stock under the Companys 2014 Omnibus Stock Grant and Option
Plan at an exercise price of $0.75 per share subject to a vesting schedule. Fair Market Value of these options totaled approximately
$78,000, and is recognized ratably over the vesting period in selling, general and administrative expense. The options were valued
using the Black-Scholes value option pricing model with the following inputs: volatility of 206%; risk-free interest rate of 1.13%;
expected term of 6 years; and 0% dividend yield. As of March 31, 2017, 21,000 options to purchase the Companys common stock
have vested. The Company recognized selling, general and administrative expense of approximately $4,000 and $0 for the three-month
periods ended March 31, 2017 and 2016, respectively, and approximately $27,000 and $0 for the nine-month periods ended March 31,
2017 and 2016, respectively. The compensation expected to be recognized in selling, general and administrative expense in future
years is approximately $51,000. Wesley Tate On June 15, 2013, the Company entered into
an employment agreement with Wesley Tate. Terms of the agreement included the following:
· Annual salary of One Hundred Five Thousand Dollars ($105,000), which has been paid or settled in stock in full.
· Bonus of $20,000 upon the delivery to the Company of a prototype medical device form Sonos Models, Inc., which has been paid in full.
· Option to acquire up to 50,000 shares of our common stock at an exercise price of $5.00 per share subject to a vesting schedule. Fair Market Value of these options totaled approximately $411,000, and is recognized ratably over the vesting period in selling, general and administrative expense. The options were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 100%; risk-free interest rate of 1.04%; expected term of 5 years; and 0% dividend yield. As of March 31, 2017, 40,000 options to purchase the Companys common stock have vested. The Company recognized selling, general and administrative expense of approximately $21,000 for the three-month periods ended March 31, 2017 and 2016, respectively, and approximately $62,000 for the nine-month periods ended March 31, 2017 and 2016, respectively. The compensation expected to be recognized in selling, general and administrative expense in future years is approximately $21,000. On April 1, 2014, the Company entered into
an addendum to this agreement. The addendum had no accounting impact on the prior agreement. Terms of the addendum included 25,000
of the Companys common restricted shares representing a retention bonus as an incentive for him to remain in the employment
of the Company for 12 months. The Company recognized a prepaid expense of approximately $37,500, which has been fully amortized
to selling, general and administrative. On October 1, 2014, the Company entered into
an addendum to the employment agreement. The addendum had no accounting impact on the prior agreements. Terms of the agreement
included the following:
· Extension of employment until June 15, 2017.
· Annual salary of One Hundred Fifty-Six Thousand Dollars ($156,000)
· Option to acquire up to 50,000 shares of our common stock under the Companys 2014 Omnibus Stock Grant and Option Plan at an exercise price of $1.20 per share subject to a vesting schedule. Fair Market Value of these options totaled approximately $56,000, and is recognized ratably over the vesting period in selling, general and administrative expense. The options were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 262%; risk-free interest rate of 1.69%; expected term of 5 years; and 0% dividend yield. As of March 31, 2017, 30,000 options to purchase the Companys common stock have vested. The Company recognized selling, general and administrative expense of approximately $2,700 and $2,300 for the three-month periods ended March 31, 2017 and 2016, respectively, and approximately $8,000 and $7,000 for the nine-month periods ended March 31, 2017 and 2016, respectively. The compensation expected to be recognized in future years is approximately $16,000. On October 1, 2015, the Company entered into
a new employment agreement. The new contract had no accounting impact on the prior agreements. Terms of the agreement included
the following:
· Extension of employment until October 2018.
· Annual salary of One Hundred Fifty-Six Thousand Dollars ($156,000)
· Stock grant of 150,000 of the Companys common restricted shares for services provided to the Company. The Company recognized selling, general and administrative expense of approximately $40,000 for the year ended June 2016. On September 29, 2016, the Company issued Mr.
Tate an option to acquire up to 105,000 shares of our common stock under the Companys 2014 Omnibus Stock Grant and Option
Plan at an exercise price of $0.75 per share subject to a vesting schedule. Fair Market Value of these options totaled approximately
$78,000, and is recognized ratably over the vesting period in selling, general and administrative expense. The options were valued
using the Black-Scholes value option pricing model with the following inputs: volatility of 206%; risk-free interest rate of 1.13%;
expected term of 6 years; and 0% dividend yield. As of March 31, 2017, 21,000 options to purchase the Companys common stock
have vested. The Company recognized selling, general and administrative expense of approximately $4,000 and $0 for the three-month
periods ended March 31, 2017 and 2016, respectively, and approximately $27,000 and $0 for the nine-month periods ended March 31,
2017 and 2016, respectively. The compensation expected to be recognized in selling, general and administrative expense in future
years is approximately $51,000. Commitments In September 2012, the Company entered into
an agreement with Sonos Models, Inc. (Sonos) to build up to three medical device prototypes to be used for testing.
In April 2014, the Company entered into an addendum to the agreement with Sonos, which included a commitment by the Company to
pay Sonos up to One Million Dollars ($1,000,000) cash, excluding stock based compensation, for research and development costs.
These costs will be recognized in research and development expense as costs are incurred. To date, Sonos has been issued 325,000
restricted shares of the Companys stock, 20,000 warrants to purchase the Companys stock and the Company has paid
approximately $220,000, of which $65,000 has been incurred towards the Companys monetary commitment. Consulting Agreements Between December 2013 and March 2017, the Company
entered into service and consulting agreements with various vendors to provide assistance to the Company in several areas including
the marketing of its biomedical products upon the availability of the device, capital markets and marketing strategies, research
and development, advertising services and assistance in the introduction of the Company to medical device testing organization
and to facilitate access to doctors in numerous countries, including Poland, Uzbekistan and China. They were compensated an approximate
aggregate 1,760,000 shares of the Companys fully vested and non-forfeitable common stock. These contracts are for twelve
to thirty-six months and may be renewed or extended for any period as may be agreed by the parties. As of March 31, 2017, the Company
has extended some of the contracts for additional periods. Any of the parties may terminate their respective agreement by providing
thirty (30) days written notice of such termination. The Company has recognized $30,000 in accounts payable which is in arrears
with one contractual obligation and is in discussions with the consultant to renegotiate the terms of the contract. As these contracts
are for a period of up to twelve months to thirty-six months, the Company recorded the original approximate $2,650,000 as the value
of the shares issued to prepaid expense and is amortizing the expense associated with these issuances over a twelve to thirty-six-month
period. For the three-month periods ended March 31, 2017 and 2016, the Company amortized from prepaid expenses to selling, general
and administrative expenses approximately $192,000 and $34,000, respectively, and approximately $472,000 and $128,000 for the nine-month
periods ended March 31, 2017 and 2016. The unamortized prepaid expenses of these contracts are approximately $215,000 and included
in prepaid expenses on the condensed consolidated balance sheets at March 31, 2017. In January 2016, the Company entered into a
consulting agreement with an individual to provide business consulting services for a period of thirty-six months. Compensation
was issuance of 75,000 shares of the Companys stock (See note 7) and fully vested and non-forfeitable options to acquire
up to 300,000 shares of our common stock, at an exercise price of $0.33 per share. Fair Market Value of these options totaled approximately
$83,500, and is to be recognized ratably over the service period in selling, general and administrative expense. The options were
valued using the Black-Scholes value option pricing model with the following inputs: volatility of 210%; risk-free interest rate
of 1.07%; expected term of 3 years; and 0% dividend yield. For the three-month periods ended March 31, 2017 and 2016, the Company
amortized from prepaid expenses to selling, general and administrative expenses approximately $7,000 and $0, respectively, and
approximately $21,000 and $0 for the nine-month periods ended March 31, 2017 and 2016, respectively. The unamortized prepaid expense
of this contract is approximately $56,000 and included in prepaid expenses on the consolidated balance sheets at March 31, 2017. In October 2016, the Company entered into a
consulting agreement with an individual to provide business consulting services for a period of twelve months. Compensation was
issuance of 300,000 shares of the Companys stock (See note 7) and fully vested and non-forfeitable warrants to acquire up
to 300,000 shares of our common stock, at an exercise price of $0.40 per share. Fair Market Value of these warrants totaled approximately
$171,000, and is to be recognized ratably over the service period in selling, general and administrative expense. The warrants
were valued using the Black-Scholes value option pricing model with the following inputs: volatility of 205%; risk-free interest
rate of 0.63%; expected term of 1 year(s); and 0% dividend yield. For the three-month periods ended March 31, 2017 and 2016, the
Company amortized from prepaid expenses to selling, general and administrative expenses approximately $43,000 and $0, respectively,
and approximately $85,000 and $0 for the nine-month periods ended March 31, 2017 and 2016, respectively. The unamortized prepaid
expense of this contract is approximately $85,000 and included in prepaid expenses on the consolidated balance sheets at March
31, 2017. As of March 31, 2017, future maturities of
prepaid expenses on value of shares issued for consulting are as follows:
Fiscal year ended June 30,
2017 $ 170,877
2018 160,284
2019 25,235
Total $ 356,396 Legal On July 21, 2016, the Company was sued in the
United States District Court for the Eastern District of Pennsylvania ( Miriam Weber Miller v. Cerebain Biotech Corp. and
Eric Clemons
1) The Company could pay Ms. Miller the total gross amount of one hundred twenty thousand dollars ($120,000) as follows:
a) One payment of twenty thousand dollars ($20,000) within thirty (30) days after March 29, 2017; and
b) Beginning within ninety (90) days after March 29, 2017, the Company would make monthly payments of fifteen thousand dollars ($15,000) to Ms. Millers representative until such time that Ms. Miller and her representative has received the gross amount of $120,000, OR
2) The Company could pay Ms. Miller the total gross amount of one hundred thousand dollars ($100,000) as follows:
a) One payment of twenty thousand dollars ($20,000) within thirty (30) days after March 29, 2017.
b) One payment of eighty thousand dollars ($80,000) within sixty (60) days after March 29, 2017, OR
3) The Company could pay Ms. Miller the total gross amount of one hundred ten thousand dollars ($110,000) as follows:
a) One payment of twenty thousand dollars ($20,000) within thirty (30) days after March 29, 2017.
b) One payment of fifteen thousand dollars ($15,000) within sixty (60) days after March 29, 2017.
c) One payment of seventy-five thousand dollars ($75,000) within ninety (90) days after March 29, 2017. Upon all payments being made pursuant to the
terms set forth in the agreement, Ms. Miller has agreed to knowingly and voluntarily release and discharge the Company of and from
all claims, demands, liabilities, obligations, promises, controversies, compensation, wages, bonuses, commissions, damages, rights,
actions and causes of action known and unknown, at law or in equity, which Ms. Miller has or may have against the Company as of
the date of execution of the settlement agreement. The Company
has recognized an accrual in Accounts Payable for payment of the agreed upon settlement, but no accrual has been made for additional
legal contingencies in the consolidated financial statements as of March 31, 2017. In April 2017, the Company paid Ms. Miller
twenty thousand dollars ($20,000) as agreed in the settlement agreement. |
